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Lynx Nearly Out of Cash, But Banking On its Rich Microbead Technology


Lynx Therapeutics has been scraping the bottom of the cash barrel lately.

The Hayward, Calif., microbead array company’s financial position was so precarious at the end of the third quarter 2001 that it didn’t even publicize its results. A 10-K filed quietly with the US Securities and Exchange Commission indicates that Lynx’s assets had dwindled to $6.8 million in cash and cash equivalents, and $4.2 million in short-term investments, as of the end of September. Given that the company had $15.8 million in cash and cash equivalents at the end of the second quarter, it burned $4.8 million in cash during the third quarter.

If Lynx continues to burn cash at this rate without raising additional funds, the company will completely run out of liquid assets in early April.

Adding to its financial burdens, Lynx has also just anted up in its joint venture with German chemical giant BASF, Axaron Biosciences, committing an additional €5 million ($4.5 million) to Axaron’s cash reserves.

At this critical time, Lynx’s marketing director William Wong, who led the company’s first serious effort to explain the benefits of its frustratingly complex technology, has resigned.

But in the midst of these crises, Lynx CEO Norrie Russell remains eerily optimistic.

“Our cash position will change positively through a number of mechanisms,” Russell confidently told BioArray News. “We could raise money, we could get more customers. We have a protein separation technology that when fully developed will substitute for gel electrophoresis.”


An All-Star Cast of Collaborators


Russell’s confidence is not entirely unfounded. The company has been on an upswing, increasing its revenues to nearly $5.8 million in the third quarter, up 70 percent from the $.3.4 million in the previous year’s quarter, and 31 percent more than the second quarter of 2001.

Over the past six months, Lynx has strung together a number of collaborations, the most recent being a partnership last week with Harvard’s Dana Farber Cancer institute to use Lynx’s Massively Parallel Signature Sequencing (MPSS) technology to study genes in CD4+ lymphocytes that are altered by HIV infection; and a project in November with the University of California, Davis to study gene expression in Arabidopsis.

Lynx has also assembled an impressive roster of commercial partners, including AstraZeneca (Russell’s former employer), Celera, Hoechst Schering AgrEvo, Aventis CropScience, prostate cancer biotech company UroGene, Norwegian fish genomics company GenoMar, plant genomics company Phytera, Hybrigenics, Genomics Collaborative, Oxagen, Singapore’s Institute of Molecular and Cell Biology, and Dupont. With DuPont, the company is starting the fourth year of a five-year deal that could earn the comp-any a total of $60 million, depending on the results.

Lynx has also provided its technology, in return for shared intellectual property, to a number of different academics.

“As part of our business strategy, we are entering into a number of carefully chosen collaborations from which the outcome will be intellectual property, and plan to commercialize that IP within the pharmaceutical industry,” Russell explained. “We’ve chosen the collaborators carefully.”


Winning Scientific Mindshare


With these collaborations, and with scientific luminaries Lee Hood and Nobel-prize winner Sidney Brenner serving as scientific advisors, the 10-year old company seems to be carving out a rich chunk of mindshare in the scientific community.

“I am astounded by the technology,” said Columbia University professor David Dempster, who is using Lynx’s technology to look at genes expressed in human osteoplasts. “I almost can’t wait to do the experiment we are currently planning.”

The MPSS technology in fact may be Lynx’s golden asset, the one that could possibly make venture investors or collaborators think the company is worth saving from the jaws of insolvency.

Instead of measuring relative expression levels as microarrays do, the microbead platform quantifies absolute expression levels. MPSS also allows users to identify genes present in a sample without prior knowledge of the sequence. And while microarrays cannot reliably detect low-level gene expression changes, Lynx data indicates that MPSS can detect differences in expression levels down to fewer than 100 transcripts per million.

“Ninety percent of all genes are expressed at less than 100 transcripts per million,” said Russell. “There’s a whole [lot] of biology down there that you don’t see with microarrays.”

MPSS consists of tags that attach to the ends of DNA fragments in the sample to be studied, and complementary antitags that are added to microbeads. The tagged fragments hybridize to the antitags, and the beads are directed into a flow cell, where the fragments are sequenced using Lynx’s sequencing instrument. The sequenced fragments are then counted to see how many of a certain transcript is present in each sample. (For more details, see box on p. 5.)

While several startups including Agilix and Eragen Biosciences have been developing “universal” microarray platforms with similar tag-antitag systems, Russell dismissed them, saying “their repertoire is very limited compared to ours.”

The system, which can also be used for SNP studies, sequencing, and proteomics, usually costs somewhere from $40,000 to $60,000. Currently, the company does most of the MPSS work in-house, where it has recently quadrupled its capacity. “Affymetrix in its early years provided its microarrays as a service,” said Russell.

But Lynx is not in its early years and it isn’t Affymetrix. To get onto solid ground, the company is going to have to find a way to convince pharma and biotech, as well as more investors, that its complicated technology is really worth the hassle.


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