As Nanogen nears consummation of its merger with Epoch Biosciences, the firm said this past week that it would soon launch the NanoChip 400, a new microarray-based molecular diagnostics platform.
The new platform, which will launch in January or February 2005, will initially be targeted at the research market, followed a few months later by a push into the clinical diagnostics market, Nanogen Chairman and CEO Howard Birndorf told BioArray News. The San Diego-based firm has had a difficult time penetrating the clinical diagnostics market and believes that the launch of the NanoChip 400, combined with the acquisition of Epoch Biosciences — expected to close by the end of the year — will provide it with the ability to make greater inroads.
Nanogen announced in September an agreement to buy Epoch in an all-stock transaction worth an estimated $60 million. (see BAN 9/15/2004) Epoch sells the MGB Eclipse Probe System, which includes recently launched analyte-specific detection reagents. Its system complements Nanogen’s NanoChip molecular biology workstation, and both products are used for analyzing gene expression in vitro, detecting SNPs and mutations, and identifying infectious organisms.
The firm has no plans to phase out the original NanoChip molecular biology workstation, because the NanoChip 400 is geared toward a different market. “It’s not ultra high-throughput. It’s going to be perfect for medium- to high-throughput labs that today don’t do molecular diagnostics and want to get into it,” Birndorf told BioArray News.
The new instrument is a 400-site array. But, Birndorf noted, “you can use 50 sites, put it away, and come back the next day or next week and use more. It’s not like all the arrays I’m aware of now, where you if you use one array, you use them all.”
“It’s not a replacement [for the molecular biology workstation],” he added. “The molecular biology workstation was never built with the clinical lab in mind. [Although] it’s being used in clinical labs, it was built for the research market. This machine was built with the clinical research/diagnostic lab in mind.”
Birndorf noted that the new system is much smaller and cheaper. He couldn’t provide a price for the new platform, but said that it would be roughly half the price of the molecular biology workstation.
The NanoChip 400 includes software that “was written with the clinical laboratory and research customers in mind,” Birndorf said. It was developed in collaboration with Hitachi and is an open system. “You can do home brews, and you can develop your own assays,” Birndorf said. “If we don’t sell the product in an assay format, you can buy the reagents from us, and you can buy the chips from us.”
The first product to run on the new system will be a panel for seven upper respiratory viruses. “There are no examples of that kind of product on the market today,” Birndorf noted. “We think that over time, there are going to be more panels in molecular diagnostics — panels for infectious diseases, panels for cancer and whatnot.”
Birndorf believes that the system eventually will follow the path of earlier-generation clinical chemistry and immunoassay diagnostic products — moving from big esoteric testing labs down to smaller labs in hospitals and perhaps even the doctor’s office. For now, the system will compete with Roche’s LightCycler, instruments made by Third Wave and Luminex, and sequencers, although the NanoChip 400 will be less expensive than using sequencers, Birndorf said.
“We see it taking some time to make inroads [into the clinical lab market],” Birndorf said. “We’re not going to sell a hundred of these in the first month. [But] we think we now have a competitive product.”
He also pointed to Epoch’s family of real-time reagents as crucial to the firm’s success in penetrating the clinical lab market. Nanogen’s difficulties in this area primarily stemmed from performance issues related to its cystic fibrosis ASR.
“We built a very complicated CF assay for our old machine,” Birndorf explained. The assay, which the firm believes is a major market opportunity in genetic testing, “was not designed for the clinical lab, and we had problems with it, and that’s why we were not gaining the inroads we expected to. We are redesigning that assay for the new machine, and it will come out later next year.”
Birndorf estimated the genetics testing market at $200 million to $300 million annually and the infectious diseases testing market at roughly $400 million.
Meanwhile, the shareholders of Epoch and Nanogen are scheduled to vote on the proposed merger on Dec. 8. Birndorf said that if the shareholders approve the deal — and he said he has no reason to expect that they won’t — the merger could close on Dec. 9.
Under the terms of the agreement, Nanogen has agreed to an offer price of $2 per Epoch share, which is a 30 percent premium over the average closing price of Epoch’s shares for the 20 trading days ended Sept. 1. Epoch shareholders will receive a number of Nanogen shares based on an exchange ratio determined by dividing the offer price by Nanogen’s issue price as calculated at closing. The firms agreed that the exchange ratio will not be less than 0.4673 nor exceed 0.6329 of one Nanogen share.
Epoch has roughly 29 million shares and shares equivalent outstanding. The Bothell, Wash.-based firm last week reported third-quarter revenue of $2.4 million, up from $2 million for the comparable quarter last year.
Nanogen will report its third-quarter financial results after the close of the stock market on Nov. 3. The firm is looking to improve upon second-quarter revenue of $1.1 million, down from $1.7 million in the comparable period of 2003, and third-quarter 2003 revenue of $1.7 million.