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Nanogen Plugs Ahead With NC400 Submissions, Revises Operations and Expenses to Cut Cost

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Nanogen last week posted a 63-percent rise in second quarter revenues, while increased R&D costs and expenses related to internal restructuring caused the firm’s net loss to slightly widen by 3 percent.
 
During the firm’s second-quarter earnings call, Nanogen officials provided an update on the status of several 510(k) submissions pending before the US Food and Drug Administration that are related to its NanoChip400 microarray platform. Nanogen also discussed several cost-cutting measures it has implemented to put the company squarely on the path to profitability.
 
According to Nanogen President and Chief Operation Officer David Ludvigson, the company submitted its cystic fibrosis carrier detection assay for 510(k) clearance during the first quarter of this year, but the test has prompted queries from the FDA.
 
Ludvigson said that submitting the CF assay to the FDA was a major objective for the firm this year. “We told you to expect that the NC400-related product submissions would be made to the FDA during 2007. We submitted the first of those with the cystic fibrosis test kit in late March,” he said. “We have received a series of follow-up questions from the FDA and we are making good progress in submitting our response to the FDA,” he said.
 
Nanogen spokesperson Suzanne Clancy this week declined to discuss the firm’s communications with the FDA. However she told BioArray News in an e-mail that Nanogen will stick to its schedule of submitting additional tests for clearance later this year. Nanogen already began investigational device exemption discussions with the regulatory body earlier this year regarding assays for warfarin resistance and factor V and factor II clotting mutation detection (see BAN 5/15/2007).
 
“Based on feedback from the FDA, we are making some modifications to our clinical trial designs, and the timing of formal submissions for these assays will be based on our continued conversations with the FDA,” Clancy wrote.
 
During Nanogen’s Q2 call, Ludvigson said that a version of its CF assay that was modified to contain additional SNPs associated with Middle Eastern populations has been “well-received” in Israel, where it was recently launched. While the test Nanogen submitted to the FDA contains a panel of 23 mutations associated with cystic fibrosis as outlined by the American College of Obstetricians and Gynecologists in a 2004 recommendation, the company’s Middle Eastern CF assay includes 14 mutations associated with carriers in that particular population.
 
Clancy wrote this week that Nanogen is considering selling the Middle Eastern CF panel in other markets in the region. “This product is being marketed in Israel and we are evaluating market opportunities in other Middle Eastern countries,” she wrote.
 
Cutting Costs via Consolidation
 
During the call, Nanogen officials also discussed some of the measures they are taking to reduce the firm’s expenses. Specifically, the company plans to combine its two point-of-care facilities in Toronto.
 
“This will allow us to operate from one facility instead of two and will reduce our annual operating cost by approximately $1.5 million,” said CEO Howard Birndorf. “We will continue to look for other expense-reducing opportunities.”
 
The company expects to incur a one-time $1.9 million non-cash charge for the consolidation.
 
Another cost-saving measure the firm will institute will be the removal of Jurilab, a Finnish genetic marker company, from Nanogen’s balance sheet as of August. For the second quarter of 2007, Jurilab added $1.7 million to Nanogen’s net loss. According to Chief Financial Officer Robert Saltmarsh, Nanogen’s stake in the company has declined due to investments from other companies, allowing the firm to drop Jurilab’s loss from its financial statements.
 
Nanogen invested approximately $3 million in Jurilab over 2005 and 2006 gaining a 30 percent stake in the company. Saltmarsh said in November 2005 that Nanogen had "options to purchase the entire company at not-to-exceed prices through 2007," but that it will "come to that decision after [Nanogen] better understands the potential of their marker database" (see BAN 11/9/2005).
 

“We have received a series of follow-up questions from the FDA and we are making good progress in submitting our response to the FDA.”

Last week, Saltmarsh said that because of a “recent investment in Jurilab by another company, as of August, we no longer expect to include Jurilab results in our balance sheet or in our statement of operations.” According to Saltmarsh, this change in accounting will reduce Nanogen’s operation expenses by at least $1.5 million per quarter.
 
“We have not funded Jurilab’s losses for over one year, but the inclusion of Jurilab’s results with ours has been confusing to investors as it had the appearance of additional debt in our financial statements,” Saltmarsh added.
 
Q2 in Full
 
Nanogen last week said that its second-quarter revenues increased 63 percent as R&D spending increased 15 percent and its net loss increased 3 percent.
 
Total receipts for the three months ended June 30 increased to $10.3 million from $6.3 million year over year. The company said product-related revenue rose 32 percent to $5.3 million from $4 million, and income from licensing and royalties increased 13 percent to $2.1 million from $1.8 million.
 
Revenue from contracts and grants rose more than six-fold to $3 million from $481,000. R&D spending rose to $7.5 million from $6.5 million year over year. The company said its net loss widened to $14.5 million from $14.1 million in the year-ago period.
  
Nanogen had around $7.3 million in cash and equivalents and $6.1 million in short-term investments as of June 30.
 
The company said it expects revenue to grow more than 50 percent for full-year 2007 compared with 2006, when it posted $26.9 million in revenue.

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