With last week’s placement of approximately $33.7 million in Nanogen stock, and its cash on hand, the San Diego-based company now estimates it has nearly five years of financial fuel available to commercialize its NanoChip electronic microarray platform.
Nanogen, which was founded in 1993 and went public in 1998, netted the funds with the sale of 4.25 million shares of common stock to institutional investors.
“This is great news for the company,” David Ludvigson, executive vice president for Nanogen, told BioArray News. “We set a goal a year ago to try and accelerate the development of our business. We have entered the clinical labs, we have raised significant amounts of additional equity, and we have added Syn X [pharma], and all of that within a year.”
Sage Capital Growth, listed as the agent for Mainfield Enterprises, a British West Indies-based investment firm, was among a group of three investors in the transaction and now holds approximately 6 percent of the company’s 27 million shares, according to documents filed with the US Securities and Exchange Commission. The other investors remain undisclosed. Citigroup remains one of the top institutional investors in Nanogen, holding some 3 million shares as of Dec. 31, 2003.
The sale of the stock, at $7.94 a share, was made at a discount of its $9.02 per share pricing on March 4. It came as the San Diego-based company enjoys a fling with nano-anything-smitten investors that has pushed its share price to $14.95 in January, a 52-week high for a stock that hovered just above $1 a share in March 2003.
The funding is equivalent to a year’s worth of capital for the company — based on its 2003 numbers. In its Q4 earnings report, Nanogen reported consolidated cash, cash equivalents, and short-term investments of $29.1 million on hand at the end of the fourth quarter of 2003, compared to $61 million at the end of the fourth quarter, 2002.
Ludvigson said, however, the company’s cash burn rate for the third and fourth quarters of 2003 ranged from $4 million to $4.5 million a quarter.
“We had approximately $30 million on the balance sheet [as of Dec. 31, 2003],” he said. “This [funding] gives us a current balance of a little over $60 million, and from our running rate, that is about 15 quarters. We have a comfortable cash reserve to continue to develop our business.”
Nanogen plans to use the net proceeds for working capital, including the pending $12.2 million all-stock Syn X Pharma acquisition, announced in February, and other general corporate purposes, the company said in a statement. Seven Hills Partners acted as the placement agent for the transaction and booked $2 million in fees on the deal.
The financing was pre-registered with the SEC, so the securities are not restricted and can be immediately resold by the investors into the public markets.
Topping the Tank
“This financing further strengthens our balance sheet and provides additional capital to accelerate our entry into the point-of-care diagnostics market, which began with our recent agreement to acquire Syn X Pharma,” Howard Birndorf, chairman and CEO of Nanogen, said in a statement. “The financing will also support our long-term strategy to commercialize advanced medical diagnostics and help pave the way for Nanogen to enter new, synergistic markets.”
The Syn X acquisition will require some $6 million to $8 million in cash to reach cash-flow break-even levels in 2005, Ludvigson said.
The transaction pushed the company’s book value to $66.6 million, or $2.33 a share, from $35.1 million, or $1.44 per share, based on 24 million shares outstanding. The transaction in effect diluted the institutional investors’ holdings by $5.61 a share, from the $7.94 they paid per share.
Nanogen in February reported a net loss of $5.9 million, or $0.25 per share, for its fourth quarter ending Dec. 31, 2003, compared to total revenues of $6.7 million, or $0.09 a share, in the year-ago quarter.
The San Diego-based company had revenues of $2.1 million in its fourth quarter, compared to $12.1 million for the same period in 2002, when the company recognized $10.8 million in licensing revenue in a settlement agreement with CombiMatrix.
The company spent $4.5 million on research and development in the fourth quarter, compared to $5.3 million for the same period in 2002.
For 2004, the company said it anticipates total revenue growth of 50 percent, compared to 2003.
The company noted the sale of eight of its NanoChip platforms in the fourth quarter, and one reagent rental for product revenues of $1.1 million for the quarter, compared to $510,000 for the same period in 2002. The company has an installed base of 100 systems.
For most of the last two years, Nanogen has pursued a commercial effort of “platformation,” a strategy of placing $150,000 NanoChip Molecular Biology Workstations, manufactured by Hitachi of Japan, at customer sites at minimal cost to customers. The company’s hope has been to garner revenue by selling cartridges, chemistries, and tests to these customers.
“Platformation is still an important message to the laboratory customer,” said Ludvigson. “The idea of consolidating tests on one platform is good. That is still part of our strategy. But I would say our strategy is shifting to be more driven by the market requirements, the physician and patient needs of an advanced diagnostics capacity.”
The NanoChip system is an open-architecture design that allows researchers to build test panels — or run Nanogen-developed analyte specific reagents.
The array works by applying an electric current to biotinylated DNA samples, hybridizing complementary DNA probes, and applying stringent wash conditions to remove unbound and non-specifically bound DNA after hybridization.