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Nanogen s Q2 Revenues Slump, CF Test Launch Is Delayed

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For electronic hybridization chip maker Nanogen, the second quarter was not exactly charged with excitement. The company reported total revenues of $2 million for the quarter, down from $2.7 million year over year, and announced that the much-awaited commercial launch of its analyte-specific reagent (ASR) test for cystic fibrosis had been delayed a quarter. As a result of this delay, Nanogen also revised its 2002 revenue forecast downward to $7-$10 million, from an initial projection of $10-$13 million.

Nevertheless, company executives put a positive spin on the events in last week's quarterly conference call.

"Last year we had no products. Today we have five home-brew protocols and two ASRs," said CEO Randy White. While he explained that the company's CF protocol had to be redesigned after initial tests, he assured investors that the product is now "working robustly," and would be released in September. White added that the market for CF tests "is increasing daily," and may exceed $100 million.

On the instrument side, Chairman Howard Birndorf noted that Nanogen sold eight of its NanoChip workstations, tripling its product revenue to $1.1 million from $302,000 in the second quarter of 2001.

Nanogen has in the past drawn criticism for its sales model, where it places the $100,000-$160,000 systems for free in different research labs, then works to convert its "development sites" to sales. This quarter, the company converted three of these sites to customers, and the fourth to a rental model - a fact that Birndorf said "validates our strategy for development site placements."

Birndorf also highlighted the company''s recent efforts to strengthen its management team with the addition of three people with "significant clinical diagnostic experience": David MacDonald and Joseph Turgeon, formerly of Quest Diagnostics; and Mary Holland, the worldwide manager of corporate accounts, from competitor Third Wave Technologies. But he said these additions did not come with additional costs. "We have consolidated our management position and are netting $1 million favorable" vs. 2001, he said.

The company''s total losses for the quarter decreased to $8.5 million from $11.8 million in the second quarter of 2001. At this burn rate, the company can last six more quarters, as it has $51.7 million in cash, cash equivalents, and short-term investments.

When asked whether Nanogen would seek additional financing, White responded, "In these markets now, I don't even think it's an option." Instead, company management has "put together an aggressive plan to reduce our spending without compromising our menu expectations," White said.

-MMJ

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