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Nanogen Snags Another Diagnostics Exec Despite Low Revenues, Widening Losses

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Eight years into its existence, Nanogen still pulled in only $2.2 million in product revenues for 2001. And yet Ira Marks, a diagnostics veteran who joined the company as director of business development in January, said he did so because of the company’s potential.

“I’ve been in diagnostics now for 20 years, and it’s clear to me that a huge amount of diagnostic testing is going to be at the molecular level,” Marks said. “Whether it happens in one year or ten, I believe that getting in now and being involved in that upswing is going to have huge rewards for people involved in it.”

But why Nanogen? The San Diego company’s flagship product is a complicated instrument with a $160,000 pricetag, and its blank chips cost orders of magnitude more than ordinary diagnostic tests.

But Marks sees Nanogen’s system as a plus. “One of the unique things about Nanogen is that the platform is suited for very simple and very complex molecular diagnostic tests,” he said. “As new discoveries come out, there is the capability of putting [the tests] on our system.”

Marks comes to Nanogen after a stint as president of the Raichem division of Hemagen diagnostics, and before that, almost 14 years at Bio-Rad laboratories. This background makes Marks the second executive to cross over to Nanogen from the laboratory diagnostics field. CEO Randy White, who has been at Nanogen since May 2001, was vice president of technical operations at American Medical Laboratories before taking the job. White was regarded as a genomics neophyte by some — especially Nanogen watchers who noted with concern founder Michael Heller’s decision to phase out Nanogen and phase in an academic career.

But since White took the reins, the company has appeared singularly focused on the goal of lodging the NanoChip platform firmly in the diagnostics lab of the 21st century. The company has “internally validated” five protocols for screening of specific DNA-based conditions, including hereditary hemochromatosis, Factor II and V Leiden, a combination Factor II-Factor V test, and a test for the MTHFR mutation associated with thrombosis.

During the fourth quarter, Nanogen sold five NanoChip workstations and “placed” 16 others, bringing its installed base up to 61 workstations. These sales and placements fit the company’s strategy, as stated in its end-of-year financial guidance: “We are clearly focused on two simple and primary objectives: first, to continue to increase the installed base of our instruments; and second, to expand our menu by developing internally validated protocols and converting existing research protocols into analyte specific reagents which may allow Nanogen to increase its overall margins.“

Marks, though, recognizes that it’s not just a matter of placing instruments and validating protocols. “Nanogen needs to come out with ... approved diagnostic tests that can be placed in hospital reference labs,” he said.

Marks also said the company is discussing the price issue. Each NanoChip has 100 electronic hybridization sites, allowing up to 100 different tests to be run at once. The company is looking to increase the number of sites per chip to give users more bang for their buck, said Marks, and also bring down the cost of installing a platform. “We actually are addressing these issues [of price,] said Marks. “The company does not have its head in the sand.”

And even though Nanogen may not be anywhere close to breaking even — the company’s losses nearly doubled to $32.5 million from $18.3 million in 2000 — it does still have a good deal of capital to burn, with $67.5 million in cash and cash equivalents at the end of 2001. The company burned $20 million in assets during the year, including a one-time $6.3 million charge to settle a lawsuit with Motorola. At this rate, Nanogen has three more years to cross the chasm separating experimental devices and diagnostics tools before it runs out of cash.

The company made a new stab in this direction last week, partnering with clinical pharmacogenomics company Gentris to study drug-metabolizing enzymes and transporter markers. Nanogen is giving Gentris the NanoChip system, and Gentris is working to develop SNP assays related to these enzymes and markers. Under the agreement, Nanogen has the exclusive rights to commercialize any assays that are developed, in return for payments to Gentris for any assay that is approved by the US Food and Drug Administration, the companies said.

“The key is that Nanogen is now focused on coming out with more and more tests on its platform to maximize the platform,” said Marks. “This is a strategy that many companies in diagnostics have had for years.”

— MMJ

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