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New CEO Prepares Nanogen to Challenge Motorola for Diagnostics Array Business

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With 28 years of experience in the medical lab business, Nanogen’s new CEO Randy White is steering the company firmly toward diagnostic applications of its biochip platform.

“We’ve been playing in the research field,” White said. “My job is to steer the company into molecular diagnostics and make the revenue cross the burn line.”

White, who took the helm at Nanogen just four weeks ago after a stint as vice president at American Medical Laboratories, said the company’s strategy is to sell its $160,000 NanoChip Molecular Biology Workstation to diagnostic labs across the world.

The company hopes to harvest the fruits of 13 ongoing research partnerships to create diagnostic assays for this workstation, which the company manufactures in partnership with Hitachi and which includes its NanoChip electric detection microarray as well as an array loader and reader for the array.

In this effort to shift focus, Nanogen has undergone major personnel changes.

Since White took the reins, Nanogen’s chief technical officer and co-founder Michael Heller — a microarray innovator who is listed on 16 of the company’s 27 patents — has resigned to take a professorship in bioengineering at the University of California San Diego. Although Heller will continue consulting for Nanogen, the underlying reason for this departure is that Nanogen is more interested in commercializing existing technologies than in continuing to design new ones. “Heller wanted to pursue cutting-edge technology that’s not appropriate in a commercial setting,” said White.

In addition to hiring White, Nanogen recently hired a chief financial officer, Gerald Wills. Wills replaced Kieran Gallahue, who had served as the both the company’s president and chief financial officer, so Gallahue could concentrate on his duties as company president.

The company has also beefed up its global sales and marketing staff to 40 people in order to move its technology into the marketplace.

The technology, which uses a matrix of 100 positively charged pads to immobilize strands of negatively charged DNA, allows researchers to individually control the hybridization sites. “They become electronic reaction cuvettes,” said White. Electronic hybridization occurs in a matter of seconds, compared to overnight for chemical hybridization, and users can prevent random hybridization by increasing the charge on the binding site.

Some microarray market analysts, however, have said Nanogen’s technology is too complex for rapid commercialization as a user-friendly diagnostic device.

But White said the platform is ideally suited for the diagnostics market because it enables users to investigate SNPs, short tandem repeats, insertions and deletions, and is customizable for different types of assays.

Currently Nanogen’s partners are developing NanoChip-based assays for cancer, infectious disease, cardiovascular disease-related SNPs, and hereditary hemachromatosis, among other conditions, White said. Under the terms of the collaborations, Nanogen has the rights to license the assay technology back from its partners to sell to other customers.

However, the company will face a series of regulatory hurdles before it can implement this technology as an insurance-reimbursable lab test.

To clear these hurdles, Nanogen is planning to first introduce its product as a “homebrew” reimbursable diagnostic test that it will help diagnostic labs design and validate under CLIA (Clinical Laboratory Improvement Amendments). By the end of the year, White said the company would have five of these homebrew tests installed, under agreements already negotiated.

The company next plans to offer a content-loaded chip to labs, and collect data on the use of both tests for later regulatory applications. Within two years, the company hopes to have secured premarket approval of a test.

Nanogen’s obvious competitor in the DNA diagnostics arena is Motorola Clinical Microsensors. In November 2000, Motorola introduced its eSensor platform, a benchtop electronic detection system for DNA diagnostic probes that can read chips with up to 36 analytes each.

While Nanogen’s chips cost $150 each and can perform 100 assays, Motorola hopes to sell diagnostic chips that perform six or seven assays for “tens of dollars” or less, said Dan Farkas, the director of clinical diagnostics for CMS. Nanogen’s platform “is a Porsche for a market that needs Fords,” Farkas said.

Motorola’s CMS division has also sought to develop applications of this platform through partnerships with different researchers. So far Motorola has beta tested its system for infectious disease detection, antibiotic resistance genes, asthma-related SNPs, cytochrome P450-related SNPs, central nervous system disease, hemachromatosis, and inherited thrombophilia.

While acknowledging that eSensor offered direct competition for Nanogen, White declined to comment further because Nanogen is engaged in litigation with Motorola over a patent that covers the companies’ electrical methods for detecting DNA.

“Finding assays to put on a chip is the least of our problems,” said White. “Negotiating the IP minefield is the biggest problem.”

But White believes Nanogen has what it takes to get its technology into the marketplace. Not only does the company have cash in the bank — a total of $87.3 million in cash and short-term investments at the end of the first quarter — it also has a 10-year partnership with Hitachi to develop and market its systems, under which Hitachi has agreed to fund Nanogen every year in development of its applications. And it has a burgeoning market in diagnostics, which White estimates to potentially total $25 billion. “The growth rates,” he said, “are going to be phenomenal over the next few years, and the discoveries are also going to be phenomenal.”

— MMJ

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