If whole-human-genome microarrays can be purchased for $100 to $200 each instead of the going price of double that or more, will the microarray market expand beyond its current niche of scientific discovery research?
Phalanx Biotech Group thinks a $100 microarray will be attractive to the academic community, and also to a whole range of new researchers who previously couldn’t afford to use the technology. To test its assumption, the company is preparing to commercialize its Human OneArrays, whole-human-genome microarrays, at an introductory price of $100 per array for minimum purchases of 100 chips. Each array will be printed with 30,000 probes to the human genome, developed from the NCBI Unigene clusters and RefSeq.
Phalanx, a startup enterprise that emerged in 2002 from Taiwan’s Industrial Technology Research Institute — the research organization that nearly three decades ago incubated the country’s successful semiconductor business — last week announced its introductory pricing plans. Additionally, the company named Paul Kao, former Clontech Laboratories senior vice president of corporate development, as president of PhalanxBio, its wholly owned US subsidiary based in Los Altos, Calif. At the same time, the company announced it had received a fresh round of $11.8 million in funding from new investors as well as its previous Taiwan industry backers.
Phalanx’s entry into the market marks the second significant player to join the preprinted microarray sector in 2004. Applied Biosystems, the sequencing instrumentation giant, brought its Expression Analysis technology online earlier this year.
This enlargement of the competitive arena points to an easily predicted trend where supply outstrips demand, and exerts a downward pressure on pricing — as well as increased pressure on product differentiation based on quality. Already, Affymetrix, the market leader in preprinted arrays, faces a flattening of sales of its microarrays. This flattening, of course, may be a result of the launch of its whole-human-genome chips, which includes the genome in a one chip assay instead of a two-, or five-chip packet, as was previously the case.
Still, with Affymetrix, Agilent Technologies, GE Healthcare, and ABI already providing whole-human-genome microarrays for this market, the economic indicators clearly point in one direction — that of an incipient price war. Affymetrix has said before that it has flexibility on pricing, it just hasn’t chosen to use it.
For many of the established players, the growth market for microarrays is in molecular diagnostics, an estimated $20 billion business. But Phalanx is looking to expand the existing scientific customer base.
“We know that, aside from the US, Japan, and countries in Europe, the majority of scientists worldwide — and that includes scientists in Taiwan — can not afford to use the microarray technology,” Luke Chen, the company’s vice president for marketing and development, told BioArray News. He said Phalanx had the advantage of creating its manufacturing system with an eye to competitive pricing.
“We felt that based on marketing studies that we needed to be in the $100 to $200 range in order for the technology to be really used,” he said. “We looked at that — and quality — as our main goals to achieve and we are excited to be able to achieve that. We built our technology [to be comparable to] newspaper printing. As long as we have a sufficient supply of oligo-nucleotides, we can print up to a quarter of a million microarrays per batch.”
The company is targeting the large segment of scientists who have previously been shut out of the microarray experiment wave for economic reasons.
In addition to these second-world scientists, Phalanx is targeting the academic market — which is largely concentrated on any number of self-spotting platforms — as buyers for its arrays.
“That’s a market that the current commercial players are having a problem reaching due to the price,” said Chen. “They [competitors] may not be too concerned with us because we aren’t going after their current key accounts with pharmaceuticals. What we want is scientists to expand the usage of microarrays and that’s where we think our strategy is different. We think having an array price that is reasonable will increase usage and will allow the technology to go beyond their current market niche where [scientific] advance is the main driver. Under our formula, volume will pick up.”
The company manufactures its microarrays using an ink-jet-based printing technology developed by the Biomedical Engineering Center of ITRI in a program initiated in 1998 and now exclusively licensed to Phalanx.
ITRI is a 6,000-employee government-sponsored organization launched in 1973 to create core technology and transfer it to the private sector. In addition to startups like Phalanx, the institute has incubated global semiconductor manufacturing giants Taiwan Semiconductor Manufacturing Corp., and United Microelectronics.
Phalanx, which has licensed at least 16 microarray-manufacturing patents from ITRI as well as a novel algorithm called FLAG (fast local alignment for gigabase) for DNA sequence alignment, has located its fabrication facility in Hsinchu Science Park in Hsinchu, Taiwan.
The Phalanx ink-jet technology can deliver 200 reagents simultaneously to produce spots of 50 to 100 micrometers each at a density of 3,500 per square centimeter. The arraying technology is enabled by using individual jets with channels and pumps that deliver a drop every second from high-capacity reservoirs that hold enough oligos for production runs of one million microarrays.
Oligos are presynthesized. During the dispensing process, industrial cameras monitor the production as another quality control system.
The slides have a hydrophobic surface coating with highly active 2D/3D functional groups. The coating is produced using a technology that evolved out of methods used in compact disc manufacturing, the company said.
The company has not submitted any articles on its product to peer-reviewed publications, and will not before they become commercially available.
But the offer of 100 microarrays for $100 each, Chen said, is a risk-free trial.
“The customer has a right to test out a product and get a full refund if they don’t like it, instead of reading what other people say about it,” Chen said.
The company is asking potential customers to reserve 100-batch lots of arrays before Sept. 1 in order to obtain the promotional pricing.
“We aren’t asking for any fees or deposits,” Chen said. “At any time, people can walk away from the deal. When we start shipping the product, we could even ship out a trial size, of say 10 arrays, and people could try it and if they like it, they can get the rest of the order. If they don’t, they can cancel and we will be happy to give their money back. We want to put the product out there and get people talking about us. We know that people are concerned about the quality and that we are a new company and nobody knows about us yet. So we really want to lower the risk for people to try out the arrays.”
Chen said the array pricing is not a loss leader, an item sold below cost in order to encourage sales.
“We are not losing money, we are making money — even with the [usual] 30 percent sales and marketing costs,” he said.
The Manufacturing Process
Phalanx prints its microarrays in a Class-10,000 clean room using pre-synthesized 60-mer oligonucleotides manufactured by San Diego-based Illumina. It also performs in house the coating of glass slides with a 2D/3D polymer substrate . The company utilizes a proprietary printing buffer with an anti-evaporation formulation to prevent crystallization issues that can lead to the so-called donut phenomenon where spots form poorly into a ring due to evaporation.
The company is in the manufacturing and testing portion of the development of its arrays.
“Testing is ongoing as the arrays are coming off the production line, we will test to make sure they are reaching our specifications,” said Chen. “It will take the entire summer for us to feel comfortable in releasing that information. We will post it on our website.”
The company is taking this cautious approach so it does not fall into a trap it believes has swallowed other would-be microarray makers.
“There are a lot of microarray companies that have come and gone. So, only when we are sure that we can do something, then we will release it. We will promise and deliver and we won’t go away.”
At the moment, the first commercial batch will be approximately 100,000 arrays, said Chen.
PhalanxBio is incorporated in Delaware and currently consists of three employees — Chairman Andrew Wang, Chen, and the newly hired Kao. The company will ramp up by hiring a national sales manager and sales representatives as well as technical and customer support teams. Additionally, the company will post a chief science officer in California by September to establish an innovation center to coordinate development, potential collaborations, and licensing.
Its production facility in Taiwan has some 100 employees, said Chen.
It has entered into a scientific collaboration with the Canadian Genetic Diseases Network of Vancouver.
One of the key issues in producing and selling microarrays in the US is the tangle of intellectual property surrounding the technology.
Chen said the company has retained the law firms of Fish & Richardson and Dergosits & Noah as its counsel in intellectual property issues.
“We have done our studies and we do feel comfortable coming to the marketplace right now,” said Chen. “People will be able to receive the arrays in the US.”
The $11.8 million second round of financing included new investors led by the venture capital firm of Walden International of San Francisco, and Chiao Tung Bank (Mega Financial Group) of Taiwan, as well as current investors Yulong Group, and China Steel. The company has $26.3 million in financing.