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SQI Diagnostics Raising $5M to Support R&D, Test Commercialization; Plans to Submit Celiac Dx to FDA

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By Justin Petrone

Canadian test maker SQI Diagnostics this week announced it expects to raise up to C$5 million ($4.9 million) through a non-brokered private placement as it moves ahead with plans to submit an assay for celiac disease to regulatory authorities in the US and Canada by the end of the year, BioArray News has learned.

The privately held company, which focuses on autoimmune disorders, said it plans to use the net proceeds from the placement, scheduled to close this week, to help it develop and commercialize diagnostic programs, and for general working capital.

Discussing the impending financing deal, SQI said it would offer up to 2 million units of equity for C$2.50 apiece, including one share of the company's stock and a purchase warrant for half a share of common stock.

Each whole common share-purchase warrant allows the holder to acquire one common share of SQI for C$5 for two years starting from the date of issuance. The company expects to close the placement on or about Aug. 12.

In December 2009 SQI closed a private placement worth C$6.6 million, which followed a C$1.7 million placement secured earlier that year. As of March 31, the end of the firm's fiscal second quarter, the company had C$6 million on its balance sheet and a deficit of C$29 million.

"Most" of the "general working capital" represented by the new funding "is focused on development of new products as well as for installing platforms at customer sites," Andrew Morris, chief financial officer at the Toronto-based firm, told BioArray News this week.

According to Morris, SQI's main priority is "converting customer interest to installation to evaluation platforms and then converting those evaluations into revenue." The company in June announced an agreement with Gamma-Dynacare Medical Laboratories in which it will offer SQI's multiplex IgXplex rheumatoid arthritis test through its service lab in Canada.

Morris declined to name other customers, but said that Gamma is a "significant customer" and that there has been "a lot of customer interest" in SQI's platform. He did not elaborate.

Founded in 2006, SQI has accumulated a portfolio that consists of its internally developed, automated SQiDWorks system and SqiDman, a semi-automated version of SQiDWorks for lower-throughput users. The company also sells the QuantiSpot, a 96-well microarray consumable.

The SQiDWorks and SqiDman systems can typically process multiplexed assays to quantify serum concentrations of up to 12 individual biomarkers, or qualitatively detect up to 24 biomarkers per patient, according to SQI.

Last year, the firm received US Food and Drug Administration 510(k) clearance to sell its IgXplex RA test in the US (BAN 11/3/2009). The assay is used to help physicians diagnose and monitor patients with the disease, those who carry RF-IgA and RF-IgM, and those who carry anti-CCP-IgG, a biomarker that has been adopted in recent years. SQI has held a Health Canada license for its RA test since 2008.

While SQI said it plans to use the pending cash infusion to help it sell and support its systems, and to push adoption of the RA test, it is also close to meeting an internal goal of submitting its celiac disease panel for regulatory approval in the US and Canada by the end of the year, Morris said. He added that a key company strategy is to expand its menu of cleared tests in the two countries.

More generally, he said the firm's business model includes selling its system and consumables to reference labs, like Gamma-Dynacare, and generating revenue from technical support.

According to Morris, SQI expects to file its celiac panel with both the FDA and Health Canada by the end of this year. The celiac panel is a six-marker assay that can be used to diagnose patients with celiac disease, an autoimmune disorder of the small intestine marked by chronic diarrhea and fatigue caused by a reaction to gliadin, a gluten protein.

"We will have a celiac panel and one other panel done this year," Morris said. "Our focus is getting the products done, completed, and filed."

The US National Institute of Diabetes and Digestive and Kidney Diseases estimates that more than 2 million individuals, or about 1 in 133 people, currently have celiac disease in the US. Current blood tests for the disorder are based on indirect immunofluorescence, or are enzyme-linked immunosorbant assays. A number of companies in the US offer tests that diagnose celiac disease, including Silliker, Elisa Technologies, R-Biopharm, Tepnel Biosystems, and Bia Diagnostics.

Morris said that SQI also plans to file a second assay for regulatory clearance in the US and Canada this year, but declined to discuss their indications. He noted the firm is also developing tests for inflammatory bowel disease and lupus, which are also autoimmune disorders; and vasculitis. Also in the works is a serum-based screen that quantifies the presence of anti-tumor necrosis factor agents, which are used to treat autoimmune diseases.

As SQI grows its menu of cleared tests, it is also considering a move beyond the North American markets. "Our European strategy is to build out our content; when we get three or four completed panels, we'll address that market," said Morris. "Right now, there are enough customers in North America, so there is no expected move to Europe for at least the next 12 to 18 months."

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Silliker Deal

Though SQI's primary focus is on autoimmune disease testing and not food testing, the company recently inked a test-development deal with Silliker, a global network of laboratories that provides nutrition, food safety, and quality assurance, to develop an array-based assay to test for the presence of food-borne botulism (BAN 4/27/2010). The potentially fatal disease is caused by the anaerobic bacterium Clostridium botulinum, which is sometime found in canned food.

Based in Chicago, Silliker is part of Institut Mérieux, the French holding company that also owns and operates Marcy l'Etoile, France-based in vitro diagnostics firm BioMérieux, and Transgene, a biotech based in Strasbourg, France. Silliker has 50 locations worldwide and employs around 3,000 people.

SQI has already developed a prototype of the panel, called IgXplex BOTX, which will run on its SQiDman instrument. Silliker has agreed to purchase both the platform and the constituent consumables from SQI once the panel and system have been successfully developed and validated.

Under the agreement, SQI has granted exclusive global market and distribution rights to Silliker to resell the assay and SQiDman system to its customers, which include some of the world's largest food companies.
SQI will also be responsible for commercializing the IgXplex panel, and Silliker will validate the assay and complete and file all regulatory documents related to its clinical use in the different markets it serves.

Additionally, SQI has said it intends to work with Silliker to expand its use of food-toxin and antigen-based multiplexed testing on the SQI platform, and will seek to build out a pipeline of tests in this field.

This week, Morris said the development deal with Silliker is "progressing," and that the firm is "executing on the development of that product with them." Still, he cautioned that SQI's "focus is autoimmune disease" and that the work with Silliker is "fairly specific to them."

"There might be other products with them if this is successful, but we are not focusing much of business on food testing," said Morris. "Our focus is autoimmune disease."

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