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Unable to Find a Buyer, Nanogen to Shutter Array Business, Leaving Users in the Lurch

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After evaluating options for its array business for several months and after encountering no serious buyers, Nanogen said last week that it has decided to close the division, which includes its NanoChip 400 platform for clinical use as well as support for its predecessor system, the research-use-only Molecular Biology Workstation.
 
As part of shuttering the business — a central part of Nanogen’s offering since it was founded a decade ago —  the company last week gave notice to 20 percent of its employees. The cuts are expected to save Nanogen $15 million a year and enable it to eventually achieve profitability as it focuses on establishing itself as a standalone diagnostics firm.
 
In a statement, Nanogen President David Ludvigson defended the company’s decision to drop arrays as the “best way to meet our commitment to improving financial performance for our shareholders.” Ludvigson also reasserted Nanogen’s focus on its real-time PCR and point-of-care testing businesses. 
 
Nanogen originally announced in September that financial constraints had forced it to strategically reevaluate its array business, and that it was considering divesting the arrays through a partnership with another firm or selling it outright (see BAN 9/25/2007). However, the company has had no serious offers to buy the NanoChip platform, a situation that has left some users spooked.
  
While the firm’s installed base never rivaled larger array firms like Agilent or Affymetrix, loyal Nanogen customers are now facing the prospect that the system may not just change ownership but could disappear from the market altogether.
 
Robert Saltmarsh, Nanogen’s chief financial officer, told BioArray News that the company has immediately halted shipping its NC400 system, though it will continue manufacturing array cartridges over the next year. The company has also pledged to support customers through 2008.
 
Additional details on Nanogen’s phase-out plans are available on its website.
 
Customer Concerns
 
“We will make cartridges for the next year and we will continue to support it, but after that you’re on your own unless somebody buys it,” Saltmarsh said this week. Nanogen has maintained some manufacturing and support personnel, but “most of the people not needed to do those functions … have been given notice that their employment is not needed,” he said.
 
Some customers are uncertain about their options. Maria Tzetis, a lecturer in genetics at Athens University in Greece, told BioArray News that she had been informed of Nanogen’s plans to strategically evaluate the business by the firm’s distributor in that country. She added that she is concerned about the future of the platform given the effort her lab has put into developing a series of assays for the Nanogen platform.
 

“We will make cartridges for the next year and we will continue to support it, but after that you’re on your own unless somebody buys it.”

“I have no idea if we can put pressure in any way so that at least Nanogen continues to manufacture the consumables, such as cartridges,” she wrote in an e-mail to BioArray News this week. “We are a university lab so I don’t know if we can claim anything from the company.” Tzetis added that she had not been informed of Nanogen’s recent decision to close the business by the distributor.
 
Tzetis said her lab has developed eight assays using the Molecular Biology Workstation and developed lab protocols that, if no buyer is found, could go to waste.
 
“We are very concerned about the future of Nanogen [arrays],” Tzetis said. She added that her lab has “based a lot of research protocols on Nanogen and some students are depending on the Nanogen platform to continue their PhDs and get publishable reports.”
 
’Foolish’ Offers
 
An ideal solution for Nanogen and its customers would be if a company were to step in and buy the array assets before the business is completely shuttered next year. Such was the story of GE Healthcare’s Codelink bioarrays business, which was scheduled to be closed in April, the same month it was acquired by Applied Microarrays (see BAN 5/8/2007). In 2005, Ocimum Biosolutions picked up MWG Biotech’s ailing microarray line in a similar last-minute deal (see BAN 3/2/2005).
  
So far, though, Nanogen has not received any suitable bids, Saltmarsh said, noting that the offers the company has received “have been foolish. It’s been thanks, but no thanks.”
 
While there is still a possibility that someone might buy the IP or will continue making cartridges, “at this stage there is nothing to announce on that,” Saltmarsh said.
 
In terms of the platform, he said that the technology is “definitely the wave of the future” and that the firm had received “great technical reviews,” but that it “couldn’t keep spending $15 million per year” on arrays. Nanogen did not break out array sales in its latest filings with the US Securities and Exchange Commission.
 
As far as customers that may be left out in the cold should Nanogen not find a suitable buyer, Saltmarsh said that “it’s very simple. They should have bought more of them or convinced their buddies to buy more of them. They can also help to convince someone to buy the platform as well.”

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