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VCs, Researchers, Vendors Agree: When It Comes to Funding, Arrays Face Difficult Times

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By Justin Petrone

Cutbacks in federal funding, increased adoption of next-generation sequencing, and cautiousness from investors are all factors negatively influencing the financial environment for microarray technology, according to those familiar with the market.

At the same time, observers note that it is still possible for array-related projects and companies to attract financial support — as long as they show promise for medical utility or offer applications beyond the scope of other genomic research tools.

"In the research setting, it is clear that next-gen sequencing is dragging resources away from array technology," said Stephen Hewitt, a clinical investigator at the National Cancer Institute.

"That said, array technologies are maturing toward a clinical utility that next-generation sequencing is many years away from," he added. "There is a lot of space for targeted array technologies, both for expression and for DNA in the clinical diagnostics space."

Hewitt spoke with BioArray News at Select Biosciences' Microarray World Congress, held in South San Francisco, Calif., last week. During the conference, other researchers and representatives from array and venture capital companies weighed in on the funding environment, with most of those interviewed characterizing it as challenging.

Much of that difficulty is coming from competition with next-gen sequencing, both for government funding and VC investments. Foundations that have funded array-related research in the past are also less likely to put new dollars toward projects that rely on the technology, some sources said.

"If you have a good relationship with a private foundation and they really like your work, they'll fund you," said Paul Utz, a researcher at Stanford University. "But they are strapped too, because most of their funding comes from donors, and when donors receive hits in their portfolio, it creates a challenging situation," Utz said.

Another issue is that National Institutes of Health review panels tend to favor hypothesis-driven research projects, making it more difficult for academics developing new array platforms to win grants, especially in an environment when next-gen sequencing is seen as the more cutting-edge technology.

Steve Blair, a researcher at the University of Utah in Salt Lake City, said that while he "does not have the hard data to prove it," it would "appear that next-gen sequencing is capturing more" NIH funding.

"What I am seeing is when someone wants to improve array technology, that's a tougher sale" at the NIH," Blair said at the conference. "From NIH, I tend to get comments like, 'sequencing can do all of that,'" he said. "And that's not always true."

As array experiments are still cheaper than sequencing, Blair said that researchers seeking to address a medical problem would not likely be rejected for choosing to conduct a study with arrays. The issue is rather the "willingness of funding panels or VCs to put money into newer technologies," he said. "Rather than higher density, what is driving the future of array technology?" he asked, adding that funding sources are asking themselves, "Why put money into a dead horse?"

Stanford's Utz had a similar opinion about the NIH review process. "A problem with NIH is that study sections are looking for hypothesis-driven research, and if you are trying to develop a technology that many people can use to answer a hypothesis-driven question, you can't pitch it that way;" he said. "It is frustrating."

The View from Silicon Valley

Alex de Winter, a partner with Menlo Park, Calif.-based Mohr Davidow Ventures, discussed the funding environment for molecular diagnostics during a panel discussion at the conference. Mohr Davidow has in the past invested in Navigenics, Pacific Biosciences, and RainDance Technologies, and de Winter previously worked for PacBio.

De Winter told BioArray News this week that while the funding environment is challenging, it is not limited to the array sector.

"The overall environment has definitely made it more difficult for all startups to raise funding," said de Winter. "In particular, potential cuts in the NIH budget and the impending expiration of [American Recovery and Reinvestment Act] stimulus funds have cast a pall over most life science instrument companies, including those that use array technology," he said.

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Array technologies do face some challenges, however. One factor, De Winter noted, is the National Human Genome Research Institute's "$1,000 Genome" grant program, which encouraged innovation in next-generation sequencing technologies over the last several years. "Array technologies haven’t received the same government funding, so innovation in arrays may have lagged behind NGS technologies," he said.

He also noted that array technologies have some drawbacks compared to sequencing platforms.

"One limitation is that arrays don’t allow for hypothesis-free experimentation, as is enabled by next-generation sequencing," said de Winter. "Instead, arrays have to be designed to test for the specific targets to be assayed."

Arrays "also tend to have limited sensitivity to detect low-copy-number transcripts, though there are work-arounds to address that limitation," he added.

Despite those apparent shortcomings, he said that some investors that took chances on array technology have since been rewarded. "I don’t think the funding difficulty is because arrays haven’t paid off;" he said. "Illumina and Affymetrix certainly found success with arrays, and NimbleGen also paid off for the venture firms that invested in it."

Overall, de Winter said that Mohr Davidow views arrays as "complementary to next-generation sequencing, similarly to how [real-time] PCR is complementary to arrays." And, echoing other conference attendees, he forecast a clinical future for the technology.

"Arrays also have an opportunity to be cost effective relative to NGS for targeted applications, for example in medical genomics," said de Winter. "If applied to medical genomics, arrays may also benefit from an easier path through the [US Food and Drug Administration] relative to NGS, due to the limited number of markers being measured on the array," he said.

He added that array-related projects related to such activities might also have an easier time winning federal funding.

"If the array-based start up is focused on detecting cancer, the NCI has a very active [small business innovation research] program to fund innovative oncology," he said. "One great advantage of SBIR funding is that it’s non-dilutive," de Winter added. "If the funded research was on the startup's strategic path, then the entrepreneurs may be able to advance the commercial prospects of the company, and be better able to gain funding from a venture firm at a favorable valuation."

New Strategies

Officials from companies that sell arrays and array-related tools admitted that reduced federal funding and competition from sequencing has hurt their business in the academic market. That, in turn, has caused them to seek out customers elsewhere, either in industry or in other research areas.

Next-generation sequencing has "affected business in that the growth in the academic field has slowed down," said Andrew Jennings, president of business development at Huntsville, Ala.-based array firm Microarrays Inc. "We have seen the growth in the commercial sector pick up, and the academics are still there, but the growth is not what it was," he said.

To counter that drop-off in business, he said that MI is focusing on "cost per assay, and instead of looking at whole-genome targets, we are looking at pathway specific targets." The firm is also targeting more commercial customers, such as pharmaceutical companies and biotechs, and seeking to see its platform adopted for diagnostic use.

Peter Herzer, a project manager for Tecan, which sells array scanners, hybridization systems, and other instruments, said that the adoption of next-gen sequencing is "definitely" hurting business.

"When you went to core facilities, it used to be a beefy part of your sales," Herzer said at the conference. "Now, they are looking more at next-gen sequencing, they are not that eager to invest in new tools for microarrays when they could use the money to invest in sequencing," he said.

That shift in the market has pushed Tecan toward other kinds of customers. "A lot of our business is in smaller labs, biotechs, and clinical facilities, looking more at diagnostic testing, and protein arrays of course: half of our sales last year were in protein arrays," he said.

Indeed, protein arrays are one segment of the array market that appears to be immune from next-gen sequencing adoption.

"I think the DNA array field took a big hit, but still the challenge is that even if you have sequences, it doesn't tell you about proteins," said Stanford's Utz.

"I'm not that enamored with sequencing," he added. "We have the sequence of the genome and I don't feel that we know anything more about biology than the location of these SNPs," he said. "What can you do with that?"

The University of Utah's Blair had a similar outlook. "If you limit yourself to genomic applications, you are more likely" to get negative responses from the NIH than if "you do something more protein based, [which is] something that cannot be addressed with sequencing," he said.

Steve Blose, vice president of sales and marketing at Digilab, a Holliston, Mass.-based firm that sells a range of array-related tools, including a cell arrayer called the CellJet, suggested that array projects related to stem cell research might be more likely to win federal support.

"There is plenty of money in stem cell research;" said Blose. At the same time, he expressed doubt that new firms could find support from VCs at the moment. "They want finished goods; they don't want to fund new innovation," he said of VCs. "They want to keep the black powder for the current companies that are in trouble."

Whatever way array companies and researchers move to attain more dollars, the result may ultimately be better designed studies, said NCI's Hewitt.

"I think you are going to see the use of microarrays mature into more rigorous, better planned, more mature studies;" he said.

Hewitt also expressed doubt that sequencing would entirely replace arrays. "No one can plot the path of next-gen sequencing," he said. "Everyone thought we would be now seeing robust single-molecule next-gen sequencing, but it has turned out that in some ways those systems mechanically may work, but the biological heterogeneity is leading to headaches," he said.

Another issue is data analysis, Hewitt noted. "We are nowhere near to solving the problems of next-gen sequencing," he said. "As the instruments come online, and the bottleneck is informatics, arrays still have a good lead."


Have topics you'd like to see covered in BioArray News? Contact the editor at jpetrone [at] genomeweb [.] com.

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