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Waiting it Out: AutoGenomics Biding Time on IPO

By Tony Fong

NEW YORK (GenomeWeb News) – AutoGenomics is still biding its time to proceed with an initial public offering, two years after filing its preliminary prospectus for the IPO.

The company last month amended its S-1 filing with the US Securities and Exchange Commission, suggesting that it might move on its plans to go public.

But in an interview with GenomeWeb Daily News this week, its chief executive said that while he still intends to take the Vista, Calif.,-based microarray technology and molecular diagnostics development firm public, he and his advisors are waiting for the chill in the IPO market to pass. And how two recent IPO filings proceed, he added, could determine the course of AutoGenomics' IPO.

Fareed Kureshy, founder and CEO of AutoGenomics, said the firm has no plans to withdraw its IPO, originally filed in July 2008. But in looking at the market in general, and at companies that have gone public in recent years as well as the after-market, the conclusion he has reached is that they "have not done very well."

As a result, AutoGenomic's underwriters on the IPO — Jefferies & Co., R.W. Baird, and Stifel Nicolaus Weisel — have advised it to "wait for the right opportunity in the marketplace so that there is a strong demand" for the IPO and, just as importantly, so that it will continue to gain traction in the after-market.

"We as a company feel we are ready, but we are waiting for the right environment in the market," Kureshy said.

When it initially filed its S-1, the company had no idea that two years later the IPO would still be pending, but within months of the filing, the broader equities and securities market was in turmoil, and companies such as AutoGenomics that had already started on the IPO path, suddenly found potential investors fleeing.

"We were going to go public in October [2008]," Kureshy said, but by then "the entire market structure collapsed."

During the first quarter of this year, AutoGenomics began to reevaluate its IPO as the market showed signs of improvement. In April, the firm amended its S-1, the first public indication that it was revisiting a possible IPO, and then amended it again in July, and then in August.

Kureshy said that the company had hoped to do its IPO this month, which seeks to raise up to $86.3 million, but its underwriters have told them that December may be a more realistic time frame. However, the delay could last into the first quarter of 2011 — and beyond.

"So we are following the advice of our bankers to see … the most ideal time to proceed on that. And they are not giving us a very [comforting] feeling," Kureshy said.

Indeed, while IPO activity in the 'omics space has recently shown signs of life, AutoGenomics' holding pattern highlights the challenges that the market still poses to firms in the space.

Last month, Pacific Biosciences and Complete Genomics filed for IPOs, suggesting that the near-dead market for 'omics-related IPOs could be reviving. However, the consensus opinion is that any investor giddiness over 'omics technology may be limited to next-generation sequencing, and other technologies, such as those developed by AutoGenomics, still are meeting resistance from Wall Street.

According to Kureshy, the few 'omics firms that have gone public in recent years have met with lukewarm investor reception. Specifically, he named GenMark Diagnostics, which switched from the London Stock Exchange to the Nasdaq in May, and Nanosphere, which went public in 2007.

GenMark's share price has fallen to slightly more than $4 during the past week from an opening price of $5.65 on May 28, when it began trading on the Nasdaq. Nanosphere's share price has slid to a close of $3.11 on Wednesday from $14 on the first day it went public, and down from its close of $6.44 on the last day of 2009.

Kureshy, like others, is hoping that PacBio and Complete Genomics' IPOs will fare well enough to pull in other companies and investors into the IPO pool.

"If these go out and we see a favorable response, then it's a big encouragement to the funds who are investing," he said, "but if any of these companies go out and they do not get a good reception, then some of the other funds … will start holding back."

Other Options

AutoGenomics has set no deadline for completion of its IPO, Kureshy said, and can fund its works internally. While keeping an IPO open can cost a firm about $1 million per year when fees to lawyers, bankers, and accountants as well as filing fees are tallied, Kureshy said that withdrawing an IPO and then restarting it is even more expensive.

As a result, the firm does not plan to withdraw the IPO, unless "we have an external funding which requests us to withdraw it," he said. Since filing in 2008, AutoGenomics has had M&A discussions with several firms, but Kureshy said none progressed very far.

Though the company is keeping all options on the table, it is not looking to be purchased, he emphasized. "If some company is interested in our platform, we do talk to them, but we are not in a bargain basement pricing mode right now," Kureshy said.

Whether by a public offering or through private equity, he said that AutoGenomics' continuing R&D work needs funding, and since originally filing its preliminary prospectus, AutoGenomics has raised $19 million in private offerings, including $5 million this year.

In particular, funding will be directed at plans to gain pre-market approval from the US Food and Drug Administration for its screening assay for human papillomavirus, called HPV-HR Quad.

To date, the only HPV tests that have been approved by the FDA are sold by Qiagen and Hologic.

The whole process, including conducting clinical trials, gathering data, and filing the application, is expected to cost AutoGenomics about $15 million. The firm has filed data with the FDA for a pre-IDE submission, and in preparation of its PMA application it is scouting for sites to perform a clinical validation of the assay to submit data to the FDA.

The HPV-HR Quad assay, like all of AutoGenomics' tests, is developed to run on the firm's Infiniti platform. The system is available in three models — the first-generation instrument, called the Infiniti Analyzer, which lists for $180,000, can perform 50 to 75 tests per day. The instrument received FDA clearance as a stand-alone instrument for multiplexed assays in 2007. Another version of the instrument does about 200 tests daily and lists for $220,000.

A third iteration of the system, capable of 1,000 tests per day, is undergoing beta testing, Kureshy said.

In the company's amended S-1 filed in August, AutoGenomics said it had an installed base of 151 Infiniti platforms in North America, Europe, Asia, the Middle East, and South America as of March 31.

In addition to its plans for the HPV screen, AutoGenomics has submitted 510(k) applications for three other tests, though Kureshy declined to elaborate. The company has previously identified one of the tests as an assay for CYP450 2C19 to test for genetic variants in dosing for Plavix (clopidogrel). In its amended S-1, the company said it also will pursue 510(k) clearance for an HPV genotyping test.

The company currently has 42 tests available. AutoGenomics is also developing multiplex tests that would allow for the testing of methicillin-resistant Staphylococcus aureus, C. difficile, and other hospital-acquired infections on one chip, and is talking internally about developing a PMA test for KRAS, though the discussions are still in the preliminary stage, Kureshy said.

He said that the focus of the company is to establish a larger footprint in high-volume tests, such as those for women's health and sexually transmitted diseases.

According to Ramanath Vairavan, senior vice president for sales and marketing at AutoGenomics, the company's target market is clinical diagnostics. In addition to reference laboratories, hospitals using the Infiniti system can perform molecular diagnostic testing because of the automated processing enabled by the platform, he said.

The company also has collaborations with pharmaceutical companies to develop biomarkers, he added.

In 2009, AutoGenomics posted $5.9 million in product sales and a net loss of about $19 million, or $2.45 per share, according to its amended S-1. For the three months ended March 31, it recorded $751,000 in product sales, down 38 percent from $1.2 million in the year-ago period, while its net loss inched up 11 percent to almost $4.8 million from $4.3 million in Q1 2009.

As of March 31, the company had $4.1 million in cash and cash equivalents.

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