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Nanosphere Recalls ‘Very Small Number’ of Verigene Assays Due to ‘Aberrant Result’

Nanosphere in February recalled an unspecified number of its Verigene warfarin metabolism assay cartridges due to faulty results, nearly five months after the US Food and Drug Administration approved the tests, the company disclosed earlier this month.
The recall of the assay, which was the first FDA-approved genetic test of its kind, involved a “very small number of warfarin assay cartridges that Nanosphere wanted to recover to test for the possibility of reproducing an uncharacteristic result,” a company spokesperson told Pharmacogenomics Reporter this week.
In an announcement earlier this month, the FDA said that Nanosphere informed the agency of the recall in letters dated Feb. 25. According to the announcement, Nanosphere recalled eight lots of its warfarin metabolism nucleic acid-test cartridge (part number 20-006-002). The FDA designated this a Class II recall, which means that “there is either a possibility that the device will cause temporary or reversible health problems, or there is a remote chance that the device will cause serious health problems.” 
The company took the action because “a warfarin [CYP]2C9*2 mutant capture signal was found to be high enough to result in an aberrant result (i.e. wild-type called heterozygous),” the FDA announcement said.
When it cleared the assay in September 2007, the FDA dubbed it the first gene-based test for warfarin sensitivity to receive a nod from the agency. The test, formally called the Warfarin Metabolism Nucleic Acid Test, runs on the company’s Verigene platform and “detects some variants of both [CYP2C9 and VKORC1] genes,” the FDA said in a statement announcing the test’s approval [see PGx Reporter 09-26-2007].
Although Nanosphere maintains that the cartridge recall is a small blip, product “defects” in a competitive market and amid a difficult reimbursement environment could potentially hurt perceptions and deter adoption its test.
“Our success depends on the market’s confidence that we can provide reliable, high-quality diagnostics systems,” Nanosphere said in its March 21 filing with the Securities and Exchange Commission. “We believe that customers in our target markets are likely to be particularly sensitive to product defects and errors. Our reputation and the public image of our products or technologies may be impaired if our products fail to perform as expected or our products are perceived as difficult to use.”
The Nanosphere spokesperson maintained, however, that the recall “was promptly completed and had no material impact on the company’s business or financial position.” The company has not reported sales of its warfarin test.
In the March 21 SEC filing, the company assures that “all quality control tests are validated to ensure [that] product quality measurements are accurate. Manufacturing of the Verigene System including test cartridges is tightly controlled with the use of manufacturing batch records. These records control which product is produced and ensure that each batch of product is manufactured consistently and according to the intended design.”
‘Increasing Competition’
Indeed, the recall could put a dent in Nanosphere’s effort to compete in an increasingly fractious market, an observation the company made in an Aug. 13, 2007 filing with the SEC.
Nanosphere “face[s] increasing competition from current and potential competitors, some of which have greater name recognition, more substantial intellectual property portfolios and longer operating histories,” according to the filing.

“The recall was promptly completed and had no material impact on the company’s business or financial position.”

Nanosphere’s product entered a market occupied by laboratory-developed tests from Laboratory Corporation of America, Clinical Data, Genelex, and others. In addition, in January Nanosphere lost the distinction of having the only FDA-approved warfarin test when AutoGenomics received clearance for its Infiniti Warfarin XP dose-response assay [see PGx Reporter 01-30-2008].
Given the crowded market, warfarin test makers are clamoring to differentiate their products from competitors’.
For instance, AutoGenomics boasts that its warfarin panel was validated by the Harvard Medical School-Partners HealthCare Center for Genetics and Genomics in the prospective CROWN study, or the "CReating an Optimal Warfarin Nomogram” trial, that is being used to determine an algorithm for warfarin dosing. The company also claimed that its assay can test for variants linked to dosing variability among certain ethnic populations, a feature that no other marketed warfarin-metabolism test can claim.
In the March 21 SEC filing, Nanosphere claimed that its test, based on nanoparticle technology, would be less expensive, faster, and “100 times more sensitive than current technologies.”
“We believe that the Verigene System’s ease of use, rapid turnaround times, relatively low cost, and ability to support a broad test menu will simplify workflow and reduce costs for laboratories already performing molecular diagnostic testing and allow a broader range of laboratories, including those operated by local hospitals, to perform molecular diagnostic testing,” the company said.
To perform a test on the Verigene system, the operator prepares the sample, inserts it on a designated port in the test cartridge, enters sample-identification and test cartridge data into the reader through a touchscreen keyboard or a barcode wand, and inserts the cartridge into the processor. The processor then analyzes the information, matches it to the cartridge, and initiates the test protocol. When the assay process is complete, the test array is placed on the reader for image analysis and result reporting.
AutoGenomics also highlights the ease-of -use of its test, which is based on the Infiniti platform. Previously, AutoGenomics' Senior Vice President of Sales & Marketing Ram Vairavan described its test as “a ‘load and go’ type operation.” The DNA can be extracted from blood or from cheek swabs. After the sample prep is conducted through PCR, it is loaded onto the instrument along with the reagents. “After that, you can just walk away,” Vairavan previously told Pharmacogenomics Reporter. “The instrument processes the test automatically.”
Both Nanosphere and AutoGenomics have not disclosed what patients will have to pay to get tested on their systems. The cost of currently marketed gene-based warfarin tests range between $300 and $500.
Despite garnering FDA approval, Nanosphere and AutoGenomics still must convince payors to cover their products. Several large insurers, including Aetna and WellPoint, have publicly stated that they will not reimburse for gene-based warfarin assays until their clinical validity and utility are proven in clinical trials. In this kind of a difficult reimbursement environment, the perception that a genetic test's components might be faulty could hinder sales and adoption.
After the FDA approved its test, Nanosphere established a direct sales force to market it to hospital-based labs and academic research institutions, which the company believes comprises the primary customer base for the product.
“Our minimal revenues to date have been derived from the sale of the Verigene System, including cartridges and related products, within the United States to research laboratories and pursuant to government contracts,” the company said in the filing.
In 2007, Nanosphere reported revenues of $1.2 million, mainly from grants and government contracts. The year before, the company reported revenues of $1.1 million. However, throughout 2007, Nanosphere made “significant investments” to ramp up its marketing and research and development activities related to the development of the Verigene system.
As a result, sales, general and administrative expenses increased from $5.4 million in 2006 to $13.4 million in 2007, and research and development expense increased from $17.4 million in 2006 to $21.4 million in 2007. These investments in 2007 resulted in loss from operations of $33.7 million in 2007 compared with $21.8 million in 2006

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