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Rejecting Several of Its Larger Alliances, Epoch Biosciences Recasts Self Into Molecular Dx Play

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“We cannot rely on other companies for our own success. It’s time for Epoch to take control of its own products.”

With those words, Epoch Biosciences CEO William Gerber closed the page on his company’s status as a second-party tool vendor, and introduced Epoch as a molecular-diagnostics provider.

Epoch’s decision, which was made in response to a tightening market and at least two poorly performing distribution collaborations, reflects an increasingly common step among some genomic technology providers these days: the decision to play in the space occupied by their customers.

For Epoch, the transformation is twofold: It has eschewed a marketing and distribution alliance in favor of selling its MGB Eclipse by Design probe system directly to research customers, and it has begun using its technology to develop analyte-specific reagents for the clinical market.

To get there, the company intends to increase its marketing spend to $2 million this year from around $600,000 in 2003 — split evenly between the research and diagnostics markets, Gerber told SNPtech Pharmacogenomics Reporter this week. Epoch also plans to hire between four and six new sales and marketing staff, and to develop three additional ASRs to follow the 17 it has already filed with the US Food and Drug Administration.

The dramatic move comes almost five years since Epoch first licensed its MGB technology to Applied Biosystems, which incorporated it into its widely popular Taqman system. Since that deal in 1999, ABI went on to embed the MGB technology in more than 150,000 products it sells as part of its SDS real-time PCR business.

The following year, Epoch licensed its Dark Quencher fluorescent dyes to Third Wave Technologies, which used it in its Invader assays, and two years later Epoch released its MGB probe system, which Amersham Biosciences and Qiagen agreed to distribute worldwide.

Yet despite the big-name partners, Epoch’s good fortune began to fade. In June, Epoch sold its money-losing oligonucleotide-manufacturing facilities in San Diego and Liege, Belgium — the latter for a $1.2 million loss. And as total revenues fell by 25 percent between 2002 and 2003, Epoch blamed Amersham for “disappointing performance” and decided in August to scuttle its distribution agreement with the British company. Broadly, the events forced Epoch to move back its profitability goals to 2005 from its original forecast of the fourth quarter of 2003.

Going Organic

With $4 million in the bank and dismal prospects for strong revenue growth, it was time for a change. “We’ve matured from a company that licensed its technology [in] to a product company,” Gerber said during the firm’s fourth-quarter earnings call last week. “We’re transitioning from making our research products available to customers through distributors to selling them through our own sales force. And we’re moving aggressively into the diagnostic market, where we’ll sell our products directly to clinical labs.

“The take-away lessons from 2003 are clear,” Gerber added. “We cannot rely on other companies for our success.” He stressed that the “traction we gained” in the research market last year “was due to our own efforts” to sell the MGB Eclipse by Design product — “and not to our distributors.”

Specifically, Epoch sold a MGB Eclipse by Design unit, launched last fall, to the NCI SNP500 Cancer Genome Anatomy Project and Millennium Pharmaceuticals. However, Gerber said he believes the US market for the technology is around $25 million. He said half of the four or six sales people Epoch plans to hire will target some 50 pharmas and core labs in the United States. “Many of these” potential customers can generate $500,000 in annual revenues for Epoch, Gerber speculated. “It’s a technical sell and a long sales cycle,” he said during the call.

The cash will be a welcome change to Epoch’s dwindling revenue base. In 2003, the company posted $8.9 million in total receipts, down from $11.2 million in 2002. In particular, revenues from sales to the research community shrank to $2.7 million in 2003 from $6.7 million year over year. Gerber blamed the poor performance on “a $900,000 drop in our shipments in chemical intermediates,” as well as on “Amersham’s disappointing performance in 2003.”

Gerber also complained about “delays in Qiagen’s launch of its QuantiTect product,” which incorporates the MGB Eclipse probes. (Gerber stressed that Epoch will continue to work with Qiagen to support the sales of the QuantiTect [see 10/16/03 SNPtech Pharmacogenomics Reporter].)

“When we made the decision to address the research markets through these distributors, we cut back on our own sales and marketing efforts,” Gerber said. Now, “by focusing on 50 key accounts, we believe we can adequately address” the market in the United States.

He said Epoch will likely hire two individuals by the end of 2004 to start generating orders. The company also intends to “increase its marketing spend” throughout 2004, and introduce the Eclipse product to “key accounts” in certain undisclosed European countries.

Diagnostics Front

Epoch has so far used its Eclipse platform to develop 17 ASRs it plans to sell directly to clinical labs in the United States. The company has also created a new division to oversee the drive: Debra Hutson, a former official at CombiMatrix and DuPont, has been named director of quality assurance, and Steve Owings, a former executive at Visible Genetics and Roche Diagnostics, has been named director of business development [see PEOPLE, page 2].

Hutson has helped Epoch get in line with the FDA’s GMP standards, while Owens will “spearhead the effort” to build links with clinical reference labs to validate the 17 ASRs. Epoch currently has a business relationship with ARUP Labs, according to Gerber.

Epoch’s ASRs, which will be sold by at least two or three salespeople still to be hired, will initially focus on several infectious diseases, including herpes virus, influenza, and the respiratory syncytial virus. These will be followed by ASRs for certain cancers, including leukemia, as well as products to analyze Factor II Prothrombin, Factor V Leiden, and MTHFR.

“We are designing these ASRs so that they are compatible with the instruments, reagents, and workflow that our customers already have in place,” said Gerber, without going into detail.

He speculated that the US market for these products — including large- and medium-throughput labs — is worth $62 million annually, or half of the global market. Epoch hopes to market all 17 ASRs, plus an additional three tests, by the end of June. “Considerably more” are slated to arrive by the end of the year, he said.

— KL

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