By Ben Butkus
Medical technology firm PositiveID said last week that it will acquire Bay Area biological-detection and sample-prep technology developer MicroFluidic Systems for as much as $8.2 million.
Until now, PositiveID has specialized in healthcare and information management products, and the acquisition is expected to enable it to expand into markets such as biodefense and clinical diagnostics using MFSI's multiplexed molecular assays and automated, PCR-based sample-to-answer technology, company executives said.
Terms of the acquisition call for an initial consideration of $1.2 million, $950,000 of which to be paid in PositiveID common stock and the remainder to be paid in cash.
The price tag for the acquisition could potentially amount to as much as $8.2 million based on revenue and earnings targets MFSI is expected to reach through 2014, PositiveID said.
MFSI, based in Fremont, Calif., was founded in 2001 by current president and CEO Allen Northrup, who previously co-founded Cepheid and was its chief technical officer and vice president of research.
The company has three major products in development: the Microfluidics-based Bioagent Autonomous Networked Detector, or M-BAND, an airborne biothreat-detection system developed with funding from the US Department of Homeland Security's BioWatch Generation 3 program; Dragonfly, a miniaturized, cartridge-based version of M-BAND with applications in biodefense and clinical diagnostics; and a multiplexed PCR-based biothreat assay that was developed for M-BAND but can be used with other commercial real-time PCR systems.
At first glance, MFSI and its technologies seem like an odd fit for Delray Beach, Fla.-based PositiveID. Formed in 2009 through the merger of VeriChip Corporation and Steel Vault Corporation, PositiveID provides health and security identification tools designed to protect consumers and businesses. One such product is an FDA-cleared implantable microchip for patient identification.
PositiveID is also developing a prototype-level glucose sensor for use with an implantable bio-sensing RFID microchip to measure a patient's glucose levels; and a fast, non-invasive, point-of-care clinical test for various influenza strains. Both of these projects are being co-developed with proteomics firm Receptors.
In a conference call this week to discuss the planned acquisition, PositiveID CEO Scott Silverman said that MFSI' Dragonfly technology and its IP is "very similar to what we've been working on with our rapid virus detection, and the two technologies are actually very complementary moving forward."
"We have now enhanced our intellectual property portfolio to improve our rapid medical testing opportunities … and to integrate into a different vertical market besides the medical market, which is homeland security," Silverman added.
The oldest of MFSI's technologies, M-BAND, uses proprietary ultrasonic sample-processing technology licensed from Lawrence Livermore National Laboratory; multiplex TaqMan PCR with an end-point read; and toxin immunoassays to continuously and autonomously monitor air samples in its immediate environment.
Multiple M-BAND instruments can be operated remotely and networked across different localities, automatically reporting to a central computer. "What makes it different from almost anything else in the world is that it is extremely rapid, fully networked, integrated, has state-of-the-art sensitivity, and has an integrated complement of all the processing that occurs on a biological sample," Northrup said during the conference call this week.
Silverman also noted during the call that M-BAND has to this point received approximately $45 million in government contracts over the last decade; and that MFSI and now PositiveID currently have submitted or have in process bids of $29 million, several of which are expected to be awarded this year.
Northrup this week told PCR Insider this week that M-BAND is also still in the running for a BioWatch Gen-3 contract from the federal government. It is unclear whether this potential award is among the aforementioned pending government contracts. However, if awarded, PositiveID now stands to benefit.
Despite this, the M-BAND's core sample-processing and assay technologies are what most interest PositiveID from a future product-development and market-expansion standpoint.
"M-BAND was really specifically designed for the BioWatch gen-3 program," Northrup said. "It's just very specialized: it operates outdoors, it's an environmental chamber, it's the size of a refrigerator. There aren't a lot of markets out there for that."
However, Northrup added, "inside that box, there is this fully automated sample-processing, PCR, and immunoassay system — the ultrasonic lysis; dual column-based purification in the cartridge; and then a built-in thermal cycler and optical-detection system.
"Somebody approached us and said, 'If you weren't worried about air monitoring, could you shrink this thing down into a portable, battery-operated system?'" he said. "And that’s what we've done."
This scaled-down version is the so-called Dragonfly system, the second product under development at MFSI. According to Northrup, other key features of the Dragonfly, which is still a prototype, include its closed environment, which reduces the chance of human contamination; its consumable assay cartridges; and its ability to yield clinical testing results in about 20 minutes.
MFSI originally developed Dragonfly with the biodefense market in mind, but the company has more recently demonstrated the tool's ability to detect clinically interesting pathogens, such as human papillomavirus, influenza A and B, and methicillin-resistant Staphylococcus aureus.
During the conference call, PositiveID's Silverman called Dragonfly "a biological sample-processing and -detection [technology] for human clinical sampling … that, with some investment, can improve and even revolutionize the way physicians, hospitals, and labs take biological samples."
"We think that this technology … can be the leader in rapid medical testing, and replace certain of its competitors that are currently on the market because of the underlying IP that exists," he added.
Silverman did not name specific rivals, but it is an easy leap in logic to Cepheid's GeneXpert system, due to the fact that Dragonfly is similarly an automated benchtop instrument that uses microfluidic- and PCR-based disposable cartridges for full sample-to-answer processing; and because Northrup was intimately involved with developing GeneXpert's core technology.
In recent months the GeneXpert has been growing its position in the automated, molecular clinical diagnostics market. PositiveID in a statement alluded to MFSI's management team having "a proven record of significant intellectual property creation [and] a proven entrepreneurial history with the successful co-creation of Cepheid, a company with a market cap approaching $2 billion."
Describing how the Dragonfly and the GeneXpert differ, Northrup told PCR Insider during the conference call that the "fundamental differences in the cartridge are in the operating fluidics. We've made sure the way we handle the fluidics [is] unique. For example, we have IP on … very simple low-cost membrane valves that are built into the cartridge."
By comparison, "Cepheid's valving is based on … [a] kind of a clutch and rotary device … so the underlying fluidics are different," he said. "The advantage that we have is that we don't have any moving parts to our cartridge. The Cepheid cartridge has some cost associated with it because of the complexity," though the Dragonfly "is much simpler," Northrup said.
He added that MFSI has also developed its own sample-processing and assay technologies, but stressed that "the fundamental difference [between existing similar technologies] is in the way the microfluidics work."
Lastly, MFSI has also developed a multiplexed biothreat assay that it plans to launch in about a month, Northrup said. The 16-plex assay is designed for the "top-six threat organisms" on the US Centers for Disease Control A and B lists, including five bacteria and one virus target, according to Northrup.
"It actually turns out that the [PositiveID] name is a great fit for our bioassay products," he said. "We're going to introduce that assay under that brand name next month."
The test was developed and "tested extensively" on MFSI's M-BAND system and has been validated for use on third-party real-time PCR systems such as Cepheid's SmartCycler and Life Technologies' Applied Biosystems 7500 Fast system, Northrup added.
Whereas MFSI employs TaqMan-based real-time PCR with an endpoint readout in M-BAND, its impending biothreat-detection assay and Dragonfly system will likely employ TaqMan real-time detection using a proprietary multiplexed approach, he said.
"We put that assay into three different tubes, so we only need four different colors per tube … and then we have a combinatorial detection algorithm," said Northrup. "So if we go to four tubes, then the multiplex can go up to 30. And with five tubes, it starts to get pretty significant. And we have IP on the way on how to read all that."
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