Originally Published IVD Technology April 2002
In Person
Staking
a claim
Nanogen
makes its mark in the molecular diagnostics market.
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|
Randy
White00
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While
many companies in the molecular arena have forgone investment in diagnostics
for more-lucrative nonclinical applications, Nanogen (San Diego) decided long
ago that diagnostics was the only place it wanted to be. It seems this decision
may finally pay off as the company works patent-by-patent and deal-by-deal to
become a significant force in molecular diagnostics. With an open-architecture
platform, 44 U.S. patents, and 25 foreign patents, the company has a foothold
that may be unmatched by companies entering the molecular diagnostics market
too late.
In this interview with IVD Technology editor Steve Halasey, Nanogen CEO
Randy White describes how the company's short-term goals are all pieces of a
much larger pie and explains that the company's success stems from its unwavering
dedication to clinical diagnostics and a very simple mission—to be a leading
supplier of molecular tests. The complete
text of this interview is also available.
IVD Technology:
Let's talk a little bit about the history of Nanogen. What was Nanogen's business
plan when it was founded in 1993, and where did its early funding come from?
Randy White: Dr. Michael Heller had an idea written on a piece of paper,
and he convinced Howard Birndorf that the marriage of microelectronics and molecular
biology was the making of a company. The basis of our technology is that DNA
is negatively charged in solution, and a positively charged cathode in an electric
field should be able to attract, concentrate, and transport negatively charged
DNA to a specific location on a microarray.
So from 1993, that idea on a piece of paper lead to several rounds of private
venture-capital funding, an initial public offering in 1998, and a follow-up
offering in 2000. To date, the company has raised $244 million. The company
has gone through the evolution of the idea on a piece of paper to a technology,
from the technology to a research stage, and now from the research stage to
a commercialization stage. And that's why I was brought in, to commercialize
the technology.
When the first business plan was set up, how much of the company's evolution
was foreseen? Was it always hoped that the company's research would lead to the
commercialization of products?
Even from the earliest stage, the concept was that at some point in the future
there will be a genetic laboratory on a chip that can be in a physician's
office.
We are moving toward the ultimate long-term vision of individualized medicine.
If a patient is diagnosed with hypertension today, there are probably a dozen
different drugs that could be prescribed. But the selection of a particular
drug is typically made through trial and error. A patient is put on a medicine
and the dose is increased until the desired effect is achieved—or until
toxicity or negative side reactions force a change in the medication.
In 10 to 15 years, we will have perfected the technology to the point that doctors
will place a drop of blood into a system to run a patient's particular
profile. The profile will enable the doctor to determine what drug is right
for the patient, based upon a genetic mutational analysis.
So that was the long vision for Nanogen, back in 1993. The short vision was
that molecular diagnostic testing was the wave of the future, and therefore
we needed to build a macro version of a molecular diagnostic system. That system
would ultimately be miniaturized over a number of years to lead to fulfillment
of that individualized medicine platform.
And indeed we do have a molecular biology workstation that does run genetic
marker testing and mutational analysis.
Taking
the High Road
Not all of the companies that have been in the molecular area are still pursuing
diagnostics. A lot of companies have found opportunities working with pharmaceutical
companies on high-throughput screening. How does Nanogen view the opportunities
in the genomics and genetic research fields?
When I came to
Nanogen, I gave it a new mission statement—to be a leading supplier of
molecular diagnostic tests. It's just that simple.
I spent 28 years
of my life on the commercial clinical laboratory side, so I am probably more
in touch with the needs of the clinical laboratory than is the average CEO of
a diagnostics company. In 1998, when I joined the last lab company I worked
for, the company was running only five different kinds of molecular diagnostic
tests. When I left there, three years later, the company was running 28 different
kinds of molecular diagnostic tests—and the compound annual growth rate
had exceeded 500%. So I know that the molecular diagnostic market is rapidly
growing and is, in fact, an exploding marketplace.
A Frost & Sullivan report says the molecular diagnostics market was $1 billion in 2001, and will grow to $3.7 billion in 2005. I believe those numbers are accurate based upon my own personal observations from being in the industry. Since I've left the industry, I've stayed in touch with everybody and I know what their volume growth is.
It's a
big shift for a lab to move into molecular diagnostics using commercialized
FDA-approved products. But that's a natural growth for manufacturers. Is
there a conflict there?
Not at all. In
fact, that's what has historically taken place in the marketplace.
Once upon a time,
when thyroid testing came out, it was first a home-brew test that was performed
only by reference laboratories. But over time, with technology advances, the
test began to be performed by a broader range of laboratories. Today, even the
smallest laboratory is capable of performing a thyroid test.
That is the natural
evolution of IVD technologies. Things that are difficult today become easy tomorrow
through technology advances, and Nanogen's technology is one of those advances.
In fact, our tagline is “Making the revolutionary routine.” And that's
what we are doing.
Our system uses
point-and-click software. What the instrument does is very complex, but the
system makes the revolutionary—meaning DNA testing—routine. Anyone
can run it. So I believe that this kind of system for reagent combination will
ultimately be adopted by a wide spectrum of laboratories, not just the reference
laboratories.
Now, why is it not seen as a negative by the reference laboratories? Because we designed the system to be an open-architecture system, which means that the reference laboratories can adopt any marker they wish onto our platform. And the lower-level laboratories can run those prepackaged assays that Nanogen produces and commercializes. So it works in both spaces.
Designing an
instrument as an open platform is rather uncommon in the IVD industry.
It is very uncommon, and it's one of the things that frustrated me to no end when I was a customer of IVD companies.
Intellectual
Property Protection
What is Nanogen's track record with regard to the development of intellectual
properties?
We have 44 issued U.S. patents and 25 issued foreign patents, and we have many, many more pending. I think our filed and pending patents number in triple digits. So Nanogen has been very prolific in terms of its intellectual property.
With an open
platform, you're not actually in a situation where you must have your own
license to run an assay.
No, but we are
not in the business of inducing violations of intellectual property. So although
we have an open platform capable of running any gene-based assay, we are not
encouraging our customers to violate others' intellectual property rights.
What we're simply saying is that if an individual customer is able to obtain
a license to the intellectual property around an assay, our open-architecture
system can run that assay.
In fact, many of our research customers do have relationships with a whole host of people for research-use-only intellectual property, especially where they're doing studies and gene-based disease associations.
If a customer
develops an assay that runs well on the Nanogen platform, do you try to license
it into Nanogen and develop it as part of a commercial kit?
We have tried to do so in every case in which we have a development-site partner. We try to gain either direct access to the technology that is created there or at least the first opportunity to negotiate for it.
Generating
Revenue
In the past year, the company's funding base has shifted from sponsored
research to revenues coming from commercial products. How did that develop?
Do you feel that commercializing now will enable the company's platform
to give you a lead in the area?
Yes we do. Quite honestly, when I came to Nanogen, one of the challenges before me was to focus the company on an area where we could make it a positive-cash-flow company within a reasonable period of time. Molecular diagnostics is that market. I believe we can do that within the time we have, and that's the mission.
What is the
regulatory status of the company's products?
When I came to
Nanogen, the company was not operating in compliance with FDA's quality
system regulation (QSR). That is a prerequisite for offering an analyte-specific
reagent (ASR). Our initial thrust into molecular diagnostics was in the home-brew
realm, and I set a goal that the company would introduce five home-brew protocols
in 2001, and we did. But I'm also happy to say we launched our first ASR
on March 15.
So, it's been
a long haul from June 2001 to March 2002 to get ourselves in compliance with
the QSR, to submit the registration statement for our instrument, and the rest
of the things that we had to do. But we've done it.
How many platforms
a year do you estimate the company can produce?
We said publicly in our last conference call that we had sold or placed 61 units in 2001. We expect to sell or place between 55 and 65 units in 2002.
Nanogen has
just under a couple of hundred employees. How many are directly involved in
manufacturing?
I don't know
the exact number. I think there are about 50. They make up the manufacturing
group that produces the reagent sets and cartridges that are used in the instrument.
We have contracted our instrument to be built by Hitachi Japan (Tokyo). So the manufacturing component here in Nanogen central receives those instruments from Japan, and the engineers check them out and make sure that they are ready to ship to customers.
Partnership
Equals Profit
Nanogen has pursued a lot of partnerships with a lot of different kinds of
companies. What kinds of partnerships do you have, and what do they each consist
of?
We have development-site
partnerships with research institutions that are working on what could potentially
be the next important genetic markers. I view all of those relationships as
very important to Nanogen, in terms of filling the pipeline of markers that
will come.
We are seeking some kind of a strategic partnership with a large clinical diagnostics company that needs a molecular platform. Ideally, that would be a joint marketing and distribution arrangement, because Nanogen has only eight salespeople covering the United States. If we could hook up with one of the giants that has 200 or 300 people selling, then our ability to penetrate the marketplace would be just that much greater. Those are really the only strategic partnerships that we are pursuing.
You recently
announced a collaboration with Associated Regional and University Pathologists
(ARUP) out of Salt Lake City. What is the role of that collaboration?
ARUP is one of our development-site partners. They are going to develop novel gene-based assays for us, and, at the same time, they are using the Nanogen system in a clinical setting.
How many of
the instruments do they have on-site?
They have only
one. They don't need another because the system is scalable. It's
really in two pieces. There's a reader, which reads the cartridge, and
there's a loader, which does all of the hard stuff.
One of our readers
can support eight loaders, and each one of the loaders can handle four cartridges
at a time. Right now, that's four 100-site chips. So if all eight loaders
were working on four different cartridges, that would be a total of 3200 tests.
So it's not
like one system is limited in any fashion. It's truly scalable—from
the small lab to a megalab—with nothing more than the scaling factor of
loaders.
Realistically, a lab could have two or three loaders hooked up, and one of the loaders would be working with Factor V Leiden, Factor II Leiden, and MTHFR. A second loader might be running cystic fibrosis. And a third loader might be devoted to something else.
What the Future
Holds
Coming out of a laboratory background, you must have a good sense of what labs
need. How is that knowledge now feeding into Nanogen's business-planning
and product-development thinking?
I think it's
helped a lot. Who better to sell to a customer than a previous customer?
Understanding your customer is certainly one of the vital and most important factors in being able to sell a product. I know what our customers need, and many of the changes that have come to pass with the Nanogen workstation and the flow of our technology have come directly from me.
What does the
company's product pipeline look like down the road?
The product pipeline
is full. We have an assay selection committee that follows the QSR design control
requirements, and at the top of that funnel we have many assays that we are
looking at right now. There are phase gates that will control which of those
assays get developed.
In addition to that, further back in the pipeline is the oil that's being produced by all the development-site agreements that we have. Those are the future markers. So the pipeline looks good.
Randy White is chief executive officer of Nanogen. He can be reached via rwhite@nanogen.com.
Copyright ©2002 IVD Technology
