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Nanogen Expands Its Reach With a New Acquisition

Nanogen Expands Its Reach With a New Acquisition

Biotech: Buyout of Toronto Firm Gives It Foothold in Coveted Area

BY MARION WEBB

Nanogen Inc.’s recent $12.3 million buyout of the small public Toronto-based diagnostic company SYN X Pharma Inc. gives it a foothold in the growing point-of-care market.

San Diego-based biotech firm Nanogen places its machines that run diagnostic tests to detect genetic defects into clinical laboratories.

It then charges the labs for consumables.

The more tests the machine runs, the more attractive it becomes for labs, and for Nanogen, since it is likely to make more money from running the tests than placing its system, say people familiar with the firm.

SYN X, in turn, is attractive for Nanogen, because it has developed complimentary products, including tests to diagnose Alzheimer’s disease and stroke.

Nanogen expects a new test to detect congestive heart failure , a big market , to be approved in Europe by mid-2004 and in the United States in the second half of this year.

“SYN X is working in the point-of-care marketplace, and that’s the market we want to get into,” said David Ludvigson, chief financial officer for Nanogen.

He expects that market to “grow significantly.”

For New York-based Mehta Partners LLC biotechnology analyst Patrick Schnegelsberg-Pettersson, the deal makes sense.

“Nanogen certainly has a very good platform, but they need analyte-specific tests,” Schnegelsberg said. “With that acquisition, they are getting what looks like decent tests. Nanogen doesn’t have the internal capabilities to build them (the tests) themselves.

Ludvigson said the new heart test which uses B-type natriuretic peptide (BNP), the identified marker of choice for those diagnostic applications is particularly interesting for Nanogen.

Growth Expected

Analysts forecast “above-average growth” for the BNP market, reaching $300 million by 2005 as more doctors outside the U.S. start adopting the test.

San Diego-based Biosite Inc.’s Triage BNP test is the market leader, Ludvigson said.

But he said there’s space for rival products.

He finds SYN X’s test has several benefits over existing tests: For one, it doesn’t require refrigeration, and thus, can be used quickly.

It also has the added benefit of giving “quantitative results” rather than a simple “yes or no” diagnosis. This helps doctors treat and monitor patients better, he said.

When approved, the test will be sold in Europe and Canada through existing distributors and other distributors in the U.S.

Under the deal, SYN X’s President Rod Wilson and current CEO Dr. George Jackowski will join Nanogen’s management team and run SYN X as a business unit.

“They will work on developing our pipeline of products and be responsible for generating revenue in the point of care market,” Ludvigson said.

He didn’t expect any layoffs at the Toronto unit, saying that the small firm stepped up efforts to cut costs in the last nine months.

Positive Outlook

For the nine months ended Sept. 30, SYN X reported revenues of $5.8 million in Canadian dollars , $4.4 million in U.S. dollars , and debt of $3.5 million (about $2.7 million in U.S. dollars).

Nanogen expects the unit to be cash-flow positive by the end of 2005.

But Schnegelsberg said Nanogen still faces challenges.

Foremost, it needs to add more tests.

He expects Nanogen will continue to shop for companies with novel tests nearing market approval.

It may also align with other firms in that space, even including potential rivals like San Diego-based biotech firm Sequenom Inc. that have “tons of diagnostic markers,” he said.

Nanogen’s stock closed at $11.22 on Feb. 11.

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