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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
TO
FORM 10-K
------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL PERIOD ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
COMMISSION FILE NUMBER 000-23541
NANOGEN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0489621
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10398 PACIFIC CENTER COURT, SAN DIEGO, CA 92121
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (858) 410-4600
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.001 par value
Preferred Stock Purchase Rights
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the closing sale price of the Common Stock on February
17, 2000, as reported on the Nasdaq National Market was approximately
$959,608,552. Shares of Common Stock held by each executive officer and
director and by each person who owns 10 percent or more of the outstanding
Common Stock have been excluded in such calculation as such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of shares outstanding of the registrant's common stock was
19,032,980 as of February 17, 2000.
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PART I
Item 1. BUSINESS
OVERVIEW
We integrate advanced microelectronics and molecular biology into a core
technology platform with broad and diverse commercial applications in the fields
of genomics and biomedical research, medical diagnostics, drug discovery,
forensics, agriculture, environmental testing and potentially the electronics
and telecommunications industries. The first application we have developed is an
integrated bioassay system, the NanoChip molecular biology workstation,
comprised of two automated instruments and a consumable cartridge. The NanoChip
cartridge incorporating a proprietary microchip provides a flexible tool for the
rapid identification and precision analysis of biological test samples
containing charged molecules.
Through the use of microelectronics, our technology enables the active movement
and concentration of charged molecules, such as DNA, to and from designated
microlocations, or test sites, on our microchips. This electronic concentration
of molecules greatly accelerates molecular binding at each microlocation. In
addition, our technology allows the simultaneous analysis of multiple test
results, or "multiplexing," from a single sample. The open architecture design
of our system enables us to offer microchips with preloaded arrays designed for
specific applications or with arrays that can be customized by the end user. We
believe that our technology platform provides an accurate, versatile and highly
efficient integrated system that will shift bioassay analysis from current
manual and mechanical methods to microelectronic systems, thereby significantly
improving the quality and reducing the overall cost of research and healthcare.
In April of 1998 we completed our initial public offering. Since that time we
have:
- - designed and built production-ready automated instruments for cartridge
loading, processing and analysis;
- - simplified the consumable cartridge design by reducing total parts by 75%;
- - strengthened our development, manufacturing and commercialization
infrastructure;
- - added an additional eight U.S. patents and six foreign patents to our
intellectual property portfolio;
- - validated our technology through the successful completion of three beta
site tests; and
- - expanded collaborations with Aventis and Hitachi for technology development
and manufacturing.
COMMERCIALIZATION PLAN
Successful beta site tests
In February 2000, we announced the completion of our third and final beta site
testing results for the NanoChip molecular biology workstation. These tests were
conducted at three commercial and academic centers: the Mayo Clinic, the
University of Texas Southwestern Medical Center and the Bode Technology Group.
In each case, the results indicated very high levels of accuracy for the
NanoChip system. The SNP studies performed at the Mayo Clinic and the University
of Texas Southwestern Medical Center both reported 100% accuracy, exceeding the
performance of their current "gold standard" techniques. The STR analysis
results from the Bode Technology Group showed greater than 99.5% concordance
with current techniques, results which have been further improved by subsequent
software upgrades.
Commercial launch
We plan to begin commercialization of our NanoChip molecular biology workstation
during the second half of 2000 to a select group of customers in the genomics
and biomedical research fields. The initial applications for the technology will
be for the analysis of DNA including SNPs, PMs and STRs. It is
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anticipated that the analysis of gene expression will be added as an additional
application. Because of the importance of the genomics and biomedical research
markets, we anticipate being directly involved with marketing our first product
line to this non-regulated market segment. Additionally, we expect to distribute
products in Japan through the distribution arm of Hitachi.
COLLABORATIONS
We have established corporate alliances in the areas of drug discovery, high
throughput screening, infectious disease diagnostics and instrument
manufacturing and distribution. In 1998 we entered into a collaboration with
Aventis to develop drug discovery tools. In 1999 we extended our relationship
with Aventis by adding two additional programs focused on developing high
throughput screening and gene expression analysis tools. In early 2000 we formed
a collaboration with Hitachi for the manufacture and further development of the
NanoChip instruments. Hitachi has the right to distribute our instrument system
and related NanoChip consumable cartridges in Japan. Our collaborations permit
integration of our technology with the resources and technology of our partners,
while allowing us to independently pursue diagnostics, drug discovery and
genomics opportunities outside the scope of these collaborations.
LIMITATIONS OF CURRENT ASSAY TECHNOLOGIES
Many bioassay techniques have been developed from a wide variety of different
scientific disciplines for molecular biology and clinical diagnostic
laboratories. Many of these techniques are technically demanding, difficult to
perform, expensive, inflexible and often lack acceptable clinical accuracy. In
addition, technologies well suited or targeted to one market, such as the
biomedical research or drug discovery markets, often are unable to bridge the
required gap to serve downstream markets such as clinical diagnostics.
Despite recent advances in technology, most bioassays are too specialized or
inflexible to be used throughout the various departments of a life sciences
laboratory. Current bioassay tools were designed for large scale data
generation, the automation of repetitious tasks such as very high throughput
discovery and the narrowing of genetic targets from thousands of genes to a
small set of perhaps 1 to 20 genes that function in a selected biological
process. In addition, many of these systems are not useful in molecular,
protein, enzyme, cell biology, and forensics laboratories. These tools fall
primarily into three categories: high-density arrays; high throughput sequencing
and SNP discovery tools; and gel based methods. While these technologies each
have certain advantages, they also have significant drawbacks that inhibit their
broad applicability across the life sciences market.
THE NANOGEN SOLUTION
We believe that our initial product, the NanoChip molecular biology workstation,
provides the accuracy, flexibility and ease-of-use features required to serve a
wide range of genomic and biomedical as well as many other applications. We
intend to promote the Nanogen system as the laboratory standard for molecular
biologists, and the industry standard for accurate, targeted genomics in both
laboratory and non-laboratory settings. The Nanogen system provides the
following advantages:
Accuracy
Accuracy is critical in laboratory analysis. The Nanochip molecular biology
workstation, with its precision electronic addressing and high degree of
stringency, exceeded the accuracy of the current "gold standard" techniques in
the SNP studies conducted at the Mayo Clinic and the University of Texas
Southwestern Medical Center.
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Multiple formats
Nanogen's technology is designed to perform on a single sample up to 100
distinct assays, or, unlike existing technologies, several user-defined assays
on as many as 100 different samples. Each of the major bioassay formats, the
"dot blot" and the "reverse dot blot," are conveniently handled by the NanoChip
system. The system could perform 100 SNP assays on one sample, or several SNP
assays on 100 samples, each in a fully automated, user-defined manner. In
addition, STR assays are conveniently performed in a hybridization format on the
Nanogen system, with a similar degree of accuracy that the Nanogen system has
demonstrated in other assay formats.
Flexibility/scalability
Nanogen's technology is highly flexible. By using additional user-defined probe
sets, specific panels can be modified to include new assays or targets. Since as
many as eight loaders can be controlled by one reader, the user can prepare as
many as 32 programmed arrays in several hours. Due to this fact, labor is
minimized, and the system can be efficiently utilized in laboratories of various
sizes. Several different assay types may be combined on the same chip, for
example a SNP assay and an STR assay, and potentially assayed at the same time.
The NanoChip system should handle the flexibility requirements of the most
advanced research laboratory, while maintaining the ease of use and accuracy
requirements of the clinical laboratory. Nanogen's technology is a "bridging
technology" that should simplify the adoption of what were once previously
complex genetic tests by the routine clinical laboratory.
Speed
Nanogen's electronic concentration and hybridization technology greatly
accelerates the analysis process from hours to minutes. This may enable
point-of-care DNA diagnostics in the future, by allowing clinicians to perform
tests and choose appropriate therapy while a patient is still in the physician's
office.
Throughput
Our system's ability to assay as many as 100 samples at a time allows for much
higher throughput than is achievable with competitive technologies. This
throughput capacity permits highly efficient workflow for many biomedical
applications in a variety of laboratory settings.
Diverse applications
The flexibility of Nanogen's electronic-based technology is applicable to
biological analyses beyond genomics and biomedical research, including
immunoassays, enzyme assays, cell separation and cell receptor studies.
Ease of use
Nanogen assays are easy to perform. Our fully automated probe loader allows the
simultaneous programming of up to four NanoChip arrays. A loaded cartridge is
inserted and then analyzed on the Nanogen reader. The NanoChip system includes
proprietary software to automate assay operation and provide results in "real
time." There is no need for data interpretation, eliminating one source of
error. Furthermore, results can be downloaded into the user's laboratory
information system.
Cost effectiveness
We have designed the NanoChip system to be the cost-effective solution for most
molecular biology assays. The system is easy to use and may not require highly
skilled operators. Moreover, the custom features of the system allow users to
employ their own reagents in designing arrays for specific purposes. Since the
NanoChip system consumes very small quantities of reagents, generally at very
low concentration, bioassay reagent costs per result, such as DNA, are very low.
Walk-away automation conserves direct labor, while
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improving the overall effectiveness of the laboratory operation. In addition,
user definability allows important experiments to be done quickly, both
accelerating the discovery process and simplifying the validation of important
targets.
STRATEGY
We intend to research, develop, manufacture and market instruments and
components, independently and in conjunction with highly regarded corporate and
government partners, to facilitate breakthrough genetic analyses. Our NanoChip
molecular biology workstation uniquely bridges the gap between the earliest
scientific research and much later stage clinical practice. Our strategy is to
make our proprietary bioassay technology platform a standard for molecular
identification and analysis across a broad range of applications. Our initial
commercial product will be a bench-top system for use in biomedical research and
genomic applications. The capabilities that are incorporated into this system,
such as electronics-based tools that we believe can provide improved accuracy,
speed and flexibility over current laboratory techniques, will form the core
technology platform that will serve as the basis for expanding into other
biological and non-biological areas.
Continue to pursue genomics and biomedical research applications
Recent market research indicates that while researchers want to use high
throughput devices to discover genes and genetic mutations, they will want to
explore the function and impact of these genes and mutations with a more
targeted technology such as the NanoChip molecular biology workstation. We
intend to pursue the genomics and biomedical research markets by taking
advantage of the open architecture design of our technology that allows end
users to customize microchips to meet their individual research needs and help
drive development of novel applications. We believe that the speed and
flexibility of the "build-your-own-chip" feature will be very attractive to
researchers and will fulfill an unmet need for a powerful, versatile,
programmable, and cost effective analytical tool and help drive further
application development.
Pursue multiple applications
We intend to use substantially the same core hardware and consumable cartridge
platform across a spectrum of applications. By doing this, we believe we can
establish our platform as an industry standard and also reduce development costs
for follow-on applications. This approach should also allow us to achieve
manufacturing economies of scale that may help reduce our per unit cost of goods
sold over time. For our initial commercial market, the biomedical research
market, we do not anticipate the need for Food and Drug Administration or FDA or
other regulatory approval. Over time, it is expected that additional features,
such as sample-to-answer capabilities and portability at reduced cost, may
broaden the market potential from the research market to markets many times
larger that include drug discovery, diagnostics, forensics, agriculture and
environmental applications. Some of these applications would require FDA or
other regulatory approval.
Develop recurring revenue stream through bench-top and consumable product sales
We intend to sell bench-top instruments which we believe will lead to a
recurring stream of revenue from consumable cartridge sales. We believe that
widespread market penetration of our instruments and the open architecture of
the system will promote sustained demand for our cartridges.
Continue to establish strategic collaborations
We intend to continue to enter into collaborations to expand applications of our
technology platform and to accelerate the commercialization of our products. By
partnering with multinational healthcare and technology companies, we believe
that we can gain broader access to global markets without shifting our
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resources from the development of our core technology platform. In addition, as
part of these arrangements, we believe we can better focus our efforts on
tailoring our technology to expanding markets while our collaborative partners
contribute their technology and expertise in areas such as sales, marketing and
regulatory approvals.
OUR PLATFORM TECHNOLOGY
Our proprietary platform technology takes advantage of the fact that most
biological molecules are either positively or negatively charged. Through the
use of microelectronics, this technology enables the active movement and
concentration of electronically charged molecules such as DNA to and from
designated test sites on a semiconductor microchip. These test sites are
arranged in an array on our proprietary microchips. In addition, the technology
allows for the simultaneous analysis of multiple test results, or
"multiplexing," from a single sample. We believe these attributes make our
technology well suited to unraveling complex genetic information. We believe our
proprietary technology has applications for the analysis of unknown charged
biological molecules which are capable of binding specifically to known capture
molecules on a microchip. We have initially focused on DNA-based sample analysis
in developing applications utilizing our platform.
Our technology allows small sequences of DNA capture probes to be electronically
placed at, or "addressed" to, specific sites on the microchip. A test sample can
then be analyzed for the presence of target DNA molecules by determining which
of the DNA capture probes on the array bind, or hybridize, with complementary
DNA in the test sample. In contrast to nonelectronic or passive hybridization
with conventional arrays on paper or glass "chips," the use of electronically
mediated active hybridization to move and concentrate target DNA molecules
accelerates hybridization. Electronically mediated hybridization occurs in
minutes rather than the hours required for passive hybridization techniques.
We believe our technology may be applicable to a number of other analyses, in
addition to DNA applications, including antigen-antibody, enzyme-substrate,
cell-receptor, and cell separation techniques.
Our system can integrate in a single platform the following electronic
operational features:
Electronic addressing
Electronic addressing is the process by which we place charged molecules at
specific test sites. Since DNA has a strong negative charge, it can be
electronically moved to an area of positive charge. A test site or a group of
test sites on the microchip is electronically activated with a positive charge.
A solution of DNA probes is introduced onto the microchip. The negatively
charged probes rapidly move to the positively charged sites, where they
concentrate and are chemically bound to that site. The microchip is then washed
and another solution of distinct DNA probes can be added. Site by site, row by
row, an array of specifically bound DNA probes can be addressed on the
microchip. Multiplexed sites can be addressed simultaneously, allowing for speed
and flexibility of array assembly. With the ability to electronically address
capture probes to specific sites, the NanoChip molecular biology workstation
allows end users to build custom arrays through the placement of specific
capture probes on a microchip. These microchip arrays may provide research
professionals with a powerful and versatile tool to process and analyze
molecular information.
Electronic concentration and hybridization
Following electronic addressing, we use electronics to move and concentrate
target molecules to one or more test sites on the microchip. In contrast to the
passive hybridization process, the electronic concentration process has the
advantage of significantly accelerating the rate of hybridization of a given
target molecule with complementary capture probes.
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Stringency control
In addition to utilizing conventional thermal and chemical stringency
techniques, the NanoChip molecular biology workstation is capable of utilizing
electronic stringency control when appropriate. Electronic stringency control
can provide a means to quickly and easily remove non-complementary DNA as part
of the hybridization process. Electronic stringency can provide quality control
for the hybridization process and ensures that any bound pairs of DNA are truly
complementary. The precision, control, and accuracy of our platform technology
may permit the detection of single point mutations, single base pair mismatches
or other genetic mutations which have significant implications in a number of
disease states. Electronic control allows rapid and selective stringency
conditions to be applied to individual test sites, which cannot be achieved with
conventional methods. In contrast to conventional approaches, our technology can
also accommodate both short and long single-stranded fragments of DNA on the
same chip. This flexibility reduces the required number of probes and related
test sites on the microchip. Currently marketed DNA arrays are difficult to
control, require more uniformity in the preparation of the sample, and require
greater redundancy to improve accuracy.
Electronic multiplexing
Our electronic multiplexing feature allows the simultaneous analysis of multiple
tests from a single sample or multiple samples to be queried during the
hybridization process. Electronic multiplexing is facilitated by the ability to
control individual test sites (for addressing of capture probes and
concentration of test sample molecules) which allows for the simultaneous use of
biochemically unrelated molecules on the same microchip. Sites on a conventional
DNA array cannot be individually controlled, and therefore the same process
steps must be performed on the entire array. The use of electronics in our
technology provides increased versatility and flexibility over these
conventional methods.
Strand Displacement Amplification
Strand Displacement Amplification, or SDA, is a proprietary target amplification
process whereby very low numbers of diagnostic targets in a test sample are
enzymatically amplified to exponentially higher levels, greatly simplifying
accurate detection of these targets. Because this process does not require
thermal cycling, it is extremely fast, and complex instrumentation is not
required. The Nanogen/Becton Dickinson Partnership was granted rights to Becton
Dickinson's patents relating to SDA in infectious disease diagnostics. In
addition, we were granted rights to use SDA in the fields of IN VITRO human
genetic testing and cancer diagnostics for use outside The Nanogen/Becton
Dickinson Partnership. We believe that SDA may be an important element in the
development of sample-to-answer applications for our technology platform.
THE NANOCHIP MOLECULAR BIOLOGY WORKSTATION COMPONENTS
The NanoChip molecular biology workstation consists of both a consumable
cartridge containing a proprietary semiconductor microchip and a fully automated
instrument that controls all aspects of microchip operations, processing,
detection and reporting. The system has been designed so that after insertion of
a consumable cartridge containing a test sample into the instrument, all
subsequent steps are handled automatically under computer control. We have also
developed a bench-top microchip loader for those researchers wishing to
electronically address microchips with their own capture probes.
Consumable cartridge
The consumable NanoChip cartridge consists of a proprietary semiconductor
microchip with electrical and fluidic connections to the instrument. We are
finalizing designs for commercially manufacturing our cartridges based on
successful tests with a number of prototype cartridges. We expect that the
consumable cartridge and microchip will be manufactured in high volumes at a low
cost relative to many current technologies.
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SEMICONDUCTOR MICROCHIP
Our proprietary microchip utilizes advances in the semiconductor industry and is
designed and constructed using microlithography and fabrication techniques. Our
microchip is coated with a proprietary permeation layer to which capture probes
are attached and is mounted within the consumable cartridge. We have developed
arrays of various sizes utilizing both passive and active CMOS microchips, as
well as flip chip assembly technologies. We expect our initial production of
consumable cartridges to employ 100 different test sites on the microchip.
PERMEATION LAYER
Our proprietary permeation layer, which is critical to the proper functioning of
our system, is the interface between the surface of the microchip and the
biological test environment. The permeation layer isolates the biological
materials from the harsh electrochemical environment near the electrode surface
and provides the chemistry necessary for attachment of capture probes.
CAPTURE PROBES
Capture probes or other capture molecules are electronically addressed to the
desired microlocations and chemically attached to the permeation layer. Because
independent control can be applied at any test site on our microchip, different
capture probes can be addressed on the same microchip, allowing multiple tests
to be processed simultaneously. Our cartridges can be sold with preloaded sets
of capture probes or can be customized by the end user in "build-your-own-chip"
applications which will allow the customer to assemble specific probes onto a
microchip to perform individualized analyses.
Our instruments
Our fully integrated NanoChip instrument system consists of four major
subsystems: (1) a freestanding microchip loader to perform electronic addressing
of blank microchips, (2) a highly sensitive, laser-based fluorescence scanner
that detects molecular binding, (3) a fluid handling subsystem that controls
test sample application and washing steps and (4) computer hardware and software
that allow the operator to select assays from a graphical user menu which
controls all microchip operations, tabulates test results and prints test
reports.
MICROCHIP LOADER
For biomedical research applications, our system includes a cartridge/microchip
loader that will allow the user to electronically address their own probes to
test sites on up to four chips simultaneously. For the diagnostics market and
most other applications, a loader will not be required because we intend to
provide pre-addressed microchips for a specific panel of tests. Multiple loaders
can operate concurrently under the control of one system.
FLUORESCENT ARRAY SCANNER
The fluorescent scanner component of the system uses pattern recognition
techniques and optoelectronic technology to reduce instrument cost and size and
eliminate the need for complicated array positioning mechanics. In its present
configuration, the scanner is able to perform high sensitivity scans of arrays
of 100 test sites in less than two minutes.
FLUIDICS STATION
Within the fluorescent array scanner component of the system, the fluidics
station automates the movement of the reagents and test sample onto the
consumable cartridge. The fluidic subassembly of the instrument includes a panel
of precision syringe pumps, a cartridge-mounted sample assembly and fluidic
connections between the instrument and the consumable cartridge.
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COMPUTER HARDWARE AND SOFTWARE SYSTEM
A multi-tasking operating system and microprocessor control all aspects of the
systems operations, including bar-coded assay selection, assay operation,
fluorescent signal detection and signal processing, calculation of assay results
and report generation. Each of the individual array locations is separately
controlled by the microprocessor. Fluorescent signals emanating from positive
test sites are scanned, monitored and quantitated.
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<S> <C> <C>
NanoChip Analysis Process
Cartridge
[LOGO] An active microelectronic chip is mounted within
a plastic molded cartridge. The bar-coded
cartridge is delivered in a ready-to-address
format with no genetic sequences pre-attached.
Electronic addressing
Users design and create their own genetic arrays
on the microelectronic chip with Nanogen's
automated system. A microtiter plate containing
up to 96 different genetic sequences is placed
in the loader instrument. The system then
automatically electronically addresses the
microchip to the user-defined arrays.
Electronic hybridization and stringency
Users add the test sample to the cartridge and
insert the cartridge into the reader. The
instrument then automatically performs
electronic hybridization and the appropriate
stringency control. The electronically enhanced
process speeds and improves the genetic
analysis, allowing single-base accuracy.
[LOGO]
Simple-to-read output
Within minutes of inserting the bar-coded
cartridge for analysis, easy-to-read and
interpret output is available. Data can be
automatically downloaded to network systems and
to standard software spreadsheet packages. The
entire electronic addressing and data output
process can be completed rapidly, allowing users
to accelerate their research process by creating
new genetic arrays based on previous
experimental results.
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PRODUCTS AND APPLICATIONS UNDER DEVELOPMENT
Genomics and biomedical research applications
We expect to begin commercialization of the NanoChip molecular biology
workstation, a bench-top molecular analysis system, for use in the genomics and
biomedical research market during the second half of 2000. Unlike the
high-density arrays and sequencing technologies now in the marketplace, our
focus will be on the targeted analysis of data from the genomics
revolution--helping researchers define the function of genes rather than
discover new genes. We believe our technology is well suited for this research,
given the speed, user programmability, multiplexing capability and sensitivity
of our unique platform.
Given that researchers are just beginning to move beyond gene discovery into
this targeted analysis area referred to as functional genomics, the timing of
our anticipated product introduction may be well suited to meet this evolving
market need. An independent market research study by Strategic Directions
International published in December 1999 indicated that the market potential for
DNA microarrays is anticipated to grow rapidly from $200 million in 2000 to
almost $800 million by 2003.
Our initial strategy for entering this market will be to focus on sophisticated
commercial and academic users such as large pharmaceutical companies,
biotechnology companies and research and academic institutions. We intend to
provide technical support and applications specialists to assist these customers
in applying the technology. Our initial product offering is expected to include
features such as the ability to perform assays on SNPs, point mutations and
genetic repeats in a multiplexed format using a variety of different methods. We
plan to further define and develop additional capabilities, such as gene
expression, on-chip amplification and sample processing. As these capabilities
are added, we expect to start expanding our customer base to a wider group that
may ultimately encompass a significant percentage of the biomedical research
labs in the U.S. and other parts of the world.
Diagnostics applications
We anticipate the introduction of array-based diagnostic testing will grow as
effective technologies are introduced and validated. This multi-step process
will allow for both the development of relevant genetic-based tests that may
evolve from biomedical research, and for the awareness and confidence in
array-based technology to extend to medical practitioners. Finally, we
anticipate the need for regulatory approval of certain diagnostic tests. It is
our intention to begin serving the diagnostic market in advance of a regulatory
approved product by providing a flexible tool to be used for clinical research
and for an industry practice referred to as "home brew" or "in-house" testing.
PHARMACOGENOMICS
We believe that the ability of our technology to screen simultaneously for
various DNA sequences and the ability to differentiate between SNPs has
potentially wide applicability to the field of genetic testing in general and
pharmacogenomics in particular.
Our NanoChip molecular biology workstation may provide pharmaceutical and
biotechnology companies with the ability to identify important genetic
variations early in the drug development process. We believe our system may help
stratify patients during clinical trials and identify those receiving the
maximum benefit from treatment. We intend to ultimately develop a small
sample-to-answer, FDA-approved diagnostic test that can be used in a doctor's
office potentially while a patient is waiting. We have a development program
underway to develop a more compact version of our NanoChip instrument system.
INFECTIOUS DISEASES
We believe we have the potential to apply our technology in the field of
infectious disease diagnostics to develop automated tests to replace the manual
and time-intensive procedures used in hospitals and reference
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laboratories. The role of the clinical microbiology laboratory is to detect,
identify and determine antibiotic sensitivity of disease causing microorganisms.
To accomplish this task, colonies of microorganisms from patient specimens are
grown, or cultured, in various growth media. Following colony growth, various
direct and indirect techniques are utilized to determine the identity and, as
required, the sensitivity of the microorganism to specific antibiotics. Using
currently available technologies, the entire process may take days or weeks to
complete while the patient, requiring immediate therapy, must be treated by the
clinician based upon the best clinical facts available at that time. Upon
receipt of the diagnostic analysis from the laboratory, the initial patient
treatment protocol may need to be modified in order to treat the patient more
effectively.
Current culture-based methods detect a single microorganism at one time. Because
a particular infectious episode may be caused by one of many microorganisms or
several microorganisms together, multiple tests may be required to determine the
correct diagnosis. "Single tube" (one at a time) DNA probe diagnostics, which
were first introduced to the marketplace in the mid-1980's, have been
unsuccessful in displacing culture based diagnostic tests in part due to their
inability to identify several organisms simultaneously. Our technology addresses
these shortcomings by allowing the simultaneous analysis of multiple
microorganisms from a single patient sample. We believe our technology and
integrated system may speed the time-to-result for diagnostic tests and patient
treatment and offer our customers the opportunity to lower their costs and
improve productivity by automating all or a significant portion of their
labor-intensive testing.
OTHER GENETIC TESTING APPLICATIONS
As the Human Genome Project opportunity and other public and private genetic
sequencing efforts yield increasing amounts of genetic information, the demand
for genetic predisposition testing will continue to grow. Because many important
genetic diseases are ideally suited to diagnosis in multiplexed arrays, we
believe that our technology platform could contribute significantly to the
expansion of testing in this area. For example, in cancer diagnostics, certain
mutations are indicative of a predisposition to certain types of cancer.
Although many diseases involve multiple mutations, the ability to analyze all
possible mutations has previously been expensive and impracticable. Our
stringency control feature potentially permits rapid and accurate testing for
these single point mutations. While our development efforts in this area with
respect to specific genetic tests are still at an early stage, our core
technology platform for other diagnostic applications may be well suited for
these opportunities.
Drug discovery applications
We believe we have a powerful tool which will clarify appropriate pathways for
therapeutic intervention, identify and evaluate lead compounds and
simultaneously assess the efficacy and toxicology of these compounds in model
systems. It is estimated that the preclinical drug discovery process takes an
average of six and one-half years. Consequently, we believe there is a
significant demand for improved tools which accelerate the drug discovery
process.
We believe the microelectronic array format and independent test site control of
our system are well suited for applications in drug discovery. In addition, we
believe the use of electronics beyond the array format may provide a valuable
tool for the high throughput screening of compounds. Our electronic technology
is expected to enable the rapid manipulation of potential drug molecules against
targets such as bacteria, virus, tumor or immune response cells addressed to the
microchip to determine drug efficacy, thus simplifying the drug discovery
process. The combination of electronic addressing and the electronic protection
of specific areas of the microchip allows the targeting of chemical building
blocks to unique locations on the array. We believe our system may provide an
efficient automated method for drug lead optimization.
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To further advance our efforts in this area, we entered into a research and
development collaboration with Aventis in 1998. This collaboration is focused on
the development of novel electronic combinatorial approaches toward drug
screening and discovery. We expanded our relationship with Aventis in 1999 by
adding two additional projects. Nanogen and Aventis met all of the objectives
for the initial collaboration in 1998 and 1999 and agreed to extend the research
program through 2001.
Forensic applications
STRs are the genetic sequences chosen by the U.S. government and other foreign
governments to populate their national criminal identification databases. These
databases are intended to provide nationwide tools for identifying repeat
criminals by comparing a given piece of evidence or sample from a suspect with
the sequences stored in the database. We believe our NanoChip molecular biology
workstation may be useful in human identity testing.
Non-biological applications
We are applying our core microelectronics biochip technology to potential
applications in non-biological areas which include nanotechnology, data storage
and semiconductor manufacturing. Based on the intrinsic self-assembly and
programmable qualities of DNA, our technology uses electrical current to direct
the heterogeneous integration of a number of molecular and nonmolecular
components onto a microelectronic chip. Presently, there are a number of
academic groups, government research labs, and electronics companies involved in
the development of molecular electronic components, but no one has successfully
developed a way to integrate them into useful devices. Our integrated "host
substrate" or "motherboard" array capability could serve to provide useful new
tools with the ability to take advantage of these valuable components.
Our electronic "pick and place" technology may have several advantages compared
to the more difficult conventional processes. Our technology could facilitate
the movement and assembly of microelectronic components ranging in size from
molecular scale to micron scale, something traditional assembly methods cannot
achieve. Also, using electric field specificity control, we may have the ability
to form novel integrated devices in a more timely and cost-effective fashion.
For example, we are evaluating the use of this platform technology to facilitate
integration of different size components for the development of new photonic or
electronic devices.
COMMERCIALIZATION PLAN
Successful beta site tests
Beta site testing is the process of placing pre-commercial products into
potential customer laboratories, and allowing them to use the system and provide
feedback to the manufacturer regarding product performance and potential
opportunities for improvement. We beta tested our NanoChip molecular biology
workstation during 1999 at three highly visible commercial and academic centers:
the Mayo Clinic, the University of Texas Southwestern Medical Center and the
Bode Technology Group. The Mayo Clinic is a world-renowned clinical research
facility and clinical practice, the University of Texas Southwestern Medical
Center is a university-based genomics center and the Bode Technology Group is a
private forensics laboratory. The Mayo Clinic and the University of Texas
Southwestern Medical Center performed SNP analyses, while the Bode Technology
Group performed an STR analysis. In each case, the researchers at the beta sites
released results of their studies which all indicated a very high level of
accuracy. The Mayo Clinic and the University of Texas Southwestern Medical
School both reported 100% accuracy for the SNP studies performed using the
NanoChip molecular biology workstation, which exceeded the performance of their
current "gold standard" techniques. The STR analysis beta test results at the
Bode Technology Group
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showed greater than 99.5% accuracy for the NanoChip molecular biology
workstation. Additionally, all three sites provided input throughout the beta
testing process that helped us design improvements into the NanoChip molecular
biology workstation.
Commercial launch
We plan to begin commercialization of our NanoChip molecular biology workstation
during the second half of 2000 to a select group of customers in the genomics
and biomedical research field. The initial applications for the technology will
be for the analysis of DNA including SNPs, PMs and STRs. It is anticipated that
the analysis of gene expression will be added as an additional application.
COLLABORATIVE ALLIANCES
We have established collaborative alliances in the areas of infectious disease
diagnostics, drug discovery and genomics as part of our strategy to expand the
applications and accelerate the commercialization of products derived from our
technology. We have expanded our relationship with Aventis by increasing the
number of collaborative research and development projects from one to three. In
January 2000 we entered into a manufacturing, development and distribution
agreement with Hitachi. Because of the importance of the biomedical research and
genomics market as a beachhead, we anticipate being directly involved with
marketing our first product line to this non-regulated market segment.
Additionally, we expect to distribute products in Japan through the distribution
arm of Hitachi.
Aventis
In December 1997, we entered into a Letter Agreement with Aventis for an
exclusive research and development collaboration relating to new drug discovery
tools and immunodiagnostics research. In connection with the Letter Agreement,
we entered into a definitive Collaborative Research and Development Agreement
with an effective date of January 1, 1998. The arrangements for the
commercialization of products, if any, developed as a result of the
collaboration will be negotiated by the parties prior to completion of the
research and development phase. In addition, in September 1999 we expanded our
relationship with Aventis by adding two new research and development programs
focused on gene expression arrays and on an electronics-based high throughput
screening system. We retain full commercialization rights for the products
resulting from these new projects, while Aventis retains the right to use the
technology for internal research and development.
As part of our collaboration, we have agreed to issue a warrant for 120,238
shares of common stock to Aventis at an exercise price of $8.75 per share. We
have also agreed to issue to Aventis, upon the achievement of certain
milestones, warrants to purchase up to approximately 360,000 additional shares
of common stock as follows: upon announcement by the parties of entry into the
product development phase of the research and development collaboration, a
warrant for the purchase of approximately 180,000 shares of common stock at a
50 percent premium to the market price on the date of such entry, and upon the
first commercial sale by the joint venture or other joint relationship, a
warrant to purchase an additional 180,000 shares of common stock at a
50 percent premium to the market price on the date of such sale. The warrants
will have five-year maximum terms, provided that with respect to each such
warrant issuance, if at any time subsequent to the issuance of the warrant the
price of our common stock exceeds the exercise price by 50 percent or more,
Aventis must exercise such warrant no later than the end of its next fiscal
year.
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Hitachi
In January 2000, we executed an agreement with Hitachi for the full-scale
commercial manufacturing and distribution of our Nanogen molecular biology
workstation in specified research markets. Hitachi's Instrument Group will
provide technology and technical support to aid in the manufacturing scale up of
the Nanogen molecular biology workstation's components.
Hitachi will have the right to be the sole distributor of Hitachi-produced
Nanogen molecular biology workstations instruments in Japan. Hitachi will also
have the non-exclusive right to distribute NanoChip cartridges in Japan. We
retain the right to distribute, directly or through others, Hitachi produced
NanoChip molecular biology workstations outside of Japan. In addition, we will
develop and manufacture the NanoChip cartridges for distribution worldwide. The
agreement is non-exclusive and excludes certain clinical markets, and we
continue to have the right to form other manufacturing and distribution
agreements for all markets and for all non-Hitachi produced products.
Becton Dickinson
In connection with Nanogen's joint venture with Becton Dickinson in October
1997, The Nanogen/Becton Dickinson Partnership, or the Partnership, a Delaware
general partnership was established. The Partnership was formed to develop and
commercialize products in the field of IN VITRO nucleic acid-based diagnostic
and monitoring technologies in infectious diseases.
In 1999, Becton Dickinson and Nanogen agreed to discuss a change in the
Partnership's scope and field. Both parties are currently in discussions with
the intention of redefining the Partnership's scope and field to better align it
with the strategic goals of each party. We have received no research funding
from Becton Dickinson since the third quarter of 1999, and are uncertain whether
we will receive any additional research funding from Becton Dickinson.
Concurrently with the execution of the joint venture agreement, we entered into
a worldwide, royalty-bearing, nonexclusive license agreement with Becton
Dickinson, relating to Becton Dickinson's proprietary SDA technology for use by
us outside the Partnership in the fields of IN VITRO human genetic testing and
IN VITRO cancer diagnostics.
Elan
In December 1997, we entered into a nonexclusive research and development
agreement with Elan Pharmaceuticals, plc for the development of genomics and
gene expression research tools. The agreement contemplates that we will develop
products for discrimination of sequence variations such as single nucleotide
polymorphisms, allelic variations, genotyping, and mutation detection. We may
also develop products for use in expression monitoring of RNA levels for use in
gene discovery, drug discovery, target validation, animal studies, and toxicity
studies. In 1999 and 1998, revenues earned by us pursuant to this agreement were
approximately $568,000 and $929,000 respectively. We are uncertain if we will
receive any additional funds from Elan.
RESEARCH GRANTS
We have a number of active research grants and contracts administered by various
governmental agencies. In September 1998, we were awarded (1) a contract by the
Space and Naval Warfare Systems Center San Diego or SSC San Diego for the
Defense Advance Research Projects Agency of $7 million over a five year term and
(2) a grant from the National Institute of Justice or NIJ of approximately
$1 million over a five year term. The contract award which was made by SSC San
Diego for the Defense Advance Research Projects Agency, includes over
$2 million to be paid during the first two years, and options to extend the
program for up to an additional three years that would pay us up to an
additional $4.8 million. The goal of the program is to create an advanced
miniaturized lab for biological warfare defense applications. Under the
<PAGE>
grant awarded by the U.S. Department of Justice, Office of Justice Programs we
are continuing our work in the development of a portable microchip array-based
genetic detector for rapid forensic DNA testing and identification at the crime
scene.
RESEARCH AND PRODUCT DEVELOPMENT
Our research and product development is dedicated to:
- - developing our DNA analysis platform;
- - using this basic technology in a number of different product areas;
- - planning system modifications for specific applications using a common
platform; and
- - enhancing chip design and capabilities to simplify instrument design.
We have project teams focused on technology applications for the research market
and for drug discovery applications for the Aventis collaboration. In addition,
we have various groups supporting activities related to government contracts and
grants for both biologic and non-biologic applications.
PROPRIETARY TECHNOLOGY AND PATENTS
We have twelve issued U.S. patents, seven foreign issued patents and a number of
pending patent applications filed in the U.S. and abroad. In addition to
pursuing patents and patent applications relating to our platform technology, we
may enter into other license arrangements to obtain rights to third-party
intellectual property where appropriate.
Our or our licensors' patent applications may not be issued. Issued patents may
not be found valid if challenged. In addition, intellectual property rights
licensed by us may not be successfully integrated into commercial products.
Others may independently develop similar technologies or duplicate any
technology developed by us. Because of the extensive time required for
development, testing, and regulatory review of a potential product, it is
possible that, before any of our products can be commercialized, any related
patent may expire or remain in existence for only a short period following
commercialization, thus reducing any advantage of the patent, which could
adversely affect our ability to protect future product development and,
consequently, our business, financial condition and results of operations.
All of our inventions have originated in the U.S. and all patent applications
were originally filed in the U.S. We also seek to protect these inventions
through foreign counterpart applications filed in selected other countries.
Because patent applications in the U.S. are maintained in secrecy until the
patents are issued and since publication of discoveries in the scientific or
patent literature often lag behind actual discoveries, we cannot be certain that
we were the first to make the inventions covered by each of our issued or
pending patent applications or that we were the first to file for protection of
inventions set forth in such patent applications. Our planned or potential
products may be covered by third-party patents or other intellectual property
rights, in which case continued development and marketing of the products would
require a license. Required licenses may not be available to us on acceptable
terms, if at all. If we do not obtain these licenses, we could encounter delays
in product introductions while we attempt to design around the patents, or could
find that the development, manufacture or sale of products requiring these
licenses is foreclosed.
We are aware of U.S. and corresponding foreign patents and applications which
are assigned to Affymax Technologies, N.V., and Affymetrix which relate to
certain devices having 1,000 or more groups of oligonucleotides occupying a
total area of less than 1 cm(2) and 400 different oligonucleotides per cm(2) on
a substrate. In the event that we proceed with the development of arrays with
more than 400 groups of oligonucleotides, we expect to design our devices
through, among other things, the selection of the physical
<PAGE>
dimensions, methods of binding and selection of support materials to avoid
infringing these patents. We may not be able to design around these patents. We
are aware of U.S. and European patents and patent applications owned by Isis
Innovations Ltd. (E. M. Southern). We have opposed one allowed European patent
which had broad claims to array technology for analyzing a predetermined
polynucleotide sequence. Isis Innovations' position with respect to the opposed
patent is that the claims relate to what it terms the "diagnostic mode." Those
claims have now all been narrowed to the point that if the claims are accepted
by the European Patent Office, they would not be infringed by our technology. On
May 5, 1998, The Opposition Division of the European Patent Office issued a
provisional nonbinding opinion that the claims should be revoked. If the claims
of the original European patent survive the opposition or if an application
relating to arrays issues in another country with claims as broad as the
original European patent, we would be subject to infringement claims that could
delay or preclude sales of some or all of our anticipated diagnostic products.
We are also aware of a U.S. patent and corresponding foreign applications which
are assigned on their face to Massachusetts Institute of Technology, Houston
Advanced Research Center and Baylor College of Medicine. We believe that we have
meritorious positions regarding non-infringement and invalidity. Parties
claiming to have rights under the patent and applications have offered us a
license. No assurance can be made that a license will be available on
commercially acceptable terms, or that we would prevail in any ultimate action.
Litigation may be necessary to defend against or assert claims of infringement,
to enforce patents issued to us, to protect trade secrets or know-how owned by
us or to determine the scope and validity of the proprietary rights of others.
In addition, interference proceedings declared by the USPTO may be necessary to
determine the priority of inventions with respect to our patent applications.
Litigation or interference proceedings could result in substantial costs to and
diversion of our effort, and could have a material adverse effect on our
business, financial condition, and results of operations. Any such efforts may
not be successful.
We may rely on trade secrets to protect our technology. Trade secrets are
difficult to protect. We seek to protect our proprietary technology and
processes by confidentiality agreements with our employees and certain
consultants and contractors. These agreements may be breached, we may not have
adequate remedies for any breach and our trade secrets may otherwise become
known or be independently discovered by competitors. To the extent that our
employees or our consultants or contractors use intellectual property owned by
others in their work for us, disputes may also arise as to the rights in related
or resulting know-how and inventions.
MANUFACTURING
In January 2000 we formed a collaboration with Hitachi for the manufacture of
our NanoChip molecular biology workstation instruments. For the manufacture of
the NanoChip cartridge, we perform many of the proprietary assembly steps
in-house, including deposition of the permeation layer and final electronic
assembly and testing. We believe our technology allows for large-scale microchip
production at a relatively low cost. We believe this scalability and low cost
will help promote the rapid acceptance of our proprietary semiconductor-based
platform technology as an industry standard. However, achieving these
efficiencies will require substantial commercial volumes and there can be no
assurance we will be successful in generating sufficient demand to scale up
manufacturing capacity to levels that will allow our products to be priced
competitively.
<PAGE>
SALES AND MARKETING
We plan to field a focused, direct sales force in the United States and Europe
to coordinate the sale and marketing of our first product, the NanoChip
molecular biology workstation. The sales team will target sites for multi-unit
placements, strategic development of diagnostic content, and value-added
distribution partners for selected market segments.
Hardware service for our Hitachi-made NanoChip molecular biology workstations is
expected to be provided by Hitachi's technical service organization. Hitachi's
wholly-owned distribution partner, Nissei-Sangyo, will sell and service NanoChip
systems and cartridges in Japan.
In San Diego, we will support world-wide field activities with a customer
applications laboratory. This laboratory will be used to assist in early
customer demonstrations, protocol development and training.
COMPETITION
As we develop applications of our technology, we expect to encounter intense
competition from a number of companies that offer products competing in our
targeted applications. We anticipate that our competitors in these areas will
include health care companies that manufacture laboratory-based tests and
analyzers, diagnostic and pharmaceutical companies, as well as companies
developing drug discovery technologies. To the extent we are successful in
developing products in these areas, we will face competition from established
and development-stage companies.
In many instances, our competitors have substantially greater financial,
technical, research, and other resources and larger, more established marketing,
sales, distribution and service organizations than us. Moreover, competitors may
offer broader product lines and have greater name recognition than us, and may
offer discounts as a competitive tactic. In addition, several development stage
companies are making or developing products that compete with our potential
products. There can be no assurance that our competitors will not succeed in
developing or marketing technologies or products that are more effective or
commercially attractive than our potential products, or that would render our
technologies and products obsolete. Also, we may not have the financial
resources, technical expertise or marketing, distribution or support
capabilities to compete successfully in the future. Our success will depend in
large part on our ability to maintain a competitive position with respect to our
technologies. Rapid technological development by others may also result in
competing products or technologies.
GOVERNMENT REGULATION
For our initial commercial market, the biomedical research market, we do not
anticipate the need for FDA or other regulatory approval. We have not applied
for FDA or other regulatory approvals with respect to any of our products under
development. We anticipate, however, the manufacturing, labeling, distribution
and marketing of some or all of the diagnostic products we may develop and
commercialize in the future will be subject to regulation in the U.S. and in
other countries. In addition to clinical diagnostic markets, we also may pursue
forensic, agricultural, environmental, laboratory and industrial applications
for our products which may be subject to different government regulation.
Aspects of our manufacturing and marketing activities may also be subject to
federal, state and local regulation by various governmental authorities.
In the U.S., the FDA regulates, as medical devices, most diagnostic tests and IN
VITRO reagents that are marketed as finished test kits and equipment. Pursuant
to the Federal Food, Drug, and Cosmetic Act, and the regulations promulgated
thereunder, the FDA regulates the preclinical and clinical testing, design,
manufacture, labeling, distribution and promotion of medical devices. We will
not be able to commence
<PAGE>
marketing or commercial sales in the U.S. of new medical devices under
development that fall within the FDA's jurisdiction until we receive clearance
or approval from the FDA, which can be a lengthy, expensive, and uncertain
process. Noncompliance with applicable requirements can result in, among other
things, administrative or judicially imposed sanctions such as injunctions,
civil penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant premarket clearance or premarket
approval for devices, withdrawal of marketing clearances or approvals, or
criminal prosecution.
In the U.S., medical devices are generally classified into one of three classes
(I.E., Class I, II or III) on the basis of the controls deemed necessary by the
FDA to reasonably ensure their safety and effectiveness. Class I devices are
subject to general controls (E.G., labeling, premarket notification, and
adherence to QSR). Class II devices are subject to general and special controls
(E.G., performance standards, postmarket surveillance, patient registries and
FDA guidelines). Generally, Class III devices are those which must receive
premarket approval by the FDA to ensure their safety and effectiveness (E.G.,
life-sustaining, life-supporting, and implantable devices or new devices which
have been found not to be substantially equivalent to a legally marketed
devices). Before a new device can be introduced in the market, the manufacturer
must generally obtain FDA clearance of a 510(k) notification or approval of a
PMA application. Our products will vary significantly in the degree of
regulatory approvals required. We believe that certain of our products for
research, genomics, drug discovery and industrial applications will not require
regulatory approvals or clearance. Some diagnostic products will require 510(k)
approvals while other diagnostic and genetic testing products will require PMA
approvals.
A 510(k) clearance will generally only be granted if the information submitted
to the FDA establishes that the device is "substantially equivalent" to a
legally marketed predicate device. For any devices that are cleared through the
510(k) process, significant modifications or enhancements in the design or
intended use that could significantly affect safety or effectiveness will
require new 510(k) submissions. It generally takes from four to twelve months
from submission to obtain 510(k) premarket clearance but the process may take
longer.
The PMA approval process is more expensive, uncertain, and lengthy than the
510(k) clearance process. A PMA must prove the safety and effectiveness of the
device to the FDA's satisfaction, which typically requires extensive data,
including but not limited to, technical, preclinical, clinical trials,
manufacturing and labeling to demonstrate the safety and effectiveness of the
device. Although clinical investigations of most devices are subject to the
investigational device exemption requirements, clinical investigations of IN
VITRO diagnostic tests, such as our products and products under development, are
exempt from the investigational device exemption requirements, including the
need to obtain the FDA's prior approval, provided the testing is noninvasive,
does not require an invasive sampling procedure that presents a significant
risk, does not introduce energy into the subject, and is not used as a
diagnostic procedure without confirmation by another medically established test
or procedure. In addition, the IN VITRO diagnostic tests must be labeled for
research use only or investigational use only, and distribution controls must be
established to assure that IVDs distributed for research or clinical
investigation are used only for those purposes.
The FDA may determine that we must adhere to the more costly, lengthy, and
uncertain PMA approval process for our potential products. Significant
modifications to the design, labeling or manufacturing process of an approved
device may require approval by the FDA of a PMA supplement or a new PMA
application.
After a PMA is accepted for filing, the FDA begins its review of the submitted
information, which generally takes between one and two years, but may take
significantly longer. During this review period, the FDA may request additional
information or clarification of information already provided. Also during the
review period, an advisory panel of experts from outside the FDA will be
convened to review and evaluate the
<PAGE>
application and provide recommendations to the FDA as to the approvability of
the device. We may not be able to obtain necessary approvals on a timely basis,
if at all, and delays in obtaining or failure to obtain such approvals, the loss
of previously obtained approvals, or failure to comply with existing or future
regulatory requirements could have a material adverse effect on our business,
financial condition and results of operations.
Manufacturers of medical devices for marketing in the U.S. are required to
adhere to the QSR requirements (formerly Good Manufacturing Practices), which
include testing, control and documentation requirements. Manufacturers must also
comply with Medical Device Reporting requirements that a manufacturer report to
the FDA any incident in which its product may have caused or contributed to a
death or serious injury, or in which its product malfunctioned and would be
likely to cause or contribute to a death or serious injury upon recurrence.
Labeling and promotional activities are subject to scrutiny by the FDA and, in
certain circumstances, by the Federal Trade Commission. FDA enforcement policy
prohibits the marketing of approved medical devices for unapproved uses.
We are subject to routine inspection by the FDA and certain state agencies for
compliance with QSR requirements, medical device reporting requirements and
other applicable regulations. The recently finalized QSR requirements include
design controls that will likely increase the cost of compliance. We may incur
significant costs to comply with laws and regulations in the future and these
laws and regulations may have a material adverse effect upon our business,
financial condition and results of operation.
Any of our customers using our diagnostic devices for clinical use in the U.S.
may be regulated under the Clinical Laboratory Improvement Amendments of 1988 or
CLIA. CLIA is intended to ensure the quality and reliability of clinical
laboratories in the U.S. by mandating specific standards in the areas of
personnel qualification, administration, participation in proficiency testing,
patient test management, quality control, quality assurance and inspections. The
regulations promulgated under CLIA establish three levels of diagnostic tests
("waived," "moderately complex" and "highly complex"), and the standards
applicable to a clinical laboratory depend on the level of the tests it
performs. CLIA requirements may prevent some clinical laboratories from using
our diagnostic products. Therefore, CLIA regulations and future administrative
interpretations of CLIA may have a material adverse impact on us by limiting the
potential market for our products.
The Food and Drug Administration Modernization Act of 1997 makes changes to the
device provisions of the FD&C Act or the Act and other provisions in the Act
affecting the regulation of devices. Among other things, the changes will affect
the IDE, 510(k) and PMA processes, and also will affect device standards and
data requirements, procedures relating to humanitarian and breakthrough devices,
tracking and postmarket surveillance, accredited third-party review, and the
dissemination of off-label information. We cannot predict how or when these
changes will be implemented or what effect the changes will have on the
regulation of our products. There can be no assurance that the new legislation
will not impose additional costs or lengthen review times for our products.
Additionally, our food pathogen products will be subject to the regulations of
various domestic and foreign government agencies which regulate food safety and
food adulteration, including the U.S. Department of Agriculture.
<PAGE>
laboratories, and is expected to be sufficient to meet our currently anticipated
facilities needs at least through 2000. If required, we believe we will be able
to obtain additional facilities space on commercially reasonable terms.
EMPLOYEES
As of December 31, 1999, we had 142 full-time employees, of whom 50 hold Ph.D.
degrees and 19 hold other advanced degrees. Approximately 90 are involved in
research and development, 26 in operations, manufacturing, and quality
assurance, and 26 in finance, legal, marketing and other administrative
functions. Our success will depend in large part upon our ability to attract and
retain employees. We face competition in this regard from other companies,
research and academic institutions, government entities and other organizations.
None of our employees is covered by a collective bargaining agreement, and we
believe that we maintain good relations with our employees.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to report
to be signed on its behalf by the undersigned, thereunto duly authorized.
NANOGEN, INC.
Date: February 25, 2000 By: /s/ Kieran T. Gallahue
------------------------------------
Kieran T. Gallahue
Senior Vice President,
Chief Financial Officer
