Helicos made a timely entrance  in the race for genetic analysis systems with their HeliScope “true single molecule sequencer”  (tSMS), “the first DNA microscope”. The technology was positioned as an alternative to DNA amplification, requiring less starting material while eliminating  biases, complexity and errors.In addition,SMS technologies supposedly have the advantage of ultra long reads.An IPO was completed in mid-2007 at about $9/share with net proceeds of about $50M, prior to the market meltdown The stock soared with investor enthusiasm to $15 range before the cold realities of the 2008 bear market set in.The stock is trading near the $1.00 level lately.

Recently Isaac Ro of Leerink Swann (LS)  announced dropped coverage of Helicos Biosciences (HLCS) saying that “the company’s  technology faces long term challenges.”The recent departure on 2/12 of the CEO Steve Lombardi punctuated the issues because he had 30 years experience with biotechnology tools companies. LS estimated 14 placements of the Helicos systems at a price point of $800k. As of last quarter the Company reported about $11.4M in cash with annual revenues in the $4M range.The Company announced a  Direct Registered Offering in Dec. of 2009 priced at $1.00 per unit with one warrant and one share per unit and gross proceeds of $6.4M. Cash burn is not exactly known at this time but could be as much as $5MM per quarter.

In February Helicos also announced new installations at the Turku Center in Finland,Stanford University and the St.Laurent Institute. Watch for more sales this month.

Without going into in-depth product comparisons the plight of Helicos is strong competition. Market leaders with strong marketing and huge cash coffers such as Illumina (ILMN), Roche (RO.S) and Life Technologies (LIFE) immediately pounced on the upstart and sales success of the HeliScope was slowed. Even Affymetrix (AFFX) with revenues of about $325M and cash of about $250M has technology and cash for the nexgen product round.Affymetrix (AFFX) owned the microarray market until Illumina came along in 2001.Although the Helicos tSMS technology was presented as revolutionary and well differentiated from DNA amplification offerings of Illumina and Life Technologies the product did not translate well in the marketplace.

In the Tuesday March 9 issue of the WSJ on page B6 there was a review of venture capital funding:”Venture Firms Struggle to Raise New Cash” , “Sizing Up Promising Young Firms “(see also our 2009 article  VC Lock-Down Mode Paralyzes Bioindustry ). A WSJ affiliate publication VentureSource provided their list of “The Top 50 Venture Capital-Backed Firms”  and among the Top Ten were two genomic analysis firms Pacific Biosciences with $238M raised and Complete Genomics with $85.5 M in funding. Although the business models of these new companies are different than existing players in the DNA sequencing market it clearly signals stiffer competition ahead. And we recently reviewed the Daily News from www.genomeweb.com reading about more niche competitors  such Eureka Genomics, IonTorrent and  Oxford Nanophore.

We are in still at a very early stage of genomics applications and niche products will be developed. It is interesting to note that many of the founders and financiers of Helicos are saavy, successful players in biotechnology beginning with collaborations and licenses with MIT, Stanford and Harvard: Highland Capital, Versant Ventures, Atlas Ventures, Sam Collella, Noubar Afeyan, Steve Quake, Stan Lapidus et al. Now that team surely can come up with Plan B. The Company recently stated that it is not for sale and with a modest market cap of about $65M the technology and IP it would appear to have partnering value. But the ante is up in the genomics space and further stock dilution is not a realistic alternative. Look for this management team  to regroup and come up with a new strategy that can leverage the tSMS core technology. Thomas Weisel Partners was hired in September 2009 to explore strategic alternatives so they’d better have options by Q2 . Financial resources are limited  for reconfiguring a niche, lower priced product but selling services or data may be an option. One plus for Helicos is that there is a long term growth market for genomic analysis with huge potential in clinical diagnostics, pharmacogenomics and personalized medicine.

Rod Raynovich BIOgraph, Company Profiles clinical diagnostics, HLCS Helicos genomics, whole genome sequencing

The FDA Panel of lung experts voted 9-3 in favor of approval of Intermune’s drug perfenidone for idiopathic pulmonary fibrosis.

The stock was 15 at the end of February(see raygent.com last week) and reached 37 after hours tonite.. The IBB (biotech ETF) should exceed a Five Year high tomorrow above 90 and is approaching the 2001 high of 100.

REPRISE: A more favorable FDA backdrop combined with the continuing M&A action should keep the biotech sector perking.

FDA Advisory Committee Recommends Approval of InterMune’s Esbriet(R) (pirfenidone) for Idiopathic Pulmonary Fibrosis – Yahoo! Finance

Rod Raynovich BIOgraph

There is a simple reason why healthcare reform is so hard to do-there has to be winners and losers. We have had  many months of discussion on how to pay for healthcare reform such as cuts in Medicare, concessions from Big Pharma, more competition across state lines, tax on “cadillac” insurance plans etc etc. And despite a “done deal” on how to legislate “biogenerics” we have a recent push by Waxman and now the Op-Ed below in the New York Times from March 8 targeting biologic drugs for “an easy way to save money” by allowing only five years of protection from generics. The biotechnology industry thought that this storm has passed but the effort by Congress to find money keeps it in play. The pros and cons of biogenerics have been presented ad nauseum but the issue at this time is jobs and the growth of a very successful industry. Will Congress cut protection for biologic drugs to five years with the risk of stifling R&D innovation?

Op-Ed Contributors – Why We Need Generic Copies of Biologic Drugs – NYTimes.com

Raygent » Waxman Power Play to squeeze Biotech for “biogenerics”

At the recent JPMorgan Conference in January a lot of time was spent discussing the effect of healthcare reform on the industry and one surprising consensus was that with 30 Million more people insured most participants would benefit. For example labs, acute care hospitals and drug companies would be winners because of more customers. Commercial PBM’s would also benefit while agents selling health insurance would be losers because of health exchanges and insurance oversight by government. Impact on physicians would be mixed depending on the specialty and new reimbursement rates; radiologists might lose while primary care would gain.

So we cannot have healthcare reform without somebody losing. The phalanx of lobbyists march on Washington with big budgets and selective politicians defend their “pet” industry as Congress approaches the final vote.

The truth is that although reform of some kind is urgently needed nobody wants to pay and the Republicans have the easy argument to trash reform or move in tiny steps because taxes will go up unless the money is found.

Rod Raynovich BIOgraph, Macro biogenerics, healthcare reform, Waxman

The rally in biotech is back with lots of help from InterMune (ITMN).The stock was up over 60% to 23 this am after the Company posted briefing documents for the March 9 Pulmonary-Allergy Drugs Advisory Committee(PADAC) meeting to review the NDA for pirfenidone (Esbriet) for treatment of patients with idiopathic pulmonary fibrosis(IPF). IPF is a disabling and ultimately fatal disease that affects about 200,000 people in the U.S. and Europe combined with 30,000 new cases per year in each region. The product was approved in Japan in October of 2008 with InterMune’s partner Shionogi and Co. Ltd. as marketer.Pirfenidone has been granted Orphan Drug and Fast Track Drug status by the FDA.

Despite some FDA concerns by reviewers such as unclear trial results and safety, investors took the bullish path.

ThinkEquity analyst Brian Skorney said the FDA took a milder tone than investors expected. On Tuesday the FDA will ask an advisory panel to review the data with a final FDA decision by May 4.

Leerink Swann analyst Howard Liang Ph.D. published a report on February 18 (stock at $15.17) with an outperform on the stock and a price target of 35-37.Leerink Swann also reviewed the status of ITMN’s Phase II HCV program(RG 7227). InterMune has annual revenues of about $40M primarily from its Actimmune product.

Morgan Stanley analysts raised their rating on the stock from equalweight to overweight. Seven analysts currently have buys or strong buys on the stock.

Orphan and niche drugs have been a very successful category within biotech due to pricing, patents and limited competition. Companies such as BioMarin (BMRN) and Genzyme (GENZ) were built on orphan drugs.

The Rayno mid and small cap Life Science Index was up 1.25% and bellwether ETFS moved up IBB  1.3%,PBE 1.2% and XBI  1.6%. Other significant biotech movers up were: ACOR  2.4%, GERN  2.3%,ISIS  1.9%,NKTR  2.6% POZN 3.2% and SGEN 3.8%.

A more favorable FDA backdrop combined with the continuing M&A action should keep the biotech sector perking.

Rod Raynovich BIOgraph BIO ETF's, Intermune(ITMN), Orphan drugs

Despite a bunch of way-too-late analyst downgrades (JPMorgan, Roth, Hapoalim) MDVN stock is up 1%+ at $13.25

on volume of 8.8M shares. But there are two interesting articles coming out of the Medivation drama:

Robert Langreth writing in Forbes offers the potential of better results on two upcoming trials and comments from Lon Schneider, an Alzheimer Disease expert from USC.

A Ray Of Hope For Medivation « The Science Business – Forbes.com

And John Jannarone writing in the WSJ asks if Big Pharma is too hungry for product so that small biotechs get the “upper hand” in deals.

HEARD ON THE STREET: Big Pharma Should Avoid Course in Medivation – WSJ.com

Rod Raynovich BIOgraph Alzheimer Disease

Medivation (MDVN) released disappointing Phase III results for its Alzheimer drug, known as dimebon, saying that the drug was ineffective in treating cognitive decline or behavioral disorders. The stock plunged 67% to 13 as of midday trading on Wednesday. In a joint release Medivation and its partner Pfizer (PFE) said its two Phase III trials did not meet its co-primary or secondary efficacy endpoints compared to placebo. David Hung, President and CEO of Medivation said,”The results from the CONNECTION study are unexpected and we are disappointed for the Alzheimer’s community.” Dimebon was well tolerated in a separate safety and tolerability trial.

Alzheimer Disease (AD) has proven to be on of the most difficult  challenges for healthcare with over 5M individuals affected and costs approaching $627B ; even drugs currently on the market have minimal effectiveness.(see Genetic Engineering News 10/2008)

Raygent » Articles

Life Science stocks have been on a tear recently with the bellwether ETF IBB reaching new 12 month highs at 88.3, 8% above early February levels and 10% better than the S&P for a 3 month period. The 5 year high for IBB is 90. The IBB had no change today but the XBI was down 1.6%.

The PBE ETF was up 0.9% as it is more diversified with biotech tools companies. The recent M&A plays with Millipore and OSI Pharmaceuticals have sparked the sector overall.

The Rayno Life Science portfolio is up  20% over a 14 month period and 5% YTD.

However the Rayno index of 35 mid-cap biopharmaceutical stocks was up 0.8% and had many winners such as Alnylam (ALNY), Cubist (CBST), Nektar (NKTR), Viropharma(VPHM).

Rod Raynovich BIOgraph Alzheimer Disease, Biotech ETF's, Medivation

Microfluidics announced Year-End 2009 and Q4 results yesterday and delivered numbers pretty much according to plan.

Q4 Income was $80k; Gross margin at 60%

Achieved $525k EBITA for Full Year; R&D was cut to $449k for Q4 but management says no impact on new products

Generated $15.7M Revenue for 2009 a 6% increase for 2008; 70% of sales are in life sciences

Generated $4.2M in revenue for Q4

Accounts receivable for 2009 are at $2.571M up from $2.181M in 2008;inventories are at $2.916 compared to $2.723 in 2008.

Cash is at $2.185M and Stockholder Equity is $1.29M; one million dollar credit line is intact

2010 Goals:

EBITA should be profitable

Look for new product sales build by quarter

Need to look at services and consumables as % of revenues and profit impact as key to business model

What does Abraxis (Global Strategic Partners) deal mean long term? Supposedly Abraxis did the deal to protect product supply. Does it put a long term value on the stock at $1.25?

Share Price

Some small players were buying stock prior to earnings release driving stock up to $1.20 level,but stock has come back to the 90 cent level. Volume remains anemic probably due to the fact that it is an old story, a small float with large controlling shareholders and the lack of a NASDAQ listing. Convertible Debt of $4.679M is an additional concern but if revenues and gross profit continue to improve.

Despite these concerns the stock remains good value at P/S of about 0.6

Rod Raynovich RAG

The drive to reduce healthcare costs and perform Comparative Effectiveness Research can get support from next generation diagnostic tests.

A recent article by Bill Malone in Clinical Laboratory News, February 2010 Vol.36 No.2, presents an optimistic scenario for the In Vitro Diagnostics (IVD) Market. Referencing a report from the Embargo Group of Austin,Tx, a recent survey of executives in the IVD and medical device industries said that 71% of the executives expect overall sales to increase in 2010 and 70% felt positive or somewhat positive about the overall business environment. Despite declining prices due to lower reimbursement for tests and increased competition, IVD companies are betting on strong returns from new products in advanced lab automation and molecular diagnostics. The CLN article also references a report from Enterprise Analysis Corp.(EAC) which forecasts a 2010 growth rate of 6.1% for the industry versus 5.3% in 2009. Another trend in the IVD marketplace articulated by Mark Hughes of EAC is how to demonstrated solid evidence of the diagnostic test value through health economic studies. Hughes is quoted in the article :”The recurring theme we hear is how do you keep pricing from devolving?”

Market trends highlighted in the article point to the following test sectors for growth: molecular diagnostics for example, the need to control and treat viral and bacterial infections; automation and robotics because of the need to be more productive; Point of care testing(POCT), a specialty niche, driving tests closer to the patient and the home; and pharmacogenomics or personalized medicine -advanced molecular testing that will target therapy.

February 2010 Clinical Laboratory News: An Optimistic Outlook for the Diagnostic Market

In a October 2008 article in Genetic Engineering News we reviewed the molecular diagnostics sector, its potential for growth and profiled several companies. The confluence of factors such as technology, cost effectiveness and new products convinces us that this is a long term trend. We will present our reasons and the best positioned companies in this Clinical Diagnostic series. Among the larger pharmaceutical companies Roche has the explicit strategy of leveraging Rx with Dx and is a leader in molecular Dx.

Article : Molecular Diagnostics Take Center Stage Genetic Engineering & Biotechnology News – Biotechnology from Bench to Business

New Ideas: well positioned Companies

In Part 1 of this series we presented diagnostic companies already in our model portfolio: GenProbe,Genomic Health, Illumina, Inverness etc. Here are  additional companies that have unique strengths in product, technology and  market focus. Review  technicals and financials in more detail before accumulating large positions.

Qiagen (QGEN) $21.5

Built largely through acquisition (Digene-leader in HPV testing) with a strong R&D base ,diverse product line in tools, molecular diagnostics and automated solutions, Qiagen is still digesting acquisitions. Because of their strong technology base, they are able to partner with drug companies in drug development and companion Dx. At $1B revenue level with profits forecasted at 4.5% in 2010. Forward PE at 23 with P/S at 5.

Sequenom (SQNM) $5.3

An emerging diagnostic and genetic analysis Company focusing on translating genomics into biomedical applications.SQNM is starting to recover  from serious clinical regulatory issues involving a Down Syndrome test last April and have  launched a fetal sex determination test SensiGene Fetal(XY) performed at its own CLIA certified diagnostic laboratory. Earlier this month SQNM launched a fetal test for RHD genotyping. Total Company revenues are in the $40M range with a loss forecasted at about $1.00/sh. in 2010. Blackrock recently took a 6% stake in the Company.

SeraCare (SRLS) $3.50 Recommend in November at $2.75

SeraCare provides services, diagnostic reagents and controls . New products were launched in January. The Company was built through acquisition and is in a turnaround mode with 2010 revenues forecasted in the $50M range and an EPS of $0.25/sh.2010 PS is 1.5.

Rod Raynovich BIOgraph companion diagnostics, Comparative Effectiveness Research, diagnostics, IVD, pharmacogenomics

Many of the issues coming out of the  healthcare reform discussion:  rising medical costs, Medicare budget, need for better clinical outcomes, push for biogenerics have  caused concern among investors and limited returns in the healthcare sector. Although M&A activity has picked up, funding for venture start-ups. equity for public companies and IPOs’ is down to a trickle. But biotechnology is evolving particularly in genomics, robotics and cell biology. Companies in the diagnostic sector that already have the cash flow or a strong balance sheet, product sales  and platform technologies  can take advantage of this environment because diagnostic tests have become faster, better and cheaper with the added blockbuster of molecular medicine that can ultimately deliver lower costs of treatment and better clinical outcomes.

Our 2009 Life Science Portfolio had several Diagnostic picks that had huge gains over a one year period: Abaxis (ABAX) up  56% , Inverness (IMA) up 71%, and Hologic (HOLX) up 36%. We still like these stocks on weakeness as they are leaders among the small caps in their markets. Other Dx companies  in the 2009 Portfolio are still at good values: GenProbe (GPRO) $43.7 and tools Company Illumina (ILMN) $37.

With a view to the emerging long term technology trends in genomics and personalized medicine we see a greater need for diagnostics that can show clinical utility and cost effectiveness of treatment. This trend is already happening with Cancer (Her-2 test) and various infectious diseases such as HIV, HCV and HPV.

Some of the diagnostic stocks to watch with strong molecular capability are :

Genomic Health (GHDH) $17.30  Genomic based testing.

Genoptix (GXDX) $31.90 Personalized testing

Qiagen (QGEN) $21.40 Molecular tools and Diagnostics

Sequenom (SQNM) $5.20 Genetic Analysis and SNP analysis

More on these companies later.

Disclosures:Raygent owns SQNM,

Rod Raynovich RAG clinical diagnostics, molecular diagnostics, personalized medicine

Complete Genomics 2/18/10                       Molecular Diagnostics and Genomics

“Powering large-scale human genome studies”.

Private Company

Summary

Complete Genomics(CGI) provides high quality, affordable DNA sequencing for commercial- scale research of the genetic mechanisms underlying drug responses and complex diseases. Customers receive assembled sequences and variant reports  on the DNA samples they submit for sequencing.  Researchers and companies that could not afford to scale-up genome studies will be able to access population-wide human genomic data for a wide variety of diagnostic and discovery applications. The Business Model is to provide sequencing services with the highest quality, ease of use and scalability without the customer needing to make a major investment in instruments or high-performance computing resources. Complete human genomes can be sequenced for a fraction of the cost of current second-generation systems. The unmet need is the systematic study of over 100,000 human genomes, enabling their customers to better understand the interplay between genetics and human disease.This can accelerate development of tailored drugs diseases and advanced disease prevention techniques.

Results indicate a potential reagent cost of only $1500 per 40-fold coverage of DNA at highest quality.

Platform Technology

The IP protected sequencing platform is based upon a range of robust proprietary biochemistry, nanotechnology, instrumentation and computing technology. The biochemistry component consists of synthetic DNA, enzymes for DNA engineering and amplification, and fluorescent tags. Nanotechnology capability includes photolithography, robotics and CCD optics. Advanced computing technology and analysis software provides base-calling, mapping, assembly, for rapidly reconstructing genomes from billions of paired-end reads. The sample preparation processes are developed especially for sequencing of large numbers of human genomes.

The CGI sequencing platform employs high-density DNA nanoarrays that are populated with DNA nano-balls (DNBs) and uses a non-sequential unchained read technology, called combinatorial probe-anchor ligation or cPAL, which reduces both reagent consumption and imaging time.These innovations allow sequencing to occur at a lower cost.

Results were published with three reference genomes in Science, 5 November 2009 Vol.327, no. 5961,pp 78-81, Human Genomome Sequencing Using Unchained Base Reads on Self-Assembling DNA Nanoarrays.

The Company envisions an extensive array of future applications including: exome sequencing to identify rare variants that contribute to diseases such as diabetes, cancer sequencing to better understand cancers’ genetic alterations, and DNA methylation which plays a critical role in the regulation of gene expression an essential mechanism for guiding normal cellular development.

See www.completegenomics.com

Scientific Advisory Board

Dr.George Church, Harvard Medical School

Dr. Lee Hood, Institute for Systems Biology

Dr. Doug Lauffenburger,MIT

Dr. Mark Chee, Prognosys (Illumina Founder)

Investors

Among the VC’s are: Essex Woodlands Health Ventures, Orbimed Advisors, Highland Capital Management, Prospect Venture Partners, Enterprise Partners and OVP VenturePartners.

Commercialization

Pilot operations have commenced with over 20 customers among them: Brigham and Women’s Hospital, Broad Institute, Genentech (Roche) Pfizer, Southwestern Medical Center. Data has been delivered to more than 10 customers with family studies, cancer genomes and other areas.

The Company has more than 125 employees and plans to launch its commercial sequence operations in April 2010. Expansion plans over the next five years include opening up ten genome centers around the world with the capability to one million genomes sufficient capacity to sequence 1000 people in 1,000 disease studies.

Major objectives for 2010 are supporting customer scientific publications, sequencing 5000 complete human genomes and achieve cash breakeven.

See www.completegenomics.com for detailed information.

Rod Raynovich BIOgraph, Company Profiles genomics personalized medicine, pharmacogenomics