The story, as told by Caliper CEO Kevin Hrusovsky, goes something like this: Sugen, a small Redwood City, CA-based biotech company later acquired in 1999 by Pfizer (NYSE: PFE), was doing tests of an experimental drug in mice. Tumors of mice on the drug actually got larger than those in a control group. It didn’t make sense, because the drug, now called Sutent, was designed to block tumor proliferation and cut off blood supply. So researchers ran another test, with an optical imaging tool made by Caliper. The tool, which lets researchers see certain genes glowing in mice when they are being switched on or off, showed Sutent was actually doing what it was supposed to do.
When the researchers looked more closely at the original result, the tumors still appeared bigger, but it was misleading, because they were filling up with water. With that knowledge, the researchers moved ahead with further tests. The drug won FDA approval in January 2006 for gastrointestinal tumors and kidney cancer, and generated $581 million in sales in 2007.
Caliper’s sales reps lean on testimonials like that, because despite big research budgets, pharmaceutical companies are pretty conservative customers. “A lot of pharmaceutical companies won’t buy a product like this until it (the product) has a proven track record of bringing a drug to market,” says Hrusovsky.
Caliper, like most companies that make picks and shovels for the gold-seeking biotechs, tends to keep a low profile. The company obtained the optical imaging tool when it acquired Alameda, CA-based Xenogen two years ago. It is now Caliper’s fastest-growing product line, with 30 percent annual growth, Hrusovsky says. Caliper expects to generate more than $140 million in total revenue this year, and to turn an operating profit in 2009. (It’s an operating profit, but not a profit according to generally accepted accounting principles, because Caliper has to take accounting write-offs for acquisitions of money-losing companies.)
The company, which has about 250 of its 500 employees in Massachusetts, has been trying to fully exploit the commercial potential of the optical imaging business. Under Xenogen, the imager was sold mostly to academic researchers, Hrusovsky said, but Caliper is pushing it hard with large pharmaceutical companies. The devices aren’t cheap, at a cost of $150,000 or $350,000 for two different models, yet Novartis has bought 15, Merck has 10, and Amgen and Sanofi-Aventis have four each, he says. Cambridge, MA-based Vertex Pharmaceuticals (NASDAQ: VRTX), Wyeth, and Johnson & Johnson use it too.
Caliper’s stock has been sliding much of the year, but has rebounded 53 percent since June 30, when it was added to the Russell 3000 Index. That meant Caliper shares were suddenly getting bought by mutual funds and index funds, Hrusovsky said. So where is this company headed? “We think we can get revenue close to $200 million in 2010,” Hrusovsky says. If more Sutents emerge from labs that have the optical imager, you can bet more drug companies will want it.