CombiMatrix Reinvents Itself From Lab Toolmaker to Cancer Diagnostics Player

6/17/09Follow @xconomy

CombiMatrix tried for years to sell sophisticated genetic analysis instruments to laboratories, and essentially got overrun by big competitors like Santa Clara, CA-based Affymetrix and San Diego-based Illumina. But the little Mukilteo, WA-based company is still around, and hoping to flank the big boys in an emerging market that could be more lucrative—diagnostics for earlier detection of cancer.

The company (NASDAQ: CBMX) has been selling DNA microarray equipment since 2004. These are scientific instruments, sometimes called gene chips, that can be used to look at a very large number of genes at the same time to see which ones are expressed, or dialed up or down, in a tissue sample.

CombiMatrix decided a little over two years ago to turn away from marketing to R&D labs, and toward offering a service to cancer physicians, says CombiMatrix CEO Amit Kumar. The plan is for doctors to send in tissue samples from patients with leukemia, prostate or breast cancers, and have CombiMatrix staff look for telltale genetic signs that provide a prognosis of how aggressive their disease may be. The information gets sent back to the doctor, giving him or her an idea of how aggressively the cancer needs to be treated, Kumar says.

It’s still early days in this field of genetic diagnostics, and it’s anybody’s guess whether this can help patients live better or longer lives, but so far about 300 patient samples per month—at $2,000 apiece—are getting tested, Kumar says. About 900 physicians from around the country have bought the CombiMatrix service, including ones from UCLA Medical Center, the University of Michigan, and Cedars-Sinai Medical Center in Los Angeles. It’s a sign of demand for more personalized treatment of cancer, Kumar says, which is diagnosed in 1.2 million people in the U.S. each year. Eventually, CombiMatrix hopes doctors will use its gene chips for an even bigger application, in which healthy people getting annual physicals will get their blood samples screened to spot early signs of five major forms of cancer, Kumar says.

This push into diagnostics is important to CombiMatrix partly because this is a market that Affymetrix and Illumina, which together control about 85 percent of the market for R&D use of microarrays, haven’t yet tapped, Kumar says. CombiMatrix, after capturing a little more than 1 percent of the R&D market, decided to move on to the greener pastures.

“We didn’t have the balance sheet to fight with them on price in the R&D market,” Kumar says. “But we have an advantage on diagnostics, and we’re establishing a beachhead before they turn their attention to the market.”

CombiMatrix will have to play its cards carefully if it will ever really make its presence felt in the new market. It has just 63 employees, annual revenue last year of $6.2 million, and tallied a net loss of $15 million. It was running dangerously low on cash last month, with only enough left to run into September according to its most recent quarterly report, although it has since raised another $8.25 million that gives it enough money to operate “well into 2010,” Kumar says. It is also hoping to receive a $36 million legal settlement that is being appealed, he says.

The sort of testing CombiMatrix is proposing is bound to run into skepticism. Scientists have struggled to find cancer markers that are a rock-solid predictors of malignancy, or poor prognosis. One example is the PSA test for prostate cancer, which measures a marker in the blood that can be a sign of malignancy, or more benign conditions, according to the National Cancer Institute.

Still, the strategy to move toward diagnostics makes some sense, says Kyle Serikawa, a senior research scientist with Novo Nordisk in Seattle, who has worked extensively with DNA microarray technologies.

“The Basic Research space is filled with Affymetrix and Illumina (and a little Agilent) now,” Serikawa says. “Seems to me that diagnostics is a much more open potential market.”

CombiMatrix has people on staff doing discovery work to come up with new markers of its own, Kumar says. He didn’t want to get into issues of patent strategy, but he says the company plans to publish research on the connection of these markers to various cancers.

Further down the road, CombiMatrix plans to introduce the cancer-screening product for healthy people by the third quarter of 2010. It would be made to screen for markers on five of the most common solid tumors—breast, prostate, colorectal, lung, and ovarian, Kumar says. That test will provide an early warning sign to a doctor, which will need to be verified with other tests, he says. Eventually, the CombiMatrix test will sell for about $300 per patient, but may start out a little higher in the beginning, Kumar says.

The biggest obstacle for CombiMatrix is a big one. Its new crop of customers isn’t familiar with the basics of its technology, or how it can be used in practice. “Physicians don’t really get training in genetics, and it’s our task to educate them,” Kumar says.

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