Lee Hood’s Proteges Strike Again: Nanostring Ships Its First Commercial Cell Analyzer

Xconomy Seattle — 

[Updated July 23, 2008, see editor’s note below.] Nanostring Technologies, a company born in the lab of biotech pioneer Leroy Hood, has grown up and is starting to sell a product in the real world. The privately-held maker of gene-analysis tools in Seattle has booked the first sale of its commercial product, and is planning to deliver it within weeks.

Nanostring hopes it’s the first step in a plan to shake up the world of genetic analysis with its instrument, called nCounter. The machine is designed to enable large-scale genetic analysis experiments, that might, for example, compare 100 genes from 100 different patients with diabetes to see how the patients respond to treatment. The system, which provides a digital readout that can say precisely how much a given gene is dialled on or off, is meant to compete with Foster City, CA-based Applied Biosystems’ TaqMan 7900 instrument, known in biology lingo as a reverse-transcriptase PCR test.

The market for such RT-PCR machines is worth an estimated $1 billion a year, and is growing at a 20 percent annual clip, says Perry Fell, Nanostring’s CEO, previously a co-founder of Bothell, WA-based Seattle Genetics (NASDAQ: SGEN). So far, Nanostring has booked one order from an unnamed customer for its new system at $235,000, and is doing test runs for many more potentially interested buyers from academia, pharmaceuticals, and diagnostics companies, Fell says.

Even though the machine costs about four times as much as the TaqMan, the disposable component of Nanostring’s device is much cheaper and more automated, saving a bundle on time and labor, Fell says. Like most technologies associated with Hood, who co-founded Applied Biosystems (NYSE: ABI), the Nanostring machine can enable a new kind of audacious experiment, providing a digital readout on many more genes and many more cell samples than was possible before.

Fell used this analogy to compare his company’s machine to the TaqMan, which costs $60,000:
“It’s a bit like asking a farmer to compare the cost of his lawn mower to his tractor,” Fell said in an e-mail. “The 7900 can run a maximum of 1,500 data points a day, whereas the nCounter Analysis System is currently generating over 40,000 data points a day and we expect that to almost double within the next six to nine months.”

So there. The company has gotten a bounce in its step since March, when its machine was featured on the cover of the journal Nature Biotechnology. The article led to numerous requests for test runs from potential customers, Fell says.

The road hasn’t always been so smooth. The company, founded in 2004, has raised about $17 million in venture capital from Kirkland, WA-based OVP Venture Partners and Menlo Park, CA-based Draper Fisher Jurvetson. Some technical snags probably set the company back six to 12 months, including the departure of technical founder Krassen Dimitrov, said Chad Waite, a partner with OVP.

“It definitely set us back, but we’re happy where we are now,” Waite says. “We made the cover of Nature Biotechnology, and not a lot of other companies around here can say that.”

[Editor’s note: After this article appeared, Nanostring technical founder Krassen Dimitrov contacted Xconomy to dispute the company’s assertion that his departure had contributed to a delay in development of a high-throughput screening product. Dimitrov left the company in 2005 and is now working in Australia, but said delays in Nanostring’s product development were caused by the board’s initial opposition to pursuing a high-throughput product. According to Dimitrov, he was fired for advocating such an approach, but continued to advocate for it among the investors even after his termination. (For more on Dimitrov’s point of view, see his comment below.) Nanostring CEO Perry Fell disputes Dimitrov’s contention that prolonged board opposition delayed the high-throughput approach, but declined to comment on the circumstances of Dimitrov’s exit from the company.]

Fell is starting to think about raising a third round of venture funding, of about $15 million to $20 million, which he says will be the last time he seeks capital before the company turns profitable. The cash will be used to build up manufacturing, sales and marketing, and development, he says. The staff will grow from about 41 to 70, so the company is already looking to move from its offices along Elliott Bay to a new building at Fairview and Mercer Streets.

“We are really focused on two things,” Fell said during a visit to his office last week. “Customer satisfaction, making sure our customers are happy. Then getting to profitability. Those are our key goals.”

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2 responses to “Lee Hood’s Proteges Strike Again: Nanostring Ships Its First Commercial Cell Analyzer”

  1. The statement by Chad Waite contained in the article is grossly inaccurate. The delay at NanoString was due to a prolonged opposition to a high-throughput product on part of the Board of Directors(Perry Fell, Chad Waite and Jennifer Fonstad); my ‘departure” was a consequence of this opposition rather than a cause for the delay.

    In the article above Perry Fell boasts unashamedly about high datapoint throughput of the company’s product, however in 2005 he and the other two individuals on the Board were militantly opposed to it. For example, in an e-mail from July of 2005 Fell wrote to me: “Everyone that I have spoken with agrees that Affy in particular is pushing high through-put. However, it is by no means clear that it will in fact be successful, much less threaten the larger current market.”

    The next month I was fired “for cause” from NanoString for my insistence on a high-throughput, robotics-based product (similar to what NanoString has now on the market). Determined to continue the fight, I wrote a series of letters to the Limited Partners at OVP, explaining how wrong the Board position was and how throughput was what the market really wanted. Initially the Board responded with intimidation and legal threats, however, my persistence eventually paid off and they gave up on their flawed conceptions.

    The delays cost me dearly in financial terms, however, at least we were able to publish the technology in Nature Biotechnology. Waite’s quote “We made the cover of Nature Biotechnology, and not a lot of other companies around here can say that” is a bit unclear. If by “here” he means companies in his portfolio then he is correct, however, that’s nothing to brag about. For example, OVP portfolio company Complete Genomics was funded to commercialize the sequencing-by-hybridization (SBH) technique invented by Rade Drmanac. Unfortunately for OVP they were scooped by a paper in Nature Biotechnology from a group in Sweeden ( Nature Biotechnology 26, 676 – 684 (2008). With ample financial resources and the SBH pioneer on board, I can only speculate what kind of harmful interference Mr Waite has exerted on that company’s technological development to be beaten so badly!

    I have preserved these letters and e-mails, along with other documents from that period, and would have gladly shared them with Mr Timmerman, had he contacted me before publishing the article. Unfortunately, it seems that Xconomy is more interested in inaccurate puff pieces than in real journalism…