SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB
(Mark
One)
xANNUAL
REPORT UNDER
SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL
YEAR
ENDED DECEMBER 31, 2005.
oTRANSITION
REPORT UNDER
SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM ______ TO ________
DNAPrint
Genomics, Inc.
(Name
of
small business issuer in its charter)
Utah
(State
or
other jurisdiction of
incorporation
or organization)
59-2780520
(I.R.S.
Employer Identification No.)
(Address
of principal executive offices) (Zip Code) (Issuer's telephone number)
Securities
registered under Section 12(b) of the Exchange Act:
NONE
Securities
registered under Section 12(g) of the Exchange Act:
(Title
of
class)
Common
Stock, par value $.01
Check
whether the issuer is not required to file reports pursuant to Section 13
or
15(d) of the Exchange Act. [_]
Check
whether the issuer (1) filed all reports required to be filed by Section
13 or
15(d) of the Exchange Act during the past 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 [_]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
[_]
No [X]
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [_]
State
issuer's revenues for its most recent fiscal year. $1,275,503
State
the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was
sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.) As of February 28, 2006, the aggregate market
value
of the voting and non-voting common equity held by non-affiliates was
$5,488,340.
State
the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date. As of February 28, 2006: 303,076,509.
If
the
following documents are incorporated by reference, briefly describe them
and
identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which
the document is incorporated: (1) any annual report to security holders;
(2) any
proxy or information statement; and (3) any prospectus filed pursuant to
Rule
424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The list
documents should be clearly described for identification purposes (e.g.,
annual
report to security holders for fiscal year ended December 24, 1990). NONE.
Transitional
Small Business Disclosure Format (check one): Yes
[_]
No [X]
PART
I
FORWARD-LOOKING
STATEMENTS
Statements
in this Form 10-KSB Annual Report may be “forward-looking statements.”
Forward-looking statements include, but are not limited to, statements that
express our intentions, beliefs, expectations, strategies, predictions or
any
other statements relating to our future activities or other future events
or
conditions. These statements are based on our current expectations, estimates
and projections about our business based, in part, on assumptions made by
our
management. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions that are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in the forward-looking statements due to numerous
factors, including those risks discussed in this Form 10-KSB Annual Report,
under “Risk Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and in other documents which we file with
the Securities and Exchange Commission.
In
addition, such statements could be affected by risks and uncertainties related
to our financial condition, factors that affect our industry, market and
customer acceptance, changes in technology, fluctuations in our quarterly
results, our ability to continue and manage our growth, liquidity and other
capital resources issues, competition, fulfillment of contractual obligations
by
other parties and general economic conditions. Any forward-looking statements
speak only as of the date on which they are made, and we do not undertake
any
obligation to update any forward-looking statement to reflect events or
circumstances after the date of this Form 10-KSB Annual Report, except as
required by law.
HISTORY
We
initially incorporated under the laws of the State of Utah on January 3,
1983 as
Lexington Energy, Inc. and subsequently changed our focus to human genome
sciences. In connection with this change in focus, on July 15, 2000, we acquired
DNAPrint Genomics, Inc. through the issuance of 9,600,000 shares of our common
stock. After the acquisition, we focused on the discovery and development
of our
TruLine products - TruSeq™, SNiPscan™ and TruSpin™. We actively engaged in human
identification analysis and used our proprietary TruLine products to reduce
the
cost of producing a genetic profile to less than 50% of the standard price.
Our
strategy was to sell our proprietary reagent to geneticists at universities,
hospitals and commercial laboratories working on genotyping projects. The
reagent kit was designed to save researchers money in reagent costs. Companies
that sold the reagents, however, made advances in their own reagents, which
lowered the cost and ultimately negated the benefit of using our products.
The
technology was thus abandoned.
In
2001,
Dr. Tony Frudakis, our founder, teamed with other scientists to conduct research
to develop new genomics products with consumer, forensic and pharmacogenomics
applications. However, lack of funding limited the amount of research conducted.
We implemented cost cutting measures to conserve cash. In spite of these
hardships; we were able to continue our research and development efforts
on a
reduced and limited basis throughout most of 2002 and 2003.
During
2002, our Board of Directors began a search for new leadership. After a search
for a new CEO/President, Mr. Richard Gabriel agreed to accept the position
without requiring immediate cash compensation. Because we did not have cash
available to pay Mr. Gabriel's salary, he agreed to enter into an employment
contract for one year that granted him 1,500,000 shares of our stock in lieu
of
immediate cash compensation.
As
CEO
/President, Mr. Gabriel agreed to seek additional executive management,
particularly a Chief Financial Officer, a Chief Operating Officer and a Chief
Medical Officer and to locate a firm to represent us in raising investment
capital sufficient to build and sustain the business over the next 2-3 years.
Mr. Gabriel and the new management team successfully completed these
goals.
Mr.
Gabriel hired our Chief Financial Officer and Chief Operating Officer, Monica
Tamborini, and our Chief Medical Officer, Dr. Hector J. Gomez. In May of
2003,
Mr. Gabriel also convinced Ms. Tamborini and Dr. Gomez to agree to work
initially without requiring immediate cash compensation. They agreed to enter
into employment contracts with us for one year in return for stock grants
of
1,000,000 and 1,250,000 shares respectively.
With
executive management in place, we next developed a strategic plan to achieve
our
short term goal of securing financing and our longer term goals of growth
and
stability. Where prior management saw partnering and licensing arrangements
as
the way to success, new management's view was that growth would occur with
proven success. Management has emphasized demonstrating that our current
products are viable, and management believes the shortest path to that goal
is
through concentrating our initial sales efforts on the consumer and forensic
markets. While we expect pharmacogenomics products to outperform other market
products in the long run, their introduction to market has a longer time
horizon
and requires larger investments of time, personnel and capital before they
produce revenue and generate cash flow.
Management
sought investment bankers to represent us in our search for financing. In
April
2003, we engaged an investment banking firm to assist us in our efforts to
raise
debt and/or equity capital. In December 2003, we successfully agreed to place
$8,000,000 of our securities over approximately a 20-month period. Prior
to
completing this transaction, we had received funds from earlier private
offerings. Together, these transactions gave us the critically required capital
to fund our ongoing operations until our new financing was in place. In addition
to the previously raised capital, management sought additional capital to
fund
expansion and acquisitions. Along with our investment bankers, we secured
a
commitment from Dutchess Private Equity Partners, LLC for the sum of $35
Million
over a 24-month period. We also negotiated to acquire a stake in Biofrontera,
a
privately held German Biotechnology company. Mr. Richard Gabriel and Ms.
Monica
Tamborini are common, non-voting shareholders of less than 1% combined ownership
in Biofrontera AG. Mr. Gabriel was made aware of the opportunity to invest
in
Biofrontera AG and presented it to our Board of Directors and was given
instructions to proceed with the investment opportunity.
Effective
September 28, 2004, we agreed to acquire a majority interest in Biofrontera
AG
over a 24-month period for a purchase price of 20 million Euros. Prior to
the
closing of the transaction, however, we concluded that proceeding with the
proposed acquisition was not in our best interest. Therefore, we terminated
the
Biofrontera agreement on February 18, 2005.
On
July
8, 2005, we entered into an agreement to purchase, and simultaneously closed
upon the purchase of, an equity interest in Biofrontera. We purchased the
interest in Biofrontera from Technologie-Beteiligungs-Gesellschaft mbH, an
instrumentality of the German government. The securities purchased were shares
of Biofrontera’s series A Preferred Stock, as well as certain debt instruments.
On August 8, 2005, we converted the securities purchased into Biofrontera’s
common stock. We paid approximately 1.8 million Euros ($2.1 million) for
our
interest in Biofrontera. On September 19, 2005, we paid an additional 98,245
Euros ($121,000) for an additional 98,145 shares of Biofrontera common stock
increasing our ownership of Biofrontera to approximately 18%. In connection
with
the transaction, two of the members of our Board of Directors, Richard Gabriel
and Hector Gomez, were retained on the Biofrontera board. In addition, to
induce
the shareholders of Biofrontera to consent to our investment in Biofrontera,
we
entered into a put agreement with another Biofrontera shareholder, Heidelberg
Innovation. Pursuant to this agreement, if by December 31, 2005 Biofrontera
had
not completed an offering of debt securities for at least 10 million Euro,
Heidelberg Innovation could have required us to purchase its ownership interest
in Biofrontera of approximately 49% for 1.6 million Euro (approximately $1.96
million). During September 2005, Biofrontera completed its debt securities
offering. Therefore, our put obligation to Heidelberg Innovation was terminated.
At that time, the board seat previously held by Hector Gomez was filled by
a
representative of the debt securities group. In March 2006,
Biofrontera announced that it intends to undertake a public offering of equity
securities during 2006-2007.
We
acquired Trace Genetics late in the second quarter of 2005. Trace Genetics
brought two new complementary technologies to our autosomal testing for
determining the percentage of a person's ancestry: Y-chromosome testing for
tracing ancestry by following the direct paternal line and mitochondrial
(mtDNA™) testing for the direct maternal line. Trace also maintains one of the
largest Native American mtDNA™ databanks in North America. Other similarly large
databases are controlled by groups such as the Sorensen foundation, various
Native American foundations and tribes, and some Universities.
On
October 12, 2005, we formed DNAPrint Pharmaceuticals, Inc., a wholly-owned
pharmaceutical subsidiary focused on personalized medicine.
On
October 25, 2005, we acquired all of the stock of Kenna Technologies, Inc.
Kenna
develops software and related technologies for building computational models
that mimic complex biological systems. We expect that Kenna’s computational
models will become key components for our development of more effective
therapies and diagnostic products. In acquiring Kenna, we also gain access
to
Kenna’s BoneFusion and CellCycleFusion models, which simulate bone remodeling
processes and molecular pathways. These pathways are common targets of current
cancer therapies. We exchanged 1,500,000 shares of our common stock for all
the
outstanding shares of Kenna. In addition, we hired certain key employees
of
Kenna, including Drs. Barbara Handelin and Tandy Herren, who will support
the
clinical development of our pharmacogenomics products with simulations to
help
design optimal clinical trials.
On
November 30, 2005, we acquired certain assets used in the drug and diagnostic
discovery business of Toronto-based Ellipsis Biotherapeutics Corporation.
We
formed a wholly-owned Canadian company, also named Ellipsis Biotherapeutics
Corporation to operate these assets. Ellipsis performed
contract
SNP genotyping for academic centers, hospitals, human health care corporations
and biotech companies. Its diverse services include human, plant and animal
analyses.
The
acquired assets consist of Ellipsis’ operating assets, including genotyping
equipment, automated sample preparation devices, DNA preparation,
measurement and amplification technologies, laboratory equipment, computers
and office supplies related to these activities, the corporate premises,
name and logo and certain intellectual property and committed contracts.
We
anticipate that the Ellipsis assets will assist with clinical genomics and
genotyping. In consideration for the Ellipsis assets, we issued 6,500,000
shares
of our common stock and assumed certain liabilities in the approximate amount
of
$600,000. Dr. Laurence Rubin has agreed to continue managing the operations
in
Toronto.
RESEARCH
AND DEVELOPMENT
The
primary objective of our near term research and development efforts in
pharmacogenomics will be to expand our library of predictive drug response
tests
to include multiple therapeutic areas including commonly used FDA approved
drug
therapies. Although our products are diverse and address different market
areas
and needs, the base technology is the same. Research in one area often provides
benefit to our other products.
In
2004,
we conducted research for enhancements to DNAWitness™. The research included
much needed sample collection for our eye and hair color studies. As a result
of
our past research, in early June of 2004, we introduced a new tool to our
forensic customers. We compiled a volunteer photo database that we can use
to
help investigators visualize the DNA donor. This new tool augments the
effectiveness of our product, DNAWitness™. During the third quarter of 2004, we
completed work on our eye color service, RETINOME™, and EURO-DNA™, a service
that allows customers to determine their Northern European, Mediterranean,
Middle Eastern and Indo European ancestry and introduced them to the market.
We
continue our research work on STATINOMETM and ace inhibitor projects.
We also, in conjunction with researchers at the Moffitt Cancer Center, continue
work on OVANOMETM and other identified cancer projects. We continue
to evaluate and analyze our preliminary results and to extend those results
to
other patients’ samples for Taxol, Statins, and Ace inhibitor work.
Our
work
in forensics is continuing to expand the physical descriptors that can be
derived from crime scene DNA samples. Our research also continued in hair
color,
skin shade, and we carried on work to improve our recently introduced eye
color
predictor model. Additionally, we continue to collect volunteer photo database
samples and will incorporate those new samples into our forensic photo database
array in the near future.
During
2005, we began our work on EPO with Beth Israel Deaconess Medical Center
and Dr.
Arthur Sytkowski a director at Beth Israel. EPO is a glycoprotein naturally
made
by the body to stimulate red blood cell production; the currently marketed
forms
are manufactured using recombinant DNA technology and are used to treat anemia
or low blood cell count.
Also
during 2005, we entered into an agreement with Dr. Mark Froimowitz to develop
a
series of methylphenidate analogs or Ritalin-like compounds targeting the
clinical development of enhanced pharmaceuticals for the treatment of drug
addiction, attention deficit hyperactivity disorder and depression.
STRATEGIC
ALLIANCES
Moffitt
Cancer Center
During
2006, our OVANOME™ technology is under development with researchers at the
Moffitt Cancer Center in Tampa, Florida, and we are in the midst of completing
an initial 80 person trial under an approved Internal Review Board, or IRB,
which approves all clinical trial related work at the center. We are also
enrolling an additional 200 subjects to further validate and support the
data we
obtained in our earlier trial.
Beth
Israel Deaconess Medical Center License Agreement
Effective
April 4, 2005, we entered into a license agreement with Beth Israel Deaconess
Medical Center, a Massachusetts nonprofit corporation, to develop a new,
more
potent and longer acting form of the anemia drug Erythropoietin, or
EPO.
EPO
is a
glycoprotein naturally made by the body to stimulate red blood cell production.
The currently marketed forms are manufactured using recombinant DNA technology
and are used to treat anemia or low blood cell count. Under the agreement,
Beth
Israel has granted us an exclusive license to United States and foreign patents
related to certain forms of EPO. We have the right to develop, use, market
and
sell products derived from the licensed patents.
In
exchange for the license, we paid Beth Israel a $25,000 signing fee and agreed
to make certain milestone payments linked to their progress in developing
marketable products from the licensed technology. The total of payments,
if all
milestones are reached, is $2,150,000. The milestone payments are nonrefundable.
Up to $200,000 of this amount is creditable against future royalties. In
addition to the milestone payments, we must also pay Beth Israel an annual
royalty of 4% of the net sales of all products developed from the licensed
technology. A minimum royalty payment of $100,000 a year is due upon the
commencement of commercial sales in any territory worldwide.
Consulting
Agreement with Dr. Arthur Sytkowski
On
June
7, 2005, we entered into a consulting agreement with Dr. Arthur Sytkowski,
the
Director of Beth Israel, to consult on the development of a new, more potent
and
longer acting form of EPO. On September 1, 2005, we entered into a new
consulting agreement amending and restating the existing consulting agreement.
Under the amended consulting agreement, Dr. Sytkowski has agreed to perform
certain consulting services, including advising on medical, regulatory and
patent issues, training personnel and providing assistance with EPO research
and
development. In exchange for the services, we will pay Dr. Sytkowski $10,000
a
month for twelve months, five annual incentive payments of $25,000 each,
and
certain milestone payments linked to our progress under the Beth Israel license
in developing marketable products from the licensed EPO technology. The total
of
all payments to Dr. Sytkowski under the agreement, assuming all milestones
are
reached, is $370,000. The milestone payments will be reduced - dollar for
dollar
- to the extent Dr. Sytkowski receives payments from Beth Israel relating
to the
same milestone events under the Beth Israel license.
Collaborative
Research Agreement with Beth Israel
During
late June 2005, we entered into a collaborative research agreement with Beth
Israel to provide three researchers to us to conduct certain research work
related to our EPO research. On August 15, 2005, this agreement was amended.
The
total cost per the amended agreement is $352,192. We paid $176,096 during
2005
and the remaining $176,096 is due in 2006.
Consultant
Agreement with Member of Our Scientific Advisory Board
During
May 2005, we entered into a one-year agreement with our Scientific Advisory
Board member, to continue collaboration with us to develop commercial tests
for
genetic ancestry and particular physical phenotypes. We have agreed to
compensate this consultant with quarterly payments of $4,000 and 2,500 shares
of
our common stock. The term of this agreement is one year with automatic renewals
each year unless either party provides written notice of its intent not to
renew
within thirty days prior to the annual anniversaries of this agreement. During
May 2005, we also entered into a license agreement with this consultant.
This
license will remain in force in perpetuity as long as we are not in default
of
the agreement. We agreed to provide the consultant with a number of shares
of
our common stock equal to 2.5% of the net revenues derived from a product
and
any subsequent versions of the products developed with his help.
License
Agreement with Dr. Mark Froimowitz
On
October 25, 2005, we entered into an exclusive licensing agreement with Dr.
Mark
Froimowitz to develop a series of compounds targeting the clinical development
of enhanced pharmaceuticals for the treatment of drug addiction, attention
deficit hyperactivity disorder, or ADHD, and depression. The licensed compounds
are analogs of Ritalin, a well-known drug used for treatment of ADHD. The
analogs are designed specifically to have a slow onset and increased half-life
in the bloodstream, thus reducing a patient’s required daily dosage and the
potential for drug abuse. We have the exclusive right to develop, use, market
and sell products derived from the licensed compounds. We are obligated to
pay
the licensor a two percent quarterly royalty fee on the net sales of products
covered by the license. Minimum annual maintenance fees of $25,000 are required
for the license term, but will be deducted from royalties. Additionally,
the
license requires progress payments of up to $275,000 upon the successful
development and approval of licensed products. The license’s initial five year
term is supplemented by options capable of extending the license term for
up to
twenty years.
License
Agreement with Harvard Medical School
On
January 24, 2006, we entered into an exclusive license agreement with Harvard
College through the Laboratory for Translational Research at Harvard Medical
School. The Harvard License provides for sponsored research and the clinical
development and commercialization of a diagnostic test targeting early
identification of the population at risk of developing vascular diabetic
complications. The research will be conducted under the supervision of Dr.
Jose
Halperin. The sponsored research payments total approximately $2.5 million
and
will be paid in quarterly installments of approximately $208,333 over
approximately three years.
Under
the
Harvard License, we have the exclusive right to develop, market and sell
products and services derived from the research. We must pay the Licensor
a six
percent royalty on the net sales of products and services covered by the
License
and thirty percent of all non-royalty sublicense income. We are also required
to
pay escalating minimum annual license maintenance fees totaling $850,000
through
January 1, 2012. We are obligated to make annual license maintenance fees
of
$250,000 through the Harvard License term, but, beginning January 1, 2013,
the
annual license fee of $250,000 is credited against royalty payments.
Additionally, we paid the Licensor previously incurred patent costs of
approximately $100,000 upon the execution of the License, and are responsible
for paying the costs associated with patent application, maintenance and
prosecution during the License term.
Research
Sponsorship Agreement with Massachusetts
College of Pharmacy and Health Sciences
In
January 2006, we entered into a research sponsorship agreement with the
Massachusetts College of Pharmacy and Health Sciences, under which Dr. Mark
Froimowitz will lead a research project that relates to the compounds that
we
license from him. The area of research is the synthesis and testing of monoamine
transporter inhibitors as possible human medications for drug abuse, for
attention deficit hyperactivity disorder, and for depression. The specific
research covered by this agreement is the synthesis of quantities of compounds
sufficient for animal testing, including developing methods for the resolution
or chiral synthesis of compounds. We will pay a total of $300,000 to
Massachusetts College of Pharmacy and Health Sciences for this research work
which will be paid in monthly installments of $25,000 over one year. We will
acquire all intellectual property associated with the research
results.
THE
PHARMACOGENOMICS MARKET
A
1998
study of hospitalized patients published in the Journal
of the American Medical Association
reported
that in 1994, adverse drug reactions accounted for more than 2.2 million
serious
cases and over 100,000 deaths, making adverse drug reactions (ADRs) one of
the
leading causes of hospitalization and death in the United States. As noted
by
Ross
and
Ginsburg in the American Journal of Clinical Pathology,“As
many
as 20% to 40% of people receiving pharmaceutical agents may be receiving
the
wrong drug.”
Currently,
there is no simple way to determine whether people will respond well, badly,
or
not at all to a medication; therefore, pharmaceutical companies are limited
to
developing drugs using a "one size fits all" system. This system allows for
the
development of drugs to which the "average" patient will respond. However,
as
the statistics above show, one size does not fit all, sometimes with devastating
results. As discussed at the March 11, 2006 American Society for Clinical
Phamacology and Therapeutics Conference by Janet Woodcock, M.D. Deputy Director
of the FDA, the American medical system cannot afford to continue to ignore
the
obvious variability in how individuals respond to most drugs. There is
increasing obligation for the pharmaceutical industry - and the regulatory
oversight agencies - to use all available knowledge and technologies to
accelerate the development of drugs that can be prescribed with better
understanding of which patients can safely take which medicines that also
will
be effective treatment from them. Dr. Woodcock also said:
“At
the
FDA, we currently see only a trickle of applications containing pharmacogenomic
information, but we expect this trickle to become a flood over the next five
years. And this is only good news for patients and their families. For the
first
time, physicians will have a chance to treat people as individuals, not as
members of a "population." We will also be able to treat patients based on
the
actual biology of the disease--not just according to their symptoms. People
often have similar symptoms, but actually have very different underlying
diseases that need different treatments. The pharmacogenomics revolution
gives
us a chance to sort this out and to treat people with the kind of therapy
that's
appropriate for them, personally. This gives all of us the chance to fulfill
the
promise of all the discovery and all the investment in biological science
that's
been going on during the last 30 years. And it will really help and enhance
the
health of all Americans.”
Testing
individuals to predict their genetic pre-disposition to drug response is
known
as pharmacogenomics. The term comes from the words pharmacology and genomics
and
is thus the intersection of pharmaceuticals and genetics. Pharmacogenomics
enables physicians to tailor drug therapies (formulation and dosage) for
individuals based on their genetic composition. By using predictive response
genetic testing, rates of therapeutic success (known as treatment efficacy)
are
increased, and ADRs are decreased. Pharmacogenomics combines traditional
pharmaceutical sciences such as biochemistry with annotated knowledge of
genes,
proteins and single nucleotide polymorphisms known as SNPs. According to
Human
Genome Project Information, Pharmcogenomics (www.ornl.gov/sci/techresources.Human_Genome/medicine/pharma.shtml),
Pharmacogenomics is anticipated to provide the following benefits:
| 1. |
More
powerful medicines that are targeted to specific diseases. This will
maximize therapeutic effects and decrease damage to nearby healthy
cells.
|
| 2. |
Better,
safer drugs the first time by analyzing a patient’s genetic code or
important segments of the patient’s code versus trial and error
prescribing based on reviewing the impact of a drug after a patient
takes
it.
|
| 3. |
More
accurate methods of determining appropriate drug doses not based
only on a
patient’s weight or body mass but also based on the patient’s metabolism.
This will maximize the therapy’s value and minimize the chance for
overdose.
|
| 4. |
Improvements
in the drug discovery and approval process because trials are targeted
for
specific genetic population groups providing a higher chance of success.
This can reduce costs of trials and risk of poor side effects. Previously
failed drug candidates might be revived if they can be matched
appropriately with a specific population.
|
| 5. |
Decreases
in overall cost of health care because of reduced ADRs, reduced failed
drug trials, shortened FDA drug approval timeframes, limited treatment
duration because the drug is more effective, linked to early detection
and
resulting in better preventative care.
|
The
major
barrier to pharmacogenomics progress is complexity of the research efforts
that
are still in early stages of finding gene variations that affect drug response.
Millions of SNPs must be potentially identified and analyzed to see if they
affect drug responsiveness. Additionally, many genes work in combination
and
thus, understanding the impact of combinations of SNPs will be critical.
Unfortunately, this effort is also time consuming and expensive.
In
November 2003, the FDA issued "Guidance for Industry Pharmacogenomic Data
Submissions.” We believe that, in this guidance, the FDA offers support for
pharmaceutical companies developing drugs using genetic testing and genomic
research for drug approvals. Under the guidelines, if a genetic test is new
or
is not widely accepted, then its use is `voluntary' to the drug's submission.
If
a test is `validated and accepted' then the guidelines suggest its inclusion
in
the submission. In both cases, our products and services can provide a valuable
tool for drug development. We can help identify patients who might not respond
favorably to a new medication, either by failure to gain the intended treatment
objective or by expression of an adverse reaction, and thus eliminate those
patients from the treatment or clinical trial. This testing could improve
the
drug's efficacy statistics because there may be fewer non-responders in the
trial and reduce its toxicity profile because there would be fewer individuals
who have an adverse drug reaction. This testing may increase the likelihood
that
the drug meets FDA requirements and gains market approval.
Our
Pharmacogenomics Products
At
the
annual shareholder meeting in June 2005, Dr Hector J. Gomez, the Chairman
of our
Board of Directors, announced that we will focus on leveraging our expertise
in
DNA technology into the development of particular test/drug combinations,
called
theranostics. Theranostics is defined as the clinically-targeted integration
of
diagnostics and therapeutics according to Current Drug discovery September
2002.
We believe theranostics adds value to the clinical trial process, improves
the
real-time treatment of disease, and makes treatment more
cost-effective.
In
October 2005, we created a new subsidiary, DNAPrint Pharmaceuticals, to focus
on
delivering diagnostic and theranostic products to the market in support of
pharmacogenomic opportunities. We are developing several Theranostics Projects.
The following table contains certain information on the status for our
diagnostic products that are in development as of February 28,
2006:
|
THERANOSTICS
|
INDICATION
|
DEVELOPMENT
STAGE
|
|
PT-401
|
Anemia
- Renal Failure
|
Preclinical
|
|
PT-501
|
ADHD
|
Preclinical
|
|
PT-502
|
Drug
Addiction
|
Preclinical
|
|
PT-503
|
Depression
|
Preclinical
|
PT-401
Anemia
-
Renal Failure: As announced on March 14, 2006, tests of our Super EPO dimer
in
animal models of anemia showed that it was several times more effective and
longer acting than the currently available erythropoietin. In vitro testing
in
cell cultures revealed significant positive biological activity. In addition,
in
vivo testing in mice demonstrated robust stimulation of red blood cell
production. Further analytical testing showed unique biochemical properties
that
distinguish it from currently marketed red blood cell growth stimulating
drugs.
PT-501
ADHD, PT-502 Drug Addiction, PT-501 Depression: In January 2006, we entered
into
a Research Sponsorship Agreement with the Massachusetts College of Pharmacy
and
Health Sciences for the potential development of compounds as possible
medications for drug abuse, attention deficit hyperactivity disorder and
depression.
Our
Diagnostic Projects
We
currently have several diagnostic projects under development. The status
as of
February 2006 is as follows:
|
DIAGNOSTICS
|
INDICATION
|
DEVELOPMENT
STAGE
|
|
OVANOME
|
Ovarian
Cancer
|
Diagnostic
Ph II
|
|
STATINOME
|
Safety
of Statins
|
Diagnostic
Ph II
|
|
DIABETES-CD59
|
Diabetic
Complications
|
Preclinical
|
Ovanome:
During
2005, we began a study with Genomics Collaborative Division of Seracare
Life Sciences Inc. Samples
have been received from them and used to conduct a validation of the test.
This
has advanced the development and improved the quality of the diagnostic
test.
Statinome:
During
2005, we began a study with Genomics Collaborative Division of Seracare
Life Sciences Inc.
that
also included the statinome program. Samples have been received from them
and used to conduct a validation of the test. An abstract was presented at
the
last meeting of the American Society of Clinical Pharmacology and Therapeutics
(March, 10, 2006 in Baltimore). Also, a paper has been prepared and submitted
for publication.
Diabetes
C59:
On
January 24, 2006, we entered into an exclusive license agreement with Harvard
College through the Laboratory for Translational Research at Harvard Medical
School. The Harvard License provides for sponsored research and the clinical
development and commercialization of a diagnostic test targeting early
identification of the population at risk of developing vascular diabetic
complications. The research will be conducted under the supervision of Dr.
Jose
Halperin.
Our
Growth Strategies in the Pharmacogenomic Market
By
leveraging our proprietary technologies, we believe we are positioned to
serve
the growing compliance and operational needs of pharmaceutical companies
and
institutional researchers. We will continue to seek product and market
relationships that expand and enhance our ability to apply our technology
to
existing medications or new medications, improving drug efficacy and reducing
patient side effects by better understanding the genetic makeup of individuals.
We believe the future of drug development and drug approval as outlined by
recent FDA writings will force the industry to recognize smaller market
opportunities with higher efficacy profiles and significantly reduced or
diminished side effects.
We
will
continue work on OVANOME(TM), a Taxol screening diagnostic test, and
STATINOME(TM), a test for the cardiac drug market, which are both
currently under development. Our OVANOME™ technology is under development with
researchers at the Moffitt Cancer Center in Tampa, Florida, and we are in
the
midst of completing an initial 80 person trial under an approved Internal
Review
Board, or IRB, which approves all clinical trial related work at the center.
We
are also enrolling an additional 200 subjects to further validate and support
the data we obtained in our earlier trial. We will continue to explore joint
venture opportunities, particularly within the pharmacogenomic segment, in
order
to potentially expand our position within the pharmaceutical market. A major
goal of our joint venture program is to seek opportunities for a drug pipeline
acquisition. Our recent licensing of a ‘Super’ Erythropoietin (EPO) molecule
from Beth Israel Deaconess Hospital is a step forward in that direction.
We plan
to combine our ability to screen patients and track patient response to the
standard form of EPO when compared to our newer, ‘Super EPO’. We believe this
will improve our clinical efficacy and reduce the unwanted side-effects of
standard EPO treatment for anemia.
THE
FORENSICS MARKET
Testing
DNA from a crime scene to create a physical profile is a new market based
on
evolving technologies. Common hereditary traits such as skin pigmentation,
eye
color, hair color, earlobe attachment and height can theoretically be predicted
through analysis of DNA sequences. We believe that we are the first to use
DNA
gathered as evidence from a crime scene to successfully predict the donor's
continental genetic origin and linking that to our photo-database gallery,
providing law enforcement officers with a general description of the donor.
There
are
approximately 1,200,000 reported incidents of violent crime (rape, robbery,
and
aggravated assault) in the U.S. each year. In the vast majority of violent
crimes, DNA evidence is left at a crime scene or on a victim's body. Of these
1.2 million reported incidents, only about 600,000 cases result in arrests.
Forensic DNA tests can enable a greater degree of success in prosecuting
violent
criminals.
Our
Products for the Forensics Market
We
created DNAWitness™ 2.5 for the forensics market. Law enforcement officers use
this testing service to determine genetic heritage from DNA samples obtained
from crime scenes, saving time and money by narrowing the list of potential
suspects. Current forensic DNA products in the market act like a fingerprint
and
can only be used to match DNA specimens. To our knowledge,
DNAWitness™
is the
first forensic product that provides predictive capability.
DNAWitness™
provides
the percentage of genetic make up amongst the four possible groups of
Sub-Saharan African, Native American, East Asian, and European. When
appropriate, DNAWitness™
allows
for a breakdown of the European ancestry into four components: Northwestern
European, Southeastern European, Middle Eastern and South Asian. The results
of
these tests can be very useful for inferring certain elements of physical
appearance.
In
2005,
DNAWitness was used in approximately 100 cases.
The
Louisiana Serial Killer Case was one case where the use of DNA Witness was
considered a major contributor to identifying the killer who has since been
convicted and sentenced. This case was featured at an educational workshop
for
law enforcement at the American Academy of Forensic Scientists in February
2006.
Additionally, DNAWitness received national attention when police made an
arrest
in a case involving the double murder of two women in Napa, California, after
narrowing down a list of potential suspects. The test eliminated an entire
group
of individuals who worked and lived in the Napa Valley area as potential
suspects.
Initial
DNAWitness™ 2.5 customers include medical examiner's offices, special task
forces, sheriffs' departments, and district attorney's offices from various
cities. Initial response from preliminary application of this forensics version
to various high profile criminal cases has been promising.
During
July 2005, we expanded our DNAWitnessTM
product
suite which now includes:
DNAWitness™
2.5 -- Tests crime scene DNA to assist detectives, forensic scientists and
medical examiners in corroborating eyewitness reports and confirming suspect
identities. DNAWitness™ 2.5 provides a BioGeographical Ancestry report that
includes a photo database for reference samples of individuals. Reported
ancestral origins are Sub-Saharan African, Native American, East Asian and
Indo-European.
EUROWitnessTM
1.0 --
Tests crime scene DNA to determine more specific geographic origins if the
test
sample ancestry is 50% or more Indo-European. EUROWitness 1.0 provides a
BioGeographical Ancestry report that includes relative percentages of Northwest
European, Southeast European, Middle Eastern or South Asian.
RetinomeTM
-- A
predictive test for individual eye color from DNA. RETINOME™ predicts eye color
if the sample is 50% or greater European ancestry as to whether eye color
is
blue, mostly blue, brown or mostly brown. A representative eye photo database
is
also provided along with relevant photo database pictures of the individual
references.
STR-WitnessTM
-- A
genetic "matching" used as a bar code to track and report the samples.
STR-Witness™ is the same test used for determining an individual's identity from
an available DNA sample. Crime labs run this test to screen the Federal Bureau
of Investigation's Combined DNA Index System (CODIS) database for possible
matches.
DNAWitness-YTM
-- A
Y-chromosome test that determines the direct paternal ancestral lineage from
the
male sex chromosome. DNAWitness-Y™ can be used as an identification tool in
cases where a mixture of male and female samples exists.
DNAWitness-MitoTM
-- A
mitochondrial DNA test that examines ancestral lineages along the maternal
line.
DNAWitness-Mito™ can be used as an identification tool when other DNA testing
fails to yield results or the DNA sample is too deteriorated.
Growth
Strategy in Forensics
We
are
investigating avenues to encourage federal, state and local governments,
crime
laboratories and law enforcement agencies to use DNAWitness™ to help solve cold
cases, current serial killer cases and other violent crimes. By using
DNAWitness™ on a routine basis, witness information can be corroborated, and
where no witness is present, DNAWitness™ can provide a "fuzzy sketch" of the
persons who left evidence at a crime scene, possibly reducing the cost and
delay
inherent to unguided investigation of a large pool of potential suspects..
Our
2006
and 2007 plans include seeking American Society of Crime Laboratory Directors
or
"ASCLD" accreditation of our laboratory for forensics work tied to court
testimony. Once accredited, either through acquisition of another forensic
operation or development of our own operation, we will also be able to offer
conventional DNA testing to our clients. Accreditation would allow us to
capture
a greater portion of this market and to offer a full range of services to
our
clients. We continue to go to trade shows to increase the awareness of our
products with the law enforcement community.
THE
CONSUMER PRODUCTS MARKET
The
consumer genealogy market is fueled by a natural desire to understand our
family
lineage and our genetic heritage. The total world market is currently estimated
at $75 million and is expected to grow 5% annually. There is also a market
for
paternity and other tests related to family lineage. We serve both of these
consumer markets through direct sales and independent distributors.
Our
Products for the Consumer Product Market
We
were
one of the first companies to offer DNA tests that predict genetic heritage
for
this market. Additionally, to the best of our knowledge, we offer the only
pan-chromosomal assay for genetic ancestry which provides information on
a
person’s maternal and paternal lineages.
Our
genealogy product, ANCESTRYbyDNA™
2.5,
provides an inference of an individual’s genetic ancestry or heritage.
ANCESTRYbyDNA™
2.5
carefully selects and analyzes certain genetic markers from the human genome
which are more prevalent in people from one continent versus another. Using
complex statistical algorithms, ANCESTRYbyDNA™
2.5 can
determine which of the major bio-geographical ancestry groups, Sub-Saharan
African, European, East Asian or Native American, a person belongs. The genetic
test can also determine the relative percentages of these ancestry groups
which
are present in cases of people of mixed background. We market this product
to
individuals or groups interested in understanding their lineage or learning
more
about their genetic ancestry.
We
introduced EURO-DNA™
1.0 in
the marketplace in late 2004. The EURO-DNA™
1.0
product
measures European sub-ancestry. “European” ancestry, as determined by
ANCESTRYbyDNA™
2.5,
refers to a type of ancestry shared by people who derived from the Middle
East
some 50,000 years ago and spread to occupy Europe, the Middle East, parts
of
Eurasia and South Asia. EURO-DNA™
1.0
breaks the European ancestry into 4 groups, reporting individuals’ ancestral
percentages for each of the following: Northwestern European, Southeastern
European, Middle Eastern and South Asian.
In
June
2005, we acquired Trace Genetics, an identity genomics company located in
Richmond California. The company had three ancestry tests that were added
to our
family of tests. They include:
| 1. |
“Ancestry
Mito” mtDNA Test which traces the origin of the customer’s direct maternal
line (mother’s mother’s mother). There are 30 major maternal lineages
(haplogroups) that have been identified
worldwide.
|
| 2. |
Native
American mtDNA test which tests the customer’s mtDNA sequence against the
Native American mtDNA database to see if we can make any tribal matches
when the customer is one of 5 haplogroups that are Native American
in
origin.
|
| 3. |
“Ancestry-Y”
SNP which traces the origin of the customer’s direct paternal line
(father’s father’s father). There are 18 major paternal lineages
(haplogroups) that have been identified worldwide. Two of the 18
haplogroups are found in Native American populations (Q, C). This
test
includes these two haplogroups.
|
Growth
Strategy in Consumer Products
We
currently have seven distributors that sell our consumer products. We use
our
distributors as well as Internet and paper-based publication advertising
(i.e.
through Google and Family Tree magazine) to grow sales of our consumer products.
Our consumer sales volumes seem to increase when we are featured in articles
and
television spots. We have been featured in multiple local and national
publications and television programs. We will continue to strive to get the
article and television spot coverage as well as pursue other avenues of
marketing. Our consistent sales come through our distributors. We will also
continue to pursue adding distributors to increase our sales volume of our
consumer products.
Contract
genotyping is the process of reading a genetic sequence and identifying
differences in the sequence letters. This information helps researchers
understand how human differences are expressed at the gene level. We provide
universities and drug discovery companies the ability to outsource some or
all
of their research needs for genotyping. The pharmaceutical and drug discovery
segments of the outsourcing market continue to grow.
Our
Genotyping Services
We
provide services that range from sequencing and genotyping to the entire
process
of SNP discovery to large industrial customers. Contract genotyping is the
process of reading a genetic sequence and identifying differences in the
sequence letters. For example, in comparing diseased tissue with normal tissue,
we are able to see the differences in the sequence letters. This information
helps researchers understand how human differences are expressed at the gene
level. They can then search for and develop preventative treatment and effective
therapeutic courses to alleviate disease symptoms.
A
critical factor to the success of research and development of pharmacogenomics
assays is the ability to do high through-put genotyping. To this end, we
acquired certain assets from a Canadian company and formed our subsidiary
Ellipsis. Ellipsis has a Beckman-Coulter SNPstream that is capable of using
a
new 48-plex system, which allows for greater capacity of SNP testing at less
cost. We currently have a total of three SNPstream machines enabling us to
offer
testing services that can validate markers at high volumes, which is especially
useful in the later stages of drug and diagnostics development during large
clinical trials.
Ellipsis
also has an Illumina Beadstation 500G system, which also runs very high capacity
analysis. The Illumina system is 50 to 100 times higher capacity but is not
as
efficient from an expense perspective at lower numbers of SNPs making the
Illumina a more ideal research tool in screening whole genomes across hundreds
of thousands of SNPs.
These
platforms enable us to do a variety of testing of DNA samples for
pharmacogenomic efforts as well as generating revenue from projects for academic
and business organizations. Ellipsis has extensive experience working with
DNA
samples from a variety of sources and projects, including agricultural to
human
disease applications.
In
October 2005, we acquired Kenna Technologies. Kenna develops software and
related technologies for building computational models that mimic complex
biological systems. By acquiring Kenna, we also gained access to Kenna’s
BoneFusion and CellCycleFusion models, which simulate bone remodeling processes
and molecular pathways. These pathways are common targets of current cancer
therapies. Utilizing these models may lead to shorter drug development timelines
and thus reduced costs as they help in the design of optimal clinical trials.
Computational models, developed with our proprietary methods test multiple
complex scenarios of dosing, patient factors, disease progression over time,
genetic variation in drug response and can provide insight into the potential
outcomes of long term treatments which are too costly to test in human studies.
We are currently using these models with respect to the PT-401 Super EPO
project
and will use these and other models in our research and development of our
products. We also hired certain key employees of Kenna, including Drs. Barbara
Handelin and Tandy Herrin, who will support the clinical development of our
PT-401 with simulations to help design optimal clinical trials.
We
continue to pursue customers within the contract genotyping market. To date,
our
customers have come to us either through client referrals or our general
website. In the future, we plan to concentrate our genotyping services on
specific diseases, including cancer, neurological disorders, and heart disease.
By concentrating on specific diseases, we hope to develop an expertise that
will
attract customers in those areas requiring external assistance and additional
research capacity. Through this strategy, we will continue to build our
reputation as a reliable and cost effective supplier of high quality data.
INTELLECTUAL
PROPERTY
Trademarks
We
regard
our trademarks, copyrights, domain names, trade dress, trade secrets,
proprietary technologies, and similar intellectual property
as important to our success, and we rely on trademark, and copyright law,
trade-secret protection, and confidentiality and/or license agreements with
our
employees, customers, partners, and others to protect our proprietary rights.
We
have licensed in the past, and expect that we may license in the future,
certain
of proprietary rights, technologies or copyrighted materials, from third
parties
and we rely on those third parties to defend their proprietary rights,
copyrights and technologies.
We
claim common law trademark rights to the marks DNA
Print, DNA Witness, EURO-DNA and Ancestry by DNA.
Patent
Applications
We
have
filed claims for international and domestic patent protection. The patents,
if
issued, will help ensure protection of our bioinformatics platforms, analytical
software, genome maps and genetic classifiers in forensic, consumer products,
and pharmacogenomics applications. The most significant patent applications
cover the bioinformatics platforms and genome maps. Other applications describe
the mathematical process of finding complex genetic information and the actual
processes that find the gene variants responsible for specific complex genetic
traits.
Four
of
our patent applications, 'Compositions...Pigmentation', Single…..Patients,
Markers….Ancestry and 'Compositions...Statin', have entered National Phases and
are pending review and we believe, approval in the U.S. and designated
countries. The pigmentation patent is important because it includes the methods
and compositions for determining skin shade, eye color or any other pigmentation
application. Our Statin patent application includes the use of method for
determining a person's ability to respond favorably to a particular statin
drug,
not the class as a whole. We may also obtain data to support our claim for
all
statins and the use of our AIMs in in the development of the assay.
As
discoveries warrant, we will continue to apply for future additional patents.
Listed below are our current patent pending applications.
Pending
Patent Applications
|
Efficient
Methods and Apparatus for High-Throughput Processing of Gene Sequence
Data
|
US2003/0171875A1
|
| |
|
|
Methods
for the Identification of Genetic
|
US2003/0171878A1
|
|
Features
for Complex Genetics Classifiers
|
WO
03/048318
|
| |
|
|
Methods
and Apparatus for use in Genetics Classification Including Classification
Tree
|
WO
03/048999
|
|
Analysis
|
|
| |
|
|
Methods
and Apparatus for use in Complex Genetics Classification
|
WO
03/048372
|
|
Based
on Correspondence Analysis and Linear-Quadratic Analysis
|
|
| |
|
|
Composition
and Methods for the Inference
|
US10/156,995
|
|
Of
Pigmentation Traits
|
US60/346,303
|
| |
PCT/US02/16789
|
| |
AU2002/312112
|
| |
CA2,448,569
|
| |
EP02739467.5
|
| |
hk04109585.8
|
| |
JP2003/500216
|
| |
|
|
Compositions
and Methods for Inferring
|
US10/188,359
|
|
A
Response to a Statin
|
PCT/US02/20847
|
| |
AU2002/316485
|
| |
CA2,486,789
|
| |
EP02746794.3
|
| |
JP2003/509083
|
| |
|
|
Single
Nucleotide Polymorphisms and Combinations Thereof Predictive
of
|
PCT/US02/38345
|
|
Paclitaxel
Responsiveness in Cancer Patients
|
AU2002360452
|
| |
CA2,468,312
|
| |
EP02795709.1
|
| |
HK05102575.4
|
| |
JP2003-546736
|
| |
US60/334,310
|
| |
US60/410,363
|
| |
US10/496,605
|
| |
|
|
Compositions
and Methods for Inferring Ancestry
|
US10/644,594
|
| |
PCT/US03/26229
|
| |
US11/356,729
|
| |
US60/654,672
|
| |
|
|
Methylphenidate
Analogs and Methods of Use Thereof
|
US11/256063
|
| |
PCT/US2005/038030
|
| |
|
|
Methods,
Products and Treatments for Diabetes
|
US09/835752
(Granted)
|
| |
US10/833,581
|
| |
US10/870,342
|
| |
|
|
Anti-Glycated
CD59 Antibodies and Uses Thereof
|
US2004/019392
|
| |
|
|
Multiplex
Assays for Inferring Ancestry
|
331832-000045/WO
|
| |
|
|
Compositions
and Methods for Inferring an Adverse Effect in Response to a
Drug
|
US05/41326
|
| |
|
|
Markers
and Methods for Accurate Estimates of Human Ancestry
|
AU2003265572
|
| |
CA2,496,155
|
| |
EP03788685.0
|
| |
JP2005-502072
|
| |
US60/404,357
|
| |
US60/467,613
|
| |
US10/644,594
|
| |
US03/26229
|
| |
|
|
Methods
and Compositions for Inferring Eye Color
|
US60/544,788
|
| |
US60,548,370
|
| |
PCTUS05/04513
|
| |
|
COMPETITION
Numerous
entities are attempting to identify genomic variation predictive of specific
diseases and drug response and to develop products and services based on
these
discoveries. We face competition in these areas from pharmaceutical,
biotechnology and diagnostic companies, academic and research institutions
and
government and other publicly-funded agencies, both in the United States
and
abroad, most of which have substantially greater capital resources, research
and
development staffs, facilities, manufacturing and marketing experience,
distribution channels and human resources than do we. Our key competitors
include, but are not limited to, PPGx, Inc., a leading international developer
and supplier of research-based pharmacogenomics services and products which
recently announced the launch of its GeneTrials(TM) Bioinformatics Platform.
Also, large pharmaceutical companies have their own internal research and
development efforts that could surpass or eliminate our technology from the
market.
These
competitors may discover, characterize or develop important technologies
applying genomics before us or develop proprietary products and services
that
are more effective than those technologies that we develop. Additionally,
these
competitors may obtain regulatory approvals for their drugs and diagnostics
more
rapidly than we or our customers do, any of which could limit our ability
to
market effectively our products and services. If our patent applications
are not
awarded or if our competitors in the field of genetic research develop and
receive approval of patents that supersede our applications, we could be
forced
to cease the development of our products, services and
technologies.
Some
companies and governments are marketing or developing databases and informatics
tools to assist participants in the healthcare industry and academic researchers
in the management and analysis of genomic data. "Informatics tools" is a
term
used by scientists to describe software, computer programs or mathematical
programs that analyze data sets or collected information that is stored in
data
files. Such computer programs can take an apparently meaningless block of
numbers from a laboratory experiment and evaluate trends, look for statistical
relationships and group or segregate the numbers according to their levels
of
importance to the scientist. They are tools to evaluate information. Our
competitors have developed or plan to develop databases containing gene
sequence, genomic variation or other genomic information and are marketing
or
plan to market their data to pharmaceutical and biotechnology companies or
plan
to make freely available their databases. These entities include, but are
not
limited to:
| · |
Genaissance
Pharmaceuticals: a provider of pharmacogenomic support services,
including
high-throughput sequencing, this company was recently acquired by
another
company called Clinical Data, Inc.
|
| · |
Evolutionary
Bioinformatics: Bioinformatics and genomics consulting, specializing
in
comparative genomics, functional genomics and model
organisms.
|
| · |
deCODE
Genetics: Advanced bioinformatics and high throughput genotyping
facility
|
| · |
Celera
Genomics: Drug discovery systems and
services.
|
| · |
Cellular
Genomics: A biotechnology company focused on the discovery and validation
of novel drug targets.
|
| · |
Correlogic
Systems: Developing tools and processes for proteomic and genomic-based
clinical diagnostic systems and new drug
discovery.
|
| · |
Epoch
Biosciences: Technologies useful in genetic research, diagnostics,
drug
development, infectious disease detection, prenatal testing and population
screening to assess risk of disease or to predict response to
drugs.
|
| · |
Eragen
Biosciences: Designs, develops, and markets functional genomic and
drug/diagnostic discovery platform products, and technologies to
the
pharmaceutical, biotechnology and agro-biology
industries.
|
In
addition, numerous pharmaceutical and biotechnology companies, either alone
or
in collaboration with our competitors, are developing genomic research programs
that involve the use of information that can be found in these databases.
Genomic
technologies have undergone, and are expected to continue to undergo, rapid
and
significant change. Our future success will depend in large part on maintaining
a competitive position in the genomics field. Others may rapidly develop
new
technologies that may result in our test or technologies becoming obsolete
before we recover the expenses that we incur in connection with the development
of these products. Our developed proprietary products and services could
become
obsolete if our competitors offer less expensive or more effective drug
discovery and development technologies, including technologies that may be
unrelated to genomics.
We
also
compete in the forensic DNA testing market, consumer DNA products market
and
contract services outsourcing market. We have introduced new products in
the
last year and improved our flagship product, ANCESTRYbyDNA™, part of the
consumer DNA market, by upgrading it from 76 marker sets to 175 marker sets.
Additionally, we have increased our ability to include DNA sampling from
Northern European, Middle Eastern, Mediterranean and IndoEuropean by introducing
EURO-DNA™ 1.0. However, sales have not improved as dramatically as expected
perhaps due to an increase in pricing from $199 to $219 for ANCESTRYbyDNA™ and a
combined price of $399 for inclusion of a EURO-DNA™ test along with the
ANCESTRYbyDNA™ test.
In
the
consumer market, which is mainly supported by genealogy enthusiasts, we remain
concerned that our potential reward from developing products will be limited
by
a sudden lack of interest. Our competitors include companies like:
o
Sorenson Genetics- One of the larger suppliers of paternity and ancestry
testing.
o
DNA
Testing Center, Inc. - A testing service for mitochondrial, paternity and
y
chromosome testing for the consumer market and forensics market as
well.
Either
of
these firms or other companies could create a product that is competitive
to our
products, and reduce our current sales volumes.
Similarly,
we have competitors in the field of forensics that includes the following
companies and agencies:
o
Orchid-
The original inventors of Single Nucleotide Polymorphismanalysis machines
and
SNP technologies through its Orchid Cellmark division is considered one of
the
premier independent DNA testing laboratories in forensics. This competitor
not
only has the scientific background but the financial means and expertise
to
create a product that directly competes with ours in the forensics
market.
o
FSS- A
United Kingdom based firm that processes nearly 85% of the UK's criminal
DNA
samples also has the ability to create a product that is competitive to our
products and is exploring entering the U.S. market.
o
Bode
Systems, A division of Choicepoint- A significant competitor that, like FSS
and
Orchid has the ability to create and market a similar product to ours and
eliminate us from the forensics market.
o
FBI,
Quantico Laboratories- The Federal Bureau of Investigation (FBI) has significant
development resources and we believe they are contracting with Orchid and
others
to develop identity tests that will help them identify potential DNA donors
from
crime scene DNA. The bureau also invests federal research money on its own
research to develop testing processes and procedures that it would approve
for
law enforcement.
o
The
National Institutes of Justice regularly provides grants to local and state
police crime laboratories and University researchers that are competitive
to our
technology. We have applied for two grants and will continue to apply but
have
been rejected. In each application, despite the rejection, we have developed
the
proposed technology and brought it to the forensics market.
Forensic
DNA and consumer DNA technologies have undergone, and are expected to continue
to undergo, rapid and significant change. Our future success will depend
in
large part on maintaining a competitive position in these fields. Others
may
rapidly develop new technologies that may result in our tests or technologies
becoming obsolete before we recover the expenses that we incur in connection
with the development of these products. Our products and services could become
obsolete if our competitors offer less expensive or more effective discovery
and
development technologies, including technologies that may be unrelated to
genomics.
Employees
As
of
December 31, 2005, we had twenty full-time employees. None of our employees
are
represented by a labor union. We consider our relations with our employees
to be
good. We plan to add additional staff as needed to handle all phases of our
business.
RISKS
Before
deciding to invest in us or to maintain or increase your investment, you
should
carefully consider the risks described below, in addition to other available
information. Each of the following risks could harm our business, financial
condition and results of operations. These risks could cause the trading
price
of our common stock to decline and you could lose all or part of your
investment.
RISKS
RELATED TO OUR FINANCIAL CONDITION AND BUSINESS
REGULATORY
OVERSIGHT OF OUR PRODUCTS AND SERVICES MAY INCREASE OUR COSTS TO MARKET OUR
PRODUCTS AND SERVICES AND ADVERSELY AFFECT OUR ABILITY TO MARKET OUR PRODUCTS
AND SERVICES.
Currently,
there is limited Food and Drug Administration, or FDA, regulation of genetic
tests. Within the field of personalized health and medicine, governmental
and
other entities may enact patient privacy and healthcare laws and regulations
that may limit the generation and use of genomic variation data. "Genomic
variation data" is the information obtained when scientists search the gene
for
differences across the entire human genome for changes and variations.
To
the
extent that FDA laws and regulations limit the use of our products and services
or impose additional costs on our customers, we may be unable to market
effectively our products and services and we may not generate sufficient
revenue
to sustain our operations. Furthermore, we may be directly subject to
regulations as a provider of diagnostic information. A diagnosis is the
evaluation of a patient or
