Arrayit: Making Genetic Testing Feasible

| About: Arrayit Corp. (ARYC)


Genetic testing to understand predisposition to diseases is an important new preventive technology. Done even once in a lifetime, it can tell physicians just what particular diseases a person might be predisposed to, simply by understanding her genetic makeup. This is a more scientifically advanced form of the standard "family history" questionnaire that doctors usually ask patients when trying to diagnose their ailments.

However, testing millions of patient samples one at a time in a laboratory is complicated and costly. A small biotech named Arrayit Corporation (OTCPK:ARYC) has come up with a patented microarray technology that can speed up the genetic testing process by a large factor, making it both cheaper and more practicable on a large scale. The technology is about to become very important for the diagnostic industry if the company's potential can be harnessed properly into a proper marketable package. I am very excited about the prospects of this company.

About Arrayit

Arrayit is a biotechnology company that develops, manufactures and markets life sciences tools and integrated systems for the analysis of genetic changes and biological functions. The company supports research that is being performed by universities (40%), government agencies (20%), hospitals (5%), research organizations (5%), life sciences companies (10%), pharmaceuticals (10%), and diagnostics companies (10%) around the world. The company operates through two wholly owned subsidiaries - TeleChem International, Inc. and Arrayit Marketing, Inc., one majority (98%) owned subsidiary - Arrayit Scientific Solutions, Inc., and one minority (47%) owned subsidiary - Avant Diagnostics, Inc. The latter has currently been spun off to improve operational efficiency.

The Microarray Industry

According to ResearchMoz, the global biochips (popularly known as microarrays) market is forecasted to grow at a CAGR of 18.6% to reach US$11.4 billion by 2018. The growth will be primarily driven by increasing applications in cancer diagnostics, growth in personalized medicines, genetic expression and government funding. Microarray accounts for nearly 70% and services represents 15% of the industry value. North America is expected to dominate the biochips industry by 2018. APAC countries are also forecasted to see considerable growth. The market comprises of DNA microarrays, lab-on-chips (LOC) and protein microarrays. DNA microarray is the largest segment and should continue to be the largest in future. Another segment protein microarray is likely to be the next growing sector due to the advance of genomic and proteomics.

What the Microarray Technology Does

Typically, microarray technology is used to study the expression of human genes. It involves placing thousands of gene sequences in a glass slide called gene chip. Then, blood sample containing DNA or RNA will be placed in the gene chip. Light is produced on pairing between the sample and genetic sequences in the chip, which are measured to identify the expression of genes in the sample.

There are two types/formats of microarrays currently available in the industry. These are Glass DNA Microarrays and High Density Oligonucleotide Microarrays. Glass microarray was the first technology used to study genetic sequences. This format has increased detection sensitivity because of larger target sequences, is easy to use in a laboratory and less expensive. The process is however labor intensive and requires additional accessories for output. It also fails to work for cross hybridization. On the other hand, high density oligonucleotide microarrays are manufactured using advanced technology to monitor the genome on a chip. Speed, specificity and large possible output are the advantages of high density microarrays. They can be used in hybridization-based detection and analysis such as genotyping, sequencing and gene expression analysis in different disease conditions. However, this technology also has some limitations. It limits the researcher's flexibility as the production of arrays, hybridization and detection equipment requires a large setup. Short sequences provide high specificity, but decrease the sensitivity or binding compared to glass microarrays. Most importantly, this process is very expensive.

Arrayit's Microarray Technology

In Arrayit's microarray technology, 100,000 individual patient samples can be placed on a single microarray substrate slide and then immersed in a solution that contains known markers for specific diseases. The results are evaluated based on the signals - red spots confirm the presence of the disease and green spot show a lack of a particular disease. This is a unique technology in the industry. Dr. Mark Schena, the company's CEO, developed and patented the company's microarray technology that can be used to study both genetic variations and biological functions in a larger scale. The multi-patient genotyping procedure is protected by the following patents:



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Source: 10K, US patent number independently verified here.

Key Advantage

Arrayit's patented printing technology has unique advantage. One laboratory can test hundreds of thousands of patient samples a day. It can be applicable to any kind of molecule, including DNA (genotyping), RNA (gene expression), proteins (serum diagnostics), antibodies, diagnostic elements and other compounds. The company has complete set of instruments necessary for the process and they are complimentary to each other. It manufacture more than 10,000 devices from a single ex situ synthesis at a per microarray cost which is more affordable than peers. It includes personal and high throughput microarray printers, highest sensitivity microarray scanners, top quality consumables, patented diagnostic methods and competitive pricing.

Here's a quotation from the US patent number 6,913,879 cited above:

While methods of genotyping for disease diagnostics are available, in order for the methods to be useful in a public health setting, they need to be reasonable in cost. For example, although relevant genetic assays are known, neonatal screening is currently done by mass spectrometric methods primarily because of cost considerations. Secondly, DNA diagnostics in a public health setting need to be practical for application to multiple samples and to genetic conditions in which mass spectrometric methods are difficult or intractable….

Thus, there is a need for a method of genotyping with sufficient precision for diagnostic use, that is affordable and that provides sufficient throughput for large-scale use. Ideally, such a method would allow multiple patients to be screened for multiple diseases in a single assay.

This low cost, large scale application of genetic testing is ARYC's key differentiator.

Arrayit's Products And Services

Arrayit focuses on three key areas: development of microarray tools and components; custom printing and analysis of microarrays for research; and development of diagnostic microarrays and tools for early detection of treatable disease states. The company has 1,100 life science products and services, including instruments (35%), consumables (40%) and services (25%).

Patented Printing Technology: The patented technology allows manufacturing microarrays for all types including DNA, protein, patient DNA, antibody, antigen, peptide, carbohydrate, and many others. It can be used for research and diagnostic applications such as gene expression, genotyping and protein profiling. The technology consists of Professional, 946, Stealth and ChipMaker pins and printheads.

Instrumentation: Arrayit sells both high throughput automated microarrayers (NanoPrint) and small scale microarray manufacturing robots (SpotBot). Both these products are used for manufacturing protein microarrays. The company also offers microarray scanners including personal microarray scanner (SpotLight) and high-end scanning instruments (InnoSan).

Consumables: The Company manufactures a variety of laboratory consumables, including glass substrates and slides, reagents, solutions, kits and clean room supplies for DNA microarrays, fluorescent microarray purification, sequencing and others.

Healthcare Platform: Arrayit has patented healthcare technology called the Variation Identification Platform (NYSE:VIP). It allows diagnostic testing of 100,000 patients' samples in a single microarray. VIP manufactures high quality microarrays with superior precision and accuracy. So, the product can be used for genotyping testing of 100,000 different patients in a single test. It reduces the cost of manufacturing and processing genotyping tests compared to traditional methods.


Arrayit generates revenue through sales of its products including microarrays, reagent and instruments; revenue from diagnostics tests and services. The company has generated $2.8 million in revenue and $1.3 million in earnings from its products and services in last four quarters. In the recent quarter ended March 31, 2013, the company posted significant growth due to delivery of backlogs and increased orders for instruments. Gross revenues increased by 66% to $0.94 million due to higher backlogs of orders of around $0.27 million. Top line growth reflects on their performance with operating income of $0.21 million. Operating margin during the quarter is 22%. In addition, the deconsolidation of its subsidiary Avant Diagnostics has improved the bottom line. Arrayit has reported positive earnings this quarter with net income of $0.23 million compared to net loss of $1.2 million same period last year. The company also has positive cash flow of $0.04 million from its operation.


I have made a thorough study of the company, including interviewing its CEO and a few major shareholders and contractors. What will strike any analyst is the fact that the company has been trading for almost 6 years now, but has a market cap of only $4 million, and is trading below 20 cents. After studying its patents and interviewing contractors, I think this company has a good technology. Its CEO and scientific office Dr Mark Schena has major contribution in the microarray field, and the field itself is an important future technology. However, what I think has happened is that the company has not been able to fully develop its potential. One of the reasons I think is a lack of marketing ability - the product needs to be made into an attractive package and sold globally. This needs funds collection, which it seems is another area the company needs to develop. Here are a few specific areas where the company needs to focus immediately.

Limited capital: Arrayit's financial position is weak with limited cash balance. The company is funded through short term borrowings and extended credits. As of March 31, 2013, company has short term borrowings of $ 0.91 million. Also, the company had a working capital deficiency of $7.4 million and an accumulated deficit of $24.1 million. Higher working capital deficiency resulted from increasing legal expenses, deferred compensation and interest.

Change in technology: Rapid and significant technological changes put the life sciences tools market at risk. Arrayit cannot sit on a technology for 6 years, however good the technology is. It needs to come up with a plan to make money out of it - and fast. The company is likely to witness pressure with frequent introduction of new products, technology advancements and changing industry standards.

Competition: Arrayit is operating in a highly competitive environment. The market is dominated by leading players like Affymetrix, Illumina and others. Though Arrayit has a range of innovative products, but the company has limited capital to support its research and commercialize its products in a large scale.


The biochip or microarrays industry comprises of large and small, public and private companies. Historically, Affymetrix (NASDAQ:AFFX), the first company in the field, dominates the industry with its microarray applications. The company develops and manufactures microarrays using silicone chips. It also produces related systems and consumables for genetic analysis of life sciences. These days, Illumina (NASDAQ:ILMN) has taken over significant market share from Affymetrix. It uses microscopic beads instead of large solid support for the analysis. Illumina offers products and services for gene sequencing, genotyping and gene expression analysis. However, both Affymetrix and Illumina dominate in DNA microarrays and have limited offering in protein and other related applications.

Looking Ahead

Arrayit is developing new proteomic markers for the OvaDx test in collaboration with Wayne State University to study ovarian cancer. This research will provide additional sensitivity and specificity for the OvaDx test. The process is under trial and on approval, the company can make a major breakthrough in protein microarray especially in cancer therapy. Arrayit will manufacture and process OvaDx test and Avant Diagnostics will market and sell the product.

Arriyat is also collaborating with the Parkinson's Institute to study Parkinson's disease (PD) patients' blood samples and identify biomarkers for PD. Further study will confirm its position in PD biomarkers. In addition, the company also provides OEM microarray manufacturing services to companies for a breast cancer test, and its expected CE approval in 2013 will open up opportunity in this space. The company expects to expand its geographic presences through new products such as developing allergy microarrays using owned technology which is approved for Taiwanese and Chinese markets. The company also signed a recent agreement to supply genome testing technology to Indian medical company DHK Medical. This company is planning to operate a global chain of preventive testing facility across India and the US. If the contract succeeds, Arrayit's product can be an important part of DHK's endeavor.

Opportunity For Arrayit

Analysis of genetic variation is playing a major role in molecular biology, and next generation microarrays such as protein and LOC have large growth opportunity in the industry. Arrayit has the potential for the analysis and identifications of major molecules in the human body such as DNA, mRNA and protein using its owned patented and proprietary microarray technology platform. The company's wide range of analysis tools will enhance disease research, drug development and creation of molecular diagnostic tests. Based on overall market, Arrayit can potentially generate revenue of $80-160 million by 2018.


Arrayit market opportunity in 2018





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Market size ($ Million)

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Protein microarrays






Arrayit's revenue


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Disclosure: I am long OTCPK:ARYC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.