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GenMark Diagnostics (GNMK) IPOreport

|Includes: GenMark Diagnostics, Inc. (GNMK)

GenMark Diagnostics (NASDAQ:GNMK)
$104mm market cap at price range midpoint of $9, offering 40% in the IPO
see financial analysis in Genmark IPOreport

SUMMARY

. Introducing diagnostic products & tests in a growth market
. In the medical field it’s usually difficult and takes a long time to ‘cross the chasm’ from early adopters to mainstream customers, although the rewards can be considerable
. Currently running a substantial negative gross margin and negative cash flow
. Priced at 2.3 times tangible book value

BUSINESS
. Equipment designed to support a broad range of molecular diagnostic tests with a compact and easy-to-use workstation and self-contained, disposable test cartridges.
. Proprietary electrochemical technology enables fast, accurate and highly sensitive detection of up to 72 distinct biomarkers in a single sample
. Detects and measures DNA and RNA targets to diagnose disease and to optimize the treatment of patients,
. Received 510(k) clearance for the XT-8 System from the Food and Drug Administration
. Needs to get additional FDA clearance for specific tests

FDA HISTORY
. Obtained FDA clearance for the first generation molecular diagnostic system in 2006, and commenced a limited marketing effort for this system.
. Commenced offering the XT-8 instrument and the Warfarin Sensitivity Test in July 2008.
. Began offering the Cystic Fibrosis Genotyping Test in July 2009 and the Thrombophilia Risk Test in April 2010

GROWTH PLAN
. Has four diagnostic tests for use with the XT-8 System and expects to expand this test menu by introducing two to four new tests annually.
. Has a pipeline of eight potential products in development or design

US MARKET
Estimated to be $1.9 billion in 2009 and is anticipated to reach $3.4 billion in 2014 according to L.E.K., a market research firm.

EQUIPMENT OUT ON A TRIAL BASIS
. Through March 31, 2010, had primarily placed XT-8 instruments with customers at no initial charge through “reagent rental” agreements, under which customers commit to purchasing minimum quantities of test cartridges over a period of one to three years.
. While XT-8 instruments are offered sale, through March 31, 2010, had sold only two of instruments.

COMPETITION
. Cepheid, Gen-Probe, Inc., Hologic, Inc., Luminex Corporation, Nanosphere, Inc., Qiagen NV and Roche Diagnostics.
. Diagnostic tests also face competition with the LDTs developed by national and regional reference laboratories and hospitals.
. GNMK believes that the XT-8 System competes largely on the basis of accuracy and reliability, enhanced laboratory workflow, multiplex capability, ease-of-use and return on investment for customers

HISTORY & DEVELOPMENT
. In August 2009, retained Jon Faiz Kayyem, Ph.D. as Chief Executive Officer. Dr. Kayyem is an inventor of our core intellectual property. He founded the predecessor company, Clinical Micro Sensors, in 1995 and led the development and growth of that company through its acquisition by Motorola, Inc. in 2000 when it was sold for approximately $280 million.
. Motorola invested additional resources in the development of GNMK diagnostic technology until 2005, when Motorola sold the Clinical Micro Sensors business to Osmetech (GenMark) forming the basis for Osmetech’s current business.

INTELLECTUAL PROPERTY
. As of March 31, 2010, the patent portfolio included 94 U.S. patents, 38 foreign patents (predominantly in Europe and Japan) and 49 pending domestic and foreign patent applications, all of which are either owned by GNMK or are exclusively licensed to GNMK.
. The intellectual property portfolio for GNMK’s core electrochemical technology was built through the combination of the acquisition of the Clinical Micro Sensors business from Motorola, licensing patents from third parties and the issuance of new patents to GNMK to protect ongoing development activities. Motorola initially purchased the Clinical Micro Sensors business for $280 million.

USE OF IPO PROCEEDS
$35mm -- to fund planned sales and marketing initiatives, to develop the AD-8 System and for general corporate purpose

see financial analysis in Genmark IPOreport



Disclosure: none