We estimate that our net proceeds (after deducting underwriting discounts and
commissions payable to the underwriters and our estimated offering expenses)
from this offering will be approximately $53.7 million ($62.0 million if the
underwriters exercise their overallotment option in full), based upon an assumed
initial public offering price of $10.00 per share, which is the midpoint of the
range listed on the cover page of this prospectus. A $1.00 increase or decrease
in the assumed initial public offering price of $10.00 per share would increase
or decrease, as applicable, the net proceeds to us from this offering by
approximately $5.6 million, assuming the number of shares offered by us, as set
forth on the cover page of this prospectus, remains the same and after deducting
the underwriting discounts and commissions and our estimated offering expenses.
Similarly, an increase or decrease in the number of shares we sell in the
offering will increase or decrease, as applicable, our net proceeds by an amount
equal to such number of shares multiplied by the public offering price, less
underwriting discounts and commissions.
From the anticipated net proceeds from this offering, we anticipate that we will
use (i) approximately $17.7 million to repay the principal and interest under
our outstanding promissory notes, (ii) approximately $10.0 million to fund the
expansion of our sales force, enhance our international distributor network, and
increase our marketing and promotional activity and business development
efforts, (iii) approximately $10.0 million in 2013 and 2014 in support of a PMA
for our HPV-HR tests and of 510(k) and CE mark studies and submissions for
several tests associated with womens’ health and personalized medicine,
(iv) approximately $3.0 million to fund research and development activities to
add new or enhanced tests to our menu, (v) approximately $3.0 million to fund
the expansion of our manufacturing capacity and efficiency, including purchasing
automation equipment, (vi) approximately $5.7 million to satisfy outstanding
accounts payable to advisors and service providers incurred in connection with
certain of our prior capital raising activities conducted from 2008 through
2010, and (vii) approximately $1.1 million to satisfy past due amounts owed to
our landlord. We anticipate that we will use the remainder of the net proceeds
from this offering for additional working capital and general corporate
purposes.
As of December 31, 2012, there was an aggregate of $17.5 million of principal
and accrued interest under outstanding promissory notes of which approximately
$2.2 million in principal amount was in default. For each additional day that
the notes remain outstanding, we were required to pay approximately $4,300
of additional interest under the notes. As of December 31, 2012, there was an
aggregate of $1.1 million of principal and accrued interest outstanding under
the notes we have issued to our directors, executive officers and holders of
more than 5% of our common stock. In November 2012, the holders of $22.0
million in aggregate principal amount of and accrued interest on our o
utstanding subordinated promissory notes that were then past due or
scheduled to come due in the immediate future exchanged these promissory
notes for an aggregate of 4,287,074 shares of our Series NC Convertible
Preferred Stock and $14.4 million in aggregate principal amount of new
promissory notes due November 2015. We do not have sufficient cash to satisfy
our indebtedness obligations absent the completion of this offering. Under
the terms of our November 2012 promissory notes, we are required to use at
least 50% of the net proceeds from this offering to repay our indebtedness.
As a result, we intend to use $17.7 million of the net proceeds of this
offering to repay all of the indebtedness owed under our outstanding
promissory notes.
The expected use of the net proceeds of this offering represents our current
intentions based upon our present plans and business condition. The amounts
and timing of our actual expenditures may vary significantly and will depend
upon numerous factors, such as the level of research and development
investment required by our business (including for clinical studies and
trials), cash flows from operations, the anticipated growth of our business
and other factors. Pending the allocation of the net proceeds of this
offering, we intend to invest the net proceeds in short-term, interest-bearing
obligations, investment grade instruments, and certificates of deposit or
guaranteed obligations of the U.S. government.
We face competition in the molecular testing markets primarily from LDTs and
products developed by companies such as Abbott Laboratories Inc., Becton,
Dickinson and Company, Cepheid, GenMark Diagnostics, Inc., Hologic, Inc. and its
recently acquired subsidiary, Gen-Probe Incorporated, Luminex Corporation,
Nanosphere, Inc., Qiagen N.V., Roche Holding Ltd. and Sequenom, Inc. We believe
that the INFINITI system competes with products offered by these companies on
the basis of test menu, cost-effectiveness, ease of use, accuracy of results,
throughput and multiplexing capability and, with respect to some of our tests,
FDA clearance. We believe that only two of the competitors listed above
currently offer on a commercial basis self-contained, integrated systems for
molecular diagnostic testing, and neither of these two competitive systems allow
for mutliplexing.
Many of our competitors have significantly greater financial, technical,
research and other resources and larger, more established marketing, sales and
distribution services organizations than we do. Many of our competitors also
offer broader product lines outside of the molecular research use or diagnostic
testing market, and many have greater brand recognition than we do. Moreover,
our competitors may make rapid technological developments that may result in our
technologies and products becoming obsolete before we recover the expenses
incurred to develop them or before they generate significant revenue. Our
success will depend, in part, on our ability to establish successful marketing,
sales and distribution efforts.
produce genetic
test results in a broad range of market segments, including personalized
medicine, women’s health, oncology and infectious disease. Genetic tests are
performed on our INFINITI analyzer utilizing our high-margin and test-specific
consumables, which include our proprietary BioFilmChip microarrays and our
proprietary Intellipac Reagent Management Modules. In the United States, we
market and sell our genetic tests that have been cleared by the U.S. Food and
Drug Administration, or FDA, for use in the indications specified in those
clearances. The remainder of our genetic tests are marketed and sold on a
research use only, or RUO, basis. Our RUO tests may be used for clinical
purposes in the United States only by customers that are certified under the
Clinical Laboratory Improvement Amendments of 1988, or CLIA, and that have
incorporated our test into the customer’s laboratory-developed tests, or LDTs,
pursuant to guidelines issued by the College of American Pathologists. Our
INFINITI analyzers are capable of both mid- to high-volume testing and
generating many different laboratory results from one patient sample at the same
time, which is commonly referred to as multiplexing, while providing a high
level of accuracy and reproducibility. Our INFINITI system is easy to use, as it
eliminates the need for multiple, specialized instruments and automates many of
the discrete processes of traditional genetic testing.
As of December 31, 2012, we offered 53 tests for use on our INFINITI analyzers,
and had more than 15 additional tests in development. Our current and
in-development tests are focused on the areas of personalized medicine
(including pain management, mental health and cardiovascular health assessment),
women’s health, oncology, infectious disease, genetic disorders, newborn
screening and blood banking, which we believe represent large and growing market
opportunities in genetic testing. We believe the depth and breadth of our test
menu is a significant competitive advantage that will allow laboratories to
utilize laboratory space, labor and capital investment more efficiently to
conduct additional molecular diagnostic tests. The proprietary design of our
INFINITI system allows us to introduce new and enhanced tests to our genetic
test menu without the need to modify our INFINITI analyzers. We intend to
increase the number of tests offered in each of our target market segments,
which will further increase the utility of our INFINITI system to our customers.
Our internal test development efforts are generally driven by our customers’
current and anticipated needs, our analysis and projections for the molecular
diagnostics market, and our ability to leverage our core competencies such as
automation and multiplexing. We have entered into, and expect to continue to
enter into, collaborative relationships with leading research and academic
institutions for the development of additional or enhanced tests to further
increase the depth and breadth of our genetic test menu. Since the initial
launch of our INFINITI system in 2007 we have introduced more than five new or
enhanced tests per year.
We have received FDA 510(k) clearance for our INFINITI Analyzer and five of our
genetic tests, and we have submitted an additional notification to the FDA for
510(k) clearance of our UGT1A1 test. We are finalizing the protocol for a
clinical trial necessary to support a premarket approval application, or PMA,
for our HPV-HR tests and intend to commence this clinical trial in 2013. The
balance of our tests are currently offered for sale in the United States under
the RUO designation. These RUO tests are labeled “For Research Use Only. Not for
use in diagnostic procedures.” as required by FDA regulations. We are not
permitted to market these products for in vitro diagnostic use, and must
maintain distribution controls to assure that these products are not used for
diagnostic purposes. We therefore train our personnel to only market these
products to laboratories for research or investigational use in the collection
of research data, and to not promote any off-label uses of our products.
Internationally, we have obtained a Conformité Européenne, or CE, mark for our
INFINITI Analyzer, our INFINITI Plus Analyzer and a total of 22 of our tests.
This designation is supported by completed clinical and validation studies that
demonstrate the analytical performance of each CE marked test. The CE mark
facilitates the marketing and sale of our CE marked analyzers and tests in the
European Union and the European Economic Area as well as certain other
international markets.
Sales of products for which we have received 510(k) clearance accounted for 13%,
8% and 4% of our net revenue for 2010, 2011 and the first nine months of 2012,
respectively. The balance of our product sales for those same periods,
representing 87%, 92% and 96% of our net revenue for 2010, 2011 and the first
nine months of 2012, respectively, were derived from sales of RUO products.
These products are offered for sale to allow for the collection of research
data, and may only be used in the United States for clinical purposes by
laboratories and other facilities certified under CLIA that have incorporated
these products into their LDTs pursuant to guidelines issued by the College of
American Pathologists. We believe that nearly all of our RUO product sales are
incorporated into LDTs. In order to develop an LDT utilizing our products, these
certified laboratories and other facilities must develop and validate a test
protocol that includes specimen collection, DNA extraction, PCR amplification,
hybridization and detection, and data analysis, interpretation and reporting.
Our products provide components that can be used by these certified laboratories
and other facilities for the PCR amplification, hybridization and detection
portions of these LDTs. We sell each of these components individually, as
ordered by the customer in its discretion, and not as a kit or system. The
validation process engaged in by these certified laboratories and other
facilities can involve validation of the sample collection and extraction
process, establishing limits of detection and analytical sensitivity, testing
for specificity and cross-reactivity, including interfering substances,
validation for assay accuracy, precision and reproducibility, and establishing
reportable ranges of test results for the test system and reference values that
will be measured against as controls. This validation process also requires
verifying the result from the LDT against known standard samples or the results
of a high-standard laboratory testing method such as sequencing, and can involve
the testing of a large number of patient samples. Depending on the availability
of patient samples, this process may take from several weeks to several months
or more to complete, and thus requires a significant investment by the customer.
This validation process must be completed for each of our RUO genetic test
components that a customer wishes to incorporate into one of its LDTs.
We believe that all sales of our RUO products in the United States are to
customers that are either certified in the manner described above and have
incorporated our products into their LDT’s, or that use such products for
research only. The FDA has not adopted these guidelines and we are not permitted
to represent our RUO products as in vitro diagnostic products. Our decision to
seek FDA approvals or clearances domestically, and CE marking internationally,
for our genetic tests is made on a test-by-test basis, and is based on a variety
of factors, including:
• the regulatory environment for the use of genetic tests, in particular the
FDA’s requirements and limitations on marketing RUO tests, which may not be
marketed as in vitro diagnostic products;
• the demand by our existing and target customers, as expressed to us, for
particular genetic tests that have received regulatory approvals or
clearances;
• the competitive environment for the use of genetic tests that have received
regulatory approvals or clearances versus similar tests that have not; for
example, certain of our competitors provide FDA cleared or approved tests in
the area of HPV testing, and to compete with those competitors we intend to
obtain FDA clearance or approval for certain of our HPV tests as well; and
• the size of the available market for the particular test, given the
relatively significant expense and time required to obtain regulatory
approvals or clearances.
For those of our tests for which we have not obtained FDA regulatory clearance
or approval, we experience delays of anywhere from a few weeks to several months
or more in obtaining revenue from customers that desire to utilize our RUO test
consumables during the period of time that the customer is developing its own
LDT that incorporates our RUO test.
We believe that we are in compliance with existing FDA rules and regulations
governing our business, including those governing the marketing and sale of RUO
tests; however, a significant change in existing laws, or their enforcement, may
require us to change our business model or our business practices to maintain
compliance with these laws. For instance, in June 2011 the FDA issued a Draft
Guidance entitled “Commercially Distributed In Vitro Diagnostic Products Labeled
for Research Use Only or Investigational Use Only: Frequently Asked Questions,”
which, if enforced, would limit our marketing of RUO tests to general discovery
laboratories and would require us to halt sales to clinical laboratories that
validate and use our RUO tests as part of their LDTs. The FDA has generally
exercised its enforcement discretion to not enforce applicable regulations with
respect to LDTs. However, the FDA has indicated, since 2010, that it intends to
reconsider its policy regarding enforcement and to begin drafting an oversight
framework for such tests. If the FDA imposes significant changes to the
regulation or enforcement of LDTs, including our RUO tests that are used as
LDTs, it may require us to suspend sales of our RUO tests, which together
represented 96% of our net revenues for the nine months ended September 30,
2012, and it would require us to seek FDA clearance or approval for our RUO
tests, which would in turn require significant time and capital investments on
our part and reduce our revenues or increase our costs and adversely affect our
business, prospects, results of operations or financial condition. We have not
undertaken any specific efforts to comply with this draft guidance. If we were
to voluntarily elect to comply with this draft guidance, we would be required to
seek regulatory approval for all of our RUO tests that are sold in the United
States, which would require significant time and capital investments on our
part, significantly reduce our revenues until we obtain regulatory approvals,
and significantly increase our capital costs, which could in turn adversely
affect our business, prospects, results of operations or financial condition
during the affected fiscal periods. Our management currently believes that
finalization or enforcement of this draft guidance in its present form is
unlikely given the significant adverse effect it would have on a variety of
industry participants, and on the ability of physicians to provide effective
healthcare.
We believe that compared to traditional genetic testing methods our INFINITI
system can significantly improve laboratory productivity, workflow and
throughput while reducing the cost per reportable result. We believe that these
and other attributes of our INFINITI system decrease the cost and complexity of
genetic testing and reduce the need for specialized laboratory personnel,
training, equipment and facilities. Our INFINITI system has been designed to
enable our customers to start performing, or to more cost-effectively perform,
molecular diagnostic tests, which we believe will facilitate acceptance and
adoption of our INFINITI system.
----------
We were incorporated as Neuron Technologies, Incorporated in California in
April 1999, and changed our name to AutoGenomics, Incorporated in August 2000.
We subsequently changed our name to AutoGenomics, Inc. in October 2002. We
reincorporated in Delaware in November 2008. Our principal executive offices are
located at 2980 Scott Street, Vista, California, 92081. Our telephone number is
(760) 477-2248. Our website address is www.autogenomics.com.