Nanotech Is in the Genes

When nanotech start-up Nanosphere last month announced its intention to go public, there was speculation that the move was just a prelude to a merger with one of its larger rivals in the field of molecular diagnostic testing.

The possibility of a merger just became a lot more likely. Why? Last week, the Food and Drug Administration approved a Nanosphere-made genetic test that will help patients better understand how they might metabolize the anti-blood clot medicine warfarin -- which is sold under the brand name Coumadin and is manufactured by Bristol-Myers Squibb (NYSE: BMY  ) .

The importance of this event can't be overstated. According to a 2006 study, FDA economists have estimated genetic testing in this situation could prevent 85,000 "serious bleeding events" and 17,000 strokes a year. Total savings for the health care system could reach $1.1 billion.

Now, I would encourage investors to take the above number with a dose of salt, but the FDA approval does mark a major milestone for Nanosphere, in that it serves as a major validation of its technology.

It also makes Nanosphere a much more attractive acquisition target for a company such as Roche, Abbott (NYSE: ABT  ) , or Becton, Dickinson (NYSE: BDX  ) because the company also is developing genetic tests for cancer, cystic fibrosis, herpes, and heart disease.

As wonderful as modern medicine is, the truth is that many people react in substantially different ways to different drugs. Genetic testing holds out the possibility of better serving people by allowing doctors to more accurately tailor dosage or, alternatively, letting patients know when a drug won't work for them. The latter could eliminate time and money spent on an ineffective treatment and guide the search for treatment in another direction. Either way, it is a win-win situation.

The possibilities of genetic testing are so great that I simply don't see Nanosphere reaching the initial public offering (IPO) stage. I believe the company will be snapped up in short order and I would encourage investors to follow the event because whoever lands Nanosphere is going to add some very good DNA to its genes.

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