Sensory SUCCESS.

How selling out to Motorola is helping a local inventor bring his dream gadget to market

When Jon Faiz Kayyem looks over his shoulder, in his mind's eye he can see the headquarters of Motorola Inc. looming in Schaumburg, Ill., not unlike a Manhattan skyline in some exaggerated, cartoonish map.

But closer to home he doesn't even have to turn his head to view the remains of once high-flying tech companies that are worth only a fraction of what they were months ago.

So if you ask the Caltech Ph.D. how he feels nearly a year after selling his Clinical Micro Sensors Inc. -- a company he started in his garage five years ago -- to Motorola, he has few regrets.

In fact, he prefers to count his blessings. After all, CMS didn't come cheap.

Motorola shelled out $280 million in cash for the firm, while assuming stock options and writing off $80 million in R&D costs and another $145 million in other charges, according to SEC filings.

Kayyem maintains that three rounds of financing had severely diluted his ownership share by the time the business was sold in June, but he acknowledges doing just fine, at least financially.

"There are a lot of underwater stock options (out there) right now," said Kayyem, 36, who was made a Motorola vice president and general manager of the company's new CMS business unit. "I report to Schaumburg, but it doesn't feel like I've gotten out of the ownership business. If I screw up, I am still the one who is going to take the blame."

But for now, Kayyem has been largely left alone to develop CMS's cutting-edge eSensor biochip technology that Motorola was so eager to get its hands on.

And the technology is a marvel, at least in the lab. It is able to instantly detect genetic markers that might show if a person has hepatitis C or some hereditary or acquired disease, among other applications.

And while the first product set to hit the market this year will be a desktop unit for labs, the goal is to mass produce hand-held machines with disposable biochip cartridges. In short, a lab on a chip, another tool in the doctor's bag.

But Kayyem knows he won't be left alone in his Pasadena offices forever to develop the product.

"Obviously, integration into a mega-company like Motorola was a bit of a shock to them, so we worked carefully on that," said George Turner, vice president and general manager of Motorola's new Life Sciences unit. "(But) it's almost a foregone conclusion that we will integrate them more largely into Motorola."

Kayyem, who grew up on the Westside of Los Angeles and attended Yale University, thought up the idea for a similar device while working on his doctorate in molecular biology at Caltech. He received the degree in 1992.

He made it his post-doctoral project but was having troubles until he met up with Thomas Meade, a Caltech biology professor who had written a paper about how DNA may lend itself to electronic detection.

It turned out that Meade was right on the money. Lab work showed that, if you attach a DNA particle to an electrode, it will emit one electric signal, but if it binds to its RNA counterpart, the signal is altered.

Voila! An electronic genetic sensor had been proven possible.

After applying for a series of patents in 1993 through the university, the pair formed CMS two years later. But Caltech, which retained the intellectual property rights, threatened to pull the license if Kayyem and Meade didn't raise enough funds to get their venture of the ground.

Kayyem went to work out of his Pasadena garage, racking up huge charges on his credit cards while hitting the road with Meade for financing. They finally met a group of angel investors who had read about their discoveries in Scientific American and plunked down $25 million.

"I met some really smart prescient investors out of Chicago. I tell you now, if someone came to me $40,000 in debt with this idea on a piece of paper, I would not risk my money on that," Kayyem acknowledges.

Meade, who has since cashed out but sits on the company's scientific advisory board, said his partner charmed investors with a vision of a portable genetic testing device that could be used in doctors' offices.

"I would give the scientific side, and Fais would give the commercial vision," he said. "This is an extremely rare individual who I believe possesses the skills to straddle both camps."

The pair raised $5.9 million in that first round of funding, enough to open an office in Pasadena and hire an R&D staff. In 1998 the company went out for a second round of funding, raising $17 million. That's when Motorola kicked in a share, but more importantly, gained an option to buy the company outright.

Then this past April, as the company was in the middle of a mezzanine financing round and about to issue an IPO to raise the $70 million it needed to take the product to market, Motorola exercised its option.

As for development of the genetic detection device, the company plans to release its first eSensor product, a tabletop machine that can read dozens of samples at one time, in the second quarter of 2001. A more automated tabletop device is scheduled for release in the second quarter of 2002, with the first commercial prototypes of the hand-held unit also in the works next year.

Kayyem said he has few regrets about selling the company, noting he had been gaining weight, working seven days a week, often 12 or more hours a day. Four years after his marriage, he finally went on a honeymoon to Hawaii.

"It was an odd honeymoon. We now had children, but I was able to take a babysitter," he notes, with a smile.