Nanogen Chairman Howard Birndorf just had a baby shower. The 50-something father-to-be is expecting his first child this July. Fatherhood should come naturally to Birndorf, who already has raised Nanogen, the company he co-founded nine years ago with Michael Heller, a University of California, San Diego biophysics professor, from infancy to a 230-employee public firm with worldwide operations. “Nanogen was formed with the idea of combining semiconductor technology with molecular biology,” Birndorf says. “We used electronics to speed up biological reactions.” This has enabled speed and accuracy unmatched by conventional diagnostics systems.

Nanogen got an early start by following the approach of many pioneers — finding a market niche with a practical application for nanotechnology and building an impressive portfolio of patents. To date, the company has been awarded 40 patents in the United States and 25 overseas. Its flagship products, the NanoChip Cartridge, a microchip capable of DNA analysis, and the NanoChip Molecular Biology Workstation, enable substantial reductions in the size and cost of medical diagnostic equipment and have the potential to transfer technology once available only in hospitals and clinics to doctors’ offices and home based health care.

The Pentagon was one of Nanogen’s earliest supporters, bestowing on the company more than $10 million in Defense Department research funding to support portable biowarfare testing systems. Combating bioterrorism is just one of several promising applications for NanoChip technology. Nanogen’s molecule-sized biochips can be programmed with logic to emulate the capabilities of a semiconductor chip that is many times larger. That also builds a platform for multiplexing data transmission the way that sophisticated telecommunications systems handle multiple conversations — by assigning unique addresses to packets of data. Just imagine all the functions of a PC or cable-ready TV built into your next watch.

The key to Nanogen’s strategy has been building from the bottom up. Technology Vice President Marc Madou is convinced that using biology to build nanomaterials atom by atom can be much less expensive than miniaturizing costly semiconductor equipment. Nanogen is using the ability of nanoparticles to “self-assemble” into the building blocks of new materials.

As Madou explains, this phenomenon is like using DNA to direct nano-sized materials to an exact location the way the post office uses nine-digit ZIP codes to sort and deliver mail to specific zones.

Nanogen’s patent awards have made its approach to integrating microelectronics and microbiology unique. Madou sees electronic paper as one of the most promising applications for the new technology — thin sheets on which images and text can be printed by electronic charges and replaced automatically without the need for conventional paper recycling. Madou just completed the second edition of “Fundamentals of Microfabrication,” which illustrates the principles of nanotechnology with detailed texts and vibrant photos.

Nanogen has raised nearly $200 million from investors and made great advances in nanotechnology, but has not yet earned a profit. In the latest fiscal year, the company reported a loss of $33 million on sales of $11 million. “We like the technology, but the business model has some challenges in front of it,” says equity analyst Al Kildani of Pacific Growth Equities in San Francisco. Looking to the future, Kildani forsees that “as we learn more about the genome, we think this will prove to be a good platform.” Kildani is even more optimistic about the factor he considers Nanogen’s greatest competitive advantage, “virtual 100 percent accuracy.”

A key challenge to Nanogen, one that also will confront many of the new ventures starting in nanotechnology today, is production costs that easily exceed $10 million. Nanogen contracts most of its manufacturing to Hitachi of Japan and other companies outside the San Diego area.

Birndorf sees the demanding regulations of obtaining permits and handling hazardous wastes at San Diego labs as a continuing challenge to rapid commercialization of his industry’s most advanced technology.

Ken Edrington, chief executive of JKE Design Associates, which constructs many of the wet-lab facilities in San Diego, confirms Birndorf’s impression. Edrington reports that the minimum cost for constructing a wet lab in San Diego would be $500,000 and that equipment costs and the additional needs of nanotechnology work would increase total startup costs by millions.

As a smaller independent company, Nanogen alone may focus on just a few of nanotechnology’s promising commercial possibilities. But as Chairman Birndorf’s prior experience at biotech pioneer Hybritech demonstrates, the talent pool of an early industry leader can build the foundation for a cluster of successful startups in related technologies. In the future, Nanogen may pioneer two paths — first as a leader in applying nanotechnology to medical diagnostic equipment on its own — and then as an inspiration to the next “nano” generation.