Genomics Part II-Diagnostics take center stage

New Genetic Tests play stronger role in targeting therapy

>Rod Raynovich Final for GEN 9/2/2008

Amidst the gloom and doom of the credit meltdown , biotech stocks offer a bright outlook as they are the best performing sector in 2008 and medical diagnostics is even hotter. Returns of 25% + are achievable YTD. The “Medical Genetics” subgroup is in the #1 position based on 6 month stock price performance among 197 companies according to September 2008 IBD (Investor’s Business Daily) data. I reviewed the molecular diagnostics sector in September 2006 and now with recent scientific and commercial developments in genetic testing and pharmacogenomics the technology will have a major long term impact on drug therapy.

A brief history:

  • Back in the dark ages of biotechnology and molecular biology-the Seventies-several drug companies pursued the obvious synergy of diagnosis and therapy. Roche, SmithKline (now GSK), Abbott and JNJ and others had diagnostic divisions. Even Lilly jumped into the fray by buying Hybritech in the eighties at inflated prices as monoclonal antibodies were hot. The implied synergy faded as the biopharm a boom took hold in the eighties with ample financing for pure plays such as Amgen and Genentech.
  • Meanwhile big pharma went off looking for multibillion dollar blockbusters to sell direct to the consumer (DTC) like Lipitor, Nexium and Plavix. Fast forward-now generics are a big threat so follow the science and money back to orphan drugs and diagnostics.
  • In the late nineties, the field of genomics exploded with the mapping of the human genome. That megatheme produced the biotech stock market bubble of 1999 lead by Human Genome Sciences . However the idea that genes could be patented or that the genetic information would accelerate development of new drugs proved to be overly simplistic as the pace of new drug approvals has even slowed since then.
  • Currently genomics tools have evolved to the clinical stage and will leverage the previous investment in genomics over the longer term.

New platform technologies and scientific breakthroughs applying vast amounts of genomic data have brought diagnostics to the forefront with the cogent idea that better diagnostics based on genetic information brings cost effective more targeted therapies.

Affymetrix and Illumina created innovative array based products that enabled high speed analysis of DNA,RNA and proteins as tools for disease research, drug development and molecular tests. These gene sequencing tools are being applied at an earlier stage betting that drug discovery can be made more productive by focusing on the genetic make-up of the patient population with the big promise of “personalized medicine”.

Genetic tests can optimize drug therapy for example the FDA recently approved a HER-2 test called SPOT-Light (InvitroGen) that can be used to identify breast cancer patients who are candidates for treatment with Herceptin (Roche). At a recent ASCO Meeting data was presented showing the importance of testing for the K-ras gene to assess the clinical benefit of Erbutux for metastatic colorectal cancer. The term “companion diagnostic” is being used to describe a test that is used to better define a patient’s need or clinical out come from a specific drug.

Roche

Of all the larger integrated healthcare companies, Roche has best executed the synergies of molecular diagnostics and biopharmaceuticals and is positioned well for the future with products in oncology and infectious disease. Their genetic tests include CYP450 for drug metabolism and HER-2 for information supportive with tamoxifen (Herceptin) therapy. Roche recently acquired Ventana Medical Systems a diagnostic system for anatomic pathology for about $3.5B.

M and A

Recently Hologic, a medical device Company focused in radiology with diagnostic tools for mammography and osteoporosis, recently paid $580M for ThirdWave, a molecular diagnostics Company.

And tools giant ABI was recently acquired by InvitroGen for $6.4B. IVGN has had an insatiable appetite for rolling up companies and now has a broader perspective in mind.
Some of the better known emerging growth companies with new genomic t esting models are:

Myriad Genetics (MYGN) is one of the larger genetic testing companies with revenues at the $200M+ level with BRACAnalysi s tests to assess risk for breast and ovarian cancer. Additional predictive medicine tests for cancer and viruses are being marketed.

Genomic Health (GHDX) is another growing company in the genomic based clinical testing area with their OncoType DX test for early stage breast cancer as well as the likelihood for a chemotherapy benefit. Product Revenues are currently at the $100M run rate.

Genoptix (GXDX)

Genoptix is a laboratory service focused on delivering personalized and comprehensive diagnostic services to community based oncologists and hematologists. The IPO was in November of 2007.Revenues were $50M for the first half of 2008 and projected at $105M for the year with profits of $20M.

Luminex (LMNX)

Luminex has a broad based testing platform with its xMAP multiplexing, open architecture technology that serves both research and clinical segments of the biomedical testing market a $46B opportunity. The technology utilizes color coded beads that are read in a compact fluorescent analyzer performing up to 100 bioassays simultaneously. Annual revenues are currently in the $100M annual range with 5,402 systems shipped YTD with 60 partners worldwide. The Luminex CF cystic fibrosis kit is on the market and a newborn screening panel is expected by Q4 2008.The Company recently announced that Abbott will distribute their xTAG Respiratory Viral Panel that can detect 12 viruses and subtypes. In the pharmaco genomics area a CytochromeP450 genotyping test is in development for drug metabolism assessment. Tyson Foods is their partner for food safety and animal health.

Sequenom (SQNM)

SQNM is one of the hottest genetic testing stocks of 2008 going from 5 in March to 22 in August. The Company translates genomic information into potential clinical utility with its MassARRAY DNA analysis platform beginning with its SEQureDx, technology for prenatal non-invasive, SNP-based genetic analysis starting with Down’s Syndrome. The test isolates and analyzes circulating fetal nucleic acid from a maternal blood sample and can be performed early in pregnancy. Clinical testing is underway.. The Company �s current revenue stream is primarily for MassARRAY iPlex Gold platform for SNP genotyping or sub-whole genome study applications.

Among the other SNP-based tests in the clinical pipeline include chromosomal disorders , and Prenatal tests for RhDisease, Autism and thalassemias. Molecular Diagnostic tests will be partnered and the menu includes cancer, HPV, Lupus and chronic kidney failure. APMA submission for RhD is estimated sometime in 2009.The Company already has a gang of bankers, hedge funds, analysts and traders who are enthusiastic about the stock especially for the Down Syndrome and other prenatal tests with potential in the “multibillion dollar range worldwide”according to the Company. Most of the current sales are for DNA analysis tools and revenue estimates are in the $50M range for 2008 with losses at 70 cents per share.

A new wave of molecular diagnostics platform companies are enter the commercial stage with technologies that translate genetic information to actionable clinical outcomes not only for cancer and infectious disease but cardiovascular and infectious disease and diabetes:

Aureon is a private molecular diagnostics Company in the NY area focused in predictive medicine for diagnosis and treatment of Prostate cancer utilizing a patient’s biopsy sample. After Ventana tissue analysis could be more interesting.

Autogenomics, Carlsbad, CA

Autogenomics has developed the automated BioFilmChip microarray based multiplexing molecular diagnostic platform that can be used to assess disease signatures with novel genomic and proteomic markers. Recently the Company obtained FDA Clearance for its Infiniti Assays for Warfarin to optimize the use of the drug and reduce bleeding complications and Factor II and V genotyping to identify patients with suspected Thombophilia. The Company has developed a broad pipeline of applications that are in various stages of development such as CYP450 variants for cancer, drug metabolism, and HPV genotyping.

Nanosphere (NSPH)

NSPH is a molecular diagnostics Company that utilizes gold nanoparticles capable of genomic and protein testing. The Verigene System can detect DNA/RNA or utilize multiplexing of multiple protein targets to provide a 2-3 order magnitude higher sensitivity than immunoassays due to their amplification methods. NSPH has developed five nucleic acid tests for the most common genetic disorders including thrombophilia, folate metabolism and cystic fibrosis. The Verigene platform also has an in vitro diagnostic test for detection of the alleles of the CYP2C9 gene as an aid to patients at risk for increased Warfarin sensitivity. Next step would be applications in hypercoagulation,cancer (PSA) and infectious disease(HSV,HPV). Product Revenues are at the $1M annual level since the late 2007 FDA genomic assay clearance and the cystic fibrosis test is expected to be filed by year-end.. Nanosphere stated that the market potential for their products was in the one billion dollar range.

Navigenics, Redwood Shores,CA

Navigenics applies genetic science to an individual’s health by analyzing DNA on chromosomes -specific markers on SNP’s -for disease implications .Those results are interpreted and an action plan is presented with support of Genetic Counselors through the “Health Compass” program for $2500 with an ongoing subscription of $250/year. The genotyping service is based upon the Affymetrix GeneChip platform. Navigenics is a venture stage Company launched in late 2007 and funded by well known VC’s in the Bay area such as MDV, Sequoia and Kleiner Perkins. Recently the GINA law, Genetic Information Nondiscrimination Act of 2008, was passed which protects against genetic discrimination. A competitor to Navigenics is 23 and Me based on the Illumina array platform.

Osmotech, Pasadena, CA

Osmotech recently received FDA Clearance for its eSensor XT-8 Warfarin sensitivity test based upon electrochemical detection technology for detection of nucleic acids on a microarray. The eSensor XT-8 is a random access system with a genetic test menu that will be expanded with other genotyping tests such as CYP450 2C9 and VKORC1 that enzymes responsible for the metabolism of a wide variety of prescription drugs. The Company was formerly a Motorola “biosensor “start-up , brought in new technology and investments and is now listed on the London Stock Exchange

Perlegen Sciences, Mountainview, CA

The Company, an Affymetrix spin-out, is focused on clinical situations in which genetic information has the potential to improve patient care by improving therapeutic decisions. Their diagnostic programs are in breast cancer, coronary disease, smoking cessation, Type II Diabetes and Hepatitis C. Perlegen utilizes a high throughput DNA analysis engine that can read single nucleotide polymorphism (SNP) genotypes 100 times faster than capillary- gel electrophoresis used by the Human Genome Project. The Company is also using high-throughput, massively parallel gene sequencing technology to catalog all genetic variations associated with disease..

A recent short survey by Burrill and Co. and ChangeWave Research concluded that consumers are reluctant to undergo genetic test s for early warning about devastating illnesses. A “Personalized Medicine Meeting” will be held by Burrill in November 2008. Look to the American Society for Human Genetics on November 11-15 for additional scientific news on the sector.

According to Kalorama Information the Molecular Diagnostics market exceeds $3.2B Worldwide with breakthrough tests for infectious disease. SNP testing alone is approaching $1B. The market is forecasted to reach $5.4B by 2012 but $1.2B of this will be for blood screening. Bruce Cranna, analyst with Leerink Swann has coverage of Genomic Health and Nanophase among other s and estimates the current market for Inherited Diseases at $250M.From my perspective the growth should exceed current forecasts due to novel genomics platforms that create clinical utility and the importance of these tests to targeting therapy and overall decision support to physicians. Also the market data may not be capturing gene testing services so the estimates are probably low.

The application of genomic based diagnostics will have a major impact on therapies and there will be a shift in R&D investment from drugs to diagnostics.

Existing drivers for growth in the genomic testing market are:

  • Need for molecular diagnostics in drug selection for cancer therapy is growing.
  • More SNP’s tests advance to clinical diagnostic s utility e.g. CF and RhD.
  • Pharmacogenomic studies show greater clinical utility for example response to Warfarin therapy that can be predicted by identifying alleles of the VKORC1 gene target.
  • Drug discovery and development applies genomic tools and biomarkers earlier creating more “companion diagnostics”.
  • Diagnostic testing becomes increasingly cost effective such as routine screening of newborns for Cystic Fibrosis.
  • “Direct to Consumer” gene tests that identify disease risk factors although the field is at an early stage and lacking large scale clinical data .So called gene scans are still controversial.