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After Inking Distribution Deal with Thermo, Osmetech Plans New Tests, Financing Rounds

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Osmetech said last week that Fisher HealthCare, a division of Thermo Fisher Scientfic, will now distribute its eSensor XT-8 instrument array platform and accompanying molecular diagnostic tests and consumables in the US.

The five-year distribution agreement will enable Osmetech to take advantage of Fisher Healthcare's "considerable sales and marketing strength" and "established relationship with key customer accounts," according to Osmetech.

Osmetech CEO James White told BioArray News this week the company is betting the deal will "beef up" Osmetech's sales and marketing efforts and allow the British molecular diagnostics firm to allocate more resources towards bringing its pipeline of tests to market in the US.

The company separately last week announced its 2008 financials, and said that it has cash on hand to support its business through July, by which time it will need to secure additional financing to maintain its effort to penetrate the US molecular diagnostics market.

According to Osmetech, Fisher currently employs six molecular sales specialists and more than 150 general healthcare sales representatives in the US. In comparison, Osmetech has maintained a "relatively small sales force" of about seven people at its office in Pasadena, Calif.

The company launched the XT-8 last year as a smaller, second-generation version of its flagship eSensor 4800, a microfluidics-based platform that was originally developed by Clinical Micro Sensors, a Motorola company, before Osmetech acquired it in July 2005 (see BAN 8/10/2005).

Seven months later, Osmetech received US Food and Drug Administration clearance to sell a cystic fibrosis carrier-detection test on the 4800 in the US. In July 2007, Osmetech received FDA clearance to sell its warfarin sensitivity test on the XT-8 for what it considers the three most-relevant biomarkers associated with warfarin metabolism.

Additionally, Osmetech last November launched a research-use-only drug metabolism test for CYP2C9 biomarkers associated with metabolism of phenytoin and most non-steroidal anti-inflammatory drugs. And last month the company asked the FDA to allow it to use the CF assay on the XT-8.

According to Osmetech's year-end earnings report, released last week, the company had an installed base of 34 customers at the end of 2008, which grew to 49 during the first three months of 2009. Part of the reason the firm is confident about its pact with Thermo is that its modest sales presence has been unable to deal with the "pent up demand" for its tests in the US.

"We had a sales force but it was around seven people," White said. The Thermo deal "gives us good coverage across the US [and enables us to] deal with pent-up demand we were struggling to get to and also reach new hospitals as they decide that they want to get into warfarin or CF testing."

White said that Osmetech is interested in expanding into other national markets, including the UK. Though it still trades on the London Stock Exchange and is officially based in the UK, the firm oversees its operations from its offices in Boston and Pasadena.

"We first want to develop our base in the US and then go abroad," said White, who is based in Boston. "We are positive about chances in other markets, but one has to walk before [one] can run."

The company also had a blood gas and electrolyte instrument business with global distribution that it divested for $44.9 million in 2006 (see BAN 1/2/2007). With that business, "we had 60 distributors around the world, so we have a group of people we can contact and look into other opportunities," White added.

'Rationalizing' the Business

While Osmetech has met internal and regulatory benchmarks for deploying its second-generation system, has obtained FDA clearance for several assays, and has signed on a distribution partner that it hopes will meet its needs in the US, the company has also encountered some difficulty weathering the current financial environment.

For instance, Osmetech in September 2008 had planned to issue American Depositary Shares in the US and obtain a listing on the Nasdaq Global Market, but with "market conditions proving very difficult and deteriorating further, [Osmetech] concluded that there was insufficient interest to proceed with the ADS Issue and the Nasdaq Listing at that time," the company noted in its annual report.

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The company was also forced to "rationalize" its business by reducing headcount, the report stated. According to White, the firm made cuts in its sales and marketing and R&D headcount. However, those resources "have now grown through [our] relationship with Fisher, and in R&D we are looking to partner with companies to beef up our R&D efforts," he said.

Osmetech also needs to capture additional financing to help it hit molecular diagnostics pay dirt. The company had cash and cash equivalents of £6.0 million ($8.7 million) as of Dec. 31, 2008, and incurred a loss of £15.5 million last year compared with £12 million in 2007. Last December, Osmetech raised £6.6 million through the placing of new shares to institutional shareholders, which the company said should provide enough cash to sustain it into July.

With that in mind, White said the company has been evaluating all funding alternatives. "We have been pleased with the rollout of [the XT-8] instrument and the partnership with Thermo to help on the execution side," he said. "We are getting good traction in the market and rolling out more assays. All these things combined give us good opportunities, so we are reviewing a range of options at the moment."

Test Pipeline

Osmetech is seeking to capture a piece of the molecular diagnostics market, which the analyst firm Frost & Sullivan estimates was worth $2.5 billion in 2007 and expects to grow to $3.7 billion by 2010.

Osmetech said its XT-8 platform will allow it to take advantage of several trends, including the decentralization of genetic testing; conversion from laboratory developed tests to FDA-cleared molecular-testing methods; the expansion of genetic testing for disease predisposition; and growth of the infectious disease diagnostic market.

The company's current flagship assay is its warfarin sensitivity test. Osmetech said the test has an advantage over competing assays because it interrogates the CYP450-4F2 biomarker, which the firm licensed from the Marshfield Clinic last year. The warfarin test was cleared by the FDA in 2007, and Osmetech filed the extended test for clearance last December.

Its CF assay for use on the XT-8 is also pending at the FDA, while its 2C9 drug-metabolism test is available for research use only.

Osmetech is currently developing several other assays, including a respiratory pathogen panel designed to detect major respiratory viruses designed to help physicians identify bacterial and viral infections. The test, which will adapt Qiagen's QIAplex-based respiratory viral test for use on the eSensor XT-8, is expected to launch in the US for research purposes later this year. It is also planning to file a submission with the FDA to clear the test as an IVD.

Osmetech is also developing a test for Factor II, Factor V, and methylenetetrahydrofolate-reductase venous thrombosis, which would interrogate the most common mutations associated with increased risk of blood clots. It also expects to debut this product this year, and said an FDA submission could also be in the cards.

Other tests in development include a drug-metabolism test for CYP2D6 biomarkers associated with a variety of prescription drugs including antipsychotics, anti-depressants, and anti-thrombolytics; a metabolism test for the breast cancer drug tamoxifen; and a 2C19 test that gauges metabolism of the anti-platelet drug Plavix.

These assays will have Osmetech square off against a number of different companies. In warfarin testing alone, Osmetech will face ParagonDx and Autogenomics.

"The aim is to push all these tests through the FDA," White said of his firm's pipeline. He added that Osmetech is looking to add further tests to its menu and is "in discussion with a number of partners to in-license markers." He did not elaborate.

2008 Financial Results

For the 12 months ended Dec. 31, 2008, Osmetech's revenues more than doubled while its net loss widened by nearly a third.

Total revenues for the year surged 108 percent to £352,069 from £182,796 in 2007 due mostly to sales of the company's CF test and licensing activities.

White said Osmetech's business model "works very effectively" and that he has "not seen a slowdown in demand" for its products in recent months.

R&D costs in 2008 increased by 3 percent to £2.7 million from £2.6 million in 2007 mostly due to currency exchange rates.

Osmetech's net loss widened 28 percent to £15.5 million from £12 million in '07. Osmetech said it lost £1.2 million because of the withdrawal of a proposed ADS listing on Nasdaq.

Osmetech had £6 million in cash and cash equivalents as of Dec. 31, 2008.

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