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Aiming to Put Regulatory, Payor Issues in Past, Progenity Progresses With Women's Health Pipeline

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NEW YORK – Women's health diagnostic firm Progenity has hit bumps in the road in the eight years since it began, including multiple issues with the federal regulators and private insurers.

Meanwhile, its CEO tenure while he was at noninvasive prenatal testing firm Sequenom was also marred by a scandal.

But after going public earlier this year and releasing additional details of its settlements with the US Department of Justice, the company emphasized it is focused on putting its compliance issues in its rearview mirror while providing new tests for reproductive health.

According to CEO Harry Stylli, Progenity's decision to go public was driven by the company's promising innovation with its research and development products and a turn of the corner on its governmental inquiries. He said the company believed its products would "resonate very well with the public" and help the firm "access capital required to deliver them," making the timing right for an IPO. Its products, including an upcoming proteomics-based preeclampsia test, are getting closer to commercial launch, Stylli said.

San Diego-based Progenity already has some NIPTs and carrier screening tests available. The firm launched its customizable Resura prenatal test for monogenic disease in 2019 for families with known risk for single-gene disorders including cystic fibrosis, sickle cell anemia, and Tay-Sachs disease. It was developed using droplet digital PCR and uses fetal cell-free DNA from the mother's blood on disease-causing variants of all inheritance types.  

Meanwhile, its Innatal Prenatal Screen test for chromosomal aneuploidies uses Illumina's next-generation sequencing technology, and a fourth generation of the test is currently in development that offers a 50 percent reduction in turnaround time and lower cost for Progenity. The firm expects to launch the test commercially by the end of 2021. 

Reimbursement issues have plagued the NIPT market due to recommendations that it be reserved for high-risk pregnancies, but earlier this week, the American College of Obstetricians and Gynecologists issued new guidelines recommending prenatal aneuploidy screening be offered to all pregnant women regardless of age or other risk factors. In a statement, Progenity called the new guidelines "a win for all pregnant patients" and said the decision "represents an important step toward improving access to the most sensitive and specific screening tests for the common aneuploidies."  

Earlier this year, Natera filed a lawsuit against Progenity, claiming the Innatal test infringes six patents held by Natera: US Patent Numbers 9,228,234; 10,522,242; 9,424,392; 10,227,652; 10,240,202; and 10,266,893. Stylli called the lawsuit "baseless" and a "cynical attempt to derail" the company's IPO that failed as Progenity was still able to raise its target amount of $100 million. 

Last month, Progenity sought a declaratory judgment from the US District Court for the Southern District of California that Progenity does not infringe Natera's patents. Natera previously provided the company with its Panorama NIPT under a service agreement, but Progenity ended the agreement in 2014 because it didn't meet quality expectations, according to the company. 

Stylli also said he believes Progenity has the best NIPT with the fastest turnaround time in comparison to other tests on the market. He specifically noted the test's high sensitivity and specificity in detecting trisomies 21, 13, and 18, as well as a very low retest rate.

Stephane Budel, a partner with DeciBio Consulting, backed up Stylli's claims, saying that Progenity can compete with other players in the space on cost and turnaround time but noted that the firm doesn't have the same reach or scale as companies like Natera.

Progenity also offers its Preparent Carrier test for couples before conception or early in the pregnancy to determine if they carry mutations causing genetic diseases and its Riscover Hereditary Cancer Test to screen asymptomatic patients for mutations associated with elevated risk for hereditary cancers. 

Through its partnership with Avero Diagnostics, Progenity also offers a variety of anatomic and molecular pathology tests. 

The firm's in-development preeclampsia test, however, is its main focus right now. Hypertension is the primary symptom of preeclampsia in pregnant women, and the only way to treat it is to deliver the baby, often prematurely. However, Stylli noted, there are a variety of kinds of hypertension pregnant women experience, including gestational hypertension, diabetic hypertension, chronic hypertension, and congenital hypertension, that are not symptoms of preeclampsia.

The goal of Progenity's multianalyte blood-based test is to help doctors rule out preeclampsia in hypertensive pregnant women, reassure women and physicians, and serve as "one of the arrows in the quiver" of a physician to manage pregnancy much more effectively, he said.

More specifically, the test will determine a rule-out window, which will be discovered during validation, that finds the patient won't develop preeclampsia that will require preterm birth. The test looks at multiple markers and uses antibodies to target specific antigens in the maternal background, Stylli said. The optimization phase of development for the test has been completed, and it has a high specificity and negative predictive value. The firm has secured clinical verification and validation sample sets for the test, it said in its S-1 form filed with the US Securities and Exchange Commission. 

The primary target market for its test will be OB/Gyns who will administer the test between the 28th and 37th weeks of pregnancy, Stylli said. The firm's NIPT testing and carrier screening, meanwhile, is offered between weeks 10 and 14 of the pregnancy, and the full suite of tests will "provide support for the full patient journey," Stylli added. There's little competition in the preeclampsia space he said, and the test addresses an unmet need, making it an important addition to Progenity's suite of tests.

The initial laboratory-developed test runs on a Dynex Technologies platform, which has been cleared by US Food and Drug Administration. During Progenity's recent Q2 earnings call, Stylli said that it has initiated analytical verification with a targeted launch in the second half of 2021. The firm is also planning to develop an in vitro diagnostic version of the test and has filed for pre-submission with the FDA, with a meeting scheduled for October. Stylli also said the company already has subjects for its longitudinal clinical validation study. 

In tandem with the preeclampsia test, Progenity is developing a proteomics platform for tests "focused on the quantitative measurement of multiple proteins," it said in its S-1 form. Progenity has also developed reagents, including high affinity and specific antibodies, for the platform.

Beyond women's health, Progenity has also begun offering limited SARS-CoV-2 testing through Avero Diagnostics, using a Hologic test. Stylli noted that demand for COVID-19 testing "is insatiable" in Texas, which experienced a sharp spike in coronavirus cases during the summer, and said the firm is considering expanding testing for the disease nationally because demand for testing exceeds the country's capacity. He noted on the company's earnings call that pregnant women are a high-risk group for COVID-19 and said Progenity is in the process of figuring out where else to offer testing more broadly.

In addition, Progenity is focused on building a specialty gastrointestinal channel based on a new class of ingestible devices, which the company has been working on for "four or five years," Stylli said. Each device is its own platform and "useful in its own right," but the ultimate goal would involve bringing them together, he added.

The devices, two of which are for diagnostics, use autonomous localization technology to navigate the GI tract using anatomical reference. One device is a recoverable sampling system that can collect samples from "previously inaccessible parts of the small intestine," the company's form S-1 said. Stylli added that the technology is "a way of molecularly mapping the GI tract in two kinds of dimensions," one dimension focused on the microbiome and one on proteins, peptides, RNA, DNA, and other smaller molecules.

The other diagnostic device, the PIL Dx, is not recoverable and can run assays in situ in predetermined spots in the GI tract, releasing the results of GI tract testing and other operational data digitally to an outside receiver, possibly a physician's office. "To put it in absolute layman's terms, this is a device where the lab comes to you," Stylli said. To start, the device will be used for a condition called small intestine bacterial overgrowth but could be used for a variety of other diseases.

The third device delivers drugs to the specific site of disease within the GI tract. Many of the drugs today are delivered intravenously or subcutaneously, ensuring only a small amount of the drug makes it to the area of the GI where the issue is, Stylli said, so this device would allow for targeted treatment.

As a variant of the technology, Stylli said they could deliver peptides and proteins orally to "achieve a systemic circulation" and replace IV and subcutaneous delivery. As part of the process, he added that Progenity is also manufacturing its own drug/device combinations and looking at the devices on the drug side "as a way of modifying the properties of … drugs to achieve ultimately a better therapeutic safety ratio and ultimately a better outcome for patients."

The devices are "far along in manufacturing" according to Stylli and by the end of this year should be ready for preclinical use. Talking about the GI space overall, he said "If you really look at the way … we treat GI disease and how we diagnose GI disease, there's been a great evolution of our technology, but nothing that I would call transformative, mostly incremental." 

Progenity also has non-sequencing technology for NIPT in development that could supersede their current platform at the end of 2021. Desi Bio's Budel noted that the overall trend in health care is leaning towards lower-cost alternatives to next-generation sequencing.

Regulatory concerns

Much of the recent chatter surrounding Progenity has involved its regulatory and payor struggles. The company has been involved in a lawsuit with the US DOJ as a result of inappropriate coding and billing practices, which it recently announced was settled for $35.8 million and will not be prosecuted. The firm also expects to pay $13.2 million to state attorneys general to resolve additional claims. When asked about the coding issues, Stylli first noted that he was not CEO at the time, although he was the largest investor and non-executive chairman.

He described Progenity's former billing practices as "aggressive," saying the firm "pushed the limit" and used inappropriate codes for NIPT testing, along with offering inducements for clinicians to use Progenity's tests. The company offered food and alcohol to doctors, paid excessive fees, and waived and reduced copays and deductibles to sell its tests. 

Once he took over, he said, things changed. The firm began to transition its business to an in-network company with private insurers, improved compliance, and brought in an entirely new management team and a new board of independent directors. Progenity and partner Avero Diagnostics previously experienced billing and coding issues with third-party payors, including Aetna, United HealthCare, and Cigna, but Stylli emphasized that the company is now in-network with Aegna and Cigna after resolving the legacy issues and being monitored during a yearlong probation window. Progenity has agreed to settlements with all three insurers. External auditing teams were also brought in to help implement compliance processes, he added. 

As part of its settlement agreement with the DOJ, the company is required to continue enhancing its internal controls and compliance program and must retain an independent review board for the next five years to check the accuracy of its claims and monitor its arrangements with other businesses.

After going public at $15 per share, Progenity's stock price has since shed about 40 percent of its value, which Stylli blamed on Natera's lawsuit. "Deals get done on momentum," and the Natera suit "derailed the momentum," he said. Because the company was in its quiet period, it couldn't say anything about the suit, he added.

The SEC declined to comment on the specifics of Progenity going public and any requirements for the company, although Stylli said the agency was "very constructive" during the process.

Raymond James research analyst Andrew Cooper said that the DOJ settlement was a hurdle for investors to get past but noted that the practices had stopped years ago and the non-prosecution agreement in the DOJ settlement likely helped investors get more comfortable with the company. He added that investor concern would likely be less about this DOJ settlement and more about the possibility of something similar happening again. 

Raymond James was an underwriter in the firm's IPO. 

"I think for a lot of folks, it's going to be execution and seeing those things not pop up in any way, shape, or form again," Cooper said. He added that Progenity is under "a more watchful eye" now and the billing and coding issues, as well as the inducements, aren't likely to happen again. 

Budel also said Progenity was able to put the settlement behind them and added that it was not the only company in the space to have similar issues. 

History of Sequenom 

Progenity isn't the only player in this story with a history of difficulties, however. Stylli was previously the CEO of Sequenom during a period when the company – which was acquired by Laboratory Corporation of America in 2016 – was accused of data manipulation. The controversy eventually led to his dismissal from Sequenom.

In July 2009, the SEC announced it had opened an investigation of the firm after Sequenom announced it had mishandled R&D data for its SEQureDx Down syndrome trisomy 21 molecular test. Several class action lawsuits were also filed in the wake of the announcement.  

In September 2009, Stylli was terminated along with Senior VP of R&D Elizabeth Dragon and other employees. Stylli said he was the one who uncovered the collusion of the research and development team to manipulate data and noted he was not a target of the investigative process that resulted. He said he saw something in a meeting that caused him to become concerned and then began an investigative process that revealed the data manipulation. According to Stylli, the researchers who had lied about the data said he (Stylli) "was completely oblivious, which is, you know, embarrassing in its own right." 

Sequenom "failed to put in place adequate protocols and controls for the conduct of studies in the T21 program … and some employees failed to provide adequate supervision," his replacement as CEO, Harry Hixson, said at the time. 

In 2011, the firm entered into a cease-and-desist order with the SEC but didn't have to pay any monetary penalties as a result of the scandal. 

Stylli stressed that no harm was done to patients and that he stopped the scheme before it could go any further. He did, however, call the Sequenom debacle a "rude awakening," and noted that as CEO of the company, "ultimately, the buck stops with me."

"Bad things happen, unfortunately, and you have to take the rough with the smooth," Stylli said.

"As a CEO, you take it personally because you let a lot of people down," he said. Stylli added that "it's hard to say if it was avoidable because there were several folks involved." Despite the investigation and the scandal surrounding it, the firm still ended up launching "what has become arguably the biggest diagnostic in history," he added. 

Cooper said that in his view, the Sequenom issues were in the past and emphasized that many of the private equity backers for Progenity were also involved with Sequenom, signaling they had gotten over any hang-ups about Stylli's past. 

Now that Progenity is a public company, Stylli said they have to execute and educate to ensure their tests are getting adopted. He emphasized that in 2020, the firm has turned over a new leaf.

"We're a different company today, different people, different focus," he said.

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