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Facing Sluggish Sales, NanoString Plugs CDx Business Despite Losing Merck Deal

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NEW YORK (GenomeWeb) – Coming out of a disappointing quarter, NanoString is grappling with what the firm called growing pains this week, but what investors say they view as a deterioration.

In a call discussing the company's financial results yesterday, CEO Brad Gray outlined in detail what he and NanoString see as the main factors in the firm's lagging sales in Q3, as well as their ideas for strategies to carry the firm through this period and toward stronger growth.

As the company moves forward with these plans, Gray highlighted the ongoing strength of the firm's biopharma business as a caveat to struggles elsewhere.

"Our academic business was the primary source of weakness for both instruments and consumables … [while] biopharma companies, large and small, have embraced our technology and many have made it their platform of choice for gene expression profiling, particularly in areas such as immuno-oncology where we believe we are a clear leader," he said speaking to investors yesterday afternoon.

However, in the same call Gray also said that one of NanoString's major immuno-oncology biopharma customers, Merck, has now aborted its companion diagnostic development effort with the company.

NanoString and Merck had joined up in 2015 to validate an 18-gene immune-related expression signature, which NanoString has come to call a Tumor Inflammation Signature or TIS. The markers in the test fall roughly into one of four categories: T cell presence, natural killer cell presence, antigen presenting biology, and interferon gamma signaling.

Last November, Merck said that it was making positive progress on the CDx effort with NanoString and was moving forward, using the assay in its Phase II Keynote-158, a basket trial recruiting patients for treatment with Keytruda who have one of about 10 specific solid tumor types or any non-colorectal cancer with high microsatellite instability.

And the effort was still progressing this June, when Merck senior principal scientist Jennifer Yearley said that the existing NanoString validation deal meant that Merck didn't have a need to investigate development of standalone PD-L2 tests.

But by the end of last month, interim analysis from Keynote-158 had revealed that TIS was not required to select patients for Keytruda, at least within the tumor types recruited to the trial, according to NanoString.

"We were notified by Merck of their decision to no longer support the development and commercialization of our Tumor Inflammation Signature, or TIS, as a companion or complementary diagnostic," Gray said. "The impact of this decision is that we no longer expect our current collaboration to yield a PMA filing for TIS for these indications."

Merck's initial adoption of the NanoString technology reflects a larger trend in the immune-oncology space to look for more comprehensive signatures that can predict drug response, given the limitations of PD-L1 expression as a lone biomarker.

The space has also become a complex one, with the emergence of a brand new regulatory category for tests: complementary diagnostics, which are not required for prescription of a drug, but are listed with the therapy as a tool that can distinguish individuals who are more likely to respond.

Considering this complexity, it's unclear whether Merck's decision not to move forward to seek approval for a TIL-based test reflects the fact that NanoString's signature didn't predict response to Keytruda at all, or didn't predict response better than available PD-L1 tests, or if the drug works well enough in patients regardless of their biomarker status.

For his part, NanoString's Gray said that the Merck news is not viewed by the company as a condemnation of its TIL.

"This is obviously disappointing to our team, but we do not believe that this represents the end of our work with Merck or our development of TIL as a diagnostic," he said during the firm's earnings call.

The company does have a number of other collaborations, including one with Celgene for a test to guide treatment in diffuse large B-cell lymphoma, which Gray said has now completed enrollment.

"We continue to expect that will be in a position to file a PMA for an nCounter-based test for REVLIMID in diffuse large B-cell lymphoma in 2018," Gray said.

After announcing its Q2 earnings earlier this year, Gray said that NanoString was pursuing a more open and flexible approach to pharma partnerships, exploring multiple options in pilot studies rather than banking on full-fledged CDx agreements. The firm added about five such studies as of last quarter, and has now increased that to nine, Gray said yesterday.

"We have [expanded our total] number of diagnostic pilot studies to 61 different studies with 36 companies, which is the fastest expansion in our biopharma pilot program in any single quarter," Gray said.

Most recently, NanoString announced a collaboration with the NSABP Foundation using the firm's PanCancer IO 360 gene expression panel to test about 2,500 samples, assessing targetable pathways such as the microsatellite instability (MSI) phenotype that confers resistance to anti-PD1/PD-L1 therapies.

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