By Turna Ray
Vying to capture what CEO Ron Andrews hopes will be Clarient's "unfair share" of the rapidly growing epidermal growth factor receptor testing market, the healthcare services provider announced plans to acquire Applied Genomics this week.
The all-stock merger, valued at up to $17.6 million, will make Applied Genomics a wholly-owned subsidiary of Clarient.
The immediate value for Clarient in the acquisition lies in Applied Genomics' lung cancer test Pulmotype, which promises to carve a path for Clarient into the rapidly growing EGFR lung cancer testing market. And Clarient isn't wasting any time in this regard.
Clarient plans to commercialize Pulmotype, a five-antibody immunohistochemistry test — which distinguishes between adenocarcinoma and squamous cell carcinoma in non-small cell lung cancer — by the first quarter of 2010, after completing additional validation. The test will be primarily marketed to Clarient's network of 1,100 pathology practices.
By launching Pulmotype as a tool for pathologists, Clarient is hoping to gain access to lung cancer patients' initial tumor samples, which provides an in-road for Clarient to eventually perform pharmacogenomic analysis on the sample when oncologists request information on their patients' EGFR status to determine treatment with tyrosine kinase inhibitors, such as AstraZeneca's Iressa or Genentech/OSI's Tarceva. Clarient conducts IHC and PCR testing on EGFR mutations for a variety of cancers, including NSCLC.
"It has become clear that the classification of squamous cell and adenocarcinoma classes will play a key role in treatment decisions. [If you] capture a portion of lung cancer tumor specimens for initial testing, [you] will control that tissue as additional diagnostic and prognostic work is completed in our lab," Andrew said during a call this week discussing the acquisition of Applied Genomics. "Adenocarcinomas in the lung are typically strong candidates for tyrosine kinase inhibitors and thus need EGFR mutation status to identify response to this powerful therapeutic.
"Having the tumor block in our hands for initial diagnosis will help Clarient get its unfair share of the rapidly growing EGFR mutations testing market," Andrews said.
Capturing An Unfair Share
With its eyes set on capturing a slice of the EGFR testing market in NSCLC, Clarient will enter a market in which several large reference labs and diagnostics shops are currently operating.
For instance, UK-based DxS, which was recently acquired by Qiagen, markets an EGFR29 Mutation Test Kit. DxS licensed the right to market the test in the US and Canada from Genzyme earlier this year. The company also inked a deal with Iressa-maker AstraZeneca to commercialize an RT-PCR-based EGFR29 mutation kit in Europe as a companion diagnostic for the NSCLC drug. No such deal has yet been announced for the US [see PGx Reporter 08-05-2009].
Laboratory Corporation of America is another large reference lab that offers EGFR mutation testing to gauge responsiveness to Tarceva and Iressa in NSCLC. Quest also launched its own EGFR mutation test in June, but this test is only indicated for the detection of KRAS, NRAS, and BRAF in metastatic colorectal cancer.
Ultimately, when it comes to the EGFR testing market, these bigger assay developers will be Clarient's competitors. In this race, Clarient's plan is not to compete for the oncologist's attention, but to develop a good relationship with the guy handling the tumor tissue: the pathologist.
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"Today, Clarient does not get the primary tumor samples from lung cancer pathologists," Andrews said during the call this week. After initial analysis of the tumor samples as NSCLC, the information goes back to the oncologist who decides whether to do EGFR testing. At that point, "if they have a good relationship with the local pathology lab they'll ask them to get [the EGFR status], which then means Clarient does get that work," Andrews explained. However, "if they … have a good relationship with either LabCorp or Quest or Genzyme, that EGFR could leak out of our process."
That's where Pulmotype comes in. Pulmotype distinguishes adenocarcinoma from squamous cell carcinoma in NSCLC by gauging the presence of five antibodies targeting the proteins TRIM29, CEACAM5, SLC7A5, MUC1, and CK5/6. At this early stage in analyzing the tumor sample, pathologists currently use a two-marker homebrew assay that tests for thyroid transcription factor-1 and TP63.
Clarient is hoping that Pulmotype will give pathologists the ability to discern more accurately between squamous cell and adenocarcinomas than the current standard method, thus making it more likely that pathologists will stick with Clarient when it comes time to make a treatment decision for patients based on EGFR testing outcomes.
Clarient officials highlighted economic incentives for pathologists to drive business to the firm through the reimbursement structure. "Part of Clarient's strategy is to engage the local pathologist in helping with the diagnosis itself [by providing] tools they can use to really further stratify and classify these cancers," Andrews said. "And in doing so they participate in the economics."
If a patient is tested on Pulmotype for all five markers, the total reimbursement, including the technical and professional aspects of analyses, is $750 per case. The pathologists' cut, if they use Pulmotype in addition to the standard methods to analyze tumor samples, is as much as $150 of reimbursement. If then, upon the request of oncologists the pathologists are able to bring EGFR testing to Clarient, they stand to see an additional $50 to $75.
A spokesperson for Clarient could not provide the precise difference in payment to pathologists when using the two-marker test kit versus Pulmotype. However, the spokesperson maintained that pathologists stood to gain more economically with Pulmotype than the two-marker test.
There are approximately 190,000 NSCLC cases per year in the US. Of these, Clarient estimates that approximately 120,000 cases will be candidates for testing on Pulmotype, amounting to a $70 million potential market.
In acquiring Applied Genomics, Clarient is gaining access to a pipeline of cancer diagnostics in late-stage development in breast, lung, and ovarian cancers; a sequencing laboratory facility in Huntsville, Ala., that it expects will attract pharmaceutical partners; and academic expertise in cancer genomics. In turn, Clarient offers Applied Genomics its existing customer base of pathologists, oncologists, hospitals, and biopharmaceutical firms.
Other than Pulmotype, which Clarient will commercialize immediately, there are several other IHC tests that will be ready for launch in the next two years. Among them is Pulmostrat, a seven-antibody prognostic IHC test currently being developed for detecting recurrence of early-stage lung cancer following surgery and for helping guide adjuvant treatment decisions. Clarient will launch this test in 2011.
In breast cancer, Applied Genomics has in its portfolio Mammostrat and Mammotax. Mammostrat is an IHC breast cancer prognostic test that classifies patients as having a high, moderate, or low risk of disease recurrence. The homebrew test is recommended for postmenopausal, node-negative estrogen receptor-positive breast cancer patients. "There are some papers already published on Mammostrat that actually compare [it] to the same cohort as [Genomic Health's] Oncotype DX … with very favorable results," Andrews said during the call.
Mammotax is a single-antibody IHC test designed to help doctors determine if breast cancer patients are likely to respond to taxane therapy. Clarient plans to launch this test in its customer base in the fourth quarter of 2010.
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AGI also has a breast cancer panel with proprietary markers that Clarient said could be included in a future version of Insight Dx, Clarient's breast cancer recurrence test validated in women with early-stage, hormone-receptor-positive disease; the test also predicts whether patients need chemotherapy. In addition, Applied Genomics is working on head and neck cancer and ovarian cancer tests.
In order to commercialize these tests, "missionary work" will be required from Clarient's sales team, Andrews said. The company plans to have its sales force educated and trained on Applied Genomics' new tests by February.
Clarient is expecting the products in Applied Genomics' pipeline to garner 65 percent or better gross margins per year, but the company did not provide revenue projections for the products.
Applied Genomics' laboratory in Huntsville, Ala., has sequencing capabilities that Clarient is hoping will increase collaborations with pharmaceutical companies.
Clarient's acquisition of Applied Genomics is a "solid value proposition for pharma," Andrews said.
"Clarient does work with some major pharmaceutical companies but it's mostly one-off projects. Now, having access to the Applied Genomics development engine, but also with the … group being located … in Huntsville, we also have access to one of the world's largest sequencing centers," he added. "So, now Clarient can go from A to Z for pharma and create a very rich value proposition that is really going to engage pharmaceutical companies working on targeted cancer products."
The samples for Applied Genomics' tests will be analyzed in its own Burlingame, Calif., facility.