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Veracyte to Buy Allegro Dx for $21M

NEW YORK (GenomeWeb) – Veracyte announced after the close of the market Thursday that it will acquire Allegro Diagnostics for $7.8 million in cash and $13.2 million in common stock.

The deal will extend the firm's molecular diagnostics business into the lung cancer diagnostics market. Maynard, Mass.-based Allegro has developed a gene expression-based test called BronchoGen that can indicate the presence of malignancy or disease processes from distant sites in the lungs. According to Veracyte, Allegro's molecular classifier has been established in two prospective, multi-center studies involving nearly 1,000 patients.

According to a an article published by Pharmacogenomics Reporter two years ago, the BronchoGen test is based on research carried out by Boston University researchers, who initially developed an 80-gene signature. However, Allegro had subsequently narrowed the original gene set down to about 30 genes and converted the test technology from microarrays to PCR assays. The test has since been further refined and now comprises 22 markers, Bonnie Anderson, Veracyte's president and CEO, said on a conference call Thursday discussing the acquisition.

"Data show that approximately 40 percent of lung nodule patients who undergo surgery prove to have benign nodules, thus the surgery was unnecessary," Anderson said. "We believe Allegro's test will provide a better way to help identify lower-risk patients who can be safely monitored with CT scans versus undergoing invasive procedures."

South San Francisco, Calif.-based Veracyte intends to commercialize Allegro's test in the second half of 2015, "with meaningful revenue expected in 2017," it said. Anderson said the firm will first complete clinical validation of the test and then work on the process for launching the test through its own CLIA lab.

"With Allegro and its novel, clinically validated lung cancer test, we plan to accelerate our entry into the pulmonology market, enabling us to improve care for patients with lung nodules while creating long-term growth opportunities," Anderson said in a statement. "Allegro is a natural fit for us and we believe this move further establishes our leadership in molecular cytology, using genomics to resolve diagnostic ambiguity preoperatively and thus spare patients from unnecessary invasive procedures and reduce associated healthcare costs."

Veracyte estimates the US market opportunity for the Allegro test at around $350 million, assuming that up to 40 percent of the annual 250,000 bronchoscopies performed are indeterminate. "Ultimately, we believe the lung cancer screening market could grow to be over a billion-dollar market opportunity with products that address a full range of opportunities that emerge from expanding lung cancer screening initiatives," Anderson added on the call.

Veracyte currently markets the Afirma Gene Expression Classifier, a test used in evaluating thyroid nodule fine needle aspiration biopsies that are indeterminate following traditional cytopathology review. The Afirma GEC test helps physicians determine which patients may need surgery as part of a thyroid cancer diagnosis.

Anderson noted that Veracyte also is developing a molecular classifier to improve early, non-surgical diagnosis of interstitial lung diseases, particularly idiopathic pulmonary fibrosis. She said that test is expected to become commercially available in 2016, adding that the acquisition will not affect the timeline for commercialization of the assay.

In addition, she said the firm will be able to leverage the sales team it has been assembling for the IPF test for the Allegro test.

In Friday morning trade on the Nasdaq, shares of Veracyte were up a fraction of 1 percent at $12.51.