Late last summer, Bill Young, CEO of ViroLogic, asked Aclara Biosciences chief executive Tom Klopack to dinner to talk about what their companies could offer one another by way of commercial collaborations.
It must have been some meal.
Less than one year later, ViroLogic, eager to move into the growing cancer molecular diagnostics space, is betting that Aclara’s eTag technology — not to mention the company’s healthy bank balance — will help it grow beyond infectious disease testing.
“It became obvious after a couple of conversations that we had a lot of synergy together,” Young said in a conference call early this week after the companies announced the terms of their $180 million stock-swap.
“We were seeing a very big opportunity looking at cancer diagnostics with targeted medications coming out,” Klopack added during the call. “As we started looking at the infrastructure [that] you would have to put in place to go after that kind of business, it was pretty daunting, frankly. And as Bill and I were talking about what ViroLogic had done in the area of HIV, they had built, literally, that infrastructure over the last five years.”
The combined company, which will retain the ViroLogic name and incorporate Aclara’s eTag technology and ViroLogic’s commercial infrastructure, will focus on molecular diagnostics for cancer therapeutics, as well as ViroLogic’s core infectious disease-testing business, the firms said.
Under the all-stock transaction, which is subject to shareholder and regulatory approval, Aclara stock will be exchanged for 1.7 shares of ViroLogic common stock, as well as 1.7 contingent value rights for a total of $4.78 per share. This number was based on ViroLogic’s closing price of $2.81 on May 28, the companies said. The CVR includes a potential cash payment of up to $.85 per Aclara share, and is contingent upon the ViroLogic stock price 12 months after the merger is closed.
The acquisition is expected to be finalized by the end of the third quarter or beginning of the fourth quarter, according to Young.
Under the merger, Young will remain at the helm of ViroLogic, which will retain its South San Francisco, Calif., headquarters. Aclara’s employees will move there, as the company shuts down its Mountain View, Calif., location.
Klopack will step down after the acquisition is finalized, but will work with Young as a consultant, Young said. Between 30 and 40 of Aclara’s 60 employees will be retained, said Young.
For ViroLogic, the merger is life-sustaining. The company, which had $9.5 million in top-line assets at the end of the first quarter, will now have $75 million in cash at the end of the acquisition.
Aclara had $83.6 million in cash, cash equivalents, and marketable securities at the end of the last quarter, but said in its last form 10-Q filed with the US Securities and Exchange commission that it has “limited experience with developing, manufacturing, distributing or selling products and delivering services on a commercial basis.”
ViroLogic, by contrast has numerous tests and pharmaceutical assays on the market in HIV, high throughput screening, hepatitis B, and HCV. The company is also developing additional applications for these assays.
For ViroLogic, the HIV and HCV genotyping and phenotyping tests have led to near-break-even. The company reported $8.6 million in revenue for the first quarter atop losses of $1.2 million, up from $6.6 million in the year-ago quarter amid $2.5 million in net losses. But the market for HIV and HCV testing alone is limited. Cancer testing provides a needed growth area.
“We are taking the longer view that cancer is the real next market for personalized medicine after infectious disease, after HIV,” Young told Pharmacogenomics Reporter this week. “All, or virtually all of the things that we’ve learned in the HIV business will apply [to cancer] and the market is ten times bigger.”
In the conference call, Young cited Herceptin, Gleevec, Iressa, Erbitux, and Avasta as examples of “the advent of personalized medicine in oncology,” and noted that in addition to these approved drugs, there are “dozens more in clinical testing.”
Of these drugs, Herceptin, Erbitux, and Iressa all act on the Epidermal Growth Factor pathway — a pathway for which Aclara has designed eTag assays. ViroLogic plans to launch point-of-care diagnostics for this pathway, Young and Klopeck said in the conference call. The company plans to introduce these products through a CLIA-certified lab over the next several months, and is researching additional pathways, including VEGF and PGDF, said Young.
“Right now we believe the eTag technology is the only technology available to look at protein complexes in active pathways in real human tissue samples,” said Klopeck. “The ability to look at those [complexes] allows us to understand which pathways are active in individual patients, and therefore, if the target is available, that [with] a particular targeted cancer therapy it has been developed for, there is a strong hypothesis that the targeted therapy will work in that patient .”
The eTag-based EGF assays are ready to roll out, said Young, and ViroLogic is ready to begin using them at a reference lab that it has operated for patient testing since 1999.