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With Revenues Down 27 Percent in 2007, Epigenomics Banks on Cancer Screening

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In the coming years Epigenomics will focus on licensing its biomarker discoveries to diagnostic partners in order to develop and commercialize assays, most readily in the area of cancer screening.
 
“To maximize diagnostic platform access and ultimately market penetration and value for Epigenomics, the company moved towards a nonexclusive licensing approach in early 2007,” CEO Geert Walther Nygaard said during a conference call announcing its earnings for the 12 months ended Dec. 31, 2007.
 
During the call the company reported a 27-percent decline in total revenues from 2006, but outlined a strategy to focus on licensing its biomarker discoveries, predominantly in the area of cancer screening.
 
“With biomarkers identified in numerous clinical studies in thousands of patient samples in several cancer indications, our strategy now focuses on turning these into diagnostic products that will reach the market starting in 2008,” said Nygaard, who became CEO of the company in early 2007.
 
Nygaard sees the cancer IVD industry as a cash cow for the diagnostics industry, but warned that in order to see blockbuster-sized returns, diagnostics shops may need to take on additional risks as well.
 
“Cancer molecular diagnostics provides opportunities comparable to what is normally seen within blockbuster drugs, but not with a more favorable risk profile in development and regulatory approval,” he said, estimating that screening products in Epigenomics’ pipeline address a combined market worth $4.8 billion for the IVD industry.
 
The main focus for this year appears to be commercializing its Septin-9 based colorectal cancer screening test.
 
In February, Epigenomics announced that it had granted Quest a non-exclusive license to the Septin 9 biomarker so it can manufacture a laboratory-developed colorectal cancer test. Five months earlier, Epigenomics licensed the same marker to Abbott for the development of a Septin 9-based in vitro diagnostic kit. Abbott will likely launch the test kit in Europe in 2009 and in the US in 2010. However, the homebrew Quest assay is slated to be available in the US later this year [see PGx Reporter 02-27-2008].
 

“Cancer molecular diagnostics provides opportunities comparable to what is normally seen within blockbuster drugs but not with a more favorable risk profile in development and regulatory approval.”

The company is conducting a US-based multi-center colorectal screening study, called PRESEPT, to characterize the clinical performance of the Septin 9 biomarker and the health economic benefits of screening. The results of this study are due to be released in the second quarter.
 
Nygaard noted during the call that the results of this study might encourage the inclusion of Septin 9 in screening guidelines for colorectal cancer.
 
Epigenomics also advanced its programs in prostate and lung cancer testing. The company identified new biomarker candidates for prostrate screening in 2007, and expects to have results from a validation study in prostrate cancer in the second half of this year. And last year, Epigenomics established the proof of concept for its blood-based lung cancer test.
 
In line with its strategy to enter into more licensing partnerships, the company last year inked several new R&D collaborations with pharma and biotech companies, including Johnson & Johnson unit Centocor, Myriad Genetics, Johnson & Johnson Pharmaceutical Research & Development, and Merck.
 
Additionally, Epigenomics officials outlined a strategy, called EPI-2010, under which the company will aim to increase funding for its R&D programs by reducing operational costs.
 
“We will allocate resources according to our key value drivers,” Oliver Schacht, CFO of Epigenomics, said during the call. “To secure appropriate funding for these programs, the management team at Epigenomics has launched EPI-2010 with the goal of expanding the company’s cash reach well into 2010.”
 
In the next year, the company plans to reduce its annual cash burn from €12 million ($18.7 million) in 2007 to less than €10 million ($15.6 million) in 2008, Schacht noted.
 
Financials
 
In 2007, Epigenomics reported total revenue of €2.6 million ($4.1 million), a decrease of almost 27 percent from revenues of €3.5 million ($5.5 million) in 2006.
 
“This decline was exclusively attributable to the terminated Roche collaboration and the nonexclusive nature of the Abbott deal signed towards the end of the third quarter in 2007,” Schacht said. “However, this drop could be partly compensated by increased revenues from the clinical solutions business and from licensing.”
 
The company’s clinical solutions business, now referred to as its biomarker solutions business, could grow its revenue by 50 percent from €600,000 ($937,758) to €900,000 ($1.4 million), he noted. Meanwhile, Epigenomics’ licensing activities contributed €1.1 million ($1.7 million) to revenues due to additional new licensing agreements closed in 2007.
 
Cost of sales decreased by €4.1 million ($6.4 million) to €900,000 ($1.4 million) in 2007. This was due to the fact that “Epigenomics’ diagnostics R&D projects were no longer externally partnered and costs shifted significantly from ‘Cost of Sales’ to ‘R&D,’” Schacht explained. However, as a result, R&D costs increased from €8.7 million ($13.4 million) in 2006 to €10.5 million ($16.4 million).
 
“Last year we have successfully managed to reduce operational costs by €3.8 million ($5.9 million) – ahead of our target of €2 million ($3.1 million) to €3 million ($4.7 million) – following the restructuring in fall 2006,” Schacht said.

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