This article was originally posted on Aug. 10.
CombiMatrix is anticipating greater revenue growth in coming quarters due to a recent National Institute of Health-funded study that the company expects will accelerate the transition of prenatal testing to arrays from older technologies.
CEO Judd Jessup weighed in on the Irvine, Calif.-based molecular diagnostics firm's prospects in an earnings call this week. While CombiMatrix's second-quarter revenues grew 6 percent year over year, Jessup hinted at accelerating growth in the second half of the year.
Much of that hope is based upon the pending publication of a multi-center study that found that chromosomal microarrays had a greater yield than microscope slide-based karyotyping in detecting constitutional abnormalities (BAN 2/14/2012).
"The findings of that study prove the benefits of microarrays, and thought leaders are confident that the paper will usher in a paradigm shift in prenatal testing favoring microarray analysis over the standard methods," Jessup said.
Jessup noted that Ronald Wapner, the principal investigator on the study, joined CombiMatrix's scientific advisory board earlier this year (BAN 4/24/2012). Wapner is vice chair for research in obstetrics and gynecology for Columbia University Medical Center and director of reproductive genetics.
According to Jessup, CombiMatrix is working with Wapner and others to "make sure that CombiMatrix delivers a responsible message to the marketplace and is in the best position to take commercial advantage as the shift toward microarrays takes place."
It is unclear when the prenatal study will be published. Wapner told BioArray News earlier this year that it would happen in the second quarter. Jessup said on the call that it would occur in the third quarter. He referred to a recent article about the study in The New York Times as evidence of this coming widespread adoption of arrays, and said that he expected the transition to happen during the "next eight quarters."
Prenatal and pediatric testing has already become CombiMatrix's main focus. While the company's two menus of tests — prenatal/pediatric and oncology — were developed at the same time, CombiMatrix has seen its direct sales and marketing efforts pay off in the constitutional testing arena, while its efforts to serve the oncology testing market have been "less successful," Jessup said. In May, CombiMatrix decided to abandon its efforts to serve the oncology testing market directly (BAN 5/15/2012).
To better serve the constitutional testing market, CombiMatrix last year began offering conventional, slide-based karyotyping, with the aim of converting customers using older methods to arrays in cases where a patient had an abnormal phenotype and a normal karyotype. This week, Jessup said that CombiMatrix will soon introduce chorionic villus sampling, a 30-year-old procedure where placental tissue is extracted and analyzed with fluorescence in situ hybridization or PCR, to offer more options to its clients.
According to Jessup, the US prenatal testing market is about $500 million, but array-based testing comprises a small portion of that. The "addition of karyotyping, development of CVS capability, and growing brand awareness should allow us to generate greater testing volumes," he said.
During the call, Jessup said that CombiMatrix recently signed a contract with a "large prenatal customer" that "alone could increase our prenatal run rate by 20 to 50 percent in the coming year." He did not name the customer but said that it's a large hospital in the US and "may be in the top 10" in terms of prenatal genetic testing volumes.
'Nice Piece'
Another new customer is Affymetrix. Jessup said that one source of increased revenue during the second quarter included laboratory and analytical support services associated with a clinical trial being conducted by Affy, which is currently collecting data for a planned submission of its CytoScan HD offering for the detection of constitutional abnormalities to the US Food and Drug Administration by year end.
An Affy spokesperson confirmed that the firm has an agreement with CombiMatrix but declined further comment, and would not comment on the existence of similar deals with other partners, citing non-disclosure agreements.
Jessup credited Richard Hockett, whom CombiMatrix hired in April as its chief medical officer, with delivering this "nice piece of business" (BAN 4/17/2012). Hockett was CMO at Affy from 1999 to 2008.
"Under Rich's direction, our laboratory staff will be using our resources, sample base, and databases to perform clinical trials for Affymetrix," Jessup said. "This is a significant contract in that it may represent as much as five and 10 percent incremental revenue increase in the remainder of the year, and it establishes the new service and revenue category to cultivate going forward."
Oncology Models
Since abandoning its efforts to directly serve the oncology testing market, CombiMatrix has since focused on partnerships with other companies and laboratories — a strategy that Jessup this week called "positive" model.
"We have been less successful breaking into the oncology segment of our business with our direct sales force," said Jessup. "Because of that we determined in May to defocus that part of the business by eliminating the oncology sales force and moving resources to our prenatal and pediatric business," he said.
CombiMatrix last year inked such a lab partnership with Clarient, a GE unit that provides molecular diagnostics services to pathologists and oncologists (BAN 4/12/2011). The company granted Clarient the right to sell all of CombiMatrix's oncology-related tests to commercial labs "based on certain minimum levels of sales." Clarient had since 2008 been offering CombiMatrix's HemeScan test, which predicts the probable outcome of chronic lymphocytic leukemia at the time of diagnosis.
In addition to HemeScan and the impending HemeProfile test, CombiMatrix offers the HERScan test for HER2 analysis in breast cancer patients and an array-based, post-prostatectomy prostate cancer risk-stratification assay.
This week, Jessup said that CombiMatrix signed a similar deal in Q2 with Pathgroup, an anatomic, clinical, and molecular pathology services firm headquartered in Brentwood, Tenn. Jessup said that the agreement with Pathgroup is "like the partnership with Clarient" and that Pathgroup will be ordering array-based tests for a variety of cancers.
Q2 Financials
While CombiMatrix's strategy shift in oncology appears to be working, it was demand for its microarray-based prenatal testing services that drove revenue growth during the quarter.
For the three months ended June 30, total revenues rose to $1.3 million from $1.2 million in the second quarter of 2011. CombiMatrix said that it performed 1,459 billable diagnostic tests for 116 customers in Q2, compared to 1,201 tests for 106 customers in the prior-year period. The company also said that revenues related to its "core prenatal testing markets" grew by 48 percent to $422,000 from $284,000 in Q2 2011.
During the quarter, R&D costs rose 5 percent to $342,000 from $321,000 in Q2 2011. Its SG&A spending rose 10 percent to $2.2 million from $2 million in the year-ago period.
The company said that in May it implemented cost reduction measures, "including the restructuring of the sales force and headcount reduction" to decrease its expenses. CombiMatrix said that those will result in savings of almost $300,000 per quarter in the future.
The firm's net loss in Q2 was $2 million compared to $1.9 million a year ago.
The company finished the quarter with cash and cash equivalents of $3.2 million.