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CombiMatrix Discusses Sequenom NIPT Deal Impact, Reimbursement Landscape in Q2 Call

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CombiMatrix believes its new relationship with noninvasive prenatal test provider Sequenom will offer a boost to its prenatal chromosomal microarray analysis services, as well as improve the firm's reputation, according to its CEO.

Mark McDonough provided an update on the Sequenom deal during a second quarter earnings call last week. In addition to discussing the firm's "encouraging" 15 percent growth in Q2 revenues, driven largely by prenatal test demand, McDonough and CFO Scott Burell also addressed ongoing concerns about test reimbursement in the US, where the adoption of new molecular billing codes is in some cases causing delays in reimbursement.

On the call, McDonough discussed the Sequenom deal first, calling it "exceptional news" for the Irvine, Calif.-based molecular diagnostics test provider. Announced earlier this month, the agreement enables customers of Sequenom's next-generation sequencing-based MaterniT21 Plus test to obtain CMA via CombiMatrix in case of a positive finding (BAN 8/6/2013).

Sequenom's MaterniT21 PLUS test analyzes the relative amount of 21, 18, 13, as well as X and Y chromosomal material in cell-free DNA. The test is intended for use in pregnant women at increased risk for fetal aneuploidy and can be used as early as 10 weeks' gestation.

According to McDonough, Sequenom currently runs about 150,000 MaterniT21 tests per year. Citing clinical literature, he estimated that between 3 and 5 percent of those tests will report a finding, adding that each one of those positive results is a candidate for CMA.

"Will we get all of these? No. But even with the modest amount of this growing population, it could easily add significantly to our run rate as the relationship moves forward and evolves," said McDonough.

McDonough noted that tests will be sent to CombiMatrix for analysis and billing, and that CombiMatrix will then pay Sequenom a "fair market value" for its services.

He noted that Sequenom has about 90 people selling its test in the field, calling it a "significant enhancement for our team." CombiMatrix and Sequenom are managing mutual training sessions in order to comarket and service their combined offerings, he said.

McDonough cautioned investors that the "commercial ramp from this relationship is expected to start slowly," and said the firm expects to begin generating revenues from the deal by the end of the fourth quarter.

He also said that the deal, which is nonexclusive, could help raise CombiMatrix's profile.

"Our goal is to become the premier specialty laboratory for chromosomal microarray analysis for prenatal testing," said McDonough. "Having a collaborative partner like Sequenom is very rewarding and marks an important step toward achieving that goal."

Changes in coding

During the call, McDonough and Burell also addressed the impact the shift to new molecular billing codes in the US has had on CombiMatrix's business, portraying on one hand the reimbursement landscape as "challenging" while praising its billing and collections team's "diligent efforts."

Noting that US Centers for Medicare & Medicaid Services' contractors have delayed the pricing of the American Medical Association's new billing codes, Burell acknowledged "delays by certain payors in updating their internal schedules for the new codes." Other payors meantime have accepted the new codes but are now requiring additional documentation to support the medical necessity of the test performed, which he said has lengthened the payment review and reimbursement process.

As an example of how the changes have impacted CombiMatrix, Burell noted that while the volume of the firm's prenatal tests grew by roughly 20 percent sequentially from Q1 to Q2 2013, revenues generated remained roughly flat at $835,000, as some payors have questioned the utility of CMA.

"Our billing staff is proactively identifying and working closely with these payors to minimize disruptions to claims processing," said Burell. "Also, our medical team continues to provide the overwhelming clinical data supporting microarray as superior to traditional testing methodologies to those payors that have issued noncoverage decisions at this point."

McDonough said that CombiMatrix achieved "record cash reimbursement" of $1.5 million during the second quarter, but argued that "those results would have even better and our revenues higher if the reimbursement landscape had not been shifting in the first part of the year."

He also said that the company feels that it is "fortunate" to have deemphasized its menu of oncology tests last year, especially for tests covered by Medicare.

"We're aware of companies getting hit really hard, not just with noncoverage determinations of certain codes, but also just with vast reductions in pricing of additional testing," said Burell of oncology tests. "I think long term, the prospects are good for [CMA] reimbursement, but we're all kind of dealing with these challenges right now," he said.

CombiMatrix is one of several molecular test providers that have publicly discussed reimbursement challenges in recent weeks. During Luminex's Q2 earnings call, CEO Patrick Balthrop cautioned investors that "protracted administrative issues" related to the ongoing code shift had led to a decline in reimbursement for some of its tests (BAN 7/30/2013).

Elsewhere in Q2

While reimbursement issues continue to cause headaches for companies like CombiMatrix, McDonough attributed the firm's Q2 growth in part to "favorable coverage decisions at multiple third-party payors," noting on the call that in recent months Blue Shield of California decided to provide coverage for its diagnostic laboratory services, while New York State's Department of Health granted the firm a conditional license to perform CMA on products of conception for miscarriage analysis.

For the three months ended June 30, CombiMatrix saw revenues climb to $1.5 million from $1.3 million in the second quarter of 2012. Prenatal microarray testing revenues in Q2 rose to $836,000, compared to $331,000 in Q2 2012, and CombiMatrix said it performed a total of 1,485 billable diagnostic tests for 125 customers in Q2, compared to 1,459 tests for 116 customers in the year-ago period.

The company has also worked to reduce its operating expenses, reducing R&D costs by roughly half to $177,000 in Q2 2013 from $342,000 in the prior-year second quarter. Its SG&A expenses, however, grew 58 percent in the second quarter to $1.9 million from $1.2 million in Q2 2012. McDonough said that the firm continues to build out its commercial team to "take advantage of broadening geographies and the dynamic caused by all of the recent positive clinical trial data supporting microarray testing."

The firm narrowed its net loss to $121,000, or $0.03 per share, from $2 million, or $1.90 per share, in Q2 2012. The decrease was primarily driven by a non-cash, warrant derivative gain of $1.4 million during the quarter.

CombiMatrix held cash and cash equivalents totaling $5.7 million as of June 30.

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