CombiMatrix is planning to expand its test menu to hasten its growth in the molecular diagnostics market.
CEO Judd Jessup said during an earnings call last week that the Irvine, Calif.-based firm will introduce specific gene mutation-analysis testing this quarter. To date, the company has outsourced such assays to other labs.
CombiMatrix currently offers array-based tests for oncology and developmental disorders. By adding specific gene-mutation analysis, CombiMatrix will be competing directly against firms like Allentown, Pa.-based CTGT and Gaithersburg, Md.-based GeneDx that offer extensive menus of array-based gene tests.
Jessup did not say for which indications CombiMatrix's new assays will test. By comparison, both CTGT and GeneDx offer dozens of specific gene tests from indications ranging from Autism, Boomerang dysplasia, and Camurati-Engelmann disease, to Vörner disease, Wiskott-Aldrich Syndrome, and X-linked Thrombocytopenia.
Jessup made his announcement when the company released its second-quarter results. CombiMatrix reported a 31-percent year-over-year increase in Q2 sales, mostly from its diagnostic services business.
Revenues or the three months ended June 30 rose to $1.2 million from $916,000 a year ago. The receipts came exclusively from diagnostic testing, which rose 51 percent from $796,000 a year ago.
According to Jessup, the firm recognized no revenue from sales of preprinted array slides, an offering it recently discontinued. CombiMatrix had seen its pre-printed comparative genomic hybridization-array business wither in recent quarters as a key account switched to another manufacturer (BAN 11/16/2011).
Saying CombiMatrix's diagnostic performance "exceeded his expectations," Jessup attributed it to increased market penetration by the company's expanded sales and marketing force.
In particular, he credited a new sales-incentive program introduced earlier this year that "rewards sales representatives based on new customers and growth rather that preserving existing business" (BAN 3/1/2011).
During the quarter, CombiMatrix performed 1,201 billable diagnostic tests for 106 customers, which is a 61-percent increase from the 773 tests for 66 customers it ran during the year-ago period. The firm had no product revenues, compared to $120,000 a year ago.
During the call, Chief Financial Officer Scott Burell told investors that 2010 product revenues were mostly the last installments of funding from grants received prior to the firm's reorganization.
CombiMatrix last year restructured, cutting its research-products business to focus exclusively on clinical diagnostics. Its research products are now sold by Mukilteo, Wash.-based CustomArray (BAN 1/25/2011).
Jessup said that another source of the firm's increased revenues was its partnership with clinical labs such as Clarient, a unit of GE Healthcare that provides molecular-diagnostics services to pathologists and oncologists.
In 2008, CombiMatrix granted Clarient rights to commercialize its array-based HemeScan test, which is meant to predict the probable outcome of chronic lymphocytic leukemia at the time of diagnosis.
Earlier this year, the firm expanded that agreement, granting Clarient rights to sell CombiMatrix's cancer tests to commercial labs "based on certain minimum levels of sales" (BAN 5/7/2011).
Jessup said that he is "very pleased" with the relationship and said that CombiMatrix spent the past quarter "training Clarient staff [and] integrating reporting and informatics between organizations," and is now "seeing flow of tumor samples to our lab, in addition to CLL cases that have been ongoing prior to the recent agreement."
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CombiMatrix this quarter inked similar deals with two other labs, Jessup said. He did not name the labs, testing deals with which were never previously announced by CombiMatrix.
However, Jessup said the new clients are also sending cases related to hematological malignancies, such as CLL.
CombiMatrix has also managed to capture more revenue by optimizing the level of reimbursement it receives for its services, Jessup said. It accomplished this by reviewing the Current Procedural Terminology codes it uses to describe its services to insurers.
"Having assessed the CPT codes for each of our tests and compared strategies to some of our competitors, we determined that there were some industry standards that we had not employed," said Jessup. "In the second quarter, we began to bill some unpaid tests using these strategies, and so far the results have been promising and we may be able to capture some revenue that may have been lost otherwise."
CombiMatrix cut its R&D spending 51 percent to $321,000 during the quarter from $725,000 during the second quarter of 2010 and trimmed its SG&A expenses 9 percent to $2 million from $2.2 million.
Net loss narrowed to $1.7 million from $24.8 million a year ago. CombiMatrix ended the quarter with almost $10 million in cash and cash equivalents.
Looking forward, Jessup said that the company's "key initiatives" include the "training and expansion of its sales force and activities in oncology and developmental diagnostics; adding new tests; developing systems to handle new volumes; and supporting our new laboratory partners as we work through commercial success through those new channels."
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