Molecular diagnostics firms GenMark Diagnostics, Nanosphere, and CombiMatrix may target different markets with their kits and services, but one thing they do share is technology.
Each firm's test menu is run on a microarray platform, and each firm is seeking to displace established assays by marketing what they believe to be advantageous technologies.
Based on their recently reported first-quarter revenues, those efforts are paying off. GenMark, Nanosphere, and CombiMatrix last week reported revenue growth, with GenMark's Q1 revenues spiking 414 percent, Nanosphere's Q1 revenues nearly doubling, and CombiMatrix rising 28 percent compared to the first quarter of 2012.
In the earnings calls that accompanied the results, the CEOs of each firm credited investments in their respective commercial organization with their Q1 results. Highlighting this commercial shift, Nanosphere and CombiMatrix both saw the executives who had been leading their commercial teams — Michael McGarrity and Mark McDonough, respectively — take over as CEO in the quarter.
The heads of all three firms vowed to add to sales and marketing headcount to drive growth this year. They also varyingly discussed the performance of tests already on the market, their diagnostic pipelines, and the development of next-generation systems.
Carlsbad, Calif.-based GenMark said its revenues rose nearly five-fold to $11.1 million for the three months ended March 31, up from $2.2 million in Q1 '12.
The primary driver was sales of reagents, which rose 468 percent in the quarter due to adoption of GenMark's core test assays as well as its respiratory virus panel, which the US Food and Drug Administration cleared last year, bringing the number of FDA-cleared assays the company offers to four.
Instrument revenues grew 23 percent to $295,000 from $240,000 in the quarter. In Q1, the firm placed 42 analyzers, bringing its total installed based to 339.
CEO Hany Massarany on the firm's earnings call credited the company's "commercial execution" with the performance, noting that the company's "sales force continues to perform extremely well." Massarany added that GenMark's "commercial sales funnels for the remainder of 2013 are very robust," and "based on [its] current trajectory ... expects to place more than 150 analyzers in the field this year."
Additionally, Massarany said that the firm will "continue to strengthen our team with the addition of key personnel in R&D, manufacturing, operations, and commercialization" this year. He noted that the company recently appointed Ingo Chakravarty to oversee its international business. Chakravarty joined GenMark last month, after holding sales management positions at Gen-Probe and Roche Diagnostics.
GenMark is counting on its commercial team not only to win customers over to its eSensor electrochemical detection-based XT-8 System, but to also encourage existing customers to adopt more of its assays, such as the recently cleared RVP test, Massarany said. He noted that Q1 reagent annuity per system was $146,000 in Q1 2013, a 217 percent increase compared with Q1 2012.
Looking ahead, Massarany said that the company has submitted its hepatitis C virus genotyping test to the FDA as part of the agency's presubmission process. The eSensor HCV Genotyping Test is designed for typing and subtyping of HCV 1a, 1b, 2a/c, 2b, 3, 4, 5, 6a/b, and is currently available only for research use, according to the firm's website.
GenMark expects the assay will "continue to drive [its] future revenue" and could "play a very important role in the diagnosis and treatment of HCV patients," Massarany said. He added that the company is in discussion with FDA to finalize the clinical study design for the submission, but said it is "difficult at this stage to tell you when we think this product will be approved by the FDA."
During the call, Massarany informed investors that the anticipated launch date for the company's higher-throughput, fully automated next-generation instrument platform, dubbed NexGen, has been delayed two quarters, to the second quarter of 2014. Massarany said in January that the company aimed to have the end-to-end system on the market by the end of this year, allowing it to target more than 5,000 labs, beyond the 1,200 labs in the US that are able to do the sample extraction and amplification required for processing assays on the XT-8 (BAN 1/15/2013).
Massarany said that the delay was not due to issues with the company's technology, but rather the firm "diligently taking the necessary time and effort to ensure that our system design is robust and meets or exceeds our customer expectations." He added that the company does not believe that the new product delivery date will impact "the significant opportunity ahead of us or the success of NexGen in the global market."
It was Michael McGarrity's first quarter at the helm of Northbrook, Ill.-based Nanosphere. McGarrity, the company's former chief commercial officer, took over the CEO position from William Moffitt in February (BAN 2/26/2013).
During the quarter, the company expanded its sales force to 17 from 15 staffers in Q1, and invested in field support, McGarrity said. In addition, its clinical support team has taken a more hands-on approach, enabling customers to introduce its US Food and Drug Administration-cleared assays on its Verigene system.
"Our customer support group works through the training and assists in the validation process," said McGarrity, adding that the initiative is "advancing the sales process through implementation."
Thanks to those efforts, McGarrity said that the company achieved revenues in Q1 of $2.4 million, compared to $1.3 million in the first quarter of 2012, and placed Verigene systems with 46 new customers in the quarter. The company currently offers a menu of six FDA-cleared assays, including clinical microbiology tests for respiratory virus, gram-positive bacteria, C. difficile, as well as pharmacogenomic tests for warfarin metabolism, CYP2C19 genotyping, and F5/F2/MTHFR — three genes associated with venal thrombosis.
CFO Roger Moody said on the call that most of Nanosphere's first-quarter revenue was driven by sales of its respiratory virus and gram-positive tests.
The FDA cleared Nanosphere's gram-positive blood culture assay for bacteria detection last year. The firm markets the test as a more accurate replacement for traditional methods, such as culture. McGarrity said that customers who use the assay are "beginning to provide consistent ordering patterns after validation and implementation." At the same time, the amount of time it takes these customers to validate and introduce the assay "has clearly taken longer than initially anticipated," in some cases more than half a year.
"While it is clear that our initial customers have taken, in some cases, greater than six months to reach full implementation, our regular analysis of every customer placement and its progress indicates we are now turning the corner to consistent revenue ramp," said McGarrity. He said the firm has been able to accelerate this process by providing a "technical and clinical implementation blueprint for customers, based on reference data and experience."
Because of this market need for assistance with implementation, McGarrity said that the firm has invested in its commercial operations, not only to sell the test and the Verigene system, but also to see the assay through to validation and clinical availability. "That’s the cut we’re taking," he said, "and we’re doing that on a territory-by-territory, customer-by-customer basis."
The company also has a gram-negative blood culture assay in its pipeline, and plans to submit the test to the FDA within the next few months. Nanosphere planned to submit a separate assay for enteric pathogens around the same time, but McGarrity said that the company would likely submit it toward the end of the year, due to a "technical issue" that he said has been resolved.
In the cases of the gram-positive, gram-negative, and enteric pathogens tests, Nanosphere is targeting microbiology labs that continue to use blood and stool cultures to make diagnoses. The company therefore must sell customers on the advantages of its multiplexing technology over these other methods.
While the company believes it has to do the "initial lifting" to introduce "standard-changing tests" like those that run on the Verigene system, McGarrity said that Nanosphere "feels like it's going to pay off ... and allow for the continued development of our menu."
Like Nanosphere's McGarrity, Mark McDonough made the jump from chief commercial officer to CEO in Q1, when he replaced retiring CEO Judd Jessup (BAN 3/5/2013).
The Irvine, Calif.-based molecular testing services lab last week reported that its Q1 revenues jumped 28 percent to $1.6 million from $1.3 million in Q1 2012, driven by a 158 percent increase in prenatal chromjosomal microarray testing services.
McDonough credited the firm's sales and marketing activities with delivering the revenues, and detailed a three-tiered strategy on the call.
First, McDonough described expanding the CombiMatrix's regional reach. The company has maintained a direct sales presence in Washington, DC, Baltimore, Phoenix, Houston, Southern California, and Saint Louis, he said. It has since added personnel in Florida, Pennsylvania, and Chicago and Minneapolis to round out those efforts.
"We saw these markets as opportunities which were relatively untapped and where we thought we could win market share," said McDonough. "So far, the direct sales efforts are paying off."
The company is also partnering with regional pathology groups, McDonough said, which market and distribute its tests, "allowing us to leverage their entire sales force," while "they benefit by running complementary testing that they can perform, interpret, and bill for, as well." McDonough said that this partnership model "continues to drive increasing volume on a month-over-month basis for us, while not increasing our cost of sales."
Finally, the company is "establishing strategic corporate relationships where technology can be leveraged as complementary to ours," according to McDonough. "We believe that not only will we grow organically given our unique place in the market, but we'll grow through our relationships with many of the larger national partners with whom we are working," he said. "With limited resources and the desire to remain lean, these partnerships will give us commercial leverage as we gain share without large direct investment."
He did not name any of these partners on the call.
While CombiMatrix is building up its sales and marketing resources, it is trying to reduce costs. CFO Scott Burell noted on the call that the company's operating expenses fell 12 percent to $3.2 million in Q1 versus $3.6 million for the comparable 2012 period.
"We're doing a lot more with less, which I think is an important achievement for a company like ours and shows that we are mindful of our investors and of maximizing our return," said McDonough.
Commenting on the firm's opportunity in the prenatal testing market, McDonough said that there is "no question the overall prenatal molecular testing market is growing," adding that "it is estimated to be over $600 million annually, but it is in transition and is undergoing changes."
He also said that emerging sequencing-based, non-invasive prenatal tests offered by firms like Verinata Health, now part of Illumina, Sequenom, Natera, and others, "will only increase our market share," and he views them as complementary.
"Non-invasive tests screen for abnormalities like Down syndrome, but our tests are more definitive and confirm a wide range of abnormalities," said McDonough. "We are finding already that many parents who receive a positive non-invasive prenatal testing result want to move to a microarray analysis to confirm the screening results and to generally learn more."
CombiMatrix last year made a strategic decision to focus on the prenatal market while de-emphasizing its efforts to market its menu of oncology tests directly and instead rely on laboratory partnerships to sell those tests.
The firm said it performed a total of 1,718 billable diagnostic tests for 119 customers in Q1, compared to 1,377 tests for 105 customers in the prior-year period. Q1 prenatal testing revenues meantime were $959,000, compared to $372,000 in Q1 2012. Burell noted on the call that revenue growth outpaced test volume growth in prenatal testing in Q1 due to a "stronger product mix toward microarrays and a stabilizing reimbursement mix among third-party payors."