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Luminex Predicts Gastrointestinal Pathogen Panel will be 'Key Growth Driver' in 2014

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Luminex is counting on its xTAG Gastrointestinal Pathogen Panel to help drive revenue growth this year as first adopters make the assay available for routine testing. The revenues should help to revive the Austin, Texas-based company's assay sales, which have declined in recent quarters, due mainly to reimbursement issues.

Though CEO Patrick Balthrop said last week that GPP "accounts are closing at the rate we planned," he acknowledged that implementation of the test has been "taking slightly longer than initially expected due to the uniqueness of the assay." Luminex launched the GPP last year.

The US Food and Drug Administration cleared the GPP for use on the firm's high-throughput LX 200 system in January 2013 and again for use on its MagPix benchtop instrument in April. The test is based on Luminex's bead array technology and enables users to detect 11 gastrointestinal pathogens in a single, five-hour assay.

Luminex in January 2013 moved to a direct sales model for its molecular diagnostics business, and the company "expects to realize the full benefit of this valuable and important strategic move" this year, according to Balthrop.

He discussed the GPP and the firm's molecular diagnostics strategy during a fourth quarter earnings call. For the three months ended Dec. 31, 2013, Luminex saw its revenues decline a percentage point to $55.2 million from $55.5 million in the fourth quarter of 2012. The results also missed the consensus Wall Street estimate of $56.6 million in revenues for the quarter.

Luminex breaks its assay revenues into two categories: infectious disease tests, such as the GPP and its xTAG Respiratory Viral Panel, and genetic tests, such as its cystic fibrosis test and pharmacogenomic tests. According to CFO Harriss Currie, the infectious disease test segment contributed 75 percent of assay revenues in the quarter, while the genetic test segment generated the remaining 25 percent.

While Balthrop and Currie told investors during the call that the declines in assay revenue were largely in its genetic testing segment, and not in its infectious disease testing segment, both noted that there have been issues with the rate of GPP adoption, given a lengthier-than-predicted review process.

"What we've experienced in 2013 with GPP is not really surprising in that it requires validation to be done across a wide variety of targets, which includes, as you know, parasite targets, bacterial targets, and viral targets, which incorporates the coordination across multiple departments in a clinical lab, and … it has turned out to be a very difficult thing for us to forecast regarding that validation," said Balthrop.

He characterized these validation challenges as "more political" than scientific, as the large university hospitals that have been most receptive to the GPP must coordinate across multiple departments to validate and implement the test, given its diverse content.

Balthrop compared the issue to the rollout of the RVP three years ago, when it was mainly the virology department within a hospital that validated and implemented the assay. In the case of GPP, such validation requires three or four different departments, Balthrop said.

However, as the assay has now been available for clinical use for a year, Luminex expects these adopters to soon conclude the validation processes and begin offering the assay more routinely.
"The good news is that customers are converting, and we expect GPP to be a key growth driver in 2014," Balthrop said.

'An incredibly unusual year'

As a proportion of assay sales, infectious disease tests are growing. Currie said on the call that infectious disease tests generated three quarters of Q4 revenues, compared to roughly two thirds of assay revenues in the fourth quarter of 2012.

It is in the firm's genetic testing segment, which declined to 25 percent of Q4 assay sales from about a third of all assay sales in the prior-year period, that the company has experienced its greatest challenges.

One issue is changes in the way US testing laboratories are reimbursed for their tests, which ultimately cost Luminex in the form of delayed orders and lower-than-anticipated assay sales. Since the beginning of 2013, payment coding for molecular diagnostic tests in the US has been changed to focus on the purpose of the test performed, rather than the methods used. As part of the overhaul, regional Medicare Administrative Contractors began developing their own fee schedules for tests performed based on these new codes using a gap-fill approach. And some payors held back on setting their own fees, waiting instead for the MACs to set pricing first.

Luminex addressed the impact this process was having on its assay sales in its second quarter and third quarter earnings calls last year, and on last week's call, Balthrop reiterated that the firm experienced its slight decline in assay sales primarily due to these "reimbursement headwinds."

Fluctuating reimbursement prices hit Luminex's menu of pharmacogenomic tests in particular, even though the firm achieved FDA clearance for its xTAG CYP 2D6 and xTAG CYP2D19 kits last year.

"2013 was, of course, an incredibly unusual year," said Balthrop. At the same time, he portrayed the reimbursement issue as resolved, using the CYP 2D6 test as an example.

"In 2013, the number was moving around a lot and there were a lot of regional reimbursement authorities that were delaying payment or had significantly lower numbers," Balthrop said of the 2D6 assay. "If we look at the 2014 national limit amount for that particular test, though, it's a very healthy number, in excess of $400," he said. "In terms of our customer's perception of that, that's something that they are very encouraged about."

Currie was similarly optimistic that the firm's cystic fibrosis test sales, which he acknowledged had been affected by the same reimbursement issues, should also grow this year, as those issues are at last addressed.

On the call, Balthrop and Currie also discussed Aries, Luminex's high-throughput, real-time PCR-based molecular diagnostics platform. The company introduced the system, which is in beta testing, at the Association for Molecular Pathology in November. According to Balthrop, Luminex is on track to introduce Aries in Europe in the second half of the year, followed by a US launch in early 2015.

Currie said that Luminex is also working on a second generation of Aries that will offer "both real-time and multiplexing" technology. He did not elaborate.

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