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NMTC's 'Italian Soap Opera' Leaves Luminex Crowing 'Nice Win' While GenMark Cuts Guidance

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Natural Molecular Testing created a stir in the marketplace last week when it announced it would be converting its pharmacogenetic test services to a new panel based on Luminex's xMAP multiplex bead array technology.

Austin, Texas-based Luminex, which is aggressively courting firms that offer laboratory-developed tests, management called the agreement a "nice win." Meantime, the announcement had a negative impact on GenMark Diagnostics, NMTC's main supplier of PGx tests and systems. GenMark, which saw its stock price fall after NMTC's announcement, this week announced a reduction in its guidance for the year on the prediction that NMTC, its largest customer, could run fewer tests on GenMark's systems going forward.

NMTC for its part moved to assuage GenMark by announcing plans to offer testing on both platforms, and stating that a four-year agreement the two companies inked last year is secure. Bill Quirk, an analyst at investment bank Piper Jaffray, said in a research note that NMTC CEO Beau Fessenden had stressed in private communication that the two deals are separate, with Luminex's panel being used as a "stepping stone to wider patient genomic profiling" using next-generation sequencing, and GenMark's tests offered to doctors "utilizing an à la carte approach."

Still, the questions about the NMTC-Luminex deal and its potential impact on GenMark caused Quirk to refer to the situation as an "Italian soap opera."

Ken Wallace, director of business development at NMTC, told BioArray News this week that he is unable to comment on any impact the agreement with Luminex may or may not have on its business with GenMark. At the same time, he noted that the firm is "very excited to work with Luminex as we continue to expand across multiple platforms and launch new products in our pipeline."

'Nice Win'

The "drama," as Quirk described it, began last week when Seattle-based NMTC announced the launch of its laboratory-developed comprehensive Personalized Medicine Panel.

The cardiac panel includes 42 targets related to 10 markers associated with drug metabolism: CYP450 2C19, CYP450 2C9, CYP450 2D6, CYP450 3A4, CYP450 3A5, ABCB1, VKORC1, MTHFR, Factor II, and Factor V Leiden.

NMTC and Luminex also said in a statement that they had signed a "multi-year collaboration and license agreement," though did not elaborate on the terms.

Several of the markers on the new panel are included on GenMark's Thrombophilia Risk and Warfarin Tests, which are run on the Carlsbad, Calif.-based company's automated eSensor XT-8 electrochemical detection system. The Thrombophilia Risk Test, for example, enables users to genotype MTHFR, Factor II, and Factor V Leiden, while the Warfarin Test supports the genotyping of CYP450 2C9 and VKORC1. Both tests have been cleared as in vitro diagnostics by the US Food and Drug Administration.

While NMTC does not disclose which platforms it uses, GenMark said in its most recent 10-K filing with the US Securities and Exchange Commission that sales to NMTC generated 62 percent of its revenues last year making it GenMark's largest customer.

In its statement, NMTC's Fessenden seemed to indicate that his company was moving tests to Luminex's platform from its existing platform, though he did not name GenMark.

"By converting to Luminex's xMAP technology, we can improve our throughput and workflow efficiency," Fessenden said. He added that the "flexibility and high throughput" of the Luminex platform combined with the ability to add biomarkers make the technology "unique and best suited to our expanding needs."

Luminex CEO Patrick Balthrop reinforced the idea that NMTC would be converting to the xMAP platform from GenMark's platform when he spoke to investors at the Goldman Sachs Global Healthcare Conference, which was held last week in Los Angeles.

"It is our understanding from the customer that they intend to move all of their testing to our product," said Balthrop, whose remarks were webcast.

According to Balthrop, NMTC has been a Luminex customer "for years." He said that NMTC's volumes have "grown substantially" in recent years, while "high failure rates" on NMTC's existing systems had caused the testing services firm to "lose productivity."

Balthrop said that Luminex's technology is "better suited" for NMTC's needs. He also claimed that the deal was a "very nice win" for Luminex in that it showcases the use of its technology to support LDTs in high-volume labs, a market segment the company is increasingly targeting.

"The largest customer that we have today is a high-volume lab customer, it happens to be [Laboratory Corporation of America]," said Balthrop. "As we look at the marketplace, where a lot of the molecular testing resides, it's in those high-volume labs," he said.

Balthrop this week told BioArray News that servicing the LDT market is
"an excellent growth opportunity" for Luminex, and that Luminex's technology addresses customers' needs for "flexibility in designing custom panels and scalability to handle peak or increased volumes."

According to Balthrop, NMTC's Personalized Medicine Panel is a "great example of how our technology and product offering is well-suited to this market."

In addition to NMTC and LabCorp, Luminex has other LDT clients. The firm said in its most recent 10-K filing that as of March 31, 2013, it had approximately 56 strategic partners, of which 43 have released products on its platform.

'The Facts as We Know Them'

Fessenden and Balthrop's statements had an impact on GenMark's stock, with share prices plummeting on the day of the announcement, while trading volume increased exponentially.

Shares of the company's stock dropped by a third in value to a low of $10.24 on June 11, the day that the NMTC-Luminex agreement was announced, from a previous close of $15.13. The volume of shares traded, meantime, grew to 4,336,500 on June 11 from 54,800 the prior day.

Shares of Genmark's stock were trading at a price of $10.08 at midday on June 18.

Luminex and NMTC's announcement apparently caught GenMark off guard. Speaking to investors at the William Blair Annual Growth Stock Conference in Chicago, GenMark CEO Hany Massarany said that the company was in the process of understanding the extent to which the Luminex-NMTC deal would impact its relationship with NMTC.

"At this stage, I can only share the facts as we know them," Massarany said.

Massarany assured investors that the "robust and strong" agreement that his company inked with NMTC last year, which is set to expire in 2016, "is valid" and that GenMark has "not been advised that it is not in place or [that NMTC] wants to cancel it."

In addition, Massarany said that Fessenden had indicated to him that NMTC's agreement with Luminex is "completely independent" of its relationship with GenMark, and that NMTC does not anticipate the new agreement "will impact our volume or relationship with them."

In spite of those assurances, GenMark this week reduced its full-year 2013 guidance to $30 million from an original estimate of $35 million, citing uncertainties created by the NMTC-Luminex deal.

"While we have continued to receive acknowledgement from NMTC's CEO that they will honor the binding commitments they have made in our contract, we believe it is prudent at this stage to take a more conservative outlook to reduce our revenue expectations from NMTC for the remainder of the year," Massarany said on a conference call discussing the updated guidance.

"We have been told that in fact the newly launched lab developed panel will be used with a different population of patients but we don't have a very clear understanding in relation to this at this stage," he said.

Massarany noted that GenMark still expects its revenues to grow about 50 percent this year, that it continues to place about 40 systems with customers per quarter, and that its FDA-cleared Respiratory Viral Panel and its research-use-only HCV Genotyping Test are driving its revenue growth.

While Massarany characterized pharmacogenomics as an "emerging area" subject to uncertainty, he noted that GenMark has also seen "some additional labs going into this area of testing."

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