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NanoString Begins Reaping Dividends of CDx Collaboration Strategy


NEW YORK (GenomeWeb) – NanoString is expecting to see a big payoff in fiscal year 2016 from a strategy started years ago of collaborating with biopharmaceutical companies on companion diagnostics.

In addition to a long-running collaboration with Celgene, since the start of the year Seattle-based NanoString has added two new companion diagnostic development partnerships. In January, it announced a deal with Medivation and Astellas Pharma to develop a companion diagnostic — based on the PAM50 gene expression signature used in NanoString's Prosigna breast cancer prognosis assay — for the investigational breast cancer drug enzalutamide. And just last week, it announced a deal with Merck for a companion diagnostic to the anti-PD-1 cancer therapy Keytruda (pembrolizumab).

These deals are expected to reap near-term financial rewards for the firm. In total, NanoString expects cash payments between $40 million and $45 million and recognized revenues of $15 million in 2016 —up 150 percent from $6 million in 2015, company officials said on a conference call following the release of NanoString's FY 2015 financial results last week. The remainder is deferred revenue.

NanoString CEO Brad Gray told GenomeWeb that the Merck deal is indicative of how NanoString would like collaborations to contribute to its business — which also includes the US Food and Drug Administration-approved Prosigna test and the nCounter optical barcoding platform for research and clinical use. The deal is structured favorably for NanoString, with millions in up-front payments and an open-ended ability to re-use the companion diagnostic in partnership with other pharma companies.

"This is NanoString's chosen way to build a diagnostic menu in the future," Gray said. "When we bring diagnostics to market, they'll be coming as tests with clear clinical utility, commercial and financial support from a major biopharma company, and they'll be able to run on any of our diagnostic systems."

The recent Merck deal came directly out of an earlier collaboration started in May 2015 to evaluate whether several gene expression signatures —discovered using the nCounter technology — could predict response to Keytruda. The new deal expands the collaboration to include development and commercialization of diagnostics for multiple tumor types.

The Medivation/Astellas deal comes out of a pilot study NanoString began soon after the FDA approved Prosigna, Gray said, and will be the model for future collaborations based on the Prosigna assay or the diffuse large B cell lymphoma assay initially developed for Celgene. With another 17 such pilot studies being conducted with 11 different pharma companies in its pipeline, NanoString is set up for more collaboration deals down the line.

But NanoString's favorable position can be traced back to the solid foundation provided by its first CDx collaboration in 2014 with Celgene. Fresh off the success of Prosigna, Gray said Celgene came to NanoString with a diffuse large B cell lymphoma-related gene signature and a request to help build a diagnostic based on it. With Celgene, NanoString hit upon the payment structure that underlies both the Medivation/Astellas and Merck deals: millions of dollars up front as a "technology access" fee, millions in early milestones reachable in the first nine months of the collaboration, R&D funding from its pharma partner, and more downstream regulatory and commercialization milestones. For the Celgene deal, worth up to $45 million in total, NanoString got $5.8 million up front and $6 million in early milestone payments.

Gray said that structure was unique and gave NanoString "unprecedented economics." NanoString was also able to do this on a non-exclusive basis, leaving the door open for other collaborations.

On the 2015 financial results call, NanoString revealed that the Medivation/Astellas deal provides the firm with a $6 million technology access fee, up to $6 million in early milestone payments, and $10 million in R&D funding from the partners, with additional undisclosed milestone payments upon regulatory clearance.

The Merck deal is even more lucrative: $12 million for technology access, another $12 million in near-term milestone payments, and undisclosed R&D and downstream milestone payments.  Gray said the R&D allocation has yet to be decided by the partners' joint steering committee.

"It's twice as ambitious as our Medivation partnership in terms of the number of different studies, so the economics are about twice as much," Gray said.

NanoString has not disclosed which tumor types the collaboration will be looking at. "The hope is that it can form the basis of a more universal way of selecting patients for checkpoint inhibitors" such as Keytruda and other anti-PD-1 drugs, Gray said. As with Celgene, [Merck] has provided NanoString the ability to collaborate with other companies. Though NanoString is not collaborating with them, several other pharma companies are developing such drugs. Bristol Myers Squibb offers the FDA-approved Opdivo (nivolumab) and early-stage pidilizumab anti-PD-1 drugs; Cure Tech and Roche also have early-stage drugs targeting PD-1 receptors. Gray said that Merck would not see a penny of any money from other collaborations on anti-PD-1 diagnostics. "I give credit to the team at Merck who shared our view that the world needs fewer tests that do more things," he said.

Gray said the firm will be growing its R&D, regulatory, and clinical operations, and as such it has guided for increased operating expenses between $94 million and $99 million for full-year 2016, up from $77.9 million in 2015. But, Gray noted, the added expenses are "far exceeded" by the cash payments.

NanoString is close to becoming cash-flow neutral and just a single additional collaboration on the scale of the Medivation/Astellas deal would push the firm into cash-flow-positive territory for 2016, Gray said.

He wouldn't say for sure that the firm would land another deal. "It's difficult to predict when they'll happen and what they're going to look like," he said, "but it's fair to say our team has been really busy."