Luminex CEO Patrick Balthrop said this week that the company is "well into the alpha stage" of development for its high-volume, low-multiplex, cartridge-based clinical diagnostic system, dubbed Project Aries.
As such, Luminex's R&D spend increased by approximately 26 percent in the first quarter, a trend that it sees continuing over the next several quarters — though at a slightly slower pace — as it prepares the sample-to-answer testing platform for beta testing and possible commercialization next year, Balthrop said.
Balthrop updated investors on this initiative and other business items during a conference call this week recapping Luminex's Q1 financial results. Overall, Luminex reported a 9 percent year-over-year increase in Q1 revenues driven by spikes in royalty revenues and assay sales, primarily related to its xTAG diagnostic products.
In an interview with PCR Insider in December, Balthrop disclosed Project Aries, noting that the internal moniker refers to Luminex's marriage of MultiCode PCR chemistry it garnered as part of its June 2011 acquisition of EraGen and the IDBox clinical diagnostics instrument it acquired along with GenturaDx in July 2012 (PCR Insider, 12/13/2012).
The company intends Project Aries to both enable user test development and support Luminex-developed molecular diagnostic assays, thus allowing the company to further penetrate the LDT market and to serve customers seeking a platform with higher throughput and lower multiplexing than Luminex's xTAG-based systems.
The new system will be able to run up to 12 test cartridges at a time with a one- to two-hour turnaround per test. It will also features dedicated analysis software and a touchscreen interface. Perhaps most importantly, it will run assays based on the MultiCode chemistry — reagents that feature synthetic base pair chemistry for probe-free, real-time PCR and highly specific and sensitive detection and quantification of nucleic acid targets.
In comparison, in a Luminex xTAG assay, PCR products undergo an allele-specific primer extension step. The 5' end of the primers are then attached to an xTAG universal tag sequence that is hybridized to the complementary anti-tag sequence coupled to xMAP beads, which are subsequently read and analyzed on the firm's Luminex 100/200 and Magpix instruments.
The key feature of xTAG assays is their high degree of multiplexing, and as such, Luminex sells assay panels such as a Respiratory Virus Panel and Gastrointestinal Pathogen Panel to larger core clinical labs. With Project Aries, on the other hand, Luminex is aiming for labs requiring higher throughput but not necessarily needing a high degree of multiplexing.
Regarding the development of Project Aries, Balthrop said during the conference call this week that the company has made "significant progress on the enhanced redesign of the hardware as well as the implementation of proprietary software that will simplify overall workflow. We are well into the alpha stage and have built a number of systems which we expensed in the first quarter."
Balthrop also noted that assay menu development is "well underway," although he did not provide additional details on the planned test menu. However, Luminex currently offers MultiCode analyte-specific reagents for Bordetella pertussis, enterovirus, influenza A and B, cytomegalovirus, BK virus, Epstein-Barr virus, adenovirus, JC virus, Varicella-Zoster virus, herpes simplex virus, and several sexually transmitted diseases.
Luminex is demonstrating the alpha version of Aries at the Clinical Virology Symposium this week in Daytona Beach, Fla. Balthrop said that the company intends to provide additional details on the platform at industry events, such as the Association of Molecular Pathology meeting in November.
"I wish I had the opportunity to spend an hour or more telling you about how excited we are about that product because we are absolutely rock-solid convinced that there's a significant unmet customer need here as it relates to capacity and throughput," Balthrop said during this week's conference call. "You have these high-end customers that … in order to get their work done … they need eight, 10, [or] 12 systems only because the systems they're using were developed [up to] 10 years ago when volumes were low and the number of tests available were low. It's really frustrating for customers. And we believe that if we deliver the product according to our current specifications, that we're convinced we're going to have a winner here."
For the quarter ended March 31, Luminex logged total revenues of $53.2 million compared to $48.7 million in Q1 2012. Luminex's consumables sales were flat at $11.9 million, royalty revenue jumped to $10.1 million from $8.2 million, assay revenue increased 6 percent to $18.3 million from $17.3 million, and other revenue was up 47 percent to $6.3 million from $4.3 million.
The jump in royalty revenue was largely due to one-time contributors, including roughly $1 million from a Merck milestone payment and biodefense grant revenue.
While assay sales were up 6 percent year over year, the firm adjusted its comparison to reflect its shift to a direct sales model at the beginning of the year. Balthrop said that in anticipation of the change, the company's distributors placed large orders in the fourth quarter of 2012 that were shipped during Q1. As a result, on an adjusted basis, Luminex said its assay sales were up 15 percent.
Balthrop noted during the call that Luminex experienced double-digit growth in sales of its xTAG Respiratory Viral Panel, with contributions from its recently launched xTAG Gastrointestinal Pathogen Panel, as well as "strong growth" from its portfolio of laboratory-developed tests.
Luminex posted a net loss of $2.5 million, or $.06 per share, versus net income of $3.5 million, or $.08 per share, for Q1 2012. On an adjusted basis, it had earnings per share of $.19 versus $.15, beating the consensus analysts' estimate of $.08 per share.
The company's R&D expenses totaled $12.7 million, up 26 percent from $10.1 million in the year-ago period, primarily due to Project Aries development.
Regarding this R&D spend, Balthrop said that $3.2 million of costs were attributable to the Aries system "that obviously weren't present in the prior-year results." He estimated that a third of that $3.2 million was attributable to the production and expensing of the alpha units, which wouldn't be a recurring cost going forward.
"However, when we get to beta production … we'll then begin to expense those beta units over the useful life of those beta units as opposed to immediate expensing of the alpha units," Balthrop said. "So what I can tell you is that the expectations for Aries are less than $3.2 million a quarter. That number should come down in the second, third, and fourth quarters, but could possibly then modestly increase again as beta production begins."
Luminex finished the quarter with $54.3 million in cash and cash equivalents and $6.6 million in short-term investments. The company reaffirmed 2013 guidance of between $220 million and $230 million in revenues.