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Achieving Dx Ambitions Key to Avant-Amarantus-Theranostics Merger


NEW YORK (GenomeWeb) – Avant Diagnostics and Amarantus Diagnostics this week signed a letter of intent to acquire clinical proteomics firm Theranostics Health as part of the two firms' planned merger.

The deal, which is expected to close by the end of March, brings together three companies that have to date struggled to ramp their molecular testing businesses in hopes that the combined outfit will be better positioned to succeed in the market, suggested Gerald Commissiong, president and CEO of Amarantus Bioscience, the parent firm of Amarantus Diagnostics.

Theranostics brings to the deal assets including a revenue-generating pharma services business and CLIA lab, but, Commissiong said, the firm does not at present have the sort of proprietary diagnostic properties that could lead to significant near-term profits. Meanwhile, he said, Avant and Amarantus have several proprietary diagnostics at various stages of market readiness, but no CLIA facility to run them out of.

Additionally, Commissiong noted, Amarantus believes it will be able to sell certain of its pharma service products — primarily its LymPro Test for Alzheimer's — to Theranostic's pharma customers.

As described by Commissiong, the success of the new company hinges significantly on its ability to bring Avant's and Amarantus's molecular diagnostics to market and drive them to profitability. The history of these two firms and of the molecular diagnostics space more generally suggests that this will be no easy task.

Avant's primary diagnostic property is its OvaDx proteomic test for ovarian cancer, which the company has been working on for the better part of a decade. Created in 2009 as a subsidiary of protein array firm Arrayit, Avant went public in 2014 through a reverse merger with Houston-based oil company American Liberty Petroleum.

That move was necessary to satisfy the requirements of a lawsuit filed by Avant against former parent company Arrayit, in which Avant accused Arrayit of breach of contract, fraud, negligent misrepresentation, and other cases of action.

Under the settlement, Arrayit retained the right to manufacture the OvaDx test, and Avant retained its right to sell and market OvaDx upon US Food and Drug Administration clearance. However, Avant was required to become a publicly traded company within one year of the agreement or else commercialization rights for the test would revert back to Arrayit, which still holds a minority stake in Avant.

Developed on Arrayit's protein array platform, OvaDx consists of a nine-protein panel. According to Avant's website, in preclinical studies of 237 subjects, an earlier 110-protein version of the test performed with sensitivity of 80 percent and specificity of 100 percent. The specificity number was determined using samples from healthy females, females with benign gynecologic diseases, and men, the company said, though it didn't provide a further breakdown of this cohort.

That 237-subject study is the last the company has done on the test, though Avant President and CEO Gregg Linn (also the proposed CEO of the new firm) told GenomeWeb this week that it is about to begin a validation study of the panel.

The initial version of the test, Linn said, will be for monitoring ovarian cancer patients for recurrence. The company plans to take this test through US Food and Drug Administration 510(k) clearance. It then aims to develop a second version of the test for ovarian cancer screening and take that test through the FDA's more stringent premarket approval process.

Linn declined to provide specifics on the planned validation study, though in a 2014 interview with GenomeWeb he said the company was planning a 1,200- to 1,800-patient study to gather data in support of the 510(k) submission.

In any case, if the experiences of other proteomic ovarian cancer tests — Vermillion's OVA1,for instance — are any guide, a commercial launch is likely still several years off, with reimbursement and profits further off still.

Like Avant, Amarantus Diagnostics is a spinout from a larger company, in this case Amarantus Bioscience, which is focused primarily on therapeutics for neurological disorders and orphan indications.

Amarantus has long wanted to split off its diagnostics unit, Commissiong said, due to the fundamentally different valuations of the two businesses.

"The question was could we spin it off by itself?" he said. "We knew we needed a CLIA lab. We knew we needed some other assets, because the diagnostics business is pretty tough in general. So we have been looking for something like this for some time, and this just happened to be available."

Amarantus Diagnostics is bringing two main assets to the deal—its MSPrecise test, a next-generation sequencing-based test for diagnosing multiple sclerosis, and LymPro, a protein-based test to company plans to market as a tool for selecting and stratifying patients in Alzheimer's studies.

Amarantus acquired MSPrecise as part of its purchase of diagnostics firm DioGenix last year. Prior to acquisition, DioGenix had completed a 334-subject validation study of the test in which the test performed with an accuracy of 81 percent and sensitivity and specificity of 86 percent and 71 percent, respectively. When combined with current diagnostic methods, the test performed with an accuracy of 92 percent and sensitivity and specificity of 96 percent and 83 percent, respectively.

Commissiong said the new firm will now embark on an additional validation study for the test looking at on the order of tens of subjects and plans to launch the diagnostic as a laboratory-developed test in early 2017.

Amarantus js also readying its LymPro Alzheimer's test, which Commissiong said is intended for use in selecting and stratifying patients in drug trials. That test is available immediately, he said, though it does not have any pharma customers currently. He said he expected the company would be able to "leverage the customer base Theranostics already has for pharma services," to drive sales.

By merging with Theranostics, Avant and Amarantus gain a needed CLIA lab as well as access to potential pharma customers. Theranostics' incentives are somewhat less obvious, particularly given the challenges and uncertainty inherent in bringing to market new diagnostics like those under development at Avant and Amarantus.

Nonetheless, Commissiong suggested that such a move is necessary if Theranostics is to ultimately justify the funds invested in it to date.

Theranostics was founded in 2006 by George Mason University researchers Emanuel Petricoin and Lance Liotta to commercialize protein signaling-based tests using their reverse-phase protein array platform. The company's technology uses measurements of protein phosphorylation to measuring signaling pathway activation states with the idea being that a better understanding of pathway activation will allow for more effective targeting of cancer therapies.

Theranostics launched with around $5 million in funding and as of 2014 had raised roughly an additional $8.5 million in equity funding. According to documents filed with the US Securities and Exchange Commission, last year the company raised $855,000 in venture funding and $300,000 in debt financing.

According to a presentation detailing the proposed merger, Theranostics generated around $1.5 million in pharma services revenues in 2015, but, Commissiong said, the company has struggled to gain reimbursement for its clinical business, which uses its tests to help guide therapy in cancer patients. In 2013, the company launched a 14-analyte test for guiding therapy in breast cancer and an expanded 24-analyte version of that test in 2015. However, despite a market agreement with MedFusion and a provisional coverage and reimbursement agreement with South Dakota-based Avera Health Plan, the company has not been able to get significant reimbursement for the test.

Theranostics declined to comment for this story, with Ron Hencin, the company's vice president of business development (and proposed VP of business development at the new merged entity) noting that the firm was under a non-disclosure agreement relating to the deal.

Generating the clinical outcome data needed to get reimbursement and, down the line, FDA clearance, remains a significant challenge for Theranostics, Commissiong said. And, given that, he noted, the firm's revenues will for the foreseeable future come primarily from its pharma services business.

"And the pharma business model, while it's attractive from a revenue generating standpoint in terms of small amounts of revenue, you're never going to get any valuation based off pharma services," Commissiong said. "So if you are the investors, you have already sunk in $14 million, and you are asking people to pony up more money, but there is no path to a real valuation of that $14 million with pharma services."

"So what they are getting are proprietary tests that are much closer to market and to generating real revenue and reimbursement with MSPrecise and the OvaDx test," he said.

Additionally under the terms of the deal, Avant will issue 25 million shares of its common stock to Theranostics, which carry a total value of about $10 million based on the roughly $.40 per share price of the stock at the close of the market on Wednesday.

Amarantus has also provided a convertible bridge financing of $400,000 to Theranostics to facilitate the transaction. The financing will be assumed by Avant once the acquisition closes.