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Slow Sales Leave Some Proteomics Dx Firms Questioning Value of Large Clinical Lab Deals

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On a conference call last month following the release of its Q1 earnings, Vermillion CEO Thomas McLain announced that the company would be taking over from Quest Diagnostics as leader of commercialization efforts for its OVA1 ovarian cancer diagnostic (PM 5/17/2013).

Explaining the change, McLain suggested that the sales force of a large clinical reference lab like Quest was not necessarily best-suited to driving commercialization of a single specialty diagnostic like OVA1.

"As a high-value diagnostic, retaining current users and expanding into new accounts requires a specialty sales skill set," he said. "Coverage is also a significant factor in driving increased use of [OVA1]. That is not core to a high-volume reference laboratory business model."

One week later, Vermillion sent Quest a notice of default under the companies' strategic alliance agreement relating to Vermillion's OVA1 and Vasclir diagnostic tests (PM 5/24/2013).

An apparent attempt by Vermillion to extricate itself from the pact, the notice asserted "a number of material violations, breaches, and failures to perform by Quest" under the deal.

Ending its agreement with Quest could hold several advantages for Vermillion, including giving it the opportunity to market OVA1 and Vasclir through additional laboratories as well as retain a larger percentage of revenues from the tests.

The move, particularly in light of McLain's prior comments, is also perhaps reflective of a shift in sales strategies among proteomic diagnostics firms away from licensing deals with large clinical testing companies and toward an increased focus on in-house efforts.

In the case of multivariate proteomic tests, "licensing to [Laboratory Corporation of America] or Quest has been shown to be less effective than having a direct, focused sales force," Paul Beresford, vice president of business development and strategic marketing at Boulder, Colo.-based proteomics firm Biodesix, told ProteoMonitor. Biodesix has offered its Veristrat test, a diagnostic for use in guiding drug therapy in second-line advanced lung cancer, out of its CLIA lab since 2009.

"Quest and LabCorp's sales forces offer a broad offering, and it can be difficult for them to dedicate the mind share and time needed to drive adoption of a single, high-value test focuses in a smaller patient population," Beresford said.

Speaking to ProteoMonitor this week, McLain echoed Beresford's comments, observing that "a diagnostic like OVA1 is highly specialized, and it requires detailed sales calls and support." He declined to comment on whether the recently filed notice of default was related to dissatisfaction with Quest's OVA1 sales efforts, but, he noted, the sales support needed to drive adoption of the test "is not typical of a reference lab sales force, which generally is advancing a menu of tests and trying to get people to purchase tests on volume."

Observing that OVA1 sales "have not increased at the rate" the company expected, McLain said management felt "that the way that we have to start addressing that is by a Vermillion-only sales force that understands the complexity of the test and is focused on driving that test."

Quest did not reply to several requests for comment.

While a number of early proteomics diagnostics developers including Vermillion, the now-defunct Correlogic, and the Yale University team behind the failed ovarian cancer test OvaSure, chose to license their products to large clinical reference labs, some more recent comers to the market appear a bit more circumspect.

Seattle, Wash.-based Integrated Diagnostics, for instance, will be relying solely on an in-house sales force when it launches its proteomic test for lung cancer later this year.

Integrated "chose not to partner with a full-service laboratory for our testing services because we believe there is a better approach," James Garner, the company's chief business officer, told ProteoMonitor.

Large clinical reference labs "sell commodity products," he said. "They compete on turn-around-time, ease of logistics, and 'one-stop shopping.'"

"We believe novel tests require a sales team that has the knowledge and training to act as ambassadors for new technology," he added. "They will be prepared to position and explain the new tests, as well as guide physicians in how the test results may help in treatment decisions."

Other proteomic diagnostics companies, including Aviir, which this year launched its MIRISK VP cardiac risk assessment test (PM 3/1/2013) and Applied Proteomics, which aims in the next few years to launch a proteomic test for colon polyp screening (PM 3/29/2013), are likewise planning to go to market selling tests out of their own CLIA labs and with in-house sales forces.

That's not to say, however, that interest in teaming with large clinical reference labs has fallen off entirely among proteomics firms. As Biodesix's Beresford noted, despite the potential drawbacks and limitations, such deals can offer significant advantages, including access to these companies' large customer bases and logistical resources.

One company still pursuing the large clinical lab route is Boulder, Colo.-based Somalogic, which has licensed several of its tests to Quest, including a pancreatic cancer diagnostic and a lung cancer diagnostic. The companies have yet to bring either to market, despite reports that they would launch the lung cancer test in 2011 or 2012 (PM 12/10/2010). However, last year Quest did launch a test for measuring free epidermal growth factor receptor using Somalogic's aptamer-based Somamer technology (PM 9/21/2012).

Somalogic declined to comment in detail on its relationship with Quest, but CEO Larry Gold told ProteoMonitor that the company is "continuing to support Quest Diagnostics in its efforts to bring several of our Somamer-based diagnostic tests to market, and our in-depth interactions with Quest's new leadership make us optimistic that these particular tests will be marketed appropriately."

Quest also in April launched a pair of protein biomarker tests for the diagnosis of rheumatoid arthritis based on the 14-3-3eta protein biomarker, for which it licensed US rights from Canadian biotech firm Augurex (PM 4/12/2013).

Biodesix's Beresford also suggested that while large clinical labs may not always be the ideal partner for specialty proteomic tests, "high-value, more specialized diagnostic tests" may be part of their longer-term strategy. As such, "it may be part of their plan going forward to build more specialized sales forces," he said.

In fact, during Quest's investor day last November, CEO Steve Rusckowski – part of the firm's new leadership referenced by Somalogic's Gold – noted that the company believed " that more sophisticated" and "esoteric" testing – categories that would include most proteomic diagnostics – will increase in volume in coming years.

"We have incredible capabilities in esoteric testing, lab-developed tests," Rusckowski said. "We need to do a better job of bringing this to the marketplace and understanding how we sell it and how we develop those marketplaces over time."

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