As Correlogic's Chapter 11 bankruptcy proceeding drags on, the company has continued work on a second-generation version of its OvaCheck ovarian-cancer diagnostic, CEO Peter Levine told ProteoMonitor this week.
The development of this second-generation protein biomarker-based test, which in court documents the company has referred to as OvaCheck 2, has potentially important implications for Correlogic in its ongoing licensing dispute with Quest Diagnostics and Laboratory Corporation of America and for the firm's eventual sale of its assets.
Upon filing for bankruptcy on July 16, 2010, Correlogic sought to reject OvaCheck licensing agreements it had signed with Quest and LabCorp, claiming that uncertainty over the validity of the agreements was an impediment to obtaining new investment and was hampering its reorganization efforts (GWDN 07/23/2010).
In particular, Correlogic said this uncertainty stemmed from the fact that the licensing agreements were signed in 2002 when OvaCheck was still a mass spectrometry-based test. Since then it had migrated to an immunoassay version, which, the company claimed, wasn't covered by the deals.
In October, the US Bankruptcy Court in the District of Maryland ruled in Correlogic's favor, allowing it to reject the licensing agreements, over Quest and LabCorp's objections (PM 10/08/2011).
This, however, didn't fully settle the dispute as both companies maintained that even were the licenses rejected they still held rights to OvaCheck under section 365(n) of the bankruptcy code, which provides certain rights to intellectual property licensees in order to protect businesses from disruptions arising when a licensor seeks to reject a license agreement as part of a bankruptcy proceeding.
This portion of the dispute has remained an open question, with Correlogic suing Quest and LabCorp last month for declaratory judgment, requesting that the court rule that the company's agreements with the two reference labs encompass only the original mass spec-based tests and not the multiplex immunoassay known as OvaCheck.
No date has been set for a hearing to determine what rights, if any, Quest and LabCorp have to OvaCheck under 365(n).
However, regardless of their rights to the OvaCheck immunoassay it's unlikely the lab giants would have any claims on the second-generation version of the test given that 365(n) doesn't cover work done after Correlogic's bankruptcy filing.
This could prove an important factor in selling the company' assets given that the process has been hampered by the lingering question of Quest's and LabCorp's 365(n) rights. In May, June 17 was set as the date for the auction of Correlogic's assets. This was later pushed back to June 24 to give interested parties more time to perform due diligence (PM 06/17/2011).
On June 23, Correlogic canceled the auction, saying it intended to proceed with a sale of substantially all of its assets once an adversary proceeding determining the extent of Quest's and LabCorp's 365(n) rights had been resolved.
According to Levine, this was done "to maximize the value [of a sale] for all the stakeholders."
"To get the greatest value for the assets it seemed increasingly clear to us that clarifying what, if anything, Quest and LabCorp might be entitled to pre-bankruptcy was an issue," he said.
According to Levine, OvaCheck 2 consists of "fundamentally different [protein] panels from the original OvaCheck" that Correlogic submitted for US Food and Drug Administration approval in December 2008.
Several different panels, comprising between seven and nine proteins each, are under development, each with slightly different performance characteristics, he said. The new panels contain between one and two proteins that overlap with the components of the original OvaCheck diagnostic.
Like the original diagnostic, OvaCheck 2 is intended as a triage tool for distinguishing between patients with and without ovarian cancer in symptomatic cohorts.
Levine said the company began work on OvaCheck 2 in October upon receiving $244,479 through the Qualifying Therapeutic Discovery Project Program, an initiative created by the Patient Protection and Affordable Care Act (PM 11/05/2010).
In November, the company received additional funding through a Phase II Small Business Innovation Research grant it shared with Rules-Based Medicine.
"Between those two injections of funding we went back to the drawing board and were very productive from early November 2010 right up until recently," Levine said. "There was a great deal of work going on on the second generation of the multiplex [OvaCheck test]."
Correlogic has been building the new version of the test using 1,900 samples it originally collected as part of a prospective validation study it presented to the US Food and Drug Administration as part of its 2008 510(k) submission.
The company withdrew that submission in April 2009 after being told that the patient population used in the clinical trial was not satisfactory. At the time of its bankruptcy filing, Correlogic was undertaking the "second arm" of the trial, which involved patient populations being treated by non-specialists.
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