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Exiqon to Buy Cancer Test Provider Oncotech For $45M to Speed Entry Into miRNA Dx Field

Exiqon this week announced that it will acquire Oncotech, a California-based provider of molecular oncology testing services, for DKK 255 million ($45 million) in stock in an effort to speed its entry into the microRNA-based cancer diagnostics market.
According to Exiqon President and CEO Lars Kongsbak, the deal will give his company the resources necessary to apply its locked nucleic acid and miRNA biomarker-screening technologies to diagnostic development. It will also give the Danish company an expanded presence in the US, which will account for between 60 percent and 70 percent of the combined company’s annual revenue.
Specifically, the acquisition will provide Exiqon with biological material and related clinical information kept in a bank of more than 150,000 tumor biopsies; a Clinical Laboratory Improvement Amendments-certified facility; a sales and marketing team with an established customer base; and expertise in navigating the US regulatory and reimbursement landscapes, Kongsbak told RNAi News this week.
“We had known for quite a while that we needed [Oncotech’s kind of] expertise” in order to enter the miRNA diagnostics market,” Kongsbak said, adding that the company had been planning to build up those capabilities on its own with some of the proceeds from its May initial public offering on the Copenhagen Stock Exchange.
But “as a part of the product-development process, we made contact with Oncotech … and it slowly evolved that it would make sense to merge the two companies,” he said. ”Now we can take a much more aggressive product-development strategy.”
That strategy includes launching in the US Exiqon’s first miRNA-based diagnostic before the end of next year. Kongsbak declined to disclose the indication for the test, but said it would be cancer-related.
The launch of the test will also set the company up as the first real competition to Rosetta Genomics. Although a handful of companies are exploring miRNA diagnostics, including Asuragen and Agilent Technologies subsidiary Stratagene, Rosetta leads the field with a pipeline that includes three tests poised to hit the US market in 2008: two for differentiating certain types of lung cancer and one for identifying the source of cancers of unknown primary origin (see RNAi News, 8/9/2007).
Kongsbak, referring to Rosetta, said that “at least one other company has stated that it is going to launch [diagnostic] products to the [US] market based on microRNAs [next year], maybe for some of the same applications we are addressing.”
He added that follow-on diagnostics are also expected to be for oncology applications, specifically for treatment selection and determining recurrence.
Down the road, Exiqon may begin developing miRNA-based diagnostics for applications outside of oncology, “but not in the short term,” Kongsbak noted.
“I am a very firm believer in staying focused,” he said. “If you stay focused, you have a chance to be the winner, but if you try to spread yourself too thin, someone else will out-compete you.”
The Deal
Under the terms of the proposed acquisition, 6.2 million newly issued shares of Exiqon will be traded for all of Oncotech’s stock. Oncotech will then become a wholly owned subsidiary of Exiqon.
With the addition of Oncotech’s roughly 100 employees, Exiqon’s headcount will double, although about 60 percent of its staff will be located in the US at the company’s Boston facility and Oncotech’s Tustin, Calif., headquarters.

“As a part of the product-development process, we made contact with Oncotech … and it slowly evolved that it would make sense to merge the two companies. Now we can take a much more aggressive product-development strategy.”

Exiqon said the combined company will generate between 60 and 70 percent of its annual revenue from US customers. Future diagnostic development efforts will take place in both Copenhagen and in California, Exiqon said.
Exiqon also said that the acquisition will not impact its financial guidance for the year nor its goal of becoming profitable by 2011.
Currently, Exiqon is predicting 2007 revenues to be in the range of DKK50 million to DKK55 million, with product sales of roughly DKK40 million to DKK45 million.
The company expects operating expenses for the year to be around DKK115 million, with sales, marketing, and administrative expenses costing about DKK65 million.
Exiqon expects its total loss for the year to be between DKK50 million and DKK55 million.
Separately this week, Exiqon released its financial results for the first nine months of 2007, posting an 82-percent jump in net loss as higher costs outweighed a 54-percent increase in revenues.
Net loss for the period ended Sept. 30 climbed to DKK47 million from DKK25.8 million in the same period last year.
Revenues in the period rose to DKK29.5 million from DKK19.2 million, an increase the company attributed to a 62-percent rise in product sales, which contributed DKK8.1 million in the quarter, and a 52-percent jump in contract research revenues, derived primarily through research collaborations, which added DKK1.2 million.
Research and development spending in the nine-month period edged up to DKK20.2 million from DKK15.6 million a year earlier, while sales and marketing costs more than doubled to DKK23.8 million from DKK11.5 million.
Exiqon attributed the rise in sales and marketing expenses to the establishment of a US sales force, as well as increases in its sales organization and activities in Denmark.
As of Sept. 30, Exiqon had cash and cash equivalents totaling DKK358.4 million.