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Agilent Finds Final Puzzle Piece for Clinical Genomics Workflow

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NEW YORK (GenomeWeb) – Agilent has been looking to build a complete clinical sequencing workflow and it may have plugged the last gap — a next-generation sequencing instrument — with its recent $80 million investment in Lasergen.

A sequencing instrument to call its own was perhaps also the biggest gap for Agilent. If the collaboration between the two companies pans out, Agilent has an option to buy the entirety of Lasergen and own the entire workflow from end to end.

"This is a pure clinical play," Agilent CEO Michael McMullen said on a conference call following the deal's announcement. "We are not trying to take someone out of the research side, we're going after an integrated workflow solution."

Agilent has been planning to build a clinical sequencing workflow since at least 2015, when it described its vision at an analyst and investor presentation in May. The clinical sequencing workflow is itself a piece in an even large puzzle, what the firm calls its "diagnostics cockpit," a platform that incorporates several diagnostics workflows including NGS, tissue staining, and even mass spectrometry-driven proteomics and metabolomics diagnostics.

Pathology and cancer diagnostics laboratories will be looking for partners "to enable them to make decisions across all modalities," Jacob Thaysen, president of Agilent's Diagnostics & Genomics Group, said on the call. Agilent, with experience in lab automation, sample quality control, NGS target enrichment, and bioinformatics analysis, is in a unique position to combine technologies and deliver a platform to address this need. "This is the future of advanced cancer diagnostics and very few companies will be able to compete in this space," he said.

But until now, Agilent didn't have an answer for the sequencing instrument-sized hole in their plan. With the Lasergen investment and collaboration deal, it has found a sequencing chemistry it can build both an instrument and a workflow around. It's a deal that equities analysts said makes rational sense, even if it's a foray into a field largely dominated by Illumina, which has swept aside competitors.

Michael Metzker, a professor at the Baylor College of Medicine's Human Genome Sequencing Center, founded Lasergen in 2002 and spent the last decade and more developing the firm's technology, Lightning Terminators. Like Illumina, Lasergen offers a sequencing-by-synthesis chemistry. The terminators have an unblocked 3'-OH group, which enables sequencing reactions with off-the-shelf polymerases — and both the terminating group and dye label are photocleaveable, which can leave behind a natural base.

"We have been following [Lasergen] for quite some time," Herman Verrelst, VP and general manager of Agilent's Genomics Solutions and Clinical Applications divisions, said. "We are impressed with how fast they've shown progress." Verrelst's division will be responsible for managing and executing the collaboration with Lasergen.

Agilent said it has seen demonstrations of Lasergen's technology on several commercial sequencing platforms, but declined to say which ones. Agilent also noted that it believes it has freedom to operate, despite a thorny intellectual property landscape in sequencing.

"We spent a lot of time together and the teams like each other, which is fundamental to a successful operation," he said.

Because Lasergen has only developed prototype instruments based on Lightning Terminators, a major part of the collaboration will be for them to develop an instrument that is "up to Agilent standards," Verrelst said.

Agilent will offer its instrument development expertise to Lasergen, as well as develop the workflow around the new instrument. Agilent executives said that the workflow will incorporate its SureSelect gene panels and that the recently acquired Cartagenia will support informatics and analysis.

The $80 million investment gives Agilent a 48 percent stake in Lasergen and a two-year call option to buy the remainder. If fully exercised, the total purchase price would total $185 million. Of the $80 million, $45 million will remain with Lasergen to fund operations.

Agilent said that the deal will have no impact on its revenue guidance for fiscal years 2016 and 2017. While it expects the deal to be dilutive to 2016 earnings by $.02 to $.03 per share, the 2016 EPS guidance between $1.81 and $1.87 remains unchanged.

McMullen said that the deal was structured so that Agilent could take a "measured approach."

"Even for Agilent," which had revenues of $4.04 billion in fiscal year 2015, "eighty plus million is a significant amount of money," McMullen said. "Before we go all in we want to see the work advance. The way the deal is structured, there's a lot of incentives on the back end for the [Lasergen] team to deliver on the commitments."

Lasergen, for its part, has been mostly silent for the last several years, having last publicly presented at the 2012 Advances in Genome Biology and Technology conference.

The deal, McMullen said, allows Agilent to avoid betting the farm on developing a new sequencing instrument as it aims to take over what it sees as a market worth up to $2 billion or more by 2020, when it plans to have the diagnostics platform be fully operational.

"The market we're addressing, the cancer and constitutional genetic disorder diagnostics market, is between $400 and $500 million in the US but growing substantially," Thaysen said. Throw in longitudinal monitoring, especially for cancer care, and the opportunity grows ever larger; however, Agilent said it hasn't yet built that into the business case.

Agilent's target customers for this sequencing platform are pathology, cancer genetics, and constitutional genetics laboratories, and the firm plans to design the instrument specifically to their needs.

Pathology and cancer genetics labs run small- to medium-sized NGS panels, as well as some exome panels for the constitutional genetics labs. But McMullen said that Agilent hopes the instrument could become the first in a family of sequencers that could cover other applications.

While Agilent is banking on its ability to combine different diagnostics as a product differentiator, some financial analysts aren't so sure about the investment.

In a research note, Evercore ISI analyst Ross Muken wrote, "The dilution is manageable given the structure at two to three cents per year, and is thankfully captured within the existing FY16 range."

But the biggest question is whether anybody can compete will Illumina on NGS. "With its investment in Lasergen, Agilent enters the fray of companies trying to compete with ILMN in the NGS instrument market," Leerink Analyst Dan Leonard said. "We consider these red waters. Several commercialized efforts have failed (e.g., Roche 454, Life Technologies' SOLiD, Complete Genomics, Helicos) and several other research efforts have disappeared after initial data presentations (e.g., Life Technologies' StarLight, several others)."

Besides Illumina's MiSeq, NextSeq, and upcoming MiniSeq platforms, Agilent will also have to compete with offerings from several other companies.

Qiagen's GeneReader is anchoring an end-to-end workflow that includes automated sample preparation and data analysis. Thermo Fisher Scientific offers the Ion Torrent PGM and Roche and Pacific Biosciences are collaborating on clinical testing on the PacBio Sequel, a long-read platform. Columbia University's Laboratory of Personalized Genomic Medicine launched a cancer whole-exome and transcriptome sequencing test in 2014.

BGI is developing clinical sequencing for the Chinese market, but it recently put the commercialization of Complete Genomic's Revelocity high-throughput human genome sequencing system on hold.

It's still early days, and it will be a number of years before clinical sequencing will become part of the standard of care, Thaysen said, but he predicted that success would be driven by ease of use in the workflow, the ability to present actionable information, and the ability to combine several types of diagnostics to enable precision medicine.

"We have a very strong head start on this," Thaysen said. "The big challenge is when you have to combine all these things. We have experience in all those elements."

Still, getting a product to market will take time, approximately three to four years. Agilent said it is comfortable with that prediction, both because of its experience in developing instruments and its market research.

Sequencing has not yet penetrated the diagnostics market, Thaysen said. "Big institutions are moving forward, but midsize institutions need fully automated workflows to truly penetrate it," he said. "We know the market, we know the inertia, and we're confident there's still room for us in three to four years, or five to six years."

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