SAN FRANCISCO – The 38th annual JP Morgan Healthcare Conference continued on Tuesday with diagnostics companies presenting before thousands of investors. Below are brief reports on the presentations and breakout sessions covered by our team at the conference.
Abbott Laboratories
Abbott's President and Chief Operating Officer Robert Ford said Tuesday that he believes the firm is poised for sustained growth and its next-generation Alinity diagnostic instruments and tests have an important role to play in its commercial plans.
The firm had set "aggressive targets" for its Alinity system when it began rolling out the first systems and tests in Europe two years ago, and it is now "right where it needs to be" with its Alinity-related objectives, he said.
In developing the Alinity line of systems and tests, the firm took a ground-up approach, utilizing customer advice. That translated into a suite of systems that encompass immunoassays, clinical chemistry, hematology, molecular, and point-of-care systems. The new systems are generally "smaller, faster, more automated, and easier to use" than the firm's previous generation systems, he said.
The success of its launch and implementation of instruments and tests has been reflected in the firm's financial performance over the past eight quarters, Ford said, as the firm has seen "a step change in its core lab performance reflected in high-single digit growth rates." Further, Abbott is seeing high contract renewal rates from current customers, in the high 90 percent range, and "customers are also switching to Abbott from competitive systems also at a high rate."
Ford believes that Abbott can sustain a 7 percent to 8 percent revenue growth rate year over year on a high revenue base for the diagnostics industry. "The strategic framework behind driving sustainable growth is really [part of] a philosophy of looking ahead and anticipating where medical technology and medical needs will be so that we can be relevant and sustainable," Ford said.
An example of that was when Abbott's executives decided to reshape its company with the acquisitions of St. Jude and Alere, which provided the company with leadership positions in attractive industry segments, he said.
Abbott sees the potential for future diagnostics revenue growth through increased emerging market penetration, the emergence of personalized medicine, and the growth of distributed testing involving new sales channels such as Minute Clinics.
Ford said that Abbott has always been on the lookout for M&A opportunities, though in recent years it has also been focused on paying down debt after acquisitions.
"We always look at [acquisitions] through the lens of whether it is strategic or opportunistic," he said, adding, "Right now, we don't see anything that checks those two boxes."
Caris Life Sciences
David Spetzler, President and CSO of privately held Caris Life Sciences, highlighted how his company is combining comprehensive multi-omic patient testing and in-depth analysis of the resulting data to provide precision oncology services to both patients and biopharma companies.
Spetzler said that Caris has profiled more than 200,000 patients since 2009, about 158,000 of which have outcome data associated with their profiles. The company has a clinical customer reach of about 3,000 oncologists, and has established an academic/medical precision oncology alliance comprising 35 members, including recent new participants Duke University and Cedars-Sinai Medical Center.
The Caris Molecular Intelligence process starts when a patient tissue sample is sent to Caris' lab, where tissue microdissection is performed. Spetzler said that this is a key technical differentiator from its competitors because it results in a higher success rate, identifying actionable biomarkers in 92 percent of patients profiled. Caris then analyzes DNA and RNA with whole-transcriptome (and soon whole-exome) sequencing on every patient with full coverage of about 22,000 genes, as well as proteins with up to 12 clinically relevant immunohistochemistry assays. The company then applies its artificial intelligence engine to compare results against its internal database to generate a full tumor profile including recommended treatments.
Caris currently has two panels going through the PMA submission process with the US Food and Drug Administration. The first, MI Transcriptome, received breakthrough device designation from the FDA in May and is awaiting approval. This panel can detect fusions independent of the DNA breakpoints and can detect rare or novel fusion events better than targeted sequencing of DNA-based shot-read methods, the company said.
The second, MI Exome, is planned for submission in the first quarter of this year. This assay can detect SNPs, indels, copy number changes, and fusions with a depth of coverage of 200x to 500x and with the ability to modulate depth of coverage on a specific gene level.
The company is also rolling out Caris MI AI — "molecular artificial intelligence" that uses machine learning from combined molecular and clinical data to create molecular signatures for cancer diagnosis and to predict patient treatment response. The company has already shown the feasibility of therapy prediction with this technology by showing internally that an algorithm designed to predict colorectal cancer patients benefit from FOLFOX chemotherapy increased overall survival by 50 percent.
Spetzler noted that this is only the first version of Caris MI AI built with the core 592-gene assay, and that it will get better with deployment of whole-transcriptome and whole-exome data. "More data generates greater clinical utility," Spetzler said.
Other offerings in Caris' development pipeline include liquid biopsy tests: Carisome Liquid Profiling Circulating Exome Assay for therapy selection (launching in 2020); Carisome Blood-Based Dx, a circulating exome assay intended to provide comprehensive molecular profiling for blood-based diagnostics (2021); and Carisome MRD and Monitoring, a circulating exome assay for minimal residual disease assessment and monitoring.
These assays will all leverage a proprietary cell-free DNA isolation method that delivers 30 to 120 ng of testable material across 100 percent of patients. In general, Spetzler said, most other methods are only able to find cfDNA in about 60 percent of late-stage cancer patients. Spetzler also said the company is seeing above 90 percent concordance back to tissue in early studies.
To prep for the many new technologies and additional testing it will bring, the company has been growing its installation of Illumina NovaSeq systems and plans to open three new precision medicine laboratories: an R&D lab in Phoenix, Arizona; an adjacent clinical lab in Phoenix; and a blood lab in Irving, Texas.
Caris logged about $140 million in revenues in 2019 with 52 percent year over year test volume growth. In 2020, the company is expecting revenues of about $200 million. The company is also very upbeat about its payor relationships, having established 57 in-network contracts covering about 184 million lives.
Danaher
Danaher President and CEO Tom Joyce said Tuesday that the firm's preliminary estimate for fourth quarter 2019 core revenue growth is around 5.5 percent, which is above the company's previously announced guidance of 4.5 percent and was driven by better than expected performance in its Life Sciences and Diagnostics segments.
The biotech side of its Pall business performed well along with Cepheid in diagnostics, which has experienced "particular strength" associated with flu-season testing, Joyce said.
Further, Danaher anticipates an adjusted earnings per share for Q4 at or above its previously announced guidance range, which was between $1.32 and $1.35, Joyce added.
Five years ago, half of Danaher's portfolio of Life Sciences, Diagnostics, and Environmental & Applied Solutions companies was growing at low single digits. Currently, half its portfolio is growing at high single digits or better, Joyce said. "There has been a tremendous evolution in the portfolio to a position where the growth trajectory now is sustained at or above market rates," he added.
Danaher's Life Sciences portfolio accounts for about $6.5 billion in revenues; diagnostics accounts for about $6.3 billion; and Environmental & Applied Solutions accounts for about $4.3 billion. Eighty four percent of the firm's diagnostics revenues are recurring. They consist of sales from products marketed by Beckman Coulter, Cepheid, Leica Biosystems, and Radiometer.
Joyce said that its Cepheid business, similar to its other acquired businesses, has benefited from the application of the Danaher Business System, a set of processes that Danaher said drives the company through continuous cycles of change and improvement.
"We take a tailored approach to the deployment of the Danaher Business System in each acquisition," Joyce said. "And we design our approach to target those opportunities that are uniquely focused on improvements in key metrics."
In the case of Cepheid, Danaher worked to improve its commercial execution. When Danaher acquired the firm in 2016, it was "a terrific growth business," Joyce said. However, Cepheid had limited market visibility and was without a structured and replicable sales and marketing process. "By bringing the growth tools of the Danaher Business System to Cepheid, we've been able to exceed our expectations relative to growth, and continue to grow market share," Joyce said.
He added that Cepheid now has an installed base of 20,000 instruments and a testing menu to rival that of most molecular diagnostic companies. Danaher anticipates Cepheid will continue to see gains in market share. In December 2019, the business it acquired in 2016 achieved "a huge milestone," shipping tests that translated into $1 billion in revenues for the first time, Joyce said.
Quest Diagnostics
Quest Diagnostics Chairman, President, and CEO Steve Rusckowski said Tuesday that the firm has a two-prong strategy for future business success – driving operational excellence and accelerating revenue growth through partnering with payors and hospital health systems, among other activities.
Quest views its business through three lenses, Rusckowski said. The first is its core business called general diagnostics, sometimes referred to as routine testing, a segment that accounts for about $6 billion in Quest revenues each year. Second, the firm has defined a new business called advanced diagnostics, which is its genetic and molecular diagnostic testing, a segment that accounts for about $1 billion in revenues each year. Third, with the data and services the firm has available, there is an opportunity to apply it more broadly to healthcare delivery through a number of tangential services, he said.
As a result of the Protecting Access to Medicare Act (PAMA), hospital laboratories are under significant financial pressure, but that provides Quest with an opportunity to collaborate with them or acquire them, Rusckowski said.
Patients are becoming more price sensitive as they bear a greater portion of healthcare costs, potentially driving them to look for more affordable testing options, he added. Average annual deductibles for single coverage have skyrocketed from an average of $303 per person in 2006 to $1,396 in 2019. The average annual premium to cover a US family in 2019 was $20,576, with employers bearing most of the cost, he added.
Laboratory Corporation of America
LabCorp's new President and CEO Adam Schechter said that "winning in oncology" is at the top of his list of future priorities for the company.
"Oncology is where we can show the full continuum of the work that we can do from the development of assays, biomarkers, and companion diagnostics through to clinical development and on to the marketplace where we can monitor who is being treated and whether it is working," Schechter said.
Separate from Schechter's presentation, but related to those efforts, LabCorp announced Tuesday that it will use Thermo Fisher Scientific's Ion Torrent Genexus System and Oncomine Precision Assays for research and development of companion diagnostics as well as for other future oncology and precision medicine applications.
His second priority area for LabCorp is the implementation of data analytics, artificial intelligence, and digitalization. "That will enable us to have better data, better information, make better decisions, help our customers, [and] enroll for trials faster, but it's also going to improve the customer experience," he said.
LabCorp also wants to ensure that it takes advantage of all available synergies as a combined organization with Covance. "I think that the team has done a nice job of getting synergies across drug development and diagnostics but there's still more we can do … and I think we'll be able to show that in oncology first," Schechter said.
LabCorp noted during its third quarter earnings call a couple of months ago that organic growth in its diagnostics revenues was less than 1 percent and included a negative impact from the Protecting Access to Medicare Act (PAMA) of 1.5 percent.
However, the firm is looking to convert the effects of PAMA, including cost pressures on hospitals and local labs, into acquisition opportunities, Schechter said. The labs should be more amenable to being acquired by LabCorp when they understand the revenue impact of PAMA, he said.
Further, LabCorp believes it can capitalize on opportunities in its drug development business by showing "the value of having a diagnostic database and understanding companion diagnostics all the way through drug development," Schechter said. However, LabCorp needs to participate in more registration trials, he noted, adding, "We have done really well in penetrating early-stage trials, but that hasn't translated to registration trials often enough."
In a move that could have an impact on LabCorp's test volumes, UnitedHealthcare has selected a number of the lab companies — AmeriPath/DermPath, a division of Quest Diagnostics; BioReference and its GeneDx business; Invitae; LabCorp; Mayo Clinical Laboratories; and Quest — as participants in its Preferred Laboratory Network program.
"I'm optimistic that over time, as consumers play a larger role in their own healthcare, they will care more about how much money they're spending," Schechter said. "If they understand that they can have zero copays or if they use preferred labs they could reduce their costs, I think it could really work."
Luminex
Luminex President and CEO Homi Shamir said on Tuesday that when he reflects on what his firm has achieved during the past few years, he sees a story of transformation and transition.
As the company starts 2020, it is already in its transformation phase and preparing to release a "great set of new innovations that [it] will bring to the market," Shamir said.
However, the firm has gone through a transition in the face of revenue declines associated with the loss of its Laboratory Corporation of America business, he added. With most of the lost revenues from that in the past, in 2020, the LabCorp business is expected to be a comparatively small portion of Luminex's overall revenues, at around $5 million.
Luminex on Sunday reported an 11 percent year-over-year increase in its preliminary fourth quarter 2019 revenues, that nonetheless missed the consensus Wall Street estimate of $91.2 million. The company anticipates reporting between $352 million and $362 million in annual revenues this year, and could grow to $500 million by 2024, Shamir said on Tuesday.
In 2019, the company integrated the Millipore Sigma flow cytometry portfolio that it had acquired in October 2018, and it further developed new products for anticipated launch.
The firm expects to launch three new products in 2020 – the next generation of its Verigene multiplex molecular diagnostics instrument, Verigene II; the firm's next generation xMAP multiplex system, Sensiplex; and a next-generation flow cytometry system, Guava.
Verigene II has been designed to provide the flexibility of running between one and six tests at a time. The more advanced instrument is fully automated from sample to result.
Further, Verigene II has been designed to provide customers with flexibility in the number of tests they decide to run, which could give Luminex an advantage over competitors offering a defined, broad multiplex menu and charging customers to run all tests, Shamir said.
With its Verigene syndromic instrument and assays, Luminex currently receives $122,000 per year for each active customer. The firm's Aries instrument and assays bring in an average annual revenue per active customer of $57,000. Its total number of active sample-to-answer test customers has risen to 660 at the end of December 2019, according to Shamir.
Agilent Technologies
Agilent President and CEO Mike McMullen said that two of the company's cornerstones for growth in 2020 and beyond are expanding the company's leadership in pharma and biopharma and gaining share in the cancer diagnostics and genomics market.
Pharma and biopharma products and services currently make up about 12 percent of Agilent's revenues, with core business areas being analytical tools, chemistries, software, cellular analysis, and oligo contract development and manufacturing.
McMullen said that cellular analysis in particular represents a $4 billion market with attractive growth drivers and rapidly growing customer interest. Agilent now offers a broad portfolio of live cell analysis technologies through a series of acquisitions and organic innovation, and cell analysis is expected to account for more than 5 percent of company revenues in fiscal 2020 and to grow at a double-digit rate.
Oligo contract development and manufacturing has also become a key part of the company's biopharma portfolio, with industry-wide therapeutic oligo clinical programs having doubled since 2015.
Meanwhile, in the cancer diagnostics and genomics market, McMullen noted that Agilent has strong plays in advanced staining platforms, consumables, IHC-based companion diagnostics, next-generation sequencing target enrichment, quality control and assessment for genomics applications, and automation and informatics solutions.
In a breakout session, Jacob Thaysen, president of the Life Sciences and Applied Markets Group, and Sam Raha, president of the Diagnostics and Genomics Group, expanded a bit on McMullen's comments.
Thaysen said that Agilent is seeing a lot of interest in its cellular analysis products from companies developing immune therapies and conducting research to better understand the immune system. "We are interested in continuing to build out this business organically and non-organically," he said.
On the genomics front, company executives responded to an investor question about the status of Agilent's internal clinical sequencing development, which the company took on with the acquisition of Lasergen (initiated with an $80 million investment in 2016 and completed by exercising a share purchase option in 2018).
McMullen said the idea was to build a clinical sequencer to enable the company's workflow aspirations in the cancer diagnostic space. "At the time we thought we'd develop a unit by the end of 2020," he said. "We won't be on that timeline, but we are happy with the development."
Further elaborating, Raha said that in terms of read length, data quality, and other specs, the company is making "good technical progress." But, he also reminded attendees that "our intention has never been to bring to market a general purpose sequencer. We already have a large sequencing prep business … [and when you] combine that with our access to labs and pathology plus our CDx business … the opportunity to serve that integrated workflow where it's a turnkey solution, we're still interested in that. Lasergen could be that, and we're constantly looking at the business and thinking about the best way to do that."
Another investor asked whether there was an opportunity to combine Agilent's genomics business and cell analysis business, which are offered in separate business divisions, to create new products and services. Raha noted that one example could be to leverage Agilent's fledgling gene editing and CRISPR business, powered by its oligo expertise, to perturb cells using gene editing then analyze them with cellular imaging products.
Finally, in response to a question about whether the company plans to enter the liquid biopsy space, McMullen noted that the company prioritizes investing in tools to enable liquid biopsy.
Raha added that the company "doesn't see tissue-based testing going away anytime in the next decade, but of course there is interest in liquid biopsy. When you look at the leading companies doing sequencing liquid biopsy, a vast majority are already using Agilent SureSelect [library prep kits]." Agilent continues to invest in R&D on these tools to increase their performance, "but we are not looking to develop our own liquid biopsy assays," he said.
Adaptive Biotechnologies
Immune repertoire sequencing firm Adaptive Biotechnologies rolled into the JP Morgan conference fresh off of two major announcements in the last week. First, Medicare contractor Palmetto expanded coverage for Adaptive's ClonoSeq assay to include minimal residual disease (MRD) monitoring in patients with chronic lymphocytic leukemia. Then, the firm announced an agreement with Roche's Genentech to use Adapative's ClonoSeq assay to assess MRD in patients participating in a Phase III clinical trial.
Both agreements are highly indicative of how the firm has been growing and plans to grow in both the clinical and biopharma services markets since its $300 million IPO last summer, Adaptive Cofounder and CEO Chad Robins said on Tuesday.
ClonoSeq is Adaptive's immune sequencing clinical diagnostics product that achieved US Food and Drug Administration authorization in October 2018 to measure MRD in acute lymphoblastic leukemia (ALL) and multiple myeloma patients. Last year the company filed with the FDA for expanded approval for chronic lymphocytic leukemia (CLL) in blood, and it also received New York State CLEP approval for ClonoSeq to detect MRD in all patients with B-cell blood cancers, including CLL.
Discussing this week's announcement of Medicare coverage for CLL applications, Robins noted that "in advance of our FDA approval, [the Centers for Medicare and Medicaid Services], based on data for clinical utility and [New York] CLEP approval, decided they had enough data to cover the product in CLL." But, he added, Adaptive won't be marketing the product until it receives the expanded FDA approval.
Robins said that the company sees 2020 as "barrier removal" for ClonoSeq to become a major contributor to Adaptive's revenue stream from a clinical use standpoint – "getting coverage in place, getting the workflow in place, and getting people using it."
Meanwhile, ClonoSeq is becoming "a standard measure of MRD in pharma trials," Robins said, evidenced by the Genentech deal and others like it. However, the Genentech deal is particularly significant because MRD is being used as a primary endpoint in a first-line trial, thus "confirming the growing clinical significance of MRD and the confidence in ClonoSeq," Robins said.
Another iron in the fire for Adaptive is the development of a Dx version of its flagship ImmunoSeq product for clinical research. Robins said that this product is essentially a T-cell receptor antigen map for the early detection and diagnosis of multiple diseases (infectious and oncology). Adaptive is partnering with Microsoft to apply machine learning tech to build this map and rapidly identify disease signals from massive sets of TCR antigen sequencing data – kind of an "X-ray for the immune system," Robins said. The overall market for this product is in the range of $11.8 billion, he estimated.
The partners have already generated two early clinical signals in Lyme disease and celiac disease, and plan to submit at least the Lyme disease test to the FDA this year with hopes for a 2021 launch.
Finally, Adaptive also is cultivating a drug-discovery arm, led by its ongoing collaboration with Genentech (separate from the MRD monitoring partnership announced this week) to use its TruTCR T-cell receptor screening platform to develop personalized cancer therapies. The partners already have developed candidate T-cell receptor-mediated therapies and expect that Genentech will file for its first IND later this year.