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JPM Healthcare Day 3: Quest Diagnostics, Invitae, PerkinElmer, Quidel, Konica Minolta, GenMark

SAN FRANCISCO (360Dx) - The 36th annual JP Morgan Healthcare Conference continued here on Wednesday with several diagnostics vendors and lab operators making their case to investors. Reports on day one and day two of the conference can be found here and here.

Quest Diagnostics

Steve Rusckowski, chairman, president, and CEO of Quest Diagnostics, said that the company intends to accelerate future growth using a number of important business drivers. The company expects that one to two percent of its growth per year will come from accretive, strategic acquisitions. It also intends to collaborate with health plans, hospital health systems, and other risk-bearing entities, and has an aim to be recognized as "the consumer-friendly provider" of diagnostic information services, while supporting population health with data analytics and extended care services.

"There's not much that happens in healthcare that in some way Quest Diagnostics doesn't touch," he said. "We serve about 50 percent of hospitals throughout the United States, and about 50 percent of physicians are our clients."  

In the course of a year, the firm engages with one-third of adult Americans, and in the course of three years about 50 percent of adult Americans "have an experience" with the firm, he noted.

The firm has more than 6,000 patient access points that include patient service centers, phlebotomists, and physician offices.

Rusckowski said that the US laboratory market is growing at around two to three percent and worth $79 billion per year. About 63 percent of the revenues are generated outside hospitals in hospital outreach, independent, and physician office labs. In the $27 billion independent lab segment, an opportunity exists for Quest "to continue to consolidate this market and grow," he noted.

A part of the company's growth strategy is to engage with hospital and healthcare delivery systems around their lab strategies, by "doing a better job of providing reference testing, both in terms of procurement and advancing their knowledge and insight into how they can provide better care," he noted.

Healthcare continues to grow because the population is growing and aging, he said. "What we've said in the past is that despite what might happen with the Affordable Care Act, it didn't have a big impact on our business in the past," and therefore Quest is not expecting that future changes would have a significant effect on its business either.    

In the reimbursement environment, the firm is looking into the potential impact of the Protecting Access to Medicare Act (PAMA) and what it could mean for the company and the diagnostics market. He said that similar to other companies in the industry, the firm is awaiting the outcome of a legal decision that would decide whether current test reimbursement pricing established by the US Centers for Medicaid & Medicare Services, which are significantly lower than historic prices, would hold. In December, the American Clinical Laboratory Association filed a lawsuit against Acting Secretary of the US Department of Health and Human Services Eric Hargan challenging the process by which CMS set prices for laboratory tests under PAMA.

Rusckowski said that he hoped a decision on the lawsuit would be available before the end of the first quarter of 2018.

The move away from fee-for-service to value-based delivery systems is inspiring change within the market, he said. "It's no longer about volume, it's about cost to serve and the value you bring to the table."

As a result, he is seeing a change in discussions that Quest has with healthcare insurance companies related to moving away from fee-for-service and towards value-based delivery, and he is witnessing a parallel change in the way that the consumer is "becoming a bigger and more important part of [Quest's] business every day."   

Rusckowski noted that because the firm obtains around 90 percent of its revenue within the US, the firm's tax rate would likely drop from 35 percent to around 21 percent due to the new US tax reform legislation.

Invitae

"Genetic testing is dead," Invitae CEO Sean George said in his presentation here. Instead, he said, a new business model must be created to bring genomics into healthcare. Rather than the traditional diagnostic testing model, he said Invitae's goal over the next two years is to create a new industry based on genome data management and creating entire networks of data, patients, physicians, and healthcare systems.

He said Invitae is working to create this new model through partnering with pharmaceutical companies, healthcare systems, and patient advocacy companies, as well as making strategic acquisitions to expand its expertise, such as last year's acquisitions of Good Start Genetics and CombiMatrix.

Having products in nearly all areas of disease and now in reproductive health widens the firm's market opportunities significantly, George said. "Building this network is about the volume of patients we put into it," he said. "We acquired the assets we did to broaden our capabilities, particularly in reproductive health, which enables us to drive patients into our networks."

As it reported earlier this week, Invitae expects to double its 2017 revenues over 2016 and anticipates doubling its full-year revenues again in 2018.

George noted that the next big opportunity that the company is exploring is how genomic data could benefit an asymptomatic person. He said that the firm has been piloting a proactive genetic screen and that data from that pilot has shown that a far higher percentage of the general population is at risk for a genetic disease than previously thought.

PerkinElmer

In late December, PerkinElmer closed its $1.3 billon buy of Euroimmun, a deal that is expected to considerably expand PerkinElmer's presence in the diagnostics space, Chairman and CEO Robert Friel said.

For the past two years, the firm has been working to increase its footprint in diagnostics, which comprises about 40 percent of the company's total $2.5 billion in revenues, Friel said. To that end, he noted that Euroimmun is a leader in autoimmune disease and an emerging player in infectious disease and allergy testing.

In 2017, Euroimmun posted $310 million in revenues, and the addition of the firm "pretty much doubles" PerkinElmer's revenues in China, Friel said.

The company has roughly 200 assays on its menu, and part of PerkinElmer's plan is to accelerate Euroimmun's presence in the US by accelerating regulatory submissions for its tests with regulators here, of which Germany-based Euroimmun had had very little experience as a standalone company, Friel said.

Further increasing PerkinElmer's footprint in the diagnostics space is its purchase a year ago of Tulip Diagnostics Private, a provider of in vitro diagnostic reagents, kits, and instruments to diagnostic labs, and government and private healthcare facilities in India. Together with Euroimmun, the two deals have added about 3,000 employees to PerkinElmer's diagnostics business, Friel said.

This year, the company anticipates generating approximately $1 billion in revenues from its diagnostics business, with immunodiagnostics comprising 45 percent of that, reproductive health 40 percent, and applied genomics 15 percent.

In reproductive health, the company anticipates launching the Vanadis platform during the second quarter of this year. The instrument is for noninvasive prenatal screening based on the analysis of cell-free DNA. Vanadis has been placed with a number of facilities in Europe, and PerkinElmer believes its target users will be the firm's existing customers, Friel said.

In applied genomics, he said that the market will continue to grow as the medical field moves away from a symptom-based diagnosis to preventive measures.

PerkinElmer's efforts in the diagnostics space have expanded its total addressable market in diagnostics to $17 billion in 2018, up from $6 billion in 2016, Friel said.

Meantime, the firm's discovery and analytical solutions business has a $28 billion addressable market with instruments and consumables comprising $17 billion of that, Friel said. In that business, he added that PerkinElmer might do some "pruning" and divest some assets.

Between 2012 and 2017, PerkinElmer has grown its revenues 22 percent, Friel said, while EPS has improved 65 percent. Moving out to 2020, he said that the company expects revenues to continue growing at a single-digit pace and EPS to increase in the mid-teens.

Within the same time frame, revenues in the diagnostics business is expected to grow in the high-single digits to the low-double digits, he added.

Quidel

Quidel CEO Doug Bryant provided a broad overview of the firm's operations, including the recently acquired Alere Triage and BNP businesses.

The BNP business is the subject of legal action by Danaher's Beckman Coulter against Quidel. In a lawsuit filed in November, Beckman Coulter seeks to affirm its right to sell the BNP assay directly to its customers, a move that Quidel said at the time was a tactic by Danaher to pressure Quidel into selling it the BNP business. Danaher, Quidel said, had inquired about a purchase in the weeks before the lawsuit was filed.

Bryant on Wednesday said that a demurrer by Quidel will be filed this Friday, followed soon afterward by the discovery process, which he said should last between 18 months and two years, and then a trial. He brushed aside assertions by Beckman Coulter that Quidel has a monopoly on the BNP testing market as a result of the acquisition and said that the lawsuit would bear that out.

Lawsuit aside, he reiterated many of the same points that were included in an update that Quidel provided last month on the Triage and BNP businesses, and said that integration of those was well underway.

"We're running way ahead of schedule," he said, adding that integration of the acquisitions are expected to be completed in 2019, one year ahead of initial expectations.

On the growth trajectory of the Triage business, Bryant said that while revenues have been flat recently, 3 percent to 4 percent growth could be achieved as improvements to some of the assays, such as toxicity testing and troponin, would be made.

With the BNP assay, he noted that growth has been particularly robust in China, where revenues for the assay have been up 10 percent.

Like other firms, Quidel sees China as a prime market for future growth, and it recently hired 30 people, all formerly with Alere, to help with taking Quidel's products through the Chinese Food and Drug Administration process, Bryant said. He also suggested that more people could be hired moving forward.

In March 2017, the US Food and Drug Administration cleared Quidel's Sofia2 immunoassay system, along with an assay for respiratory syncytial virus, which were then followed by clearance of a Group A Strep test for the platform. Since the launch of Sofia2, the company has shipped about 7,000 of the systems, bringing the total number of Sofia and Sofia2 placements to more than 25,000, Bryant said.

On the molecular side, he said the Savanna platform is anticipated to launch in 2019. At last year's conference, the company targeted a 2018 launch outside the US, and possibly a US launch in the second half of 2018 or early 2019.

Savanna is a cartridge-based, sample-to-answer system that can run both real-time PCR and isothermal helicase-dependent amplification assays. Tests that run on the platform would include assays with up to 16 targets, such as STDs and vaginosis.

Konica Minolta

Konica Minolta's $1 billion acquisition of Ambry Genetics last summer pushed the firm, which probably was most identified as a camera manufacturer, into the health and life sciences space with a focus on precision medicine.

Following that deal, the Japanese firm also acquired Invicro, a provider of imaging services and software for research and drug development. Together, the deals will allow Konica Minolta to move into a broad range of health applications, from disease diagnosis to drug discovery to companion diagnostic development, said Kiyotaka Fujii, the firm's president of global healthcare.

He noted that the Ambry deal has the potential to move Konica Minolta into a largely untapped Japanese health market, where medical procedures that are routine in the US or elsewhere are largely overlooked in Japan.

As it digests the Ambry and Invicro deals, the company is open to complementary M&A, Fujii said, including firms in technologies such as proteomics, as well as differentiated labs and contract research organizations. The focus will be on the clinical space, though he added that the firm is open to deals in the research arena.

GenMark Diagnostics

GenMark President and CEO Hany Massarany updated investors on the firm's pipeline and announced a new system at the conference: the ePlex NP, a scaled-down version of the firm's ePlex system targeted at smaller hospitals (less than 150 beds) and integrated delivery networks. According to Massarany, the NP has the full functionality of the ePlex but with lower capacity to address lower-volume testing sites. It has a three-bay tower, but uses the same cartridges as ePlex and can process up to 12 patients samples per shift. It also can be upgraded to six bays to increase the volume of tests.

The firm's ePlex instrument and Respiratory Pathogen Panel, which detects more than 20 viral and bacterial pathogens that commonly cause upper respiratory infections, received FDA clearance in June last year. It is a sample-to-answer molecular diagnostic system intended to drive adoption of MDx tests in smaller hospital labs and near-patient settings. It also may drop adoption of GenMark tests outside the US, unlike the firm's earlier XT-8 System, which was only sold in the US and targeted to the top 1,000 post-PCR testing labs.

GenMark earlier this week said that it expects to report fourth quarter revenues of $16 million, up 7 percent from Q4 2016 and driven by ePlex sales. Massarany said GenMark placed 49 ePlex analyzers in the quarter, bringing the total number of ePlex instruments installed in US and European labs at the end of the year to 196.

GenMark also began marketing its ePlex BCID gram-positive and gram-negative panels in Europe earlier this year and is conducting clinical studies on the panels in advance of a US launch. It also achieved CE marking earlier this year for its ePlex Blood Culture Identification fungal pathogen panel, the first in the GenMark Sepsis Solution, which Massarany said could cut the time to result in sepsis testing from more than 24 hours down to 2 hours.

The firm has several other panels for viral, bacterial, and parasitic targets planned for launch both in Europe and the US over the next couple of years.