NEW YORK (360Dx) – 2018 was a roller coaster ride for investors in diagnostic companies, as softness in the broader markets led to a more modest year-over-year gain in the share prices of Dx firms compared to a year ago.
The 360Dx Index grew more than 4 percent in 2018 compared to the previous year and outpaced the Dow Jones Industrial Average, which was down 6 percent for 2018; the Nasdaq Composite, which retreated 4 percent; and the Nasdaq Biotech, which shrank 9 percent.
The index was also adversely affected by a weak December when overall softness in the broader markets led to a decline of almost 12 percent month over month in the index.
Even with the 4 percent uptick, the performance of the 360Dx Index in 2018 paled in comparison to a year ago when it was up more than 30 percent year over year.
Of the 27 firms in the index, 17 saw their stock prices improve year over year, while nine saw their share values retreat. One firm, Guardant Health, went public in October.
There were huge gainers — led by CareDx (+243 percent), Veracyte (+93 percent), and Genomic Health (+88 percent) — as well as notable decliners, which were paced by NantHealth (-82 percent), Enzo Biochem (-66 percent), and Accelerate Diagnostics (-56 percent).
Highlights for CareDx during 2018 included CE marking for its real-time human leukocyte antigen typing diagnostic test, Olerup QType, and a raise of $52.8 million from the public offering of its shares in November.
The company also reported quarterly double-digit revenue increases throughout the year, including a 74 percent year-over-year jump in its third quarter revenues.
In a research note this week, Piper Jaffray analyst William Quirk wrote that he believes CareDx will "start to show significant improvement in profitability" beginning in the second half of 2019, and he added that the company's AlloSure kidney transplant diagnostic test "could be a rare test that receives 100 percent adoption and is disrupting a wide open $1.5 billion market."
While Natera and TAI Diagnostics could be potential competitors to CareDx in kidney testing and pediatric heart transplant testing, respectively, "Looking past 2019, we believe CareDx’s first mover advantage remains the significant differentiator," Quirk said.
Meantime, Veracyte started the year by saying it was working on two new diagnostic products for thyroid and lung cancer, which would expand on the firm's Afirma and Percepta tests already on the market for those indications.
In the summer, it raised $55.1 million in a public offering of its common stock, and it received a draft Medicare local coverage determination through MolDx for its Envisia Genomic Classifier test.
2018 started dubiously for Genomic Health when the UK's National Institute for Health and Care Excellence reversed an earlier endorsement for the use of the company's Oncotype Dx test to guide chemotherapy decisions for breast cancer patients.
Soon after, Genomic Health fully launched the Oncotype DX AR-V7 Nucleus Detect test, a new assay that up to that point at least had no serious commercial competitors. However, it also said that it would stop offering the Oncotype SEQ liquid biopsy test and discontinue R&D efforts around next-generation sequencing.
In June, new study results, which clarified how doctors should interpret and act upon an intermediate result from the Oncotype DX breast cancer risk test, sent Genomic Health's stock soaring. In October, Medicare Administrative Contractor Palmetto GBA issued a positive final local coverage determination for the Oncotype DX AR-V7 Nucleus Detect Test, and in updated breast cancer guidelines, the National Comprehensive Cancer Network categorized the Oncotype DX Breast Recurrence Score as a "preferred" test for chemotherapy treatment decision-making in patients with node-negative early-stage breast cancer.
Among the decliners, NantHealth has faced a tough couple of years. In 2017 it laid off 300 employees and was hit with several lawsuits alleging false and misleading statements around its initial public offering. While 2018 was quieter, NantHealth Chairman and CEO Patrick Soon-Shiong voiced frustration over the lack of reimbursement for the company's tests.
Enzo's stock slump likely is based on the company reporting year-over-year revenue retreats for three of the four fiscal quarters it reported during the year. In April it announced that the Patent Trial and Appeals Board denied a petition filed by Hologic for inter partes review of US Patent 6,221,581 held by Enzo.
Accelerate Dx's share price decline occurred despite healthy year-over-year revenue growth throughout 2018. In a research note last month, though, JP Morgan analyst Tycho Peterson downgraded Accelerate Dx's shares to Neutral, citing the firm's repeated inability to meet Wall Street estimates on the top line. He said that the firm "continues to be bottlenecked by hospital budget constraints."
Customer interest in the firm's Pheno system is "decent" but translating that to actual instrument purchases is "clearly taking longer than expected," he said.
In March the firm said it would offer $150 million of convertible senior notes due 2023 in a private placement to qualified institutional buyers. In November it provided details about its efforts to improve on the gold-standard culture methods as part of its development of a pneumonia assay.