NEW YORK – Interpace Diagnostics announced after the close of the market on Monday that it has bought assets and certain liabilities constituting the biopharma services business of Cancer Genetics for about $23.5 million.
At the closing of the deal, Interpace paid Cancer Genetics $13.8 million in cash. It also issued Cancer Genetics a $7.7 million, 6 percent interest bearing note due upon the earlier of Interpace's shareholder approval and second tranche investments by private equity firm Ampersand Capital Partners, or three years.
Ampersand has agreed to invest $27 million in Interpace through two tranches of newly issued convertible preferred stock. It said the investment will assist Interpace as it adds capabilities and continues to grow in both the clinical diagnostic and biopharma markets. Interpace has also made an additional payment of about $4.5 million to Cancer Genetics using proceeds from the initial financing provided by Ampersand.
Cancer Genetics' biopharma business recorded net revenues of about $15 million in 2018, and in a statement, Interpace said that it believes that the biopharma business may benefit from its molecular business, add new clients, and increase revenue over time. In addition, the firm believes the combined organization will provide personalized and precision medicine by offering advanced diagnostics, molecular marker testing, data solutions, and biopharma services.
In a conference call with investors and analysts Tuesday morning, Interpace CEO Jack Stover noted that the acquisition will both improve the firm's diagnostic business and expand its commercial offerings.
"If you look at our biomarker capabilities, our products, and our current commercial capabilities in that space, [the acquisition] fits very well in terms of what I'd call the future expansion in biopharma," Stover said. He additionally highlighted that the acquisition will add a revenue stream that is not dependent on clinical reimbursement.
"Biopharma customers are not the type of customers that don't pay, and in fact they are very dependable," Stover said. "However, their revenue is a bit lumpy because it is dependent on customers supporting clinical trials."
According to Interpace, the biopharma business will continue to provide the full suite of molecular and biomarker-based tests for oncology and immuno-oncology drug development customers out of Cancer Genetics' existing laboratories in Rutherford, New Jersey and Research Triangle Park, North Carolina. Stover said that Interpace plans to retain a little less than 80 Cancer Genetics employees in connection to the deal.
"I believe that expanding more aggressively into the growing biopharma sector with a strong product and service offering, as well as partnering with one of the leading private equity firms in this space, will be transformative for Interpace and will also benefit the patients and customers we now serve in each market," Stover said in a statement.
Interpace expects the deal to be immediately accretive to revenues. The firm said that biopharma activities will continue under a transition sciences agreement with Cancer Genetics.
As Interpace "looks at the combination, one-time costs issues, and etc," the firm believes the firm aims to break even with its cash flow sooner than an initial projection of late 2020. Interpace also expects to increase its gross revenue by 20 to 30 percent with the biopharma business acquisition.
Also in connection to the transaction, Cancer Genetics said that its junior secured lender, Partners for Growth, has extinguished its junior secured debt and fully retired the firm's senior secured loan to Silicon Valley bank. PFG has also remitted $2.3 million cash to Cancer Genetics, which the firm plans to use to settle other liabilities.
Cancer Genetics also noted last week that it sold off its clinical laboratory business to siParadigm, a special reference laboratory, for about $1 million, in addition to an earn-out based on future testing volume from customers over the next year.
Cancer Genetics will continue to own and operate its discovery business, which it acquired through the purchase of vivoPharm in 2017, it said.