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Veracyte Pursues International Expansion With Global License Agreement

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NEW YORK – Following the announcement of a $60 million exclusive global license earlier this week, Veracyte is now gearing up to engage international markets using NanoString Technology's nCounter Flex platform. 

While Seattle-based NanoString retains the rights to commercialize the nCounter for research use applications, Veracyte will transition its current diagnostic and prognostic cancer assays onto the platform in order to reach a global audience. 

NanoString President and CEO Brad Gray explained that the firm initially began talks with South San Francisco-based Veracyte earlier this year following the results of the Phase III ROBUST study with Celgene. NanoString had hoped that it could advance the LymphMark lymphoma subtype assay as a companion diagnostic with Celgene for patients with diffuse large B-cell lymphoma, however, the results of the study failed to support seeking regulatory approval for the indication.  

Offering the nCounter Flex platform to help users detect and analyze complicated genomic targets, NanoString initially launched its Prosigna Breast Cancer Prognostic Gene Signature Assay on the platform in 2013 in Europe and Israel. Since then, Gray noted that NanoString struggled to commercialize a second diagnostic assay. 

"Meanwhile, Prosigna revenue has decelerated, with a growth of only three percent over the last year, and only represents about 10 percent of our overall revenue," Gray said in an interview. "We had to consider the future of the company and how to find a [broader] menu that the nCounter needed." 

Gray noted that NanoString will manufacture and sell diagnostic assay kits and nCounter systems to Veracyte at preset prices under supply agreements between the two firms. Meanwhile, NanoString will focus its management bandwidth and financial resources on its emerging life sciences business, as exemplified by the launch of the GeoMx Digital Spatial Profiler — which performs high-plex spatial imaging on tissues for gene or protein targets — earlier this year.

"The partnership gives Veracyte a way to decentralize their testing menu, as well as offering their testing menu to Europe and other areas," Gray argued. "This [also] strengthens our financial position substantially with a cash infusion and streamlining cost structure."

NanoString anticipates that reduced operating costs and the supply agreement will curb its operating loss by about $12 million in 2019 and expects that the transaction will increase its cash, cash equivalents, and investments to about $180 million.

However, Gray explained that NanoString's decision to sell Prosigna and LymphMark does not eliminate the possibility to pursue diagnostic options in the future, as he highlighted that the firm still retains the rights to commercialize its other platforms for diagnostic purposes. 

Veracyte international growth 

According to Veracyte CEO Bonnie Anderson, the firm has been eyeing NanoString's nCounter platform since it began searching for opportunities to globally expand in 2017.  She noted that Veracyte's current whole RNA sequencing instrument at its US CLIA lab is more complex and less feasible in international markets, "where laboratories may not have the resources or expertise to perform it." She therefore believes that the agreement with NanoString will allow Veracyte to achieve commercial, pricing, and margin flexibility in sectors outside the US. 

"We looked at how other companies struggled to expand globally, whether that meant working with partner labs, sending samples back to their own labs in the US, or even opening their own labs, which didn't seem optimal," Anderson explained. "[We saw that] the key is having access to a distributive platform, which for us meant [that] we wanted to own it, rather than having to be bound to a third party." 

Evaluating between 15 to 20 different platforms over a 20-month period, Veracyte examined key features, including the instrument's ability to simultaneously analyze RNA, DNA, and protein targets in over 800 genes, as well as minimizing turnaround and hands-on time. 

"From building classifiers from whole transcriptome data, we know that sometimes to get high-performing classifiers, it requires hundreds of genes to be measured," Anderson said.  "The fact that [NanoString's] platform has a 800 multiplex capability to measure RNA, DNA, and proteins … and that it is virtually fully automated, helped reduce hands-on time for our assays by 80 percent compared to when we run them on our RNA sequencing platform."

Veracyte plans to continue offering the Prosigna assay in international markets, as well as augmenting the test as a US Food and Drug Administration-approved test kit that researchers can perform at their own labs. Veracyte will also offer the test as a service on nCounter of its CLIA lab. 

"The test was limited in adoption to only those sites that actually had the volume, expertise, and resources to acquire the platform and run the test," Anderson explained. "We believe [that] there is opportunity to drive a little more adoption by allowing US customers to send samples to us for testing."  

While Veracyte intends to fully develop LymphMark as a clinical diagnostic product, Anderson noted that the firm does not currently have a clear commercialization timeline for the assay. 

In addition to NanoString's assays, Veracyte will run its Envisia classifier on nCounter starting in 2021. Following the launch of the in-development nasal swab lung cancer classifier out of the CLIA lab in 2021, Veracyte expects to offer the assay to international customers starting in 2022. 

Because of the service agreement with NanoString, Veracyte will tap the firm's engineers in over 20 countries to migrate its existing suite of assays over to the nCounter system. Veracyte initially aims to target Europe with the combined diagnostic menu in the next few years. 

While Veracyte anticipates moving over most of its genomic tests — including the Afirma Gene Expression Classifier — to the nCounter within the next 5-10 years to tap global markets,  the firm will still retain its proprietary RNA whole transcriptome sequencing platform at its CLIA lab for assays that "we need to inform data and other information to guide patient care," Anderson said. She also noted that the instrument will remain a crucial part of Veracyte's portfolio because it acts as the basis of the firm's discovery work and classifier development. 

In a note to investors, Brian Weinstein, an analyst at William Blair, said that Veracyte expects to see the nCounter platform enabling at least $500 million in revenue from two nasal swab products under development over 10 years, and for the total revenue profile to grow by 25 percent per year over that period. 

"This would take revenue to well over $1 billion in 10 years with what we believe could be best-in-class margins," Weinstein said. "In sum, we applaud the team for this flexibility-expanding transaction and look forward to better understanding the technology involved and seeing how the business model changes play out." 

Gray highlighted that the nCounter platform covers most of NanoString's revenue on the research side, and that the transaction will also help the firm continue introducing research panels in immunology, cancer, and neurology research. 

"With the worldwide launch of our spatial genomics platform, we believe that in the long run it will be a larger market opportunity than nCounter," Gray said.