NEW YORK (360Dx) – When NeoGenomics announced plans to acquire Genoptix late last month, company executives made clear what Genoptix would bring to the table: community oncologists.
"While we have made some meaningful strides in building our community oncology practice business over the past two years, it is still quite small. With the addition of Genoptix, that will change," NeoGenomics Chairman and CEO Douglas VanOort said in a conference call following the acquisition.
The acquisition, for $125 million in cash and 1 million shares of NeoGenomics stock is expected to close in December, VanOort said.
The move by NeoGenomics to more actively court community oncologists reflects the rapid expansion of genomic and other sophisticated cancer testing beyond traditional research centers to the community level where the majority of cancer care is provided, company officials and oncology experts said.
"With the growth in next-generation sequencing-based panels, the community oncologists are frequently ordering certain tests directly from reference labs rather than from the hospital or local pathologist," Bill Bonello, chief strategy and corporate development officer, said in an email.
VanOort called the community oncologist customer segment a "strategic priority" for NeoGenomics and noted that it represents a significant opportunity for growth. He estimated that there are more than 2,000 community oncology practices in the US, representing a testing opportunity of approximately $2.5 billion.
NeoGenomics is not alone in recognizing the value of the community oncology market. Last year, Quest Diagnostics acquired Med Fusion and Clear Point, two related oncology labs based in Lewisville, Texas, that also specialized in serving community oncologists. Gene mutations uncovered by the labs are mapped to treatment pathways from the US Oncology Network — a network of more than 1,400 independent physicians and 400 treatment centers — which makes advanced clinical trials available to patients in local communities.
The shifting role of community oncologists is complicated, according to Ted Okon, executive director of the Community Oncology Alliance, a nonprofit organization that advocates for community oncology practices. The percent of cancer care provided at the community level has actually dropped from 84 percent in 2004 to an estimated 55 percent today due to passage of the Medicare Modernization Act in 2003, which enabled hospitals to make larger profits off cancer services, prompting many hospitals to acquire independent providers.
But the shrinking majority of cancer care provided by community oncologists has been counterbalanced by the explosion of genomic testing that has shifted more sophisticated testing to the community setting, he said.
"Even though hospital systems have gotten bigger, and they have that leverage, it doesn't mean that they have the market, if you will, on some of the sophisticated testing," Okon said. "The lab market has exploded, especially because of what has happened in the genomics area, and we have so many more genomic tests than years ago."
NeoGenomics is a leading provider of oncology testing services to pathologists and hospitals, according to Bonello, and the company has amassed an extensive portfolio of managed care and group purchasing organization contracts for hospitals and integrated delivery networks.
Genoptix will expand the company's capabilities for serving community oncologists because it has 40 sales representatives exclusively dedicated to serving that market, Bonello said. Genoptix also has a group of pathologists with years of experience serving community oncologists, he noted.
Genoptix has further differentiated itself in the community oncology space through the development of a suite of customized reports that Bonello describes as gold-standard test reports for oncologists.
"Experience and customization are critical as the needs and requirements of community oncologists can be quite different than the needs and requirements of pathologists," Bonello said.
The suite of reporting tools includes Compass, which Bonello described as a hematopathologist-directed integrated assessment report that provides a customized workflow with a guideline-based, disease-specific evaluation for each case. A companion tool, called Chart, can integrate information from a series of Compass reports over time and correlate relevant prior findings to offer a more longitudinal patient view, he said.
"Oncologists find this information useful for monitoring response to therapy, determining disease progression, evaluating evolution, and assessing residual disease," Bonello said.
The acquisition of Genoptix is expected to add $85 million in revenue to NeoGenomics and break-even EBITDA in the first year, along with $25 million in cost synergies over time, Fort Myers, Florida-based NeoGenomics said.
Some of the cost synergies will derive from economies of scale in purchasing, leveraging fixed costs, and facility rationalization, according to Bonello.
In terms of test mix, Genoptix's testing menu is heavily weighted toward hematopathology, while the NeoGenomics test menu spans both hematopathology as well as solid tumor testing, Bonello said.
NeoGenomics menu includes many tests that Genoptix does not currently offer to its customers, including a broader portfolio of next-generation sequencing-based panels, a greater number of immunohistochemistry tests and a more technologically enhanced 10-color flow cytometry program, VanOort noted when the acquisition was announced. The company expects cross-selling opportunities from offering these additional testing options to Genoptix clients, he noted.
NeoGenomics could also see a benefit to its companion diagnostics business from the acquisition. The firm develops such tests in collaboration with its pharmaceutical clients.
"Reach into the community oncology segment of the market will make NeoGenomics a more attractive partner for companion diagnostics," Bonello said.
The Genoptix lab operations are located solely in Carlsbad, California, approximately 40 minutes south of a large NeoGenomics lab facility in Aliso Viejo, California. Meanwhile, VanOort notes that much of the Genoptix customer base is located east of the Mississippi River.
"We anticipate being able to improve turnaround time and customer service for many East Coast clients over time by strategically redirecting select cases to other lab facilities," he said.
Since Genoptix's tests aren't covered by insurers, by and large, NeoGenomics also hopes to move the business in-network with contracted payors. While moving in-network can result in lower reimbursement rates, it should also result in lower out-of-pocket expenses for patients, increased referral volumes, reduced denials, and less hassles for physicians and hospitals, VanOort said.
Overall, NeoGenomics hopes the acquisition will not just give them access to a valuable segment, but will give them a more comprehensive view of the market.
"By integrating Neogenomics' deep knowledge of and relationships with hospitals and pathologists with Genoptix's understanding and experience with community oncology practices, the combined company will be in a unique position to coordinate oncology testing between oncologists and pathologists at the community level," VanOort said.