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Quest Diagnostics Partnership, International Initiatives Driving Oxford Immunotec Growth


NEW YORK – Oxford Immunotec is seeing positive signs emerging from its strategic partnership with Quest Diagnostics in the US for sales of its interferon-gamma release assay for latent tuberculosis while new initiatives and an overhaul of its China business model are driving international growth.

This week, Oxford Immunotec reported third quarter financial results that beat the analysts' average expectations on both the top and bottom lines. On Tuesday, the maker of the T-Spot.TB test, with headquarters in Abingdon, UK, reported 32 percent growth year over year in total revenue and EPS $.03.

On a conference call following the release of results, Oxford Immunotec's CEO Peter Wrighton-Smith said that while the Asia-Pacific region contributed most sales during Q3, the company is seeing traction from recent strategic moves it has forged in the US and Russia.

In the Asia-Pacific region, the firm posted $12.8 million in sales, around 60 percent of its overall Q3 revenues, with most of the growth coming in Japan where the firm saw a normalizing of ordering patterns after a slow start to 2019. However, the firm also anticipates that recent strategic moves in China will contribute significantly to future growth in the region, Wrighton-Smith said.

In Q3, it terminated an agreement with distributors of its tuberculosis-related products in China and Hong Kong due to undisclosed "material breaches" by the distributors in the performance of their obligations.

"Outside the US, we are executing on our plan to strengthen our voice and channels into new and existing markets, through direct hires and through the use of commercial partnering to expand our reach," Wrighton-Smith said, adding that in China, "we have taken on direct relationships with our customers rather than having those customer relationships controlled by our former distributor."

The firm has hired its own sales, marketing, medical affairs, regulatory teams there, he said, adding, "We believe that by taking this move we can drive higher volume growth over the coming years and recapture margin that we can use to offset the costs of our infrastructure."

The move also provides Immunotec with more flexibility over product pricing as it aims to penetrate new segments of the market, he said, but he didn't elaborate on what those future market segments might be.

In conjunction with the move to sell directly to customers, Oxford Immunotec agreed to terms with Shanghai Pharmaceutical to be its nonexclusive third-party logistics provider in China, responsible for imports, warehousing, and distribution.

"More generally across Asia, we see other opportunities for growth and expect to increase our resources to expand our presence and reach into other countries," he said. "In the Europe and rest of the world (ROW) region, our new Russian collaboration continues to track according to plan."

There, Generium Joint Stock is manufacturing the T-Spot.TB test at a factory in the Vladimir region and working with Moscow-based PharmLine on marketing and distribution as part of an overall effort to expand uptake of the test. "Following regulatory approval for Genarium's domestically produced product based on our technology, T-Spot.TB is now eligible for a broader roster of public tenders, and our partners are seeing strong demand for [the test] in both routine testing and screening programs," Wrighton-Smith said.

Sales of the test in Russia have "more than doubled since last year," he said, adding that the firm believes "Russia has significant market potential for continued expansion in the years to come."

In Europe, Oxford Immunotec has launched and begun shipping T-Cell Select, an immune cell separation reagent kit designed to add automation to the T-Spot.TB test. The firm announced regulatory acceptance of the product by China's National Medical Products Administration in December last year. It expects to begin clinical trials in the US soon in advance of a submission for US Food and Drug Administration approval, Wrighton-Smith said.

"In terms of impact, we see T-Cell Select as being a significant driver of future growth in the company," he said. Automating the TB test "dramatically improves things for our customers in terms of their workflow, increases their capacity, reduces their labor costs to run the tests, reduces their walkaway time from the test, and reduces skill levels" required to operate the test.

In line with its objectives to continue streamlining its business and repurposing its spending within a more focused business model, the firm has decided to discontinue production and sales of its C6 Lyme ELISA test. The product brings in about $1 million of revenue per year but its sales are in gradual decline. "The cost of producing it means that it is a drag on both gross and bottom line margins," Wrighton Smith said.

In association with dropping the product from its portfolio, the firm will wind up activities at its site in Norwood, Massachusetts and consolidate its US operations into a "new, smaller footprint site in 2020," Wrighton-Smith said.

As part a deal completed in November last year, Quest Diagnostics purchased Oxford Immunotec's US laboratory testing business for $170 million in cash.

The acquisition included the T-Spot.TB tuberculosis testing service and the Accutix tick-borne disease testing service provided by Oxford Immunotec laboratories in Norwood and in Memphis, Tennessee.

As part of the transaction, Oxford Immunotec began selling T-Spot.TB test kits and related accessories to Quest through a long-term supply agreement, and the parties entered into a strategic collaboration agreement to drive continued growth of T-Spot.TB testing in the US.

Wrighton-Smith said on the conference call Tuesday that as a result of its deal with Quest, it is seeing an uptick in tuberculosis test kit sales, particularly to physician offices, a market segment that the Wrighton-Smith's sales team didn't previously have the bandwidth to penetrate.

"As you know, a principal rationale for this transaction with Quest was to significantly increase the reach and competitiveness of T-Spot.TB in the US market," he said. "We're now seeing the strategy bearing fruit. Quest continues to make progress on implementation, expanding availability of T-Spot.TB through their commercial team and their joint venture network."

US sales growth through Quest is increasingly coming from new ordering providers, he said, adding that over the last three quarters, Quest has added over 19,000 new prescribers of T-Spot.TB, and sales teams from both companies are working together to "win competitive accounts."

Physician offices represent a very large segment of the latent tuberculosis testing market, one in which the TB test performs well but that the firm was unable to cover with its sales team, Wrighton-Smith said.

Oxford Immunotec has sold more than $4.5 million T-Spot.TB tests for latent tuberculosis testing, a market that according to JP Morgan estimates is worth more than $1 billion per year. IGRAs produced by Oxford Immunotec and Qiagen, the firm's sole competitor in this segment of the tuberculosis testing market, have so far achieved only 10 percent penetration, according to JP Morgan.

The investment bank expects both companies to "experience significant growth as market acceptance for IGRAs continues to increase," JP Morgan analyst Tycho Peterson wrote in a research note Tuesday.

The US Centers for Disease Control and Prevention recently warned of an anticipated shortage of a key antibody for competing tuberculin skin tests (TSTs) conducted in clinics, at a time when clinicians are increasingly switching to interferon-gamma release-based assays for tuberculosis testing.