NEW YORK (360DX) – For Agena Bioscience CEO Peter Dansky, expanding a diagnostics company means going where the growth is, and for his firm, China has clearly been the most robust growth opportunity.
Agena's business today largely comprises the former bioscience unit of Sequenom, now part of Laboratory Corporation of America. While it was still part of Sequenom, the bioscience business, which included the MassArray technology, generated more than half of its revenues in the US.
But after Agena acquired the bioscience business in 2014, "[t]he new ownership looked at the [MassArray system] business as a global brand," Dansky said, noting Agena's original business was based in Germany. "There was a choice of doing business as usual or pursuing a … strategy to build the brand outside the US," he said. Agena chose the latter.
Created about 20 years ago, the MassArray platform uses matrix-assisted laser desorption/ionization time-of-flight mass spectrometry for detecting nucleic acids and genetic variations.
Under Sequenom, the bioscience business had a presence in the research lab market in China but sales in that region were minimal for a very good reason, Dansky said. Regulators in China do not support research reference labs in the same manner as in the US. Revenue for diagnostic tests in China occurs only through reimbursement by the government if the test is used in a clinical lab for patients, he explained.
"Getting the diagnostic test to the patient in hospitals is a very different [process] than advancing a test within a research reference lab," he said of the company's initial assessment in 2014. "To sell in Chinese hospitals, you have to have approval from the [Chinese Food and Drug Administration]. To gain the approval, you have to work with a local company."
So, Agena went to work to build a local presence in China. It first established a wholly owned subsidiary in Shanghai. It then hired local managers and staff to respond to the hospitals and researchers operating in the country, Dansky said. The result was Agena's first alliance in February 2016 with DaRui Biotechnology to test for inherited genetic diseases, primarily in newborn screening.
DaRui was already a customer of Sequenom's bioscience unit and served a strong network of hospitals, Dansky said. However, growth in newborn screening tests was limited. When the two companies became partners to codevelop and commercialize multiplexed tests for oncology and inherited diseases tailored to the needs of the Chinese market, sales growth accelerated. DaRui Biotechnology conducted the requisite in-country, oncology, and inherited disease clinical trials and submitted the tests to the Chinese FDA.
Dansky said as Agena entered other, smaller partnerships in China, the company noticed more new drugs launching in China. Pharmaceutical companies consequently wanted more support in pharmacogenetics. Three months ago, Agena secured a pharmacogenetics partnership with Simcere Diagnostics, a subsidiary of Simcere Pharmaceutical Group. Simcere Dx has strong connections to Chinese hospitals and the partners will expand the MassArray system for companion diagnostics and pharmacogenetic testing in China.
"The two partnerships have the same structure, just a different focus," Dansky said. "You apply the same technology to localize the [pharmacogenetic] product, assemble it in China, and it becomes a branded product for Simcere."
Companies such as DaRui and Simcere have excellent teams and hospital networks but not necessarily the platform technologies like the MassArray system, Dansky said. While Agena plans on having more partnerships in China, Dansky cautioned the company only would enter alliances in which the partner has an interest in building a branded test for China.
Shift in revenue mix
Not surprisingly, the revenue mix at the bioscience business now comprising Agena has shifted in the four years since Sequenom sold the unit. China revenues accounted for 33 percent of Agena's total revenue in 2017, with the US comprising 45 percent and Europe and other parts of Asia approximately 12 percent. Dansky said the 33 percent figure likely would be higher in 2018, though European sales also are increasing.
When Sequenom divested the biosciences division to Agena, annual revenue at the division was approximately $45 million, said Jefferies analyst Brandon Couillard. The division's revenue had been stagnant for several years, he added, as Sequenom chose to spend more capital on advancing its NIPT test. Couillard estimated Agena recorded $55 million in revenue last year.
Dansky would not comment on last year's revenue but noted Agena has been profitable for the last six quarters. He also said the company's near-term focus is on expanding the MassArray platform in China, Europe, and the US, with a lesser emphasis on profits.
Couillard noted the breadth of the MassArray platform allows Agena to compete in the in vitro diagnostic, liquid biopsy, and laboratory-developed test segments of the geographies it serves. As a result, about 80 percent of Agena's sales are recorded in clinical labs compared to just 20 percent in the research market. Four years ago, those figures were reversed, Dansky said. Today, Myriad Genetics is Agena's largest customer, Couillard added.
"Our technology is used the same way in clinical and research labs," Dansky said. At the time of the split from Sequenom, new applications for the clinical lab market were "waning," even though Agena felt that the MassArray system "was well suited for the clinical market. Our approach was to take the technology and move it to clinical labs," he said.
According to Couillard, Agena's MassArray platform has proven to be cost efficient and responsive in clinical labs. The system appears to have a cost advantage over real-time PCR methods and has found a sweet spot for labs in its ability to process 10 to 100 variants per panel, he said. In addition, consumables account for about 50 percent of Agena's revenue, providing the foundation for increased adoption and steady revenue.
Meanwhile, even as Agena looks overseas to expand its business, it continues to grow its US business. Last August, the company inked a deal with the Illinois Department of Public Health for use of MassArray for cystic fibrosis testing. In July, Agena agreed to market the MassArray Dx system with HeartGenetics' HeartDecode genetic testing software and cardiovascular assays, and in June Agena reached a deal with Assurex for use of the platform for pharmacogenetic testing.
Last July, Agena and Intermountain Healthcare also announced a collaboration that focuses on expanding the use of the MassArray system in oncology applications.
"The Agena system is a reasonably high-throughput option for single nucleotide polymorphism, small indel, and hotspot/known mutation assessment," said Tom Neuwerth, clinical development manager for Intermountain. "The MassArray is capable of multiplexing numerous PCR reactions in one well to increase efficiency, and the data analysis is straightforward and generally non-ambiguous."
Neuwerth also said the MassArray laboratory workflow process can be completed in about eight to 10 hours by an experienced technologist, providing turnaround-time advantages over traditional next-generation sequencing and other sequencing methods. Neuwerth added the MassArray reagents are cheaper than NGS reagents. Because Intermountain can purchase more affordable consumables, Neuwerth said the MassArray could perform smaller-than-optimal batches without as much sunk costs when compared to analyzing an NGS library.
Intermountain operates as a healthcare system and runs a high-complexity CLIA lab, and "our technology enables healthcare systems to make money [through the CLIA la] and to save money on tests administered within the system," Dansky said.
Agena expects the MassArray platform to be approved by the US FDA before the end of the year, he said. Such approval would make Agena's tests more attractive to US hospitals, which could use it similar to Intermountain's internal use, Couillard noted.
Dansky said Agena has been advancing the FDA approval for several years. While Agena does not expect broader US regulation of CLIA and LDT labs in the future, an FDA approval would enable Agena to pivot strategically.
"If US oversight of clinical labs was to become more formal, for any reason, we'll be better prepared if our tests are FDA approved," he said. As a result, Dansky said the company's efforts in China might serve as a trial run to capture the future US clinical lab market.