NEW YORK ─ With cash available from skyrocketing demand for its molecular diagnostic coronavirus tests, Hologic last week announced it had purchased Liège, Belgium-based Diagenode, saying the firm brings assays that would enable Hologic to offer a broader menu to hospitals and other laboratories that use its products.
Diagenode, a privately held developer and manufacturer of molecular diagnostic assays and epigenetics products, has CE-marked assays for hospital-associated infections, acute-care syndromic testing, and transplant testing that Hologic intends to offer in the future on the Panther Fusion, Kevin Thornal, Hologic's president of diagnostic solutions, said in an interview.
Diagenode is the second molecular diagnostics company purchased by Marlborough, Massachusetts-based Hologic within a month. Toward the end of February, the company announced that it had closed on its $230 million acquisition of Biotheranostics, a developer of diagnostic, prognostic, and predictive tests that support physicians in the treatment of cancer patients.
Diagenode, which Hologic acquired for $159 million, sells more than 30 real-time PCR tests that are CE marked for the detection of bacteria, parasites, and viruses involved in sexually transmitted infections, respiratory diseases, meningitis, gastroenteritis, and more. Though there is some overlap with Hologic's offerings, "most of their tests are for applications that we do not have today," Thornal said.
Hologic intends to begin adding Diagenode PCR assays to the Panther Fusion to detect the most prevalent hospital-acquired infections, Thornal said. Additionally, for acute care syndromic testing, it is looking to port over gastrointestinal and respiratory assays, among others, that can quickly differentiate among infections with similar symptoms. For transplant testing, Hologic expects to add assays used to monitor a patient's health after receiving an organ, he added.
Among its current products, Diagenode sells quantitative, real-time PCR assays to detect and measure different respiratory infections, including its RespEasy assay that detects 24 respiratory pathogen subtypes. For hospital-associated infections, the company markets assays for Clostridium difficile, Salmonella enterica, and Campylobacter jejuni, among others, and in the area of organ transplant infection testing, it sells an assay that detects cytomegalovirus (CMV).
"The firm has a large pipeline of future assays but the initial growth opportunity for Hologic lies in porting over its current work," Thornal said. "That involves adapting manual testing processes, including upfront liquid-handling and reagents, so that they can be integrated into a single, automated format that is already used on the Panther Fusion and Panther systems."
Hologic's R&D team has been working with its counterparts at Diagenode for more than six years and collaborated on the development of group B Streptococcus and Bordatella assays for the Panther Fusion, Thornal said, adding that the R&D teams from both companies will continue to work together to adapt other Diagenode assays for the platform.
"In addition to porting over their assay chemistries, we need to make sure that the software on the Panther Fusion can run the increased menu," Thornal said. "We'll also need to scale up manufacturing to be able to meet demand. So, we expect to roll out a handful of assays per year for the next few years and work in the background on new assays for the future."
Hologic intends to integrate all of Diagenode's existing business and has hired its founder, Didier Allaer, to help run it. Thornal noted that Diagenode's headquarters and R&D facilities in Liège is around 50 miles from Hologic's European headquarters and manufacturing facilities in Brussels. "That proximity allows us to speed the development and release of new tests for countries that accept the CE mark," he said.
Further, in Europe, Hologic already has "a large installed base of Panther Fusion systems," and with the plan to integrate Diagenode's assays, Hologic's salespeople will have a broader test menu to offer to current customers.
Approximately 2,400 Panther instruments are installed worldwide, and about 15 percent of them have the Fusion module.
Hologic expects that the integrated sales force will also benefit from selling assays on one instrument rather than several instruments that currently run Diagenode's tests.
Additionally, Thornal noted, by acquiring Diagenode, Hologic has entered the life sciences research testing space. In addition to its PCR assays, Diagenode has a menu of tests that it sells to scientists doing DNA methylation research including its Bioruptor sonication products and SX-8G and Compact IP-Star automated epigenetics systems.
"[Diagenode has] a great life sciences business," Thornal said. "Its global sales force is marketing next-generation sequencing-based and methylation markers for oncology research."
He added that Hologic expects that it can leverage synergies related to epigenetics and oncology in the long term, involving both Diagenode and Biotheranostics.
Epigenetics testing currently represents about 40 percent of Diagenode's overall annual sales, Thornal said. Another 30 percent of its revenues are obtained from its molecular diagnostics tests, and the remainder from sales of kits, reagents, and antibodies that it sells to life sciences businesses and for use in epigenetics studies.
Overall, the Belgian firm generated more than $30 million in revenue during the past 12 months. Hologic said it expects that the acquisition would break-even on a non-GAAP earnings-per-share basis through fiscal 2022 and be accretive to its EPS thereafter.
Hologic's assay portfolio on the Panther Fusion sold to its US-based customers currently includes three respiratory virus panels, an assay for SARS-CoV-2, and an assay for the detection of group B Streptococcus.
In 2020, in response to the COVID-19 global pandemic, the firm developed and launched the Aptima SARS-CoV-2 assay, which runs on its Panther system, and the Panther Fusion SARS-CoV-2 assay.
In 2016, Hologic launched the Panther Fusion system, which enables PCR testing in addition to transcription-mediated amplification (TMA) testing already available with its Panther systems. Panther Fusion is available as a system or as a module that can be attached to existing Panther systems in the field to extend testing capabilities.
Evercore ISI analyst Vijay Kumar noted in an interview that the firm's Panther Fusion menu is small in comparison to that of the Panther system, which the FDA cleared in 2012.
If Hologic can get regulatory clearances to run Diagenode's tests on the Panther Fusion, "it makes the combined sale of the Panther and Panther Fusion systems more compelling," Kumar said.
He anticipates that Diagenode should grow its revenues at a double-digit rate over the next several years, and under Hologic's wing could reach $100 million in revenues in about five years or more.
Most of the revenue and earnings growth from Diagenode will come from sales of its molecular diagnostics tests on the Panther Fusion because Hologic does not currently have a life sciences presence or sales team, Kumar said.
The timing of revenues from the Diagenode business over what the firm currently books each year will depend partly on how quickly Hologic can port over assays to the Panther Fusion. Diagnostic test manufacturers working at an accelerated pace can usually develop new assays in six to nine months, Kumar said, adding that Hologic would probably meet that timeline in porting over initial assays. Increased access to customers should also accelerate revenue growth for Diagenode's products, Kumar added.
Looking at hospital-associated infections, the largest end-market is for methicillin-resistant Staphylococcus aureus (MRSA) testing, Kumar noted. "I would expect Hologic to go after MRSA and C. Difficile, and possibly drug-resistant tuberculosis," he said. "An assay for meningitis, where you want to give the right drug sooner rather than later," could also be on Hologic's radar, he added.