Clinical Laboratories Step Up the Pace of Genomics Dealmaking

Large reference laboratories, looking to shore up their growth and margins, are increasingly interested in esoteric testing, and, in particular, in molecular-based testing, as indicated in a series of recent deals by the nation's largest reference labs. LabCorp has exclusive alliances with Myriad Genetics and Exact Science Corp., while Quest has thrown its efforts behind diaDexus and Roche.

Large reference laboratories with their eyes on the fast-growing esoteric testing market are scrambling to shore up their positions in genomics. In doing so, they are jumping into exclusive deals with companies that have programs for discovering disease-associated molecular markers with such vigor that in one recent 10-day period the nation's two largest laboratories each issued two press releases about a total of four exclusive deals they'd done.

The deals aim to give the laboratories, which still obtain most of their revenues from traditional, slow-growth in vitro diagnostics segments, a head start in genomics and proteomics, which many diagnostics industry experts believe will be the fastest-growing segments for laboratories and manufacturers for the next few years. (See "Clinical Laboratories' Amazing Comeback," IN VIVO, July 2001. [A#2001800145) They also give laboratories and manufacturers the ability to market novel technology as home brew tests that don't require going through the lengthy FDA review process. (See "Genetic Testing's Regulatory Quagmire," in this issue, [A#2001800246)

For these reasons, Laboratory Corp. of America Holdings (LabCorp), the nation's second-largest clinical reference laboratory, has signed exclusive distribution and marketing alliances with Myriad Genetics Inc. , one of the pioneers of predictive medicine, and Exact Sciences Corp., which has developed a genomic test for colorectal cancer. Both of these companies are already selling proprietary genomic-based oncology tests, which they perform as home brews in their own laboratories. But they are looking for ways to reach more physicians.

The deals further establish LabCorp's position in molecular testing by broadening its product line and providing a pipeline for future tests. The company's deal with Myriad gives it access to four Myriad predictive products in the US. The Exact deal gives it access to PreGen-26, a non-invasive test for identifying and monitoring patients with hereditary colorectal cancer, which Exact has been selling on its own since May.

Unlike Exact's early disease detection test, the markers in the Myriad tests are predictive, used to inform doctors and patients of the risk of acquiring particular diseases. Their utility lies in their ability to flag high-risk patients, who can then be monitored more closely for signs of disease, and to rule out those who aren't at risk and therefore may not have to be monitored as carefully as they had been. The cancer markers include BRACAnalysis, which assesses women's hereditary risk of developing breast or ovarian cancer and is Myriad's largest selling product; Colaris, Myriad's fastest-growing product, which identifies individuals at high risk of developing colorectal and uterine cancer; and Melaris, its newest offering, which identifies individuals at high risk of melanoma skin cancer. Individuals who test positive have a 50-fold increased risk of developing the disease and need more frequent surveillance. CardaRisk, the fourth marker in the LabCorp deal, aids in determining the appropriate drug for patients with high blood pressure who are more likely to benefit from ACE inhibitor or AII receptor blocker classes of drugs.

Both the Myriad and Exact tests will be sold nationally to LabCorp's more than 200,000 physicians. Myriad has been selling the tests to oncologists, but LabCorp gives it access to primary care doctors and other specialists which it can't get to on its own. LabCorp will help both companies educate doctors and increase awareness of the products, says Pam Sherry, an executive at the reference laboratory. Financial terms weren't disclosed, but analysts say that LabCorp paid Myriad an up-front sum and Myriad will pay LabCorp a commission on each test ordered. A sales ramp-up should be easy because the tests are already on the market and reimbursed, says Ricki Goldwasser, an analyst at UBS Warburg.

Myriad will perform the comprehensive DNA sequence tests at its facilities. LCA has the option to add specific mutations discovered by Myriad to its various panels that assess risk of developing diseases like hypertension and cancer. Myriad's revenues from its predictive medicine business in the third quarter were $5.5 million, up 81% from the same period a year ago.

Exact Sciences' PreGen-26 utilizes a proprietary method of isolating human DNA from other kinds of DNA in stool samples, and is currently sold as a surveillance test for patients with hereditary non-polyposis colorectal cancer (HNPCC), a rare form of inherited colorectal cancer. The test consists of a panel of markers for p53 and APC mutations, the k-ras oncogene, and other markers. (See "Genomics Squatter," IN VIVO, June 2001. [A#2001800127)

Because all of these tests are being sold into emerging markets, LabCorp can't estimate the impact of their sales on its total revenues, says Sherry. But it believes the tests offer significant opportunities, particularly as their indications expand. BRACAnalysis sales, for example, are growing in the double digits. If Exact's test expands to include surveillance of moderate risk patients or even general population screening, the opportunity could be huge, Sherry adds.

None of these tests have gone through the FDA, but it is increasingly common to put tests on the market on a home brew basis prior to FDA clearance because the regulatory process is so lengthy. "None of us want to limit access to this technology when it is available and the FDA understands that," Sherry suggests.

And LabCorp is not alone. Its chief rival, Quest Diagnostics Inc. , has also been expanding its presence in genomics and other new technologies, albeit at an earlier stage of development. "We are building a foundation for gene-based testing, which is robust and growing, and we are doing it by getting involved in new businesses," says a Quest executive. In the past two months, the company has exercised options to two proprietary gene-based markers from diaDexus Inc. , a start-up developing genomics-based diagnostics, and entered into a research and marketing collaboration with Roche Diagnostics . Quest has a long-standing relationship with diaDexus, stemming from Quest's acquisition in 1999 of SmithKline Beecham Clinical Laboratories. DiaDexus, formed in 1997 to capitalize on new marker discoveries, is a joint venture of SmithKline Beecham (now GlaxoSmithKline PLC ) and Incyte Genomics Inc.

The diaDexus tests, unlike those offered by LabCorp and its partners, don't yet exist in commercial formats. One will be a genomics-derived blood test for cathepsin K, a potential indicator of osteoporosis risk. The other, a non-invasive diagnostic test for colorectal cancer, detects Reg-4, a protein that has been implicated as a critical component of colorectal cancer and which has potential as a tool in the early detection of the disease. DiaDexus is developing a series of markers, for which Quest has options to take exclusive licenses for the home brew market.

For diaDexus, which uses genomics to develop protein-based tests, the deal with Quest represents a way to build the clinical market for nascent markers and educate physicians, says diaDexus executive Mohan Iyer, VP, business development. The test would be sold through Quest as a home brew. But the deal would most likely end when diaDexus gets FDA clearance, which could take as long as three to four years.

The Quest/Roche deal is an alliance to develop and commercialize gene-based tests based on PCR for use in pharmacogenomics and predictive medicine. The companies plan to jointly commercialize gene-based markers for assessing the risk of stroke and asthma. In addition, Roche may use Quest to help launch some markers it is developing with other partners, such as deCode genetics Inc. and Affymetrix Inc.

While these deals involve early-stage technology and aren't likely to be big revenue generators for the labs, they indicate just how seriously the large laboratories are pursuing broad-based genomics testing. Their exclusive nature also signals trouble for smaller laboratories, which don't have the resources to make similar deals and which risk being locked out of potentially significant tests.