Inside the Lab Indusrty: Molecular Labs Continue to Report Robust Growth

As the two national laboratories scrap and grind to acquire seemingly every one of their competitors in a dogged attempt to rebuild vanished revenue momentum, the molecular labs have put on a master class in organic growth. Virtually all of the publicly traded labs posted impressive, if not eye-popping, numbers for the quarter ending March 31. Myriad Genetics has apparently suffered few ill effects from losing a landmark U.S. Supreme Court case last year regarding patents it held on BRCA gene testing. Although the Salt Lake City-based Myriad’s net income declined slightly, its revenue bounded ahead 17 percent in its fiscal third quarter, ending March 31, to $182.9 million, compared to $156.5 million a year ago. Myriad Chief Executive Peter D. Meldrum said the quarter came in better than expected. Partly as a result, the company bumped up revenue guidance for fiscal 2014 to between $770 million and $775 million, up from the previous estimate of $740 million to $750 million.

First-Quarter Revenue Comparisons, Major Molecular Labs
Lab	First-Quarter 2014 Revenue	First-Quarter 2013 Revenue
Myriad Genetics	$182.9 million*	$156.5 million*
Sequenom	$46.3 million	$38.5 million
Genomic Health	$67.0 million	$63.1 million
Foundation Medicin	$11.5 million	$5.2 million
*Company’s fiscal third quarter Sources: Company reports

  Myriad also inked a three-year pact with UnitedHealthcare to provide its enrollees its myRisk Hereditary Cancer assay. Meldrum told analysts that he eventually expects near-universal coverage for the test. Amanda Murphy and J.P. McKim, analysts with William Blair & Co., observed in a recent report that the UnitedHealthcare deal may have been the most significant business development for Myriad in recent months. “In our view, this contract is a meaningful positive that represents a clear validation of the myRisk assay,” they wrote. “Even for those who pick apart a slowdown in sequential growth, in our view, it is hard to support an argument that this contract does not bode well for Myriad’s ability to convert its BRCA franchise to myRisk while sustaining pricing.” For the first nine months of the fiscal year, Myriad’s net income was $142.6 million. Excluding noncash charges related to its recent acquisition of Crescendo Biosciences, net income was $152.5 million, up 47 percent compared to the first three quarters of 2013. Sequenom reported similar growth for its first calendar quarter of 2014, albeit on a smaller level than Myriad. Revenue for the San Diego-based company grew 20 percent, reaching $46.3 million, compared to $38.5 million for the first quarter of 2014. Although Sequenom officials said it was trying to cut off Medicaid-reimbursed testing in states that are not yet covering its assays, commercial test accessions grew by 12 percent. Its primary test, the MaterniT21 PLUS prenatal genetic screening, grew by 14 percent. Its contracts with commercial health plans cover 118 million lives, with another 24 million covered through government programs in the 18 states where reimbursement codes have been approved. Sequenom also entered into two new international contracts, bringing the total of overseas pacts for MaterniT21 PLUS to 27. It is currently in the process of obtaining approval from the Food and Drug Administration for Impact DX, a sequencing platform that can be used in conjunction with the company’s test for V Leiden and Factor II, although more tests are expected to be added to the platform in the future. “This system will form the basis for transitioning the bioscience platform from basic research into clinical diagnostics,” Chief Executive Officer Harry Hixson told analysts during the company’s May 1 earnings call. Sequenom, which primarily operates its accounting on a cash basis, also reported up to $46 million in receivables that have yet to be recorded. The company slashed its net loss by nearly half, to $15.7 million, compared to $29.3 million for the year-ago quarter. Genomic Health’s business was also on the upswing, although not as aggressively as Myriad’s and Sequenom’s. Revenue for the California-based company’s first quarter was $67 million, up 7 percent from the first quarter of 2013, when it was $63.1 million. However, that was below the analyst consensus of $68.7 million. The company reported a 13 percent increase in the volume of the Oncotype DX breast cancer assay, its primary test, topping 23,000 accessions during the quarter. Chief Operating Officer Bradley Cole said that the international market for its tests has grown 43 percent over the past year and now represents 20 percent of the company’s overall volume and 17 percent of its total revenue. It provides the test in about 70 countries. Chief Executive Officer Kimberly J. Popovits said the company was in a good position to report $1 billion in annual revenue by 2020, a projection that was not dismissed by analysts. “Genomic Health is less than 10 percent penetrated for invasive breast cancer tests, which represents a large market opportunity,” Murphy and McKim said. The company did report a loss of $7.4 million, up sharply from the $900,000 loss it reported in the first quarter of 2013. Chief Financial Officer Dean L. Schorno told analysts during its recent earnings call that it had beefed up marketing for its prostate cancer test and for overseas sales. As a result, operating expenses increased to $74.2 million for the quarter, compared to $64 million a year ago. Foundation Medicine also reported robust growth for the first quarter. The Massachusetts-based lab that focuses on sequencing of cancer tumors reported that revenue more than doubled, to $11.5 million, compared to $5.2 million in the first quarter of 2013, an overall increase of 125 percent. The company performed just over 4,700 tests during the quarter, up 25 percent from the fourth quarter of 2013 and more than triple the volume that occurred in the year-ago quarter. The company reported an average reimbursement of $3,400 per test. In its 2014 guidance, Foundation Medicine projected it would perform between 22,000 and 25,000 tests during the calendar year and that revenue would be between $52 million and $58 million. Its 2013 revenue was $29 million. “To meet the increasing demand in the clinical and pharmaceutical business areas, we are continuing to invest in our commercial and business development infrastructure and expanding our . . . sales force,” said Foundation Chief Executive Officer Michael Pellini, M.D. The company also said it had begun the arduous process of getting paid by Medicare for its tests, which have yet to receive specific codes. “We’re appealing those claims through the normal channels and we’re also continuing our broader dialogue with our local Medicare administrative contractor and with other regional contractors,” Michael Ryan, Foundation’s vice president of finance, told analysts. “We continue to believe that this process will play out over time, and we do think we’re headed in the right direction with our overall approach to reimbursement.” Foundation Medicine lost $12.2 million for the quarter, compared to $7.2 million for the first quarter of 2013. And while the company is sitting on more than $110 million in cash, it has not yet provided any projections as to when it will become profitable. Takeaway: In contrast to the larger general laboratories, many of the sector’s publicly traded molecular laboratories are reporting robust growth in test volume and revenues.