In what appears to be a move to jump-start its bottom line over the long term, Quest Diagnostics has entered into a pact with the University of California, San Francisco (UCSF) to develop precision—and presumably profitable—esoteric tests.
The deal formalizes what had been a casual relationship between the New Jersey-based Quest and UCSF, which is one of the premier medical research facilities in the United States.
“This unique collaboration between UCSF and Quest brings together the finest researchers and clinicians in the country to accelerate the development of a ‘product pipeline’ of scientific discoveries as clinically valuable diagnostic solutions that enable precision medicine for improved outcomes,” said Jay Wohlgemuth, M.D., a Quest senior vice president who oversees its science and innovation division.
Under the terms of the deal, Quest will pay UCSF grants of $100,000 to $500,000 for each specific project, as well as cover expenses related to research and development and population testing.
Quest will market and distribute any laboratory-developed tests that arise from the project. There may also be provisions for royalty payments and licensing fees to UCSF, although specifics were not immediately available.
The deal is the first of its kind that UCSF’s innovation arm has signed with a laboratory.
Quest and UCSF will embark immediately on developing tests focused on two areas that have lacked specific assays: the quicker diagnosis of autism and targeting more specific treatments for forms of pediatric brain tumors. Other collaborations are also expected in the near term, officials said.
Both parties have collaboratively conducted autism research in the past but to date have not made an enormous amount of headway.
“While a few gene mutations have been identified in autism, even the most common of those is only represented in 1 percent of children with the disorder. That makes it very difficult for a single research institution to make any real progress in identifying the connections between those genes and clinical symptoms,” said Kristen Bole, a UCSF spokesperson.
For the development, researchers will rely on Quest’s Health Trends database. It contains the records of 1.5 billion patient encounters involving lab tests and adds another 500,000 results every year.
“With UCSF, we expect to analyze this data to identify potential biomarkers and, based on findings, potentially develop new tests,” said Quest spokesperson Wendy Bost. “The size of the database makes it highly useful for performing meaningful population studies, particularly on small patient populations” such as the subset being studied for autism-related assays.
Should Quest and UCSF enjoy success in developing these tests, their esoteric nature means they likely could be marketed at price points in the high three figures or even well into the four figures—the type of test that could prove a boost to Quest’s bottom line if annual sales prove significant.
Despite being the nation’s largest laboratory company, Quest has been struggling with growth as of late. Its revenues have trended flat for the past few years and are actually expected to drop 3.5 percent for calendar year 2013, according to its recently issued financial guidance.
“This puts Quest more into the ‘r’ camp rather than the ‘d’ camp,” said Amanda Murphy, an analyst with the investment banking firm William Blair & Co. She believes it might signal a change in Quest’s strategy to try to build a more robust test menu for the long term.
“It’s always about keeping the test menu relevant,” she said—along with fighting off reimbursement cuts that have been eroding revenues.
Quest officials demurred from directly saying the UCSF pact this was part of a long-term business strategy but did not deny it, either.
“We are committed to delivering innovations that will improve patient care and health while also creating differentiated value and growth for Quest. Collaboration is a key pillar of our innovation strategy,” Bost said. “We believe our relationship with UCSF, a top academic leader in translational research and precision medicine, will, over time, generate clinically important medical innovations that advance clinical management for patients and business growth for Quest.”
Takeaway: Quest’s strategy may be shifting to develop more lucrative tests in a long-term plan to build revenue and profits.
