Luminex's 5-Hour Gastroenteritis Test Impresses FDA

| About: Luminex Corporation (LMNX)

U.S. clearance of Luminex’s (NASDAQ:LMNX) molecular diagnostic for gastrointestinal pathogens enables the company to address a $100m market and, in a change from its previous strategy, it will do so itself. The Austin, Texas company wants to lessen its reliance on distributors, and plans to sell its products directly to customers.

The test’s clearance via the unusual de novo path, rather than the PMA route, which would normally be required for a first-of-its-kind device, indicates that the FDA is convinced that it carries little risk and meets an unmet need. Luminex must now convince its customers of the same thing, while demonstrating to investors it can manage a sales force.


The xTAG Gastrointestinal Pathogen Panel (NASDAQ:GPP) is the first test that can detect 11 viral, bacterial and parasitic causes of infectious gastroenteritis from a single stool sample. It can identify the viral pathogens norovirus and rotavirus A, bacteria including Campylobacter, Clostridium difficile toxin A/B, Salmonella and three strains of E coli, as well as the parasites Cryptosporidium and Giardia.

Testing for DNA and RNA from all 11 species occurs simultaneously, giving the diagnostic a turnaround time of five hours. Traditional stool culture testing takes two or three days, by which time a severe infection can kill a patient. The U.S. CDC says that there were more than 17,000 gastroenteritis-associated deaths in the U.S. in 2007, two-thirds of which were caused by norovirus and C difficile.

Luminex says that the test’s sensitivity and specificity are comparable to standard tests. However, the risk of false positives is such that positive results from the xTAG GPP need to be confirmed by additional testing.

A version of the test was CE marked for sale in Europe in May 2011. The European product tests for 15 pathogens, the additional species being adenovirus, Yersinia enterocolitica, Vibriocholerae and the parasite Entamoeba histolytica. Perhaps consequently, the European version is more expensive: $95 to test a sample, compared with $85 in the U.S.

UBS analyst Daniel Arias estimates the worldwide market for the product at $150m, with a $75-$100m opportunity in the U.S. He predicts it will generate revenues of $11m worldwide this year – $6m in the U.S. and $5m in Europe.

De novo

Luminex believes its new sales strategy will help the product achieve its potential. An in-house direct sales force is being expanded following the termination of previous agreements with distribution partners Fisher and Abbott as the company strives to gain more control over the distribution of all of its products.

One sign that augurs well for the test’s uptake is the FDA’s acquiescence to its approval under the de novo classification process. This falls somewhere between the PMA and 510(k) routes; clearance under 510(k) involves the device proving non-inferiority to an already-approved predicate, while PMA is used for first-in-class, high-risk devices. No predicate exists for xTAG GPP, ruling it out from 510(k), but the FDA has spared Luminex the slow and expensive PMA pathway, too.

The de novo path was created to provide a swift mechanism for approval of lower-risk devices that are unlike anything that has come before. With a rapid turnaround time that will help doctors more quickly identify the causative agent, there would certainly seem to be a place for xTAG GPP.

The biggest risk here is perhaps execution as the company cuts ties with big distributors, increasingly relying on its own sales force. As analysts at JPMorgan (NYSE:JPM) note, the transition is risky “given the challenged history in this industry of distributor transitions,” though they acknowledge that in the long run, “having a relationship with the end customer is clearly preferable.”

As such, the progress of xTAG GPP should be watched closely to help predict whether Luminex's new strategy will pay dividends in the longer term.