Trovagene Poised To Lead The Next Generation Of Molecular Diagnostics Technology

| About: TrovaGene, Inc. (TROV)

Countless cells die in the human body each day as part of normal life functions, however disease processes cause cell death as well. These dead cells degrade into fragments containing nucleic acid which circulate through the bloodstream in trace amounts. Healthcare providers use blood samples and the minute cell fragments within to analyze DNA and RNA for potential issues. Cancerous tumors, for instance, are detectable through molecular diagnostics post-op or post-chemotherapy if not completely eradicated. Infectious disease can be identified and analyzed through molecular diagnostics and, more and more often, pregnant women are using nucleic acid analysis to identify pre-natal conditions. But current standards of care limits these practices. Fetal DNA markers are harvested through dangerous and painful amniocentesis; biopsies and blood samples assay cancer progression and identification; and organ transplant rejection monitoring often requires invasive tissue sampling to determine receptivity.

New, non-invasive sampling procedures are in development, however, and may soon replace blood and tissue sampling as the standard in nucleic acid analysis. Scientists at Trovagene, Inc (NASDAQ:TROV) are developing a transrenal molecular diagnostic assay ideal for human in-vitro testing. From Trovagene's website:

These cell-free nucleic fragments that pass through the kidney ("transrenal" or Tr-DNA/RNA) can be used as genetic markers of disease...Targeting transrenal markers will allow us and our partners to develop genetic testing using non-invasive and easy-to-obtain urine samples rather than other more invasive methods, such as traditional blood testing. We are exploring a broad range of clinical utilities where transrenal DNA technology holds the potential to replace complex and less robust earlier technologies based on circulating cells and nucleic acids in blood.

The ease, cost, and efficiency of a urine sample compared to traditional sampling stratagem makes Trovagene's exclusive technology appealing in a myriad of applications. Collection does not require trained medical staff, and Tr-DNA remains stable at room temperature for much longer than blood samples. In developing countries, the resilience of a urine sample and non-invasive nature of the sampling makes it a much more viable option in the identification of infectious diseases such as HPV. And for the feint-of-heart, a quick trip to the bathroom is vastly preferable to the discomfort and time required for blood testing.

Take a look at current players in the field of molecular diagnostics. Roche Molecular, a subsidiary of Swiss pharmaceutical Roche (OTCQX:RHHBY), reported $11B in diagnostics sales (albeit, not all molecular) in 2011. BD Diagnostics of Becton, Dickinson and Company (NYSE:BDX) reported $2.5B in revenue in 2011; and Abbott Molecular (NYSE:ABT) $3.2B. Although these large companies (market cap over $10B) rely on molecular diagnostics for only a small portion of revenue, their interest in the technology is a clear indicator of the growing market for personalized care. An examination of smaller companies in the molecular diagnostics arena turns up Sequenom (NASDAQ:SQNM), a molecular diagnostics company with a market capitalization of $443M and 2011 revenue of $56M. Competitor Gen-Probe (NASDAQ:GPRO) leads this small sector with a market cap of $3.4B (Interestingly, Gen-Probe's founder now acts as Trovagene's Chairman). These companies all rely on standard sampling techniques: blood and tissue samples and swabs for many disease identifiers. Non-invasive transrenal markers and diagnoses may supplant standard procedures the same way that the MRI revolutionized internal medicine.

The inherent risks associated with a small biotech company such as Trovagene are obvious, however the potential for growth in a company with less than a $55M market capitalization in a rapidly expanding market is tremendous. Gen-Probe's Q1 revenue, for instance, increased by 9% over last year. Personalized medicine is accelerating the field of molecular diagnostics, with the global molecular diagnostics market projected to reach $15 billion by 2014 with an annual growth of 19%. Trovagene estimates that the United States and Europe represent 75% of that market, with India following closely, a $220 million market in 2011.

Not only is Trovagene's proprietary technology applicable to countless diagnostics fields, it also utilizes existing analytical equipment found in laboratories worldwide, making it an ideal platform system. Trovagene currently develops technology for screening and diagnosis primarily in oncology, pre-natal care, and infectious diseases, but the company is exploring opportunities in a wide range of applications.

On May 30, Trovagene made a number of major announcements. They listed on the NASDAQ after effecting a 1-6 reverse split, and subsequently raised over $10.5M to fund the development of their platform technology. Typically, dilution is a material risk with emerging or development-stage biotechnology companies. However, with a round of financing recently completed, this risk is alleviated, at least for the next 12 months. As per their last quarterly statement, Trovagene had roughly $600k in cash and equivalents; first quarter burn rate was approximately $1.2M. Estimates put post-offering cash and equivalents at around $10M (after expenses), and with 2011 operating expenses at less than $3.5M, Trovagene should be able to continue well past 2012 without needing further capital.

Although currently immaterial, Trovagene's licensing capabilities may provide significant revenue over the next few years. This is important because development-stage companies tend to burn cash, rather than generate it. This becomes an important factor as these technologies transition to commercialization. Trovagene has exclusive patents on the NPM1 gene, a biomarker in the prognosis of acute myeloid leukemia. Licensed only sparsely at the moment, Trovagene is actively pursuing partners for this licensing product; revenues from such fees were up 300% from 2010, and royalty fees in 2011 accounted for $227k in revenue.

The ability to file a 510(k) clearance and prove substantial equivalency under FDA guidance may significantly reduce expenses and time spent in the approval process for Trovagene; management expects to begin the process sometime in 2012. As another source of revenue, Trovagene plans to develop and sell LDTs (Laboratory Developed Tests) through their own CLIA licensed lab which could also result in a faster track to approval. With dominant global patent position and competent management, Trovagene is well-positioned to move out of development and into commercialization.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TROV over the next 72 hours.

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