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Experts have been incorrectly predicting the timing in the coming shift to personalized medicine for years now. Given the numerous claims of "personalized medicine is now," I will be more conservative and say I believe "we've hit an inflection point" in personalized medicine.

When Agilent (A) decided to acquire Dako for $2.2 Billion in May, many (including myself) initially believed they drastically overpaid. Dako is very mature and paying more than 7x revenue seems a hefty ransom. Dako obviously provides an asset that Agilent wanted and not that many investors are thinking about: Existing relationships with Pharma.

Companion diagnostics (CDx), diagnostic tests that are linked to a particular drug/therapy, are a key to personalized medicine and I believe will see an acceleration in the coming years. Vision Gain estimates the global market for companion diagnostics to be $1.5 billion growing at around 15%. This is one of the fastest sub-industries in hyper-growth molecular diagnostic market and I believe that growth rate can even be conservative. I believe companies well positioned for the shift to personalized medicine will be the ones with companion diagnostics franchises. Specifically, I believe IVD Kit manufactures will see a shift in their contribution in revenue from laboratories such as Lab Corp (LH), Quest Diagnostics (DGX), and university medical centers to Pharma.

Not all companies can easily shift from a company that sells diagnostic kits and instruments to reference labs to being a major companion diagnostic player overnight. Typically companies need the right technology, relevance in the space, and have management with relationships in place.

The following list is every partnership I could find since 2009 between pharmaceutical companies and diagnostic companies.

Diagnostics Partner Pharmaceutical Partner Disease Area Deal Date
Foundation Medicine Novartis (NVS) Cancer-Multiple 12-Jun
PrimeraDx Eli Lilly (LLY) Cancer-Multiple 12-Jun
Genomic Health (GHDX) OncoMed Pharmaceuticals Cancer-Undisclosed 12-May
Dako Genetech Cancer-Breast 12-May
Roche/Ventana (OTC:RHHBF) Millennium/Takeda (OTC:TKPHF) Cancer-lymphoma 12-Apr
Roche/Ventana Seattle Genetics (SGEN) and Millennium Cancer-lymphoma 12-Apr
HTG Molecular Diagnostics Sanofi (SNY) Cancer-Undisclosed 12-Mar
Meso Scale Discovery Bristol-Myers Squibb (BMY) Neurology-Alzheimers 12-Mar
Abbott Molecular (ABT) Merck & Co (MRK) Cancer-Undisclosed 12-Mar
Myriad Genetics (MYGN) Cephalon (CEPH) Cancer-ovarian and breast 12-Mar
Biodesix Inc. Kadmon Corporation Cancer-Lung 12-Feb
Dako Amgen (AMGN) Cancer-Undisclosed 12-Feb
Siemens AG (SI) GSK/ViiV (GSK) Infection-HIV 12-Feb
Siemens AG Tocagen Cancer-Brain 12-Feb
Foundation Medicine Sanofi Cancer-Multiple 12-Jan
Roche/Ventana Aeterna Zentaris Inc. Cancer-Multiple 12-Jan
Xenon Genetech Pain 12-Jan
Roche/Ventana Bayer (OTC:BAYZF) Cancer-Undisclosed 12-Jan
Roche/Ventana Pfizer (PFE) Cancer-Lung 12-Jan
Roche/Ventana Syndax Cancer-lung 12-Jan
Dako Genetech Cancer-Breast 11-Dec
MDx Health Celldex (CLDX) Cancer-Gliobastoma 11-Dec
Metamark Genetics Johnson & Johnson (JNJ)/Janssen Cancer-Undisclosed 11-Dec
Abbott Molecular GSK Cancer-Undisclosed 11-Nov
Dako Bristol-Myers Squibb Cancer-Undisclosed 11-Nov
Life Technologies (LIFE) GSK Cancer-Immunotherapy 11-Oct
Foundation Medicine Johnson & Johnson Cancer-Undisclosed 11-Oct
Qiagen (QGEN) Eli Lilly Cancer-Blood 11-Sep
Skyline Diagnostics Clavis Pharma Cancer-Blood 11-Sep
Qiagen Pfizer Cancer-Lung 11-Aug
Unilabs Biogen Idec Cancer-Blood 11-Jul
Skyline Diagnostics Johnson & Johnson Undisclosed 11-Jul
Roche Diagnostics Merck Cancer-Multiple 11-Jun
Roche Molecular Systems Clovis Oncology (CLVS) Cancer-Lung 11-Jun
Agendia AstraZeneca (AZN) Cancer-Colorectal 11-May
Myriad Genetics BioMarin Pharmaceutical Inc (BMRN) Cancer-ovarian and breast 11-Apr
MolecularMD ARIAD Pharmaceuticals, Inc. (ARIA) Cancer-Leukemia 11-Mar
Invivoscribe Technologies Inc Novartis Cancer-Leukemia 11-Feb
BioMerieux Ipsen Cancer-Multiple 11-Feb
OPKO Health (OPK) Bristol-Myers Squibb Neurology-Alzheimers 11-Jan
Biocartis Johnson & Johnson's Janssen and Ortho-Clinical Diagnostics Undisclosed 11-Jan
MDx Health (OTC:MDXHF) Pfizer Cancer-ovarian and breast 11-Jan
Zinfandel Takeda Neurology-Alzheimers 11-Jan
Diagenic Pfizer Neurology-Alzheimers 10-Dec
Prometheus Bayer Schering Cancer-Undisclosed 10-Dec
Sanford-Burnham Medical Research Institute* Takeda Obesity 10-Dec
Roche Astellas (OTC:ALPMF)/OSI Pharmaceuticals (OTC:OSIPR) Cancer-Lung 10-Nov
Cepheid (CPHD) Novartis Cancer-Leukemia 10-Oct
Myriad Genetics Abbott Laboratories Cancer-Breast 10-Oct
MDx Health GSK Cancer-Undisclosed 10-Sep
Roche/Ventana Transgene (OTC:TRGNF) Cancer-Lung 10-Sep
Accumetrics Eli-Lilly & Daiichi Sankyo Cardiovascular-Blood Clots 10-Jul
Lab Corp Merck & Co Infection-HCV 10-Jul
Pathwork Diagnostics Novartis Cancer-Undisclosed 10-Jul
Almac Diagnostics Aeterna Zentaris Inc (AEZS) Cancer-Ovarian 10-Jun
Saladax Biomedical Bristol-Myers Squibb Cancer-Undisclosed 10-Jun
BioMerieux GSK Cancer-Skin 10-May
Response Genetics (RGDX) GSK Cancer-Undisclosed 10-May
Almac Diagnostics Merck Cancer-Colorectal 10-Apr
Roche/Ventana Clovis Oncology Cancer-Pancreas 10-Apr
Abbott Molecular GSK Cancer-Skin 10-Mar
AgaMatrix Sanofi -Aventis Matebolic-Diabetes 10-Mar
Prometheus Bayer Schering Cancer-Undisclosed 10-Mar
Qiagen/DxS Pfizer Cancer-Gliobastoma 10-Feb
Roche Merck & Co Cancer-Undisclosed 10-Feb
Sequenom (SQNM) Optherion Ophthalmology-AMD 10-Feb
CMIC Roche Kidney Disease 10-Jan
Dako Astra Zeneca Cancer-Undisclosed 10-Jan
MDx Health Roche Cancer-Gliobastoma 10-Jan
Rules Based Medicine Roche Neurology-Undisclosed 9-Dec
BioMerieux GSK Cancer-Breast 9-Nov
Orion Genomics Novartis Cancer-Undisclosed 9-Oct
Almac Diagnostics Eli Lilly Cancer-Lung 9-Sep
Qiagen Merck & Co Cancer-Cervical 9-Sep
DxS/Qiagen Bristol-Myers Squibb Cancer-Colorectal 9-Sep
Abbott Molecular Pfizer Cancer-Lung 9-Aug
Dako Roche Cancer-Stomach 9-Aug
Abbott Molecular GSK Cancer-Lung 9-Jul
Asuragen Biogen Idec (BIIB) Cancer-Undisclosed 9-Jul
Enigma Diagnostics GSK Infection-Influenza 9-Jul
Qiagen/DxS Astra Zeneca Cancer-Lung 9-Jul
Celera (CRA) Bayer Schering Cancer-Undisclosed 9-Jun
Diagenic Merz Pharmaceuticals Neurology-Alzheimers 9-Jun
Almac Diagnostics Pfizer Cancer-Colorectal 9-May
Qiagen/DxS Boehringer Ingelheim Cancer-Lung 9-May
MDx Health Merck Cancer-Gliobastoma 9-Mar
Dako OSI Pharmaceuticals Cancer-Undisclosed 9-Jan
XDx Bristol-Myers Squibb Autoimmune-Lupus 9-Jan

Positioning for this Trend

My investment thesis has moved further towards personalized medicine being a "now" phenomenon from a "get ready because it's around the corner" trend. I believe that molecular diagnostics companies that previously offered a diagnostic will be less interesting going forward and companies that work directly with Pharma and provide a companion diagnostic can outperform the market over the next 5-10 years.

To find the companies that can outperform from the list, we first need to find listed public companies that are small enough that revenue from Pharma can be relevant. Abbott and Roche are great diagnostics companies but receiving $25 Million from providing a CDx to the newest blockbuster in clinical trail doesn't qualify as material.

Companies with the Partnerships in Place

The following companies are US listed companies with existing Pharma relationships and market caps under $5 Billion:

Genomic Health -

  • Market Cap: ~1.0 Billion
  • Relationship: Oncomed Pharmacueticals

Myriad Genetics -

  • Market Cap: ~2.2 Billion
  • Relationships: Cephalon, BioMarin, Abbott

Qiagen -

  • Market Cap: ~4 Billion
  • Relationships: Eli Lilly, Pfizer, Merck & Co, Bristol-Myers Squibb, Astra Zeneca, Boehringer Ingelheim

Cepheid -

  • Market Cap: ~2.8 Billion
  • Relationship: Novartis

Sequenom Inc. -

  • Market Cap: ~450 Million
  • Relationship: Optherion

Response Genetics -

  • Market Cap: ~29 Million
  • Relationship: GSK

Conclusion

The six companies I listed are small enough to see a material impact from an increase in companion diagnostics. In addition to the revenue they receive from testing and research centers they will see an increase in Pharma revenue contribution. Personalized medicine is coming and I believe companion diagnostics companies stand to dramatically benefit. The best indicator of future profitable relationships with Pharma is having an existing relationship today.

Disclaimer: The table was found by searching headlines in GenomeWeb over the last 3.5 years. Please understand there maybe agreements I have missed. Feel free to add any deals I might of missed in the comments.

Source: Coming Wave Of Companion Diagnostics: Who's Making A Splash