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|
|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|
|Siemens AG (SI)||GSK/ViiV (GSK)||Infection-HIV||12-Feb|
|Roche/Ventana||Aeterna Zentaris Inc.||Cancer-Multiple||12-Jan|
|MDx Health||Celldex (CLDX)||Cancer-Gliobastoma||11-Dec|
|Metamark Genetics||Johnson & Johnson (JNJ)/Janssen||Cancer-Undisclosed||11-Dec|
|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|
|Skyline Diagnostics||Johnson & Johnson||Undisclosed||11-Jul|
|Roche Molecular Systems||Clovis Oncology (CLVS)||Cancer-Lung||11-Jun|
|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|
|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|
|Sanford-Burnham Medical Research Institute*||Takeda||Obesity||10-Dec|
|Roche||Astellas (OTC:ALPMF)/OSI Pharmaceuticals (OTC:OSIPR)||Cancer-Lung||10-Nov|
|Myriad Genetics||Abbott Laboratories||Cancer-Breast||10-Oct|
|Accumetrics||Eli-Lilly & Daiichi Sankyo||Cardiovascular-Blood Clots||10-Jul|
|Lab Corp||Merck & Co||Infection-HCV||10-Jul|
|Almac Diagnostics||Aeterna Zentaris Inc (AEZS)||Cancer-Ovarian||10-Jun|
|Saladax Biomedical||Bristol-Myers Squibb||Cancer-Undisclosed||10-Jun|
|Response Genetics (RGDX)||GSK||Cancer-Undisclosed||10-May|
|Roche||Merck & Co||Cancer-Undisclosed||10-Feb|
|Rules Based Medicine||Roche||Neurology-Undisclosed||9-Dec|
|Almac Diagnostics||Eli Lilly||Cancer-Lung||9-Sep|
|Qiagen||Merck & Co||Cancer-Cervical||9-Sep|
|Asuragen||Biogen Idec (BIIB)||Cancer-Undisclosed||9-Jul|
|Celera (CRA)||Bayer Schering||Cancer-Undisclosed||9-Jun|
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
- Market Cap: ~4 Billion
- Relationships: Eli Lilly, Pfizer, Merck & Co, Bristol-Myers Squibb, Astra Zeneca, Boehringer Ingelheim
- Market Cap: ~2.8 Billion
- Relationship: Novartis
Sequenom Inc. -
- Market Cap: ~450 Million
- Relationship: Optherion
Response Genetics -
- Market Cap: ~29 Million
- Relationship: GSK
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.