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Marty Chilberg is a seasoned financial professional with over 30 years of executive leadership, board, consulting and advisory experience.  He began his career as a certified public accountant (CPA). He moved to Silicon Valley in 1981 to begin his career in the software industry, working for... More
  • Ariosa S-1 Review 13 comments
    Mar 25, 2014 4:58 PM

    We now have a second company in the NIPT space providing public information. Ariosa Diagnostics filed an S-1 with the SEC today. This blog is from a quick read of the document today.

    • Harmony is their only product. Ariosa does not have any issued patents.
    • Harmony is positioned as a next generation test aimed at the general pregnant population. First generation NIPT (MaterniT21) is targeted at the high risk population.
    • Targeting the general population eliminates costly analysis of information only relevant to high risk population.
    • Market size is estimated to be: 4m annual births in US for an estimated TAM of $2B-$4B per year.
    • International estimated births are over 130m per year.
    • C12 revenues were $12.0m with a net loss of $21.9m
    • C13 revenues were $53.3m with a net loss of $2.4m.
    • Test ramp for Harmony worldwide: Q2-12 1.8, Q3-12 9k, Q4-12 18.9k, Q1-13 25.2k, Q2-13 32.5k, Q3-13 40.7k, Q4-13 45.3k.
    • 140 Employees at 12/31/13: 39 R&D, 45 ops, 56 sales, G&A.
    • Approximately 30m shares including common, preferred and equivalents. Recent option grants have estimated FMV of $6.17 for projected market cap approaching $200m.
    • Cash on hand $14m and LTD of $5m at 12/31/13.
    • Plan to use portion of proceeds for commercial expansion ($25m) and lab infrastructure $8m. See LabCorp bullet.
    • C13 gross margin was 66%.
    • Harmony currently available in 90 countries. 25% of C13 revenues were from international markets.
    • Significant portion of 2013 revenues were from LabCorp (73%). These revenues were recognized upon test results received by LabCorp based upon a predetermined price. Not contingent upon LabCorp reimbursements.
    • LabCorp agreement was amended in Jan-14. Effective Mar-14, LabCorp pricing was adjusted, arrangement is now nonexclusive, LabCorp has option of continuing to sell Harmony, subject to certain milestones, until December 2016. Ariosa has right to sell directly or through other partners.
    • Current capacity is 200k tests per year.

    LabCorp has disclosed issues with reimbursements numerous times in their earnings conference calls. This amendment could indicate they were losing money which could lead to short term revenue disruption after the Mar-14 quarter.

    Related note: Ariosa added numerous open positions during the past 3 weeks bringing their total job openings from 20 at February 28, 2014 to 40 today. Most of these jobs were US field sales/marketing positions or lab ops.

    LabCorp quotes from last conference call:

    David King CEO...."At the same time, we have to look at every relationship and, particularly, some of our smaller relationships and determine whether there's enough value in continuing to provide those services to justify the cost that we're putting into. And we do that regularly and we will continue to do it. And if we find business that isn't profitable or that is absorbing more costs than we're gaining value from it, we have in the past and won't hesitate in the future, to move away from that business."

    "So I was fairly optimistic all throughout last year that we would get paid fairly promptly. I still think we will get paid in time. And if we don't, then we'll take steps to make sure that we're not doing $40-plus million of free testing in the future. But this has been a long and frustrating and, my view, unreasonable process on the payer side. And we either got to get paid or we got to stop doing the testing."

    "I'm not going to talk specifically about that. I'm just going to repeat that we're either going to get paid or we're going to stop doing the testing, or the patients are going to start getting billed for it."

    Summary: Ariosa appears to have done a very good job of managing their business to the verge of profitability, though apparently at the expense of their partner LabCorp. They clearly confirm that they are NOT targeting the high risk market. However, on page 12 they state: "reimbursement coverage for Harmony is currently mostly limited to payers in the United States, with coverage primarily limited to high risk pregnancies". This appears to confirm the conclusion that Ariosa's results have been assisted by revenues recorded and paid by their partner LabCorp. This creates an investment sinkhole. Harmony is less expensive and lower priced because it is targeted at a market that isn't paying for it. Yet they were able to recognize these revenues because their partner, LabCorp subsidized it. Now we see the disruption of the LabCorp relationship as disclosed in the S-1 and confirmed by the newly opened jobs listed on the Ariosa's website.

    In 2013, 75% of $53m in recorded revenues came from US patients. Yet they disclose that this test is not targeted at high risk pregnancies where the only insurance coverage exists. This is supported by the use of proceeds and projected increase in future losses disclosures. Hopefully more information will be made available before this offering is completed, but at present investors should be cautious when evaluating the test ramp or the revenue history as both seem potentially influenced by the low risk market that will not be subsidized by LabCorp starting in March 2014.

    Disclosure: I am long SQNM.

    Additional disclosure: Ariosa has requested the symbol AROS in the S-1

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Comments (13)
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  • chrisdewdney
    , contributor
    Comment (1) | Send Message
    So if i read this right, if labcorp processed a test, then they paid Ariosa there fee and took on the responsibility to collect the list price of the test from whomever requested the test be it Medicaid, private insurer etc. If that's the case then Ariosa is in for a rude awkening when going it alone and billing for there own tests, especially low risk.
    26 Mar 2014, 02:34 AM Reply Like
  • Marty Chilberg
    , contributor
    Comments (579) | Send Message
    Author’s reply » That looks plausible based upon the disclosures in the S-1. The only way for Ariosa to recognize revenues was to have a contract with a fixed price point and a history of collections under it. The LabCorp agreement fulfilled those requirements. However, LabCorp stated many times that Molecular Diagnostics were not being reimbursed by end users due to CMS coding issues. Anyone who follows this space knows that low risk is not being covered yet which is confirmed by Ariosa in the S-1. And Ariosa states very early on that this is a "next generation" NIPT which is targeted at the low risk market where analysis depth done by MaterniT21 and Verifi is not needed.


    I don't think it will be a rude awakening to Ariosa as I'm sure they are well aware of the reimbursement history of LabCorp. What is surprising is that this is not more fully disclosed in the document as it appears likely the rude awakening is going to come from anyone investing in this IPO.
    26 Mar 2014, 08:23 AM Reply Like
    , contributor
    Comments (8) | Send Message
    It seems, Ariosa Diagnostics is expected to surpass Sequenom, Inc. in terms of number of NIPTs performed in 2014.
    27 Mar 2014, 07:15 AM Reply Like
  • Marty Chilberg
    , contributor
    Comments (579) | Send Message
    Author’s reply » That wouldn't surprise me at all. The S-1 states that the US high risk market is about 500k and the general market is 4m. Harmony is focused on a market that is 8x larger in the US. That is disclosed in the S-1 and supported by the ASP in C13 of approximately $371. What is surprising is that they are now admitting that this is their approach despite medical and insurance advisory statements that NIPT is currently recommended only for high risk patients. It is similarly surprising that they are disclosing this so openly now. During the past year they Song stated that the vast majority of their tests were for high risk. See Goldman Sachs conference call in Feb-2013 for an example.
    IT will be interesting to see the market reaction.
    27 Mar 2014, 07:49 AM Reply Like
  • Insiderz
    , contributor
    Comments (100) | Send Message
    when we go to low risk testing
    SQNM will still have the best and deepest testing munue out there
    and a low risk test will be reasy soon
    to beat ariosa in low risk too
    Sequenom did a new partnership as of yesterday in India , no PR yet
    and first ministry in germany warn of diagnostic tests that are processed only in USA (Ariosa)
    Sequenom has a CE mark
    these are no good times for Ariosa
    but SNM times getting brighter with every day going forward
    just imo
    27 Mar 2014, 07:55 AM Reply Like
    , contributor
    Comments (8) | Send Message
    Low cost of Harmony will play a key role in elevating its adoption level among low risk pregnant population than any other NIPTs.
    30 Mar 2014, 09:36 AM Reply Like
  • Marty Chilberg
    , contributor
    Comments (579) | Send Message
    Author’s reply » I don't disagree that eventually low risk population will adopt NIPT as a standard of care and that price will be a key driver of adoption. However, Ariosa is currently ignoring the recommendations that it is limited today to high risk pregnancies. And their test ramp and revenue recognized appears unsustainable after their lab partner discontinues their subsidy. In 1-3 years when the low risk market opens up, test provider will need to price their test to encourage adoption which will quite likely be in the range of $300-$600. I'll add a couple of additional comments from others for anyone interested.
    30 Mar 2014, 03:43 PM Reply Like
  • Marty Chilberg
    , contributor
    Comments (579) | Send Message
    Author’s reply » SMFM Confirms Current Guidelines on Noninvasive Prenatal Testing
    Published on March 11, 2014


    In a recent press release, the Society for Maternal-Fetal Medicine (SMFM) offered comments on the emerging use of noninvasive prenatal testing, concluding that recent research is not yet sufficient to change current practice recommendations from SMFM or the American Congress of Obstetricians and Gynecologists (ACOG).


    Diana Bianchi, MD
    The review was triggered, in part, by media coverage surrounding publication of the study, “DNA Sequencing versus Standard Prenatal Aneuploidy Screening,” which appeared in the February 27 issue of the New England Journal of Medicine. The study examined the performance of the verifi prenatal test by Illumina, San Diego, a noninvasive blood test that analyzes DNA found in a pregnant woman’s blood to detect the most common fetal chromosome abnormalities. Lead author of the publication was Diana W. Bianchi, MD, executive director of the mother infant research institute at Tufts Medical Center.


    For the study, which involved a relatively small number of average-risk patients, the authors compared traditional screening for aneuploidy with noninvasive prenatal testing using serum analytes. According to the SMFM commentary, the study was too small to compare detection rates, but the authors reported that the false-positive rate of noninvasive prenatal testing was lower, and therefore concluded that the test “merits serious consideration as a primary screening method for fetal autosomal aneuploidy.”


    “While such a measured conclusion appears reasonable,” wrote SMFM, “the serious consideration that the authors propose requires further data, and the study by Bianchi et al. has to be viewed in the context of its many limitations.” Most importantly, said the society, the study is underpowered for the purpose of comparing detection rates, and it is generally not valid to compare false-positive rates in isolation.


    Noninvasive prenatal testing uses cell-free DNA from maternal serum to screen for common fetal aneuploidies with high sensitivity and specificity. It also uses next-generation sequencing to directly measure fetal DNA in the maternal circulation, and clinical tests are now available using this technique. While there are differences in the methodologies employed by commercial laboratories, overall the reported performance is similar, with detection rates for Down syndrome above 99% and false-positive rates that are less than 1%. Such performance makes screening via noninvasive prenatal testing “an attractive alternative to traditional serum screening for aneuploidy for patients,” wrote SMFM.


    SMFM currently recommends that noninvasive prenatal testing is most appropriate for high-risk patients. The five criteria used by the society to establish high-risk status include maternal age 35 years or older at delivery; sonographic findings indicating an increased risk of aneuploidy; history of a prior pregnancy with a trisomy; positive screening results for aneuploidy, including first trimester, sequential, integrated, or quadruple screen; or parental balanced Robertsonian translocation with increased risk for trisomy 13 or 21.


    According to SMFM, current recommendations have been based primarily on limited evidence regarding the utility of noninvasive prenatal testing in low- or average-risk pregnant women, and validation studies that have generally been limited to high-risk populations. “Understandably,” wrote SMFM, “there is a keen interest in performing the same type of validation studies in a low-risk population.”


    In its commentary, SMFM observed that the NEJM study compared only false-positive rates for trisomies 18 and 21, although all commercially available products also include testing for trisomy 13 and the sex chromosomes, which have higher false-positive rates. A high percentage of the samples for noninvasive prenatal testing were collected in the third trimester—at gestational ages when clinical aneuploidy screening is not performed and is not clinically relevant, yet when fetal DNA amounts are far higher and allow for better test performance. The authors compared noninvasive prenatal testing with standard prenatal screening with a variety of first- and second-trimester tests that have a broad range of performance characteristics. Fewer than 3% of patients had integrated screening, which is the prenatal screening method with the best performance, including the lowest false-positive rate. In addition, traditional screening can detect risk for a broad array of structural, chromosomal, and perinatal abnormalities.


    Vincenzo Berghella, MD
    “The importance of these in a low-risk population may be far greater than the impact of trisomy 18 and 21, which are relatively rare in a younger maternal cohort,” said Vincenzo Berghella, MD, president of SMFM. “It is important to note that this study included only five Down syndrome; five cases of trisomy 21 in the population of 1,909 patients represents a rate of 1 out of 381, which is substantially higher than the population risk of 1 out of 700 that would be expected in a truly ‘average’ or ‘low-risk’ cohort.


    “Finally and importantly, when considering population screening, some patients who choose noninvasive prenatal testing will fail to obtain a result,” said Berghella. “While that number was just under 1% in this study, rates as high as 12% have been published, especially in overweight and obese women.”


    Formalizing the society’s conclusion, the press announcement stated that “SMFM has reviewed the evidence, including this recent paper, and feels that while NIPT is a promising new technology, and this new report is important and excellent news, it is not enough to change current ACOG and SMFM recommendations. Given that just eight aneuploidies were present in the entire cohort of patients, the true test performance is difficult to determine.”


    “Further evidence comparing costs, false-positive rates for all included analyses, ability to obtain a result, and overall test performance for all detectable abnormalities in larger numbers of truly average-risk patients are required to justify changing recommendations regarding population-based prenatal screening from just high-risk pregnancies, to all pregnancies,” said Berghella. “We eagerly await the results of ongoing research studies which will address these issues.”
    30 Mar 2014, 03:45 PM Reply Like
  • Marty Chilberg
    , contributor
    Comments (579) | Send Message
    Author’s reply » Study finds NIPT detects more than 80 percent of chromosomal abnormalities
    Study finds noninvasive prenatal testing detects more than 80 percent of chromosomal abnormalities
    In a study to be presented on Feb. 6 at 9 a.m. CST, at the Society for Maternal-Fetal Medicine's annual meeting, The Pregnancy Meeting™, in New Orleans, researchers will report that noninvasive prenatal testing detected 83.2 percent of chromosomal abnormalities normally picked up by invasive diagnostic testing strategies, such as chorionic villus sampling (CVS) or amniocentesis. Noninvasive prenatal testing (NIPT) using cell free DNA provides accurate screening for the common trisomies, including trisomy 13 (Patau syndrome), 18 (Edwards syndrome), and 21 (Down syndrome).
    In this study, titled Rare Chromosome Abnormalities Detected by Current Prenatal Screening Compared to Expected Performance using Non-Invasive Prenatal Testing (NIPT), 68,990 of 1,324,607 women tested positive for trisomy 18 or 21 when they underwent prenatal screening as part of the California Prenatal Screening Program between March 2009 and December 2012. Invasive diagnostic testing with CVS or amniocentesis was performed on 26,059 women who tested positive, and 2993 were found to have abnormal results. Of those chromosomal abnormalities, 2489 (83.2 percent) were abnormalities that would be detectable with NIPT, while 16.8 percent were less common aneuploidies that would not be detected.
    One of the study's authors Mary Norton, M.D., said that more of the abnormal results were detectable in the women over 40, who are at higher risk for trisomy 13, 18 or 21. Conversely, fewer of the abnormalities in younger women would be detected by NIPT, as the risk for common trisomies is lower in this group, while the rare aneuploidies are not typically associated with maternal age.
    "While noninvasive prenatal testing with cell free DNA presents some real advantages in accuracy of screening for Down syndrome, as with everything there is a trade-off. Traditional aneuploidy screening with serum and ultrasound markers has higher false positive rates, but in these false positive cases are some fetuses with significant abnormalities that would not be found with NIPT. It is very important that patients and providers understand this trade-off," said Norton, professor and vice chair for Clinical and Translational Genetics, Department of Obstetrics, Gynecology and Reproductive Sciences at the University of California, San Francisco.
    "In prenatal genetic testing, patient preferences are really the most important driver," Norton continued. "With this test, the patient makes a tradeoff between NIPT, which is noninvasive and detects most, but not all chromosome abnormalities—and is somewhat better in older women—and amniocentesis or CVS, which detect more chromosome abnormalities [8 to 25 percent more, depending on age] but with a small risk of miscarriage due to the procedure.
    For an older woman, detecting 83 percent with the noninvasive test may be good enough, while for a 25-year-old, failing to detect 25 percent [which may include rare aneuploidies not usually associated with age] may be of concern."
    30 Mar 2014, 03:45 PM Reply Like
  • Insiderz
    , contributor
    Comments (100) | Send Message
    ACMG tweet from Gautam Kollu ‏@gautamkollu
    "Norton: over 4000 patients lost to follow up and technical failures from Ariosa's NIPT"
    30 Mar 2014, 01:07 PM Reply Like
  • Insiderz
    , contributor
    Comments (100) | Send Message
    Marty, this is very outdated stuff you posted right now
    the study with 80% i know this is from data around 2011


    upto date news were just out at ACMG
    see my post above
    30 Mar 2014, 03:58 PM Reply Like
  • Marty Chilberg
    , contributor
    Comments (579) | Send Message
    Author’s reply » The point of this blog and of the "outdated stuff" that I posted is to point out some issues related to the pending IPO of Ariosa. Granted the referenced comments were related to research that is dated, but the paper was just published in Feb-14. That led to the statement in March-2014 from the Society of Maternal Fetal Medicine to confirm their view that more research is needed before they believe general population NIPT is appropriate. That statement is consistent with the view commonly expressed by Sequenom which is that low risk NIPT is still likely 2-3 years out in the US and their low cost test will be focused on international markets upon release.


    Ariosa is apparently ignoring the ACOG and SMFM guidelines as well as reimbursement policies from all major insurance carriers in the US.


    The tweets coming from the recent ACMG meeting are quite interesting but they appear to all be coming from live presentation statements. I'm still waiting to see some actual publications provide the data behind these comments.
    30 Mar 2014, 07:46 PM Reply Like
  • Insiderz
    , contributor
    Comments (100) | Send Message
    Non-invasive EXamination of Trisomy (NEXT) Study: Directed Cell-Free DNA Analysis versus 1st Trimester Combined Screening for Trisomy 21 Risk Assessment in a Large Routine Pregnancy Population
    Presented During: Oral Platform Presentations: Perinatal Genetics
    03/28/2014: 5:15 PM - 5:30 PM
    Music City Center
    Room: Grand Ballroom BC


    Abstract Number:
    First Author:
    Mary Norton, MD, FACMG
    University of California San Francisco
    San Francisco, CA
    Herb Brar, MD
    Perinatal Diagnostic Center
    Riverside, CA
    Bo Jacobsson, MD
    Sahlgrenska University
    Goteborg, Sweden
    Geeta Swamy, MD
    Duke University School of Medicine
    Durham, NC
    Angela Ranzini, MD
    St. Peter's University Hospital
    New Brunswick, NJ
    Mark Tomlinson, MD
    Northwest Perinatal Center
    Portland, OR
    Louise Laurent, MD, PhD
    University of California, San Diego
    La Jolla, CA
    Leo Pereira, MD
    Oregon Health and Sciences University
    Portland , OR
    Howard Cuckle, PhD
    Columbia University Medical Center
    New York, NY
    Jean Spitz
    Perinatal Quality Foundation
    Oklahoma City, OK
    Desiree Hollemon, MSN, MPH
    Ariosa Diagnostics
    San Jose , CA
    Thomas Musci, MD
    Ariosa Diagnostics
    San Jose, CA
    Ronald J. Wapner, MD, FACMG
    Columbia University
    New York, NY
    Non-invasive prenatal testing (NIPT) with cell-free DNA (cfDNA) has been shown in several studies to be highly accurate for fetal trisomy evaluation in high-risk pregnant women. The performance of NIPT in a routine pregnancy population has yet to be evaluated in a large prospective study.
    To compare the performance of NIPT with directed cfDNA analysis to first trimester combined screening (FTS) for fetal trisomy 21 risk assessment in a general pregnancy population.
    A prospective multi-center blinded cohort study was undertaken comparing the HarmonyTM Prenatal Test, a directed cfDNA test, with FTS using first trimester PAPP-A, hCG and nuchal translucency measurement. Pregnant women with a singleton fetus presenting in the first trimester for routine prenatal screening for fetal aneuploidy were eligible. Participants had both FTS and Harmony testing performed. Women were provided with FTS results as part of routine care. Participants and care providers were blinded to Harmony results, calculated as probability scores. Pregnancies were followed for newborn outcomes. Invasive testing results or neonatal phenotype, with karyotype confirmation in cases of suspected aneuploidy, were used for trisomy 21 identification. Harmony, FTS results and outcomes were reported to an independent data coordinating center. The primary outcome was the comparison of the area under the ROC curve for trisomy 21 test performance of the Harmony and FTS tests.
    A total of 18,955 women were enrolled across 38 centers in the United States, Canada and Europe from March 2012 to April 2013. The mean maternal age was 30.6 (range: 18-52) years and the mean gestational age was 12.4 (10-14.3) weeks. As of this submission, 16,286 subjects have completed all study visits with 88% of eligible subjects successfully completing follow-up. The last delivery date was November 25, 2013.
    Final results of this large prospective international study will be presented and implications for the use of NIPT for trisomy 21 risk assessment in the general pregnancy population will be discussed.
    31 Mar 2014, 08:20 AM Reply Like
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