Trovagene's Foray Into The Conventions Of Molecular Diagnostics

| About: TrovaGene, Inc. (TROV)

Biotech investors will have noticed the 22% gain that Sequenom (NASDAQ:SQNM) produced in the last five days, a product of a compelling uptick in insurance coverage and use of the company's MaterniT21 Down Syndrome test. Sequenom reported that it will nearly double the amount of tests that it had expected to handle this year, from 50,000 to 90,000, accessioning an average of 1,700 weekly. Reading through older Sequenom filings, and then diverging further into the diagnostic segment as a whole, I revisited a lightly traded company with a compelling pipeline of assays. Trovagene (NASDAQ:TROV) develops molecular diagnostics for use in oncology, prenatal testing, and infectious disease diagnosis. What sets it apart, however, is a focus on transrenal nucleic acids, meaningful cell fragments found in urine samples, more easily obtained than through traditional blood tests, biopsies, or amniocentesis. The products are still in development, but have the potential to penetrate an expanding market, with a cheaper and simpler product. Trovagene isn't reinventing the wheel but certainly reevaluating what makes it turn.

Trovagene's lead assays focus on the detection of infectious diseases and mutations such as KRAS, BRAF and PIK3CA in cancers. These oncogenes play a key role in cancer treatment. For instance, while Eli Lilly's (NYSE:LLY) Erbitux is a potent treatment for colorectal cancer, the drug is ineffective against cancers with KRAS mutation, and studies show that Genetech's (OTCQX:RHHBY) Avastin may be the better option; of course, that determination relies on identifying the mutation. Those diagnoses currently depend on biopsies and blood tests, pulling DNA and RNA for genetic analysis. But the same telling cell fragments found in blood can be found in urine (transrenal DNA and RNA). Trovagene's technology simplifies the process by providing the same diagnosis as existing assays, only without time-consuming biopsies or bloodwork. The company's products necessitate urine alone, isolating nucleic acids while allowing providers to continue using existing analysis equipment. Not only is urine safer (non-biohazard) than blood, tissue, or stool samples, but with an added preservative, it has a longer shelf life, and patients can provide samples without the aid of a physician.

This year, Trovagene engaged in some noteworthy cooperations and licensing agreements with larger diagnostic companies. In September, Quest Diagnostics (NYSE:DGX) entered into a licensing agreement with Trovagene to incorporate the NPM1 marker into research and clinical testing services. The marker is crucial in the diagnosis of acute myelogenous leukemia (AML), and Trovagene holds exclusive licensing to related patents and applications. In the same month, Strand Life Sciences teamed up with Trovagene to validate and commercialize TROV's Human Papillomavirus (HPV) test for clinical diagnostic and screening use in India. In a 2008 320-patient trial, the urine-based HPV assay demonstrated a sensitivity of 93% and a specificity of 96%, significant next to the 78% and 86% generated by a competing test. While the analyses themselves have been around for some time, the collection method - urine as opposed to blood or tissue samples - could begin to replace current standards of care and allow expansion into less-developed countries. In a large and growing market, that would make all the difference for a small company.

Demand for molecular diagnostics has been growing in parallel to the demand for "personalized" treatments. On the high end, analysts estimate the market for DNA-based diagnostics to reach $21.3B worldwide by 2015 (TROVE touts more defined numbers), spurred by "awareness and acceptance of personalized medicine, advancements in molecular techniques, and increasing investments in genomics & proteomics research." Trovagene isn't attempting to reinvent molecular diagnostics, but improve on existing methods. Furthermore, adoption of Trovagene's products is not limited to early diagnosis, but according to the company, will include cancer monitoring, detecting transplant rejection, screening for genetic risks in pregnant mothers, and infectious disease diagnosis once the pipeline is fully developed.

A few months back, I might have overlooked Trovagene based on non-existent liquidity and a neglected balance sheet, but the company affected a reverse split in May, up-listed to the NASDAQ, and raised more than $9M through an equity offering. Trovagene took a crucial and necessary step for a young diagnostic company early this year by purchasing a CLIA laboratory for in-house diagnostics. And the company continues to augment a robust patent estate, as intellectual property is a primary focus of this small firm. Most notable in the near-term, the company should begin providing details on the development and marketing of its KRAS mutation assay for pancreatic cancer, which began clinical development through a collaboration in July. Trovagene expects to launch its first molecular diagnostics test by the end of the year. Fueled by a next-gen technology and a growing demand for diagnostics, TROV is a long-term story. SQNM trades with a market capitalization of $458M even as a cash-flow negative company, and Hologic (NASDAQ:HOLX), interestingly enough, purchased diagnostics-developer Gen-Probe in August at a hefty premium to its trading price. TROV's comparatively low valuation ($56M MC) offers investors an up-and-coming alternative to more mature diagnostics companies, as transrenal nucleic acid testing could supplant current technologies as standards in the long-term. Trovagene should report 3Q results any day, allowing a more poignant look at the books, further developments, and financial guidance.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TROV over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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