Close below the 200 day and The Life Sciences Report, George Zavoico, senior analyst and managing director with MLV & Co
The Life Sciences Report: George, we spoke almost exactly six months ago. You said that biotech stocks had a breeze to their backs. I've just looked at an unweighted index of your coverage list: It is up 30% since that time, and up 67% from 12 months ago. You have done well.
TLSR: Last time we spoke, you said you had a special interest in molecular diagnostics. Aren't these susceptible to commoditization? A competitor can maneuver around another company's IP and devalue the originator's idea. Of course, that can be done with drugs too, but not in 18-36 months, which is plausible for developing a biomarker. How do you perform due diligence around this possibility?
GZ: There are two aspects to molecular diagnostics. You can get a snapshot of a patient, just as you would with typical lab tests, with regard to electrolytes, oxygen saturation, blood cell counts etc. But in this case, you are measuring the presence or absence of a particular enzyme or mutation. These kinds of tests are more likely to become "commoditized," as you say. They add value by helping to more accurately evaluate a patient's prognosis.
The other type of molecular diagnostic is predictive -- determining the likelihood that a particular drug or treatment regimen will actually provide clinical benefit. Typically, these diagnostics don't measure a single parameter, but a gene expression profile. Moreover, more rigorous clinical trials are needed to show the correlation between treatment choice and benefit. These types of tests are more difficult to commoditize, especially since the ability of a company to conduct these trials, publish the results to validate the correlation, convince physicians and patients to use the product, and obtain reimbursement from third-party payers is not a trivial matter. We think these types of diagnostics will be much more difficult to commoditize. Genomic Health Inc. (GHDX) has taken this approach and no real competitors have emerged.