Oncogene Testing Patents Key In Evaluating Stock Picks In Medical Research Sector According To Industry Expert

• On 4:41 pm EDT, Tuesday September 15, 2009

67 WALL STREET, New York - September 15, 2009 - The Wall Street Transcript has just published its Medical Research Services report offering a timely review of the sector to serious investors and industry executives. This 23 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Medical Device Research Services - Pharmaceutical Research Services - Diagnostics - Life Science Research Supplies - Biology R & D - Lab Services Business Model - International Economic Exposure - Effect of Recession on Sector Stocks - Top Stock Winners and Losers in Medical Research Services - Top Stock Winners and Losers in Medical Diagnostics

Companies include: Arrowhead Research (ARWR); Cleveland BioLabs (CBLI); IR BioSciences Holdings (IRBS); Power3 Medical Products (PWRM); Illumina (ILMN); Luminex (LMNX); Waters (WAT); Life Technologies (LIFE); QIAGEN (QGEN); Sangamo BioSciences (SGMO); Beckman Coulter (BEC); Invitrogen (IVGN); Amgen (AMGN); Bristol-Myers (BMY); Eli Lilly & Co. (LLY); Myriad Genetics (MYGN); Genomic Health (GHDX); Targeted Genetics (TGEN); Dow Chemical (DOW); Sigma-Aldrich (SIAL); MDS (MDZ); Danaher (DHR); Cepheid (CPHD); Inverness Medical Innovations (IMA); Quidel (QDEL); Meridian Bioscience (VIVO); Gen-Probe (GPRO); Sequenom (SQNM); Genoptix (GXDX); Response Genetics (RGDX); Affymetrix (AFFX); Monogram Bioscience (MGRN); LabCorp (LH)

In the following brief excerpt from one of the 6 interviews in the 23 page report, an industry expert discusses the outlook for the sector and for investors.

ALASTAIR MACKAY, Ph.D. joined GARP Research & Securities in 2005. In 2007 and 2008, he garnered respectable rankings in The Wall Street Journal's "Best on the Street" annual survey of the sell side. As a researcher at Osiris Therapeutics (1996-2005), Mr. Mackay studied the growth and differentiation of human mesenchymal stem cells. Before that he was a postdoctoral fellow at the Johns Hopkins University (1989-1995), where he used "reverse-genetics" to identify the function of INCENP, an essential protein component of chromosomes. Mr. Mackay earned his doctorate from the University of Vermont in 1989 by studying carcinogenesis in asbestos-induced mesotheliomas.

TWST: In a previous interview, you mentioned that many prospective molecular diagnostic assays with obvious clinical applications have grown exponentially since you began watching this space several years ago. What are the right questions investors should ask as they weigh the different investment options in the molecular diagnostics space?

Mr. Mackay: For molecular diagnostics, the technology driver is the move to nucleic acid-based diagnostics. While there is continuing innovation in immunoassays and small molecule detection, these technologies will probably continue to show strong single-digit growth rate in the U.S. and worldwide. For game-changing assays, I think most observers are focusing on the progress being made in understanding DNA and RNA - in particular, the differences in gene sequences from one individual to another individual, and what that can tell us about prognosis and about the likely efficacy of a given therapy. With respect to cancer, a great deal of work is underway on the genetic changes that take place as tumors begin, and as they grow and metastasize. Clearly, novel diagnostics are going to have a large impact on the therapeutic choices that oncologists make. One prominent example of that has been playing out this year.

TWST: Would you mention this example and name the companies that are responsible?

Mr. Mackay: Most of this type of work is coming from academic research laboratories in the U.S. and in Europe. For this example, the oncogene known as K-RAS, many labs have contributed to understanding its mechanism of action and to how specific mutations affect that. Academics have done most of the clinical work, supported by large pharmas. It turns out that about half of colorectal cancers develop mutations in K-RAS that render the drugs Vectibix and Erbitux (made by Amgen (AMGN) and Bristol-Myers (BMY)/Lilly (LLY), respectively, ineffective. From that, you can see that it makes sense to test the tumor for mutations before embarking on an intensive and expensive therapy. In fact, the field's evolving so fast that many oncologists already do this. So these manufacturers went before the FDA in December of 2008 and then again in the spring of 2009 to argue for this sort of change to their products' labels. The update was approved in July. More such diagnostic-therapeutic connections are on the way.

TWST: Much discovery is taking place, mostly in the academic sphere right now. Are there any companies in the commercial sector and R&D space for both the life sciences and molecular diagnostics assays that have a good combination of management strategy for manufacturing and corporate spending, and interesting and applicable products or research?

Mr. Mackay: There are two ways to look at it. One way is in terms of the commercialization of an assay with significant implications for patient care. These are important to patients, caregivers and payers alike. One currently unfolding instance is that K-RAS assay we just talked about. Life Technologies, QIAGEN and others are in the process of commercializing implementations of it. Now, the second way to look at this, from an investment point of view, is to ask whether the pricing of an assay will be on a commodity basis or an exclusive basis. Many important assays aren't based on an absolutely clear-cut portfolio of patents and other intellectual property, so competitors aren't blocked from coming out with their own versions. As Adam Smith envisioned, this should lead to competition and lower prices over time. K-RAS will likely be an instance of this dynamic. Thus, it's unlikely that such an assay will contribute fantastically to the revenues or earnings of a company like QIAGEN or Life Technologies. Both of these companies also show that many assays - and the consumables and instruments it takes to run them - can appreciably benefit top and bottom lines. The other extreme is represented by assays that have been developed exclusively under the protection of a strong patent or other I.P. portfolio. This is the model being pursued by companies like Myriad Genetics (MYGN) and Genomic Health (GHDX). Myriad has exclusive rights to assays based on two genes, BRCA1 and BRCA2, which form the basis of the BRACAnalysis assay for breast cancer prognosis. This workup costs a patient or insurance company about $3,400. Myriad performs BRACAnalysis with gross margins of about 87%, which is unusual for just about any industry. This sort of situation can only persist in the presence of a strong intellectual property estate.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 23 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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