WHITEFISH, MT / April 22, 2014 / Foundation Medicine Inc. (FMI) made headlines in September 2013 with a well received $106 million IPO and a 78% first-day jump in share price. Despite lackluster demand for diagnostics stocks in general, investors jumped at the opportunity to invest in the company's unique approach of determining, in a single test of a cancer patient's tumor, whether any genetic mutations are present in literally hundreds of genes that can be paired with therapies that target those specific mutations.
Companies like Novartis AG (NVS) and Sanofi SA (NYSE:SNY) jumped on the opportunity to sign deals with Foundation Medicine to use the company's test in the course of developing new cancer drugs, while physician demand has been equally strong with some 1,500 physicians in 25 countries ordering the $5,800 test, despite the fact that it’s not yet covered by most medical insurance plans.
In fact, optimism is so high that shares now trade with a market capitalization of over $750 million despite a lack of profits. But, these dynamics could shift with a new partnership between CollabRx (CLRX) and Affymetrix Inc. (AFFX) that was announced on April 16, 2014. The two partners could enable practically any laboratory to serve as strong competition to Foundation Medicine’s growing empire.
CollabRx's Makes Sense of "Big Data"
A Silicon Valley technology mogul who survived metastatic cancer and a Stanford professor with experience in biocomputing and Artificial Intelligence founded CollabRx in 2008. With more than 10,000 cancer-related clinical trials, 700 cancer drugs in clinical development, and over 100,000 cancer-related papers published each year, it is practically impossible to stay current on how it all relates to treating individual cancer patients. The two realized that a "big data" problem such as this could only be solved with a technological solution. This solution should provide easy access to a simplified analysis of the overwhelming amount of cancer research that is conducted each year. Furthermore, the solution should be optimized for the purpose of informing cancer treatment planning for individual patients.
Rather than building a molecular diagnostics company from scratch, like Foundation Medicine chose to do, the CollabRx founders decided to focus solely on the "big data" element and create a comprehensive database that could match genetic mutations with treatment options for patients with specific types of cancer. This approach meant that no laboratory related regulatory and compliance guidelines would be need to be met, development costs could be kept low, and operating margins could be kept relatively high over the long run.
Since then, the company went public via a merger in July of 2012 and has begun working with some of the country's leading diagnostics companies, including Quest Diagnostics Inc. (NYSE:DGX). The company provides these clients with access to its extensive database and enables them to compete with the likes of Foundation Medicine in providing a complete solution.
Affymetrix Completes the Circle
Affymetrix is a leading provider of consumables and systems for genetic analysis in the life sciences and clinical healthcare markets. In effect, they are focused on the opposite end of the spectrum as CollabRx by providing the physical components needed to analyze tissue samples (including tumors) for specific types of genetic abnormalities and, through their customers, fulfilling the other half of Foundation Medicine's vertically integrated business model.
The company's Genetic Analysis & Clinical Applications business unit markets genotyping products and assays with clinical research applications, such as the CytoScan(R) and OncoScan product lines. During FY 2013, the segment generated $96.87 million in revenue, which was 16% higher than a year ago, and represented approximately 30% of its total revenue mix.
The segment's rapid growth reflects increasing demand for fast, accurate, and high-resolution technology to identify and characterize genetic alterations in human tissues. OncoScan provides breakthrough capability in solid tumor gene copy number analysis, while CytoScan provides the broadest coverage and highest performance for detecting human chromosomal aberrations with greater than 99% sensitivity.
Empowering Molecular Diagnostics
On April 16, 2014, Affymetrix partnered with CollabRx to optimize the use of the CollabRx Genetic Variant Annotation ("GVA") Service in connection with the Affymetrix OncoSca(TM) FFPE Assay Kit and CytoScan(R) Cytogenics Suite for analysis of gene copy number variations in cancer research. The use of both companies' technologies could provide molecular diagnostics companies or any clinical laboratory (including those in academic centers or hospitals) with a Foundation Medicine-like capability.
This move helps dramatically streamline the process of transferring data between some of the industry's most common genetic analysis equipment and software solutions that can interpret it for use in clinical decision making. Molecular diagnostics companies and clinical laboratories worldwide already using Affymetrix solutions could rapidly integrate CollabRx software to provide next-level services to clinicians. These integrated cancer panels would provide direct competition to Foundation Medicine's own products and services.
CollabRx's GVA Service would be offered to laboratories under a software-as-a-service ("SaaS") model whereby customers would pay for each database look-up in addition to set-up and maintenance fees. Investors would therefore benefit from greater recurring revenue over time and consistently increasing profit margins as economies of scale are realized. Over the long-term, the move could unlock significant value for shareholders.
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