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Quest's New Prenatal Testing Tie Up

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A new coalition has been formed between leading diagnostic testing company, Quest Diagnostics (DGX) and Natera, a genetic testing company with proprietary bioinformatics-based technology ("NATUS"), which offers a complete high-throughput testing for reproductive indications from minute quantities of DNA. As per the newly formed relationship, Natera will get distribution help from Quest Diagnostics, which will offer physicians access to Natera’s latest non-invasive prenatal test Panorama. The terms of the deal were not disclosed.

This test uses cell-free fetal DNA in circulating maternal blood to screen for chromosomal abnormalities associated with genetic disorders like trisomy 21 (Down syndrome), trisomy 18 (Edwards syndrome), trisomy 13 (Patau syndrome) and monosomy X (Turner syndrome). Panorama can be used at a very early stage of pregnancy (9th week).

Quest Diagnostics, which is currently striving to expand in women’s health, plans to forward specimens for testing to Natera's CLIA-certified laboratory in Calif. This prenatal test, Panorama, will be available to the clients of Quest Diagnostics in certain regions in Mar and countrywide in Apr 2013.

As per a recent opinion made by the American Congress of Obstetricians and Gynecologists (:ACOG), cell-free fetal DNA testing can be used as a primary screening test for women with an increased risk of aneuploidy. It can also act as a follow-up test for women with a positive first-trimester or second-trimester screening test result.

We believe that Quest Diagnostics’ focus on women’s health is necessary as its peers like Illumina’s (ILMN) plans to acquire Verinata Health, Inc., a privately-held company dedicated to non-invasive tests for the early identification of fetal chromosomal abnormalities. The acquisition was announced a month before. Further, the company’s arch rival – Laboratory Corp. of America Holdings’ (LH) made an alliance with non-invasive prenatal genetic test company, Ariosa Diagnostics, last year.

Currently, we remain concerned about Quest Diagnostics as it is continuously witnessing challenges with testing volume. Concerns also remain about a conservative 2013 revenue outlook, indicating that the industry trend will not improve in the near future. Although we hold a favorable view regarding the company’s massive organizational restructuring strategy announced in Oct 2012 to increase operational efficiency and restore growth, near-term visibility is discouraging. Moreover, concerns linger regarding the reimbursement cut, which has been in effect from Jan 1, 2013.

The stock currently carries a Zacks Rank #5 (Strong Sell). Another medical device stock, Medical Action Industries Inc. (MDCI), carries a Zacks Rank #1 (Strong Buy) and appears impressive.

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