Riding a Cancer Diagnostics Wave, Genoptix Sees Boom Continuing in 2009
There are about 11,000 physicians in the U.S. whose job is to diagnose and treat people thought to have cancers of the blood. These specialty physicians need to sort through a dizzying number of lab tests to identify subtle differences in types and stages of leukemias, lymphomas, and myelomas. Get it exactly right, and it might cure the patient. Get it wrong, and it could be a disaster.
Most lab service companies specialize in running specific tests accurately and fast. They often get their orders one by one, and send back results that way, not in a comprehensive package for the hematologist/oncologists (known as heme-onks for short) who have to make the bottom line diagnosis. San Diego-based Genoptix (NASDAQ: GXDX) has seized upon this gap in the marketplace by bundling the tests a doctor needs to make such conclusions. Founder and CEO Tina Nova, a veteran biotech entrepreneur with experience at Hybritech, Ligand Pharmaceuticals, and Nanogen, filled me in on why her newest company has been so successful.
Something like 850,000 patients are living with blood malignancies of some kind in the U.S., and about 150,000 new cases are diagnosed each year. This typically involves a battery of expensive tests that are run by giant contract labs like Laboratory Corp of America, or Quest Diagnostics. Such tests require a small sample of a patient’s bone marrow to run analyses such as flow cytometry, which helps sort out malignant cells from healthy ones, and pathology tests, which examine cells under a microscope. More sophisticated analyses put cells in a lab dish and examine genes associated with malignancies.
Usually a combination of these tests will give the doctor an answer, like whether a patient has chronic myelogenous leukemia and is therefore a candidate for Novartis’ wonder drug imatinib (Gleevec) or whether he or she needs some other treatment altogether. Nova says Genoptix is the only company that runs all the tests in-house and puts together a report that offers a diagnosis under the direction of employees trained in hematology/oncology. As Nova put it, they speak the same language as the physician.
“No one else uses a model like ours,” Nova says. “We came to this because we learned that the diagnosis of leukemia and lymphoma was not well-served. The physicians told us that diagnosis is the biggest problem they are faced with.”
Diagnostics companies traditionally take a back seat to the more glamorous work of drug development, but Genoptix is clearly much better positioned heading into in the downturn than most traditional drug developers. Revenues were $59.3 million in 2007, which doubled to $116.2 million last year. Genoptix is profitable and expects to continue growing despite this year’s recession, with forecasted revenue this year of $170 million. Nova insists the company is just warming up, having captured just 6 percent of a market with greater than $1 billion in annual sales potential.
Such growth has put Genoptix in the unusual position of needing to hire people to keep its momentum going, instead of firing people to preserve its cash. The company had 280 total employees heading into this year, including 55 sales reps, and 25 physicians who play critical roles as direct liaisons with hematologist/oncologist customers. Genoptix isn’t forecasting how much its total payroll will increase, but Nova says she expects to finish this year with 85 sales reps, and 37 doctors on staff.
Even though Genoptix was founded in 1999 and settled on its current strategy in 2003, Nova says her competitors haven’t adapted to its model. Some are huge, global companies, with departments that specialize in certain kinds of tests, but they aren’t structured like her company. “They want to run as many samples through as they can, as fast as they can, which we don’t think is really applicable to cancer,” Nova says. “More personal service is involved.”
Genoptix has all the same diagnostic machines in-house as the competition, so it doesn’t really have a technology advantage. It does have a slim pricing advantage. Based on the company’s experience running tests on bone marrow samples and current Medicare reimbursement rates, the average bone marrow diagnostic case costs about $3,000, according to the Genoptix 2008 annual report. Prices can vary, but for its extra layer of physician-caliber service, Genoptix charges an extra $75 for its report, Nova says.
Of course, fast-growing revenue numbers can hide a bunch of corporate ills. One of the challenges is managing the growth without letting expectations soar so high that you tick off your customers when you fail to deliver. Genoptix formed a partnership with FedEx early on to transport these precious bone marrow samples. So far, the company has never lost one, although Nova says it’s happened at other companies.
There also are challenges with personnel. Nova says she’s concerned that Genoptix sales reps are spread too thin to do the best job possible She says she wants to make sure she gets the right physicians to come work for Genoptix, the ones who can help shepherd the appropriate tests and keep the hematologist/oncologist customers happy. Nova says that’s critical to ensuring Genoptix can continue to grow.
“That relationship is essential for us,” Nova says. “It’s really difficult to call a doctor at one of the larger lab companies and get them to talk about an individual case, and have them know anything about it.”