XDx, After a Long Slog in Molecular Diagnostics, Predicts First Profit in 2011

12/21/10Follow @xconomy

The numbers tell a sobering story at Brisbane, CA-based XDx. Ten years in business. Five years with a diagnostic product on the market. About $140 million of capital invested. And after all that, projections are that the company might start running in the black for the first time next year, its 11th year in business, 2011.

A couple of important things happened this year to help nudge XDx forward in its quest to build a business on a new breed of molecular diagnostic test. XDx’s product, used to help doctors determine whether a patient can safely say he or she isn’t rejecting a heart transplant, received some long-sought validation when a paper was published in April in the New England Journal of Medicine. A few months later, a key medical society included the XDx’s AlloMap test as part of standard practice guidelines for heart transplants.

XDx has long been one of the companies seeking to lead the way with molecular diagnostics, and it has long fought an uphill battle as it seeks to get insurers to pay $3,200 for a diagnostic test. Diagnostics, despite their ability to catch and prevent disease early, have always taken a backseat to the more lucrative and glamorous pursuit of creating new drugs. The worldwide market for diagnostics was about $42 billion in 2007 and is expected to grow at a 6 percent rate through 2012, according to Kalorama Information, a market research firm. That amount represents a pittance of the U.S. healthcare market, which is worth about $2.5 trillion a year. A company like XDx coming along with an expensive new diagnostic test has its work cut out in justifying to all the interested parties why it is worth the money.

Five years into this effort, when I visited his office in late September, XDx’s chief executive Pierre Cassigneul told me that he thinks the company will turn profitable for the first time in 2011. When I checked back yesterday, the company was standing by that forecast.

Still, it won’t be easy. His projections in September were that XDx would perform 7,500 to 8,000 of its noninvasive tests. Yesterday, I was told the actual figure this year will be “more than 7,000″ tests. At that rate, XDx could generate more than $22 million worth of revenue for 2010, although it’s bound to be something less than that because of insurance reimbursement challenges. Clearly, winning over insurers is the next big challenge for this company.

Pierre Cassigneul

Pierre Cassigneul

“We now have learned how to work with physicians to overcome the healthy skepticism they have, and we’re now working with payers to overcome the healthy skepticism they have,” Cassigneul says.

XDx started on its journey in 2000. The company’s plan—backed by Kleiner Perkins Caufield & Byers, Burrill & Co., and TPG Ventures, among others over the years—has been to bring the potential precision of molecular diagnostics to the field of inflammatory disorders. This was thought to make a lot of sense because autoimmune diseases, in which the immune system goes haywire and attacks healthy tissue like a virus, are notoriously tricky to diagnose based on clinical observations from physicians. There are more than 80 different immune disorders that affect millions of people, and the company needed to focus on something specific first, Cassigneul says.

The decision was to go after the organ transplant business, where much uncertainty hovers around the question of whether a patient’s immune system will reject new organs as foreign. Unlike with diseases such as rheumatoid arthritis or lupus, whose symptoms wax and wane and no one knows really what causes them, there is a lot of scientific rigor built into the transplant process.

“You know exactly when it started, you know what the insult to the immune system is. These patients are extremely rigorously followed by doctors. You know what you’re looking for,” Cassigneul says.

So XDx focused on the heart transplant market. Doctors want to know … Next Page »

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