Myriad Genetics Acquires Crescendo Bioscience for $270M
[Updated 4 pm PT] Myriad Genetics telegraphed its plan to acquire Crescendo Bioscience three years ago, and now it has followed through on the deal.
The Salt Lake City, UT-based diagnostics company (NASDAQ: MYGN) said today it has agreed to acquire South San Francisco-based Crescendo Bioscience for $270 million in cash, minus a $25 million loan Myriad made to the startup in 2011.
By acquiring Crescendo, Myriad is getting its hands on Vectra DA, a molecular diagnostic test that measures the level of disease activity in patients with rheumatoid arthritis. The company’s test is supposed to help doctors and patients determine whether the inflammatory disease can be controlled over time with cheap medications like methotrexate, or whether the patient responds better to more expensive products like Amgen’s etanercept (Enbrel) or AbbVie’s adalimumab (Humira). Those top-selling drugs are expensive, sometimes costing $20,000 a year, and they don’t work for everyone. The company introduced Vectra DA in 2010, won Medicare reimbursement last year, and hit one of the necessary sales milestones in November that triggered the ultimate buyout by Myriad.
Crescendo, founded in 2002, currently has about 130 employees, the company said in a statement. The 2011 financing agreement with Myriad outlined the basic structure of today’s takeover, which was based on Crescendo reaching certain revenue milestones as a private company.
Aeris Capital AG, Skyline Ventures, Safeguard Scientific, Mohr Davidow Ventures and Kleiner Perkins Caufield & Byers were among Crescendo’s previous investors. Crescendo most recently raised $28 million in a Series D financing in January 2013, and a $31 million Series C financing in September 2011. Grand total, the company had raised about $100 million in venture capital, CEO Bill Hagstrom said.
[Updated 4 pm PT] Myriad is keeping the Crescendo unit in the Bay Area, and Hagstrom has agreed to stay on as president of the wholly-owned subsidiary.
Myriad said the small company is generating about $10 million a quarter a revenue. The market for a quantifiable, protein-based molecular diagnostic test in autoimmunity is still a nascent one, although the potential is clearly huge. About 1.5 million people in the U.S. have rheumatoid arthritis, and they have a chronic disease that means they end up seeing their doctor 2-6 times per year, he says.
On many of those visits, doctors today still depend on a subjective clinical evaluation called DAS28, in which they squeeze 28 different joints to assess how swollen, tender and painful they are. Crescendo has sought to bring more objective biological measurements of disease into the field, and has performed more than 100,000 of its tests over time, Hagstrom says. About one-fourth of the 3,500 rheumatologists in the U.S. now order Vectra DA on a monthly basis, he says.
Like all new high-value diagnostics, Crescendo has its work cut out in terms of getting paid. The company struck an agreement with Medicare last year, in which the national insurance program for elderly people pays $575 per test. But Medicare only represents 40 percent of Crescendo’s customer base, and the company hopes to lean on Myriad to help it gain a stronger position with private insurance companies. Part of the plan is to strike some reimbursement contracts that can reduce hand-to-hand combat over individual claims. Crescendo doesn’t disclose the list price it charges to private insurers, but sometimes the price it gets is higher than the Medicare price, and sometimes it’s lower, Hagstrom said.
Merging with Myriad should also help the small company tap into growing demand for its Vectra DA test in Europe, and to develop new diagnostics for autoimmune disease based on using nucleic acid data points, instead of just proteins, Hagstrom said. “We want to be able to accelerate our growth,” Hagstrom says.
Pete Meldrum, Myriad’s CEO, said he sees this as an opportunity for his company to diversify into a new therapeutic area (autoimmune disease), and with a new technology (protein-based diagnostics). Crescendo, as a first-mover in a big potential diagnostic market, has an opportunity to grow much bigger.
“When you’re a VC-backed, early-stage company, there’s often a focus on a single product that achieves escape velocity as opposed to a long-term focus,” Meldrum says. “We’re a more mature company with a strong revenue and profit base. We can afford to invest and guide the platform with a long-term strategic vision.”