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Mar 15, 2008 (Vol. 28, No. 6)

Monogram Enters Theranostic Market

Near-Term Growth Is Linked to Trofile, a Companion Diagnostic to Pfizer’s HIV Therapy

  • The advent of personalized medicine seems to have been upon us for a while now. Many wonder whether the buzz surpasses the reality. The scant number of individualized therapies and molecular diagnostics and prognostics on the market after decades of research certainly lends fuel to this pessimism. Others argue that it is only in these present times with major strides being made in technology as well as certain strong political winds that the plethora of research will bear fruit. As this happens, we will also see more interest from investors.

    The final frontier is the field of theranostics, or diagnostic products that are linked to a particular drug or family of drugs. Monogram Biosciences is among a handful of players in this field. The company’s claim to fame is Trofile, the only clinically validated assay for selecting patients to be treated with Pfizer’s recently approved HIV therapy maraviroc. Monogram also has a platform technology, VeraTag, which is fueling the development of oncology tests.

    Zacks senior pharmaceutical industry analyst Grant Zeng is optimistic about Monogram’s HIV test products and VeraTag’s potential. Before recommending the shares, though, Zeng says, “We would like to see the company effectively managing its top- and bottom-line growth.”

    Trofile is expected to be the impetus that Monogram needs to grow, according to Alfred G. Merriweather, svp and CFO. Obviously, Monogram stands to benefit from the success of maraviroc in the U.S. and Europe, points out Zeng. FDA and the European Commission mandate that this CCR5 antagonist be used in treatment-experienced patients selected by tropism testing, which is what Trofile does.

    FDA green lighted maraviroc in August 2007, and Trofile was introduced commercially that same month. In September 2007, Medicare coverage and reimbursement were established, and discussions with various Medicaid programs are ongoing, Merriweather reports.

    Monogram retains commercialization rights in the U.S., while Pfizer will handle the product outside the country.  Commenting on sales in Q4 ’07, William Young, CEO, says, “The first full quarter of Trofile commercialization has seen good progress in testing volumes. Over 3,800 tests have been performed to date for U.S. patients, and weekly levels are now over 200.” Indeed, Monogram’s revenue jumped 34% from Q4 ’06 to reach $13.7 million in Q4 ’07.

    Monogram’s other source of revenue is its product and service division. “About one-third of our business comes from providing tests to research companies for early-stage discovery work right up to Phase III trials,”  Merriweather notes. In fact, according to full-year revenue data, the company fared better in 2006 than in 2007 because of Trofile’s use in Pfizer’s late-stage evaluations. Revenue for FY ’07 was $43.2M and $48M in FY ’06.

    This aspect of Monogram’s franchise, though, raises some concern for Zeng. “Revenue concentration on a few customers, mainly from Pfizer, Quest Diagnostics, and Laboratory Corporation of America, posts higher risks for Monogram.”

    This sentiment is reflected in Monogram’s current market value. Maraviroc’s approval should have boosted the firm’s worth. This was not the case, however. Besides its business model, another reason Monogram did not achieve the target price is because of the competitive nature of the anti-HIV market, explains Zeng. “Even in the HIV antientry submarket, competition is looming.”

    Yet another issue is Monogram’s small cash reserves. At the end of Q4 ’07, Monogram had $30 million in cash, cash equivalents, and short-term investments.

    Merriweather identifies two opportunities that will pad the firm’s finances. “In the near term is Trofile. The opportunity we expect to realize in the longer term is HERmark.”

    Developed on the VeraTag platform, HERmark quantifies HER2 expression and dimerization in patients with breast cancer. The diagnostic can identify patients who are likely to respond to Herceptin with greater precision than currently available tests, according to Merriweather. “We are bullish on the prospects for the company’s HERmark assay,” remarks Zeng.

    Monogram is focusing on VeraTag-based assays related to EGFR/HER targeting drugs. Several such treatments are already on the market, with many more in development. “This means that Monogram's VeraTag assays will have great demand from pharmaceutical companies,” Zeng predicts.

    As of February 28, Monogram was trading at $1.58. Zeng’s target is $1.6 and he currently has a Hold rating.



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