Cancer Genetics

An Emerging Leader in Cancer Diagnostics

On January 9, Cancer Genetics (NASDAQ: CGIX) announced that it is actively involved in five projects with leading biotech and pharma companies to develop and validate multi-marker liquid biopsy tests for a broad range of solid tumors.

iquid biopsies open the market to new, cost-effective ways to routinely assess the effectiveness of cancer therapies and detect cancers earlier and with higher sensitivity.

The development of multi-marker companion and complementary liquid biopsy diagnostics are anticipated to accelerate, with analysts at J.P. Morgan predicting the market could be worth as much as $20 billion by 2020.

“CGIX’s experience in developing, comparing and validating biomarker assays for precision oncology is unmatched, and in high need, as liquid biopsies begin to create clinical interest and enable new, less-invasive methods for detection and monitoring,” stated CEO Panna Sharma.

Liquid biopsies are expected replace traditional tissue-based biopsies in a wide range of cancers.

The five programs CGIX announced in January range across a variety of cancers including: breast, lung, renal, prostate, and gastro-intestinal.

The Rise of Companion Diagnostics

CGIX and companies like it that are revolutionizing cancer care can trace the foundation of their success back to the completion of the human genome project.

According to the authors of “Implications of the Genome Project for Medical Science”, published by the National Human Genome Research Institute in 2012:

"Understanding the molecules of life and how they work will shed light on what goes wrong when diseases develop. Such detailed, fundamental understanding about our bodies will have profound effects on the way diseases are diagnosed, on the prevention of disease, and on treatments."

At the center of this changing landscape are biomarker-driven companion diagnostics (CDx).

The U.S. Food and Drug Administration defines a companion diagnostic as “an in vitro diagnostic device that provides information that is essential for the safe and effective use of a corresponding therapeutic product.”

Companion diagnostics provide a host of benefits. They’re used to help identify patients most likely to benefit from a particular therapeutic treatment, and they can identify patients with increased risk for adverse reactions. CDx can also be used to monitor a patient’s response to treatment, providing critical data to guide adjustment of things like dose and schedule, leading to improved safety and/or effectiveness.

The first successful CDx, launched in 1998, was designed to identify breast cancer patients suitable for treatment with Herceptin. The success of this program unleashed a torrent of activity in the field of CDx.

By 2006 there were six CDx tests in the market, by 2012 there were 63 tests available.

With the number of oncology drugs in clinical trials, the rapid growth of CDx should continue unabated.

Work Underway with 8 of 10 Largest Biopharmas

In December, NJ-based Cancer Genetics (NASDAQ: CGIX) was placed on Merck’s (NYSE: MRK) list of national reference laboratories offering the first U.S. Food and Drug Administration (FDA)-approved companion diagnostic test for pembrolizumab, KEYTRUDA®, for PD-L1 testing in non-small cell lung cancer (NSCLC).

CGIX now offers all the available FDA approved companion diagnostics for PD-L1 testing across several cancer indications, and is providing these tests for both patient management in the clinical setting as well as for immuno-oncology trials sponsored by leading pharmaceutical companies.

Overall, CGIX now supports more than 100 clinical studies and trials and over 30 with a component for immuno-oncology testing and monitoring.

CGIX and leading cancer experts believe that the synergistic effect of integrating immuno-oncology and targeted therapies will result in personalized cancer treatment with higher efficacies and improved outcomes.

It’s believed that CGIX has validated, under a compliant and CLIA regulated setting, PD-L1 testing across more cancer indications than any other commercial cancer laboratory, including: melanoma, NSCLC, head and neck, breast, gastric, colon, bladder, pancreatic, renal, prostate, and ovarian cancers, urothelial carcinoma, mesothelioma, and B-cell lymphomas.

Including Merck, CGIX actively works with eight of the 10 largest biopharma companies in the world.

Commenting on the Company’s growing CDx business, Sharma stated:

“Our unique ability to provide comprehensive immune marker data along with unique genomic content is driving significant growth among our existing biotech and pharmaceutical companies and also with new Biopharma companies. Many of these trials and studies are requiring more technology and more sensitive and accurate methods to stratify and monitor immune response and immune therapy effectiveness in patients and across patient populations. CGIX is in a unique position to deliver this data in a collaborative manner to our customers.”

At the end of the third quarter, CGIX’s pipeline of signed contracts with pharma and biotech companies reached $49 million.

Improving Financial Performance

At the time of CGIX’s initial public offering in 2013, the Company was generating approximately $1.5 million per quarter in revenue. Fast forward three years, after a series of acquisitions and consistent organic growth, CGIX is now generating nearly $7 million per quarter in revenue.

Analysts estimate the Company will hit break-even once it reaches $10 million per quarter in sales.

For the third quarter, revenue was up 68% year-over-year. If this trend continues the Company will easily hit the break-even point in 2017.

CGIX is also working to rein in costs. Over the first three quarters of 2016, operating expenses decreased 20%, furthering progressing the Company toward profitability.

Tax Credits Expected to Boost Cash

At of the end of the third quarter, CGIX reported a cash position of $10.7 million.

Historically, CGIX has annually received up to nearly $2 million in non-dilutive funding through the New Jersey Technology Business Tax Certificate Transfer (NOL) Program.

This competitive program, developed by the New Jersey Economic Development Authority (EDA) in 1999, provides funds each year to eligible New Jersey-based technology and biotechnology companies to support job creation and innovation.

In 2014, CGIX announced a $1.2 million credit, and in 2015 they received a credit of $1.8 million. A similar credit for 2016 is likely to be announced in the near-term.

Strong Buy Rating

Analysts at Feltl & Company reiterated their strong buy recommendation on CGIX in November with a price target of $5.75 per share. CGIX currently trades at around $1.50 per share.

The Feltl report highlights a significant variance in valuation relative to enterprise value between CGIX and one of its main competitors, Foundation Medicine (NASDAQ: FMI).

CGIX’s trailing 12-month clinical and biopharma revenue of $25.3 million is nearly a third of FMI’s. Yet FMI’s enterprise value is 30x higher than CGIX’s.

As this valuation anomaly corrects, CGIX investors stand to benefit tremendously.

Learn more about CGIX today by reading NexGenIR’s latest report on the Company.

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