The timing is coincidental, but it will be reassuring to Roche’s shareholders that the company has acquired a maker of a combined test for Covid-19 and other respiratory pathogens just as its own combo Covid-19 and flu test has hit a snag.
This morning the Swiss group bought Genmark Diagnostics for $1.8bn in cash, paying a 30% premium to Genmark’s closing share price on Friday and more than 10 times its 2020 revenues. Those revenues had nearly doubled from 2019, thanks in part to Genmark’s Covid-19 panel. The challenge for Roche will be maintaining a respectable rate of growth as the pandemic wanes.
Genmark’s ePlex respiratory pathogen panel 2, authorised by the FDA in October, is capable of detecting and differentiating nucleic acid from the novel coronavirus as well as nine kinds of flu or parainfluenza, the four coronaviruses that cause the common cold, and several other viruses and bacteria.
Last year Genmark sold 265 ePlex systems – the machines on which the panel runs – increasing its installed base by 50%. Demand for the RP2 panel itself drove “a large portion” of Genmark’s $172m 2020 revenue, according to Scott Mendel, the group’s chief executive.
Indeed, demand for the panel is such that it is outstripping the company’s manufacturing capacity – an area in which Roche will surely be able to help. And it will be happy to come to the rescue, since its own multi-virus diagnostic is in a spot of bother.
On Friday the FDA wrote to doctors to warn of potential false positives with Roche’s similar test. The agency said Roche had identified two issues with the cobas Sars-Cov-2 & Influenza A/B nucleic acid test for use on the cobas Liat system. The assay tubes might sporadically leak, potentially leading to invalid results or false positives, particularly for the Flu B test; and abnormal PCR cycling in the reaction tubes, which could cause false positives for multiple analytes in a single testing run.
Roche also makes a cobas Sars-Cov-2 & Influenza A/B nucleic acid test for use on the cobas 6800 and 8800 machines; no problem has been identified with this product, or any other of Roche’s half-dozen or so Covid-19-related tests that have also been authorised by the FDA.
Genmark is not profitable, though it is moving that way. Its net loss last year was $18.6m, a marked improvement from its loss of $47.4m in 2019. The group guided to 2021 sales of $188-198m, representing growth of around 13%, with ePlex revenue driving the increase.
Demand for Covid-19 testing is expected to slow as vaccination levels increase and the pandemic fades. But being a syndromic panel, Genmark’s test is probably able to withstand this better than assays that solely detect the coronavirus. Genmark used to sell such a test – it was one of the first to gain FDA authorisation, just under a year ago – but shifted to the panel as a way to create a more enduring revenue stream.
Even so, inevitably some of the focus will, in time, shift to Genmark’s other strengths. The company also makes ePlex panels to identify microbes in patients’ blood, including multidrug-resistant organisms. While the problem of microbial resistance is widely expected to worsen in coming years, another year-on-year doubling of sales of Genmark’s products sales is unlikely.