NeoGenomics has exercised its option to buy the remaining stake in Inivata for $390 million, positioning it to challenge for the liquid biopsy market. NeoGenomics expects the deal to close in the midlle of June.
The takeover will give NeoGenomics full ownership of InVisionFirst-Lung, a lung cancer panel that it already commercializes in the U.S., and the residual disease assay RaDaR.
William Blair analysts welcomed the deal, noting that NeoGenomics got a good price by setting the buyout fee when it invested $25 million in Inivata last year.
Inivata is a University of Cambridge spinout with two liquid biopsy assays. NeoGenomics secured the rights to commercialize non-small cell lung cancer assay InVisionFirst-Lung in the U.S. last year. That test accounts for most of the $5 million in sales NeoGenomics expects Inivata to generate this year.
The second assay, RaDaR, tracks 48 genetic variants from the patient's cancer to try to detect the low levels of circulating tumor DNA present in people who have undergone oncology surgeries or have early-stage disease. Inivata compared the sensitivity of its test favorably to a rival assay from Natera in lung and breast cancer.
NeoGenomics highlighted the minimal residual disease (MRD) applications of Inivata's technology as particularly exciting but said it will take time to realize the opportunity. RaDar was CAP/CLIA validated at Inivata's lab in North Carolina in December, but NeoGenomics has downplayed the likelihood of the test becoming a significant component of its revenues before 2023.
"In the community setting, of course, I think we have to be realistic. This will be a gradual uptake. But we're already seeing an increasing adoption of liquid biopsy and we're leading the way. And so we think as we bring MRD on board in '22 and beyond, we'll be in a really great position to be part of that acceleration and get in early," NeoGenomics CEO Mark Mallon told investors.
Analysts at Craig-Hallum said executing the deal now, rather than waiting until closer to the end-of-year expiration of the option, will enable NeoGenomics to better prepare for the introduction of RaDaR. The analysts expect the promotion of the test through the existing community sales team to "dramatically accelerate" NeoGenomics' test volume and average selling price.
"Once thought to be a commodity testing company, the recent developments give us confidence that NeoGenomics can truly morph into an all-in-one specialty cancer franchise," the analysts wrote in a note to investors. The confidence is underpinned, in part, by the acquisition of Inivata and the $65 million pick up of Trapelo Health in March for its decision-support platform.
NeoGenomics has facilitated the liquid biopsy portion of its transformation for a sum far smaller than Illumina's $7 billion to $8 billion price tag for Grail, which is facing some regulatory opposition, and Exact Sciences' $2.15 billion acquisition of Thrive Earlier Detection. The gulf between the valuations reflects both differences between the companies and the timings of the deals.
By setting the price for Inivata last year, NeoGenomics thinks it secured a substantially lower price than if it struck the deal today, a view echoed by William Blair.
"We believe that if Inivata was a stand-alone asset in the market today, it would trade for several times what NeoGenomics was able to secure as the purchase price over a year ago," the analysts wrote in a note to investors.