Defining cancer by pathways

ALISO VIEJO, Calif.—Clarient Inc. has announced that it hasacquired privately held, Huntsville, Ala.-based Applied Genomics Inc. (AGI)after a careful vetting process over the past year that covered the landscapeof similar companies that might have been attractive.

The all-stock merger is valued at up to $17.6 million, ifall conditions and milestones set forth in the agreement are successfully met.As a result of the merger, AGI has become a wholly owned subsidiary ofClarient, which expects to launch a key lung cancer diagnostic panel in thefirst quarter of 2010 based on AGI's development engine.

Called Pulmotype, the five antibody immunohistochemistry(IHC) test can be used to aid in the histological distinction betweenadenocarcinoma and squamous cell carcinoma in non-small cell lung cancer(NSCLC) tumor specimens. The histologic classification of NSCLC tumors hasgained clinical relevance because newly developed targeted therapies showdifferent clinical effectiveness or toxicity dependent upon the histology ofthe tumor. There is currently no other widely accepted molecular-based tool tohelp distinguish the different histological types, says Clarient CEO RonAndrews.

In addition to its active development engine for newdiagnostic and prognostic cancer tests, AGI brings a near-term productpipeline, an eastern U.S. development lab to support the company'spharmaceutical services initiative, and access to a working network of the topacademic and industry validation resources to Clarient's portfolio.

Following Pulmotype into the cancer diagnostic market willbe Pulmostrat, which will aim at defining the risk of recurrence, and Pulmotax,a "theranostic" that may predict the response of a patient's cancer to taxanetherapy. The taxane class of chemotherapeutic agents is widely used, andunderstanding a patient's propensity to respond before administering thispowerful drug will provide clinicians with a much-needed tool to aid inpersonalizing cancer treatment.

Clarient was launched in 2005 on the shell of a bankruptinstrument company and did $495,000 in sales its first month, Andrews says. Thecompany now occupies a 78,000 square-foot building, boasts 372 employees(Andrews cites the exact number with evident pride) and has hit the $100million mark in sales.

A Georgia native, Andrews tells how his grandmother sufferedand died from cancer after having to endure repeated trips from her home todistant Emory University. Now, he says, the technology that resides at Clarientin California is available nationwide over the Internet via a process he callsvirtual pathology.

"We practice personalized medicine every day," he adds,"processing 150 breast samples a day. Candidly, someday cancer may well bedefined by pathways, not locations. Having a test that provides us access tothe primary lung tumor block much earlier in the diagnostic process will allowClarient to provide pathologists with critical information at the early stagesof therapy decision. It also strengthens our position to gain a greater shareof the rapidly increasing epidermal growth factor receptor (EGFR) mutationtesting market. The development of lung cancer diagnostics has been slowrelative to other cancers; however, we now have a powerful foundation uponwhich to build a market-leading lung cancer franchise."

Commenting on AGI's development engine, Rob Seitz, companyCEO says, "Historically, we have been able to develop these products throughcollaborations with academic institutions. Now, as part of Clarient, we willhave the ability to offer our tests and capabilities to community pathologistsand their patients across the country. The new combined organization will alsocontinue to assist pharmaceutical companies which can use our technologies toimprove and speed clinical trials. These companies can now identify new andimportant patient subtypes, while Clarient gains proprietary biomarker contentto create generations of new products."

Pursuant to the terms of the merger agreement, Clarientacquired all of the outstanding capital stock of AGI in exchange for up to anaggregate of 7.6 million shares of Clarient common stock. The totalconsideration consists of 4.4 million shares of Clarient common stock issued tothe former AGI stockholders at closing and up to 3.2 million additional sharesof Clarient common stock issuable to the former AGI stockholders contingentupon the satisfaction of certain clinical, commercial and revenue milestonesset forth in the merger agreement. The shares issued at closing will be reducedby 440,000 shares that will be placed into an escrow account to cover futureindemnity claims.