On the right path for MDx growth

PITTSBURGH, Pa.— Acting on its strategy to become aninternationally recognized player in molecular diagnostics, ExonHitTherapeutics SA, a therapeutics and diagnostics developer based in Paris,announced April 26 that it will acquire RedPath Integrated Pathology Inc., aprivately held molecular diagnostics company focused on cancer.

ExonHit will pay $12.5 million cash and $10 million in stockup front to acquire RedPath, which brings to the table a Clinical LaboratoryImprovement Amendments (CLIA)-certified, College of American Pathologists(CAP)-inspected laboratory, experienced management, regulatory andreimbursement expertise and an established sales force. RedPath will becomepart of ExonHit's U.S. operations, and its 35 employees will be retained.Starting in 2012, RedPath's current shareholders may receive additionalpayments of up to $9.5 million if specific sales targets are met. Subject toshareholder and other customary approvals, the transaction is expected to closeby mid-July.

Dr. Loïc Maurel, president of ExonHit's management board,says the acquisition is a complementary fit between ExonHit's RNA platform andRedPath's DNA platform, as it directly links the significant role DNA mutationsplay in altering the regulation of alternative splicing.

ExonHit's proprietary technology, based on the analysis ofalternative RNA splicing, aims to develop innovative molecular diagnostic testsand therapeutics for neurodegenerative and cancer indications. In December2009, the company launched its first product, AclarusDx, a blood-basedbiomarker that identifies patients suffering from Alzheimer's disease (AD), asa "research use only" product. This test is designed to discriminate ADpatients from healthy individuals. ExonHit anticipates a CE marking in Q4 2010,and is preparing the launch of AclarusDx in the clinical in vitro diagnostic (IVD) market with laboratory partners fora European launch in Q1 2011. ExonHit has also initiated discussions with theU.S. Food and Drug Administration (FDA) to define the exact regulatory pathwayto meet IVD requirements.

RedPath's PathFinderTG technology, a molecular analysis ofmutations in genomic DNA for cases where traditional pathology results in an"indeterminate" diagnosis," uses a broad panel of microsatellite markersto perform mutational analysis on many types of pathology specimens. Unliketests for inherited genetic predisposition to cancer, it is an analysis ofacquired genomic damage in an individual patient's tumor. According to RedPath,this objective information can help resolve diagnostic dilemmas and lead to amore personalized treatment plan.

According to the companies, more than 10 percent of alldescribed human gene mutations directly impact splicing. The combined approachwill allow for the possibility of more accurate diagnostic tests with astrengthened IP position.

"We believe we are building a molecular diagnosticpowerhouse," Maurel says. "I believe we will be the only company with RNA andDNA capabilities in-house. RNA and DNA research is something we both believe isgoing to be very interesting in the future, which is one of the areas where wesee a lot of synergies."

Of equally important consideration to ExonHit in thistransaction was that it gives the French company an opportunity to establish acommercial presence in the United States—a market that represents 55 percent ofthe multi-billion-dollar molecular diagnostics market, Maurel says.

"In combining the two companies' strengths, we areincreasing revenues through our products which have already been launched,while also expanding and strengthening our diagnostic portfolio in cancer," hesays. "We also have the opportunity to launch RedPath's products in Europe."

Founded in 2004 by a pathologist from the University ofPittsburgh Medical Center to commercialize molecular technology integrated withan anatomical pathologist workflow, RedPath has to date been funded by angelsand venture capitalists. The company was in the process of raising anotherround of venture capital when it was approached by ExonHit, says Mark D.Myslinski, RedPath's president and CEO.

"They were attracted to our expertise in DNA and theclinical applications of our technologies, as well as our foundation ofsuccess," says Myslinski, who will lead ExonHit's global diagnostics divisionand join the company's management board upon closing of the transaction. "Theacquisition gives us access to European markets, different platforms andadditional products, and of course, the funding that will allow us to continueto build value in our company."

PathFinderTG can differentiate metastatic, synchronous andrecurrent tumors in various organs, such as breast, lung, liver, endometriumand ovary. PathFinderTG works with a wide variety of standard pathologyspecimens, even minute, solid samples and small fluid volumes from specimenssuch as histology slides, cytology slides, fluid aspirates and brush samples.

RedPath has successfully developed, launched and earnedreimbursement for the

PathFinderTG molecular diagnostic assay for pancreaticcancer. A second assay to differentiate primary from metastasis tumors is beinglaunched. The company's other service lines include two programs in late-stagedevelopment and several earlier stage development programs in oncology.

"The transaction is good news for both the investors and theentire RedPath team, who will remain highly involved in the development andcommercialization of the PathFinderTG line and constitute a key asset for thecommercial success of AclarusDx in the U.S.," Myslinski says. "Additionally,the company is eager to bring the clinical solutions to the EU patients andclinicians who will benefit from the clinical utility of the assays."

As the two companies work to integrate their teams, ExonHithas its eye on securing other partners, Maurel says.

"We want to create a strong new player in the molecular diagnosticsfield, and growing by acquisition is definitely something in our plans," hesays.