Quest Diagnostics Threatens Myriad's Grip on BRCA Tests

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Quest Diagnostics (NYSE: DGX  ) is challenging Myriad Genetics (NASDAQ: MYGN  ) stranglehold on the BRCA1 and BRCA2 cancer testing market. Quest announced that it's rolling out a cheaper alternative in hopes of winning share in the fast-growing market.

The profit play on personalized medicine
Quest is trying to wrestle away sales from Myriad, a company that helped pave the way for personalized medicine by providing companion diagnostic tools necessary for identifying specific gene mutations associated with various cancers.

Both Quest and Myriad recognize demand for those tests will increase as new cancer treatments targeting BRCA mutations get commercialized. BRCA1 and BRCA2 gene mutations account for 20%-25% of hereditary breast and ovarian cancers, and testing for them represents 75% of Myriad's quarterly sales.

BioMarin (NASDAQ: BMRN  ) and AstraZeneca (NYSE: AZN  ) have the early lead in bringing next-generation PARP inhibitors targeting the BRCA mutation to market. And, AbbVie (NYSE: ABBV  ) is also a contender with Veliparib, which is in phase 2.

Those drugs have a good shot of making their way through trials given that 50% of BRCA positive patients taking BioMarin's BMN-673 responded to the drug in phase 2 trials and AstraZeneca's Olaparib showed progression-free survival of 11.2 months versus 4.3 months during phase 2.

Myriad's BRACAnalysis, with a price of up to $2,750, is being used in all three drugmakers' trials as a companion diagnostic tool, giving it an edge.

But, a large and growing global population of cancer sufferers and price-conscious payers suggests a price war if Myriad's patents don't hold up.

Quest seems to think its skirting those patent risks
Quest's BRCAvantage uses a design it believes is unique, and it's filed a pre-emptive suit in California hoping to prove it. This is in contrast to approaches taken by smaller competitors Gene by Gene and Ambry Genetics, both of which launched their own BRCA tests earlier this year only to quickly be sued by Myriad.

If successful, BRCAvantage will offer a cost savings of a few hundred dollars per test, based on initial reports of a price of $2,500 per test. Those savings could prove significant enough for insurers to direct patients toward it.

A big market presence gives an edge
Quest's position as a leader in lab testing gives it confidence it can win share in the BRCA marketplace. The company operates 2,100 testing centers nationwide and has the clout necessary to provide services like counseling and help navigating insurers.

Expanding Quest's testing portfolio is important to ensuring Quest's future sales growth. The company warned that Q3 sales would be lighter than hoped earlier this month because of a drop off in testing and payer pushback on pricing. Still, the company is expected to report quarterly sales above $1 billion, and Quest generated operating cash of $208 million in Q2, well in excess of the $166 million in total revenue recorded by Myriad during the quarter.

Quest's sizable war chest is set to get bigger too as the company's reorganization and the elimination of 600 jobs is set to save $500 million a year in costs. 

Of course, Myriad isn't about to give up BRCA business easily
Myriad already plans to incorporate BRCA testing into its myRIsk platform, a one-stop shop for genetic cancer tests. That more encompassing solution will carry a price north of $4,000 -- at least until competitors can develop a similarly comprehensive platform. In the meantime, Myriad is already firing back at Quest. According to reports, Myriad is questioning whether Quest's accuracy rate exposes too many patients to false positives.

The Foolish final take
Quest is hunting for needle-moving additions to its testing services to offset lower prices and falling utilization. However, a rising patient pool tied to an improving economy and reform should help Quest volume rebound over the coming year. Regardless, the company has the reach and cash necessary to wage the most significant challenge yet to Myriad, and that's likely why Myriad shares have retreated 10% this past month. No matter who ends up coming out on top, there are a lot of questions. That suggests you should keep a sharp eye on both BRCA targeted late-stage trials and lawsuits in order to determine which company is likely to win the battle over market share.

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