Veracyte Aims to Expand Diagnostics Reach With $50M NanoString Deal

Xconomy San Francisco — 

[Updated 12/4/19, 4:01 p.m. ET. See below.] Veracyte, a company whose tests help physicians make treatment decisions, is adding technology from NanoString to the fold to expand its diagnostic capabilities.

South San Francisco-based Veracyte (NASDAQ: VCYT) announced Tuesday that it has reached a deal for global rights to develop and commercialize diagnostics based on the nCounter FLEX  system. The nCounter is a NanoString (NASDAQ: NSTG) instrument used to analyze the activity of genes.

According to terms of the agreement, Veracyte will pay NanoString $40 million in cash, plus an additional $10 million in Veracyte stock. NanoString could receive an additional $10 million cash upon the launch of Veracyte diagnostic tests that use nCounter. NanoString will keep rights to nCounter for resarch and investigational uses.

Seattle-based NanoString says its technology enables users to analyze the activity of up to 800 genes in a single experiment, providing a digital readout on genes and cell samples. For example, the technology can help scientists understand which genes in pathways are turned on or off, detect particular types of gene mutations, and look for variations that result in cells having copies of sections of DNA.

NanoString’s instruments are used in academic and government labs, and by pharmaceutical companies such as Merck (NYSE: MRK) and Astellas Pharma. NanoString reported $106.7 million in revenue for 2018. Its systems compete with products from Illumina (NASDAQ: ILMN), Becton Dickinson (NYSE: BDX), and 10x Genomics (NASDAQ: TXG), among others.

Meanwhile, Veracyte sells tests for thyroid cancer, lung cancer, and idiopathic pulmonary fibrosis (IPF). The acquisition will help Veracyte expand its cancer test portfolio. The deal includes a commercialized NanoString test used to assess the risk of breast cancer recurrence. Veracyte says it plans to continue to offer the test, called Prosigna, in the US and around the world, and it will add the test to the menu of genomic products offered in the US through its labs. The deal also brings to Veracyte a NanoString lymphoma test that’s still in development.

[The following five paragraphs updated with comments from a conference call.] During a Tuesday conference call to discuss the acquisition, Veracyte CEO Bonnie Anderson said nCounter will help her company become a global diagnostics provider. The device is already available globally, and Veracyte can generate new revenue by targeting sites where devices are already located. The key to growth will be in selling the company’s “menu” of multiple diagnostic tests.

“The thing that drives global expansion is not what instruments are available, it’s who has the menu,” Anderson said.

Going forward, Anderson said that much of Veracyte’s research and development spending will shift to developing these new tests. Within the next two to three years, Veracyte expects to offer a multi-product menu based on nCounter. Some of those new products are already nearing the market.  Veracyte says it expects to begin offering its Envisa test for IPF to international customers in 2021 as a kit-based product that runs on the NanoString technology. A nasal swab test in development for early diagnosis of lung cancer is expected to become available in Veracyte labs in early 2021. Anderson said that she expects much of the opportunity for Veracyte lies in lung cancer diagnosis.

Keith Kennedy, Veracyte’s chief financial officer, said that the company projects nCounter will help generate an additional $10 million in revenue pegged to the new tests. In the next decade, the company projects it could reach $500 million in annual revenue for tests based on nCounter, 25 percent of that revenue coming from outside of the US.

The deal will bring to Veracyte an about 10 NanoString employees in sales, marketing, medical affairs, distribution, and another three to four in research and development.

Image by Kevin Janes of the University of Virginia, used under public domain rules courtesy of the National Cancer Institute