Cancer treatment is increasingly moving toward targeted therapies based on the genetics of a patient’s tumor and Invitae is ensuring it gets its share of this growing market with a deal to acquire precision oncology startup ArcherDx.
San Francisco-based Invitae announced Monday that it has agreed to pay $886 million for ArcherDx—$325 million in cash plus $561 million in Invitae shares at $18.71 apiece, which was Friday’s closing price. Shareholders of privately held ArcherDx could earn up to $505 million more tied to to regulatory and sales milestones achieved by two diagnostic products that company is readying for submission to the FDA.
Invitae’s stock price jumped 38 percent to $25.82 per share following the announcement.
Invitae has fashioned itself as something of a one-stop shop for genetic tests. The company offers a portfolio of tests for problems such as heart disorders, metabolic conditions, rare diseases, and inherited forms of cancer. Those tests generated $212.4 million in revenue in 2019, according to the company’s annual report. In addition to helping patients assess the risk of developing an inherited disease, Invitae also has partnerships with several pharmaceutical companies aiding them with patient diagnosis, clinical trial recruitment, and drug research.
Boulder, CO-based ArcherDx develops lab tests intended to guide cancer treatment decisions. The Stratafide product is a lab test and companion diagnostic that analyzes DNA, RNA, and circulating tumor DNA from either a blood or tissue sample. Speaking on conference call Monday, CEO Jason Myers said that current diagnostics technologies, such as medical imaging, tend to find cancer too late for the disease to be treated effectively. The ArcherDx test is intended to enable earlier diagnosis. He added that his company aims to “democratize” genomic testing, most of which is primarily done at academic medical centers even though about 85 percent of patients receive cancer care at regional or community hospitals. Myers contends that clinicians in these regional and community settings will need genetic testing capabilities.
“The exponential rise of targeted therapies, both approved and in the pipeline, strongly suggests that companion diagnostics will become part of the standard of care,” he said.
So far, the ArcherDx’s tests are for research use only. The company counts AstraZeneca (NYSE: AZN) and Bristol Myers Squibb (NYSE: BMY) among the pharmaceutical partners that use the tests to aid clinical development of their cancer drugs. ArcherDx has said that it plans to file Stratafide for FDA review later this year. A second product, Personalized Cancer Monitoring (PCM), uses a blood sample to measure disease progression and the effectiveness of a therapy, as well as to help clinicians make and refine treatment decisions. An FDA submission timeline for PCM has not yet been disclosed. Both ArcherDx tests use gene sequencing technology from Illumina (NASDAQ: ILMN).
Since its formation in 2013, ArcherDx has developed and sold more than 325 research use products to academic and reference labs and contract researchers organizations providing services to the pharmaceutical industry, according to IPO paperwork the company filed earlier this month. The company says its technology has been used to test more than 375,000 samples across 40 countries.
ArcherDx makes money by selling its test products and providing testing services to pharmaceutical companies. In 2019, the company reported $50.5 million in total revenue, a nearly 78 percent increase over the prior year. But the company also widened its net loss to $40.9 million. The ArcherDx filing also shows that as of March 31, the company had $36.8 million in cash. The IPO proceeds were slated for the regulatory submission for Stratafide and potential commercialization of that product.
Invitae CEO Sean George said on the call that his company has partnered with biopharmaceutical firms through more than 90 alliances that involve finding patients with specific genetic variants that can be treated with commercialized drugs. ArcherDx brings the company more opportunities to work closely with pharmaceutical companies in drug development, he said.
Invitae has been no stranger to M&A as a way of supplementing its portfolio of services and it is still digesting three acquisitions announced in March. George said Invitae looked at more than 70 companies over the last 18 months before deciding to acquire ArcherDx. He acknowledged that the company still awaits key FDA decisions for its products but he added that the Colorado company has been making a lot of progress and it was preparing for an IPO. Given those factors, George said Invitae decided to make the acquisition now—even if it’s “sooner than what was ideal.”
“The problem with M&A in general is you don’t get to pick your own timing,” he said.
Invitae has arranged for debt and equity financing to pay for the ArcherDx acquisition. The company is raising $275 million through a private stock sale priced at $16.85 per share. The companies buying those shares include Casdin Capital, Deerfield Management, Driehaus Capital Management, Farallon Capital Management, PBM Capital, Perceptive Advisors, Redmile Group, Rock Springs Capital, and Soleus Capital. Some of those firms are also financial backers of ArcherDx. In addition, Invitae has secured up to $200 million in debt financing through Perceptive’s Credit Opportunities Funds.
The ArcherDx acquisition is expected deal to close in the fourth quarter of this year. When it’s complete, George said that Myers will run Invitae’s oncology division.