This is an excerpt from a 2,026-word article in the July 17, 2017 issue of THE DARK REPORT. The complete article is available for a limited time to all readers, and available at all times to paid members of the Dark Intelligence Group.
CEO SUMMARY: It’s the second time in six years that a Japanese corporation paid a high price for a genetic testing company in the United States. Konica Minolta will purchase Ambry Genetics for $800 million at closing and $200 million upon hitting certain financial metrics. Ambry Genetics has an interesting story and says its use of genetic counselors has helped it win in-network status for 97% of Americans with private health coverage.
ON WALL STREET, IT WAS BIG NEWS earlier this month when Konica Minolta said it would pay as much as $1 billion to acquire Ambry Genetics, a private genetic testing company in Aliso Viejo, Calif. Konica Minolta will pay $800 million and as much $200 million more based on certain financial metrics over the next two years, the companies said.
Media coverage of this acquisition emphasized the large purchase price and the fact that a Japanese company better known for making photocopiers and printers was placing a big bet to expand into clinical diagnostics.
For Konica Minolta, the acquisition is an important way to diversify beyond office equipment where revenue and profit have declined in recent years, The New York Times reported. The printer and copier company already has developed technology to detect cancer, using light-emitting nanoparticles to mark proteins drawn to cancer cells, the Times said.
News accounts also noted that the high price for Ambry will encourage more investment in molecular diagnostics and genetic testing.
But the news coverage missed more interesting aspects of the story behind the sale of Ambry to a large Japanese conglomerate. Ambry’s success is a classic tale of the American Dream—but with a sad and ironic twist.
In 1999, Charles Dunlop raised $500,000 and founded the company. His vision was to deliver high quality germ-line genetic testing services based on the advice of genetic counselors. Since then, Ambry Genetics has performed more than 1 million genetic tests and identified more than 45,000 mutations in 500 different genes.
For Dunlop, the goal wasn’t simply to have patients use genetic testing to learn if their genes pre-disposed them to disease. “The more important goal was to offer consumers an informed method of deciding if such testing was appropriate by basing such decisions on not just being affected with a disorder but also the history of disease among mothers, fathers, aunts, uncles, and other relatives,” explained Ambry CEO Aaron Elliott, PhD.
Genetic Cause of Cancer
Post-acquisition, Ambry will keep Dunlop as an adviser and Elliott as CEO. In a cruel twist in 2014, Dunlop, age 42 at the time, learned he had stage 4 prostate cancer and identified the genetic cause of it after taking a test that Ambry offers. The cancer is in remission today, yet the experience was one reason he decided it was time to sell, Elliott said.
The fact that Dunlop had a germ-line based disease also played a role in one of the more controversial decisions the company made: Last year, Ambry Genetics made public its genetic database of anonymized patient data. It did so believing that such a resource would be useful to researchers and oncologists.
That decision would prove to be problematic. For a company built on having a strong relationship with genetic counselors—it employs more than 100 of them in various roles—the move came with a downside. Elliott explains, “We had a mixed response to our release of that data. Some large academic institutions were absolutely thrilled that we released this data. But there were others, including genetic counselors, who questioned the consent process.
“Some genetic counselors weren’t happy for the simple fact that they didn’t consent their patients to this specific research project … this was an important lesson for Ambry.”
Another attribute of Ambry Genetics that is important for lab executives to understand is that Ambry will continue to focus on maintaining strong relationships with genetic counselors as a way to ensure that only appropriate genetic tests are performed for each patient, Elliott said in an interview with THE DARK REPORT.
Differentiating Its Services
“Making extensive use of genetic counselors is an important part of our business model because it helped our company offer the highest quality tests available,” stated Elliott. “This helped Ambry become an in-network provider for almost 97% of Americans who have health insurance.
“Before 2013, most of our business came in via an institutional bill,” he said. “The hospital or a clinician would pay Ambry for our tests. But that switched in 2013 when we offered testing for BRCA1 and BRCA2. The majority of our business is now insurance-based testing.
“Over this time, we’ve nurtured the relationships we have with managed care companies to help them understand the quality of our testing compared with that of other labs,” he said. “Of course, the close relationships Ambry has with genetic counselors is important to insurers as well.”
CF Testing as Loss Leader
“In a sense, these genetic counselors are our Swiss Army knives. We use them for guidance and input and so it makes sense that a lot of our clients gravitate toward us because of how we rely on genetic counselors,” he explained.
“That was part of the genius behind the vision Dunlop had when he founded the company,” Elliott added. “He started with a small amount of money and never relied on institutional investors. The most ever raised was only $500,000.
“In biotech, it usually takes a significant investment to get up and running,” he explained. “But Ambry was launched and has grown because of the capital raised mostly from Charlie’s family and friends.
“In those early years, Ambry’s first test was for cystic fibrosis,” Elliott recounted. “At that time, there were a few hot spot panels when doctors looked at CF mutations. But Charlie’s idea was not to sequence just a few mutations but to analyze the whole CFTR gene. He thought there could be cases in which people have mutations besides the most common ones. That was his idea for the business.
“We started with Sanger sequencing for the cystic fibrosis gene and reached out to the Cystic Fibrosis Foundation to offer a free test to any doctor who would send a sample for testing,” he recounted.
“We didn’t offer free testing for long,” he said. “But at that time, in the years 1999 and 2000, no one did full gene sequencing on a diagnostic level, especially for CF. But our test—with its expanded gene coverage—helped doctors diagnose more patients with greater accuracy.”
What will be the impact of this landmark sale on the genetic testing industry? Please share your thoughts with us in the comments below.