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. In 2011, Miraca Holdings acquired Caris Life Sciences for $725 million. 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 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 made public its genetic database of anonymized patient data. It did so believing that such a resource would be useful to researchers and oncologists.
Another attribute of the company 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.
“We have always been a very genetic-counselor-centric company,” continued Elliott. “We employ more than 100 genetic counselors at Ambry and have them in almost every department in the company, including sales support, marketing, and obviously in reporting.
In-House Swiss Army Knives
“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 said that first test would be free and the very next day samples started arriving. From there, the company gradually introduced new genes and added new products to the test menu and expanded from there.
CF Testing as Loss Leader
“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.
“From there, the business grew through word of mouth because we had relationships with so many genetic counselors and our testing was mostly priced to be relatively affordable,” recalled Elliott.
“For all those years, we didn’t have any significant commercial sales effort,” explained Elliott. “It was not until 2010 or 2011 when Ambry started hiring sales support staff. We still have the smallest sales force for any major diagnostic lab. We have only about 100 sales people, which is much smaller compared with our competitors.
“The next big milestone came in 2013 when the Supreme Court ruled for us in our case against Myriad,” Elliott explained. “That’s when the business really exploded.”
In 2013, the U.S. Supreme Court ruled that Myriad Genetics’ patents on the BRCA1 and BRCA2 genes were invalid, and Ambry and other labs began offering those tests.
“By that time, we offered hereditary cancer tests because there was an established market for those tests with fairly good reimbursement,” he stated. “Ambry was the first company to offer hereditary cancer panels. Even before the Supreme Court ruling, we had launched these panels.
“At this time, it was well known that Ambry was getting negative samples from Myriad,” Elliott added. “If a patient tested negative for BRCA1 or BRACA2, the clinician would send the sample to us so that we could test the other genes implicated in hereditary cancer for which Myriad didn’t test.
“After the Supreme Court decided in our favor in the case against Myriad, we added the BRCA1 and BRCA2 tests to our menu,” said Elliott. “We saw an immediate increase in specimens because we had a long history with genetic counselors as having the best-quality tests. That test volume grew almost overnight.
Subsidized Testing Costs
“Over the years, of course, different companies, such as Invitae, have started competing with Ambry,” he noted. “These companies can do that by offering low prices because they’re subsidizing their costs with investor money. Many genetic testing companies lose enormous amounts of money because the price they offer may not cover all their costs.
“Ambry’s viewpoint has always been quality first, which means being number one in terms of delivering accurate results,” Elliott said. “That’s how we’ve grown our business.
“Today, we run a bit more than 100,000 tests each a year on the hereditary cancer side,” he added. “When we add in some of the other tests we run, we might do about 150,000 samples a year. Over the past two to three years, that test volume has been very close to the highest it’s ever been.”
Currently, Ambry employs a staff of more than 700 and that number is down from about 800 two months ago. “We’ve automated many processes and consolidated to eliminate redundancies and some departments,” Elliott explained.
Looking back over the company’s history, Elliott does not believe it would be possible to start a company like Ambry today. The marketplace is too segmented and unforgiving.
“The genetic testing market today is a much different than it was in 1999,” he conceded. “The competition is so stiff today. Even five years ago you didn’t have these low-cost providers who can do testing more cheaply because they use the latest generation of technology. The barrier to entry has gone way down and investor money has flooded in to build labs because of the potential growth in personalized medicine.
“On top of that, insurance companies are seeking value-based analysis for genetic testing, which to them seems to mean low cost,” he added. “Payers all want to control the cost of genetic testing and one way they do that is to use low-cost providers as leverage to try to bring costs down at labs like ours. Our response is to demonstrate and document that we offer better quality and high accuracy. We built our reputation on those two factors and they have sustained us so far.”
Secrets of Ambry’s Success
Wall Street investors are taking the sale of Ambry Genetics to Konica Minolta for a price of as much as $1 billion as affirmation that the market for molecular and genetic testing companies continues to be robust. Overall, that will encourage more investment in genetic testing companies.
But what often gets overlooked are the unique vision and ethics of the entrepreneurs who start some of these genetic testing companies. In the case of Ambry, founder Charles Dunlop recognized the clinical value of two things. The first was emphasizing the role of genetic counselors to ensure the right test was ordered and then both the physician and the patient understood how to evaluate the results when making treatment decisions.
Second was to sequence the entire gene relevant to the patient and the disease. This incurred a higher cost compared to competing labs, but it gave the ordering physicians a richer, better answer—and they noticed.
Contact Aaron Elliott at 949-900-5500 or email@example.com.
Ambry Caused Controversy By Publishing Gene Database
IN MARCH 2016, AMBRY GENETICS made an unusual decision: it would make genetic-test data available to the public from 10,000 de-identified hereditary cancer patients. It did so to aid researchers looking for genes associated with various types of cancer.
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, explained Aaron Elliott, PhD, CEO.
“We had a mixed response to our release of that data,” he said. “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,” explained Elliott. “We responded with dramatic changes to our consent process. This was an important lesson for Ambry.
“We did this project—which we called AmbryShare—as a pilot,” he added. “It was designed to be a gene-discovery project to help labs and researchers find new genes implicated for hereditary breast and ovarian cancer.”