Brian Marckx, CFA

FDA Draft Guidance Should Help Streamline Approvals for Companion Diagnostics

This morning the FDA issued a draft guidance for in vitro companion diagnostic services. The agency is currently seeking public input on the guidance. When the guidance is finalized it will serve as a guide to FDA's policy for reviewing companion diagnostic tests and the related drug therapy. The FDA is rolling out their new guidelines as a result of the significantly ramping activity surrounding "development of therapeutic products that depend on the use of a diagnostic test to meet their labeled safety and effectiveness claims." The agency notes that, " One reason for increasing interest is the emergence of new technologies that can distinguish subsets of populations that respond differently to treatment. These technologies are making it increasingly possible to individualize, or personalize, medical therapy by identifying patients who are most likely to respond, or who are at lower or higher risk for a particular side effect."

FDA's draft guidance specifies that the agency intends to contemporaneously review a new drug/biologic therapy and its corresponding companion diagnostic test. This obviously implies that drug/biologic manufacturers will co-develop their products side-by-side with a companion diagnostic test. While FDA's guidance does allow for approval of a novel drug/biologic without simultaneous clearance of a corresponding companion diagnostic, FDA expects that a companion diagnostic would be subsequently approved and until that time, the drug's label would potentially reflect certain safety concerns.

We view the new draft guidance as a clear indication of FDA's interest in streamlining the approval process for companion diagnostics. We cover Transgenomic ( TBIO ) with an Outperform rating and $4.00 price target which reflects our optimism on their Ice-COLD PCR companion diagnostic testing technology. Transgenomic has indicated over the past few months that they have received significant interest in their testing technology from drug manufacturers including a "major oncology pharmaceutical partner". We believe growing interest in Ice-COLD PCR should significantly ramp Transgenomic's revenue over the next few years.

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