FDA Nod for Quest's STRATIFY JCV

Recently, Quest Diagnostics (DGX - Analyst Report) received market authorization for its STRATIFY JCV Antibody ELISA testing service from the US Food and Drug Administration (FDA). As the first antibody-based blood test of its kind to receive FDA approval, STRATIFY JCV works for the qualitative detection of antibodies to the polyomavirus JC virus (JCV) for determining the risk arising from progressive multifocal leukoencephalopathy (PML). PML is a rare but severe form of brain infection, mostly found in patients with multiple sclerosis (MS) who take Tysabri (natalizumab), a treatment for relapsing forms of MS.

Prior to this market authorization, the FDA had approved a label change for Biogen Idec (BIIB - Analyst Report) and Elan Corporation’s (ELN - Snapshot Report) Tysabri. The new label will identify JCV antibody status as a PML risk factor. The co-manufacturers of Tysabri, Biogen and Elan, formed a collaboration for the US market for the development of STRATIFY JCV. The STRATIFY JCV test uses technology licensed from Biogen and is solely offered through Quest Diagnostics' Focus Diagnostics laboratory in US.

Presently, more than 400,000 people are suffering from MS in the US with around 200 people detected each week. With roughly 50% to 60% of MS patients being infected with JCV, the teaming up with these pharmaceutical companies is expected to work effectively in favor of Quest Diagnostics’ growth.

Quest Diagnostics is currently focusing on latent areas such as drugs-of-abuse testing, gene-based, esoteric testing for cancer, cardiovascular disease, infectious disease and neurological disorders. The company is witnessing higher demand for these tests compared to routine tests.

The company is also focusing on women’s health. It had launched SureSwab for gynecological infections and also Spinal Muscular Atrophy testing, which has been witnessing increasing acceptance. Quest’s Focus Diagnostics business also received approvals for two Simplexa tests recently. Encouraged by these factors, we expect higher sales from esoteric testing in the forthcoming period.

In order to bolster this specialized side of business, Quest has been pursuing accretive acquisitions. The acquisitions of Athena and Celera are expected to strengthen the company’s foothold in gene-based and esoteric testing. Apart from that, we are encouraged by Quest Diagnostics’ efforts to improve its sales effectiveness and strengthen its relationship with health plans and payors.

Additionally, we are positive about the ongoing management churn, which is expected to improve the company’s performance going forward. However, the company continues to witness challenges with testing volume. Moreover, the competitive landscape is tough with the presence of Laboratory Corporation of America Holdings (LH - Analyst Report). LabCorp is also targeting the esoteric testing space and has acquired Genzyme Genetics to meet its objective. We currently have a Neutral recommendation on Quest Diagnostics and Lab Corp over the long term

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