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Dako, an Agilent Technologies (A - Analyst Report) subsidiary, has entered into an agreement with Eli Lilly and Co. (LLY - Analyst Report) for developing companion diagnostic tests that could help detect people more susceptible to cancer. Eli Lilly is developing a medicine for these prospects.

Agilent had acquired the Danish cancer diagnostics company, Dako, for $2.2 billion (on a debt-free basis) last year. Dako provides antibodies, scientific instruments and software mainly to cancer-related diagnostic labs and collaborates with drug companies for the development of methods to identify patients likely to benefit from certain therapies.

Currently, the healthcare sector is witnessing a revolution and companion diagnostic or personalized medicine is taking the center stage in diagnostics. It has been found that not all treatments are same for cancer patients or any other patients, as some require tests that are more specialized.

Dako’s expertise in the development of methods to identify patients likely to benefit from certain therapies will help Eli Lilly to select patients that may benefit from its ongoing investigational oncology medicine; thus enhancing the diagnostic process.

The whole process may revolutionize the healthcare system, as personalized medicine may become helpful in improving patient care and reducing medical bills. If the companion diagnostic tests really kick off, it would be a positive for the testing companies, with a corresponding positive impact on revenues.

According to Global Industry Analysts, companion diagnostics market may reach $280.2 million by 2017 worldwide. The growth is driven by the enhancement of the drug’s clinical usage, thus reducing the overall cost and risk involved in drug development.

The success of the collaboration may help Agilent to build a position for itself in personalized medical care, a segment that is seeing good growth.

Agilent’s revenue in the third quarter was flat sequentially and up 1.9% year over year, short of management’s expectations of a 2-3% sequential increase ($1.77 billion to $1.79 billion). The newly added Diagnostics and Genomics segment accounted for 9.0% of revenue in the last quarter, up 47.2% sequentially.

Currently, Agilent Technologies has a Zacks Rank #5 (Strong Sell), and Eli Lilly carries a Zacks Rank #2 (Buy) rating.

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