There has been a lot of attention paid to Genetic Technologies Ltd. (NASDAQ: GENE) as of late and if what the company is saying is true then the hype is warranted. GENE announced last week that they expected to post a maiden profit of $4.3 million for the first half of the 2011financial year with total revenue to hit around $14 million, a significant jump from the $5 million for the same period one year earlier. Generating a profit is certainly enough for investors to take notice but it is GENE’s planned launch of BREVAGen, the world’s first validated test for non-familiar breast cancer, in the first quarter that has many people talking.
Up to this point GENE has generated most of their revenue through licensing deals and lawsuits. Their expected maiden profit is based largely on licensing deals that included nearly $6.4 million in fees coming from the December quarter’s announced deals with German biotech Qiagen, Belgian firm Innogenetics and Luxembourg’s Laboratoires Reunis, and of the $14 million in revenue for the first half $11.6 million was from licensing. According to CEO Dr. Paul MacLeman about two-thirds of that licensing revenue came about following the resolution of infringement suits in the U.S.
While the licensing deals and lawsuit settlements have paved the way for GENE thus far their future could be hinging on their $1.5 million purchase of BREVAGen from Perlegen Inc last April. When the company announced they would be launching the breast cancer prognostic test in the first quarter shares shot from 3.36 at close on Jan. 18 to 6.94 the following day with volume topping 2.4 million, significantly higher than their trading volume average of less than 100,000.
Of concern for shareholders was the fact that within three days shares had hit a low of 3.85 and by last week they hit 2.82. Most of that drop has been attributed to short term investors who were in a for a quick buck and while shares dipped to as low as 2.60 on Monday they are back around the 3.00 level which is nearly double the 50-day moving average of 1.59 and more than twice the 200-day moving average of 1.17.
As concerning as the past few days may be they are a far cry from where GENE found themselves just a few months ago as they were trading under 1.00 and volume was often times in the low thousands. Knowing that GENE plans to launch BREVAGen in March has brought serious attention especially knowing that the World Health Organization has recognized breast cancer as the most common cancer among women worldwide with the number of cases rising and the WHO has projected 2.1 million new cancer cases will be diagnosed in 2030, up from the 1.38 million diagnoses in 2008.
These figures have increased the demand for molecular diagnostics tests that aid in diagnosing breast cancer and this could put GENE in a solid position as their BREVAGen test has already received a favorable review from the Journal of the National Cancer Institute, particularly its impact for women at intermediate risk.
Obviously the at-risk population is larger than the population that actually has breast cancer and GENE has said they expect the U.S. market to be in excess of 1 million patients per annum. The company has identified three target markets for BREVAGen, BRCA negative patients, breast biopsy patients and women over 35 having a family history of cancer.
Education concerning breast cancer has increased tremendously over the past decade and early testing has been pushed as a means of survival. The BREVAGen test will factor in population risk with genetic risk that will then give an integrated individual breast cancer risk assessment. In addition, the test also informs personalized clinical decision support for non-familiar risk of breast cancer.
The test will personalize the five year and lifetime risk assessment of a woman developing breast cancer, essentially giving them a chance to make changes to their lifestyle or take preventative measures that could potentially eliminate the risk of being diagnosed with breast cancer.
While GENE has developed a number of diagnostic products and holds patents in 24 countries for particular uses of “non-coding” DNA in genetic analysis and gene mapping company CEO Paul MacLeman has said that cancer diagnostics will be the primary focus moving forward- pointing to an ageing population and the growing push by governments to reduce health care costs.
GENE hasn’t tried to downplay the significance of a successful launch as the recognized that the nature of licensing operations is unpredictable and it is impossible for them to rely on the irregularities that make up such activities. The company does expect to continue to generate revenue through licensing deals and just two weeks ago they announced a settlement agreement with Sunrise Medical Laboratories related to a patent infringement lawsuit. What makes that settlement significant is the fact there are a number of other parties that were part of the lawsuit and GENE has been negotiating settlement agreements with them as well.
As positive as everything sounds with GENE it should be recognized that when they roll out BREVAGen in March it is highly unlikely that the test will generate the hundreds of millions of dollars many shareholders are hoping for. The reality is it could take some time before they start to actually make a dent within their target market and even by that point there are no guarantees.
The reality of the BREVAGen test is its nothing more than the company identifying clinical risks and genetic risks that GENE considers significant. What they have developed is not something that is truly unique and groundbreaking but rather something that has been commended for its strong classification rate when compared against the other products on the market.
Of course this means that if another company is able to design a more accurate or cheaper test then it could be financially devastating for BREVAGen. In the meantime GENE is becoming a trendy trade for investors and with that rollout coming in March the company could easily see another spike as any news that address cancer prevention and cancer treatment often gets heavy attention.