CollabRx: Making Sense of the Complex Cancer Market

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CollabRx: Making Sense of the Complex Cancer Market

Cancer is one of the leading causes of death worldwide and the number of people affected by the disease is growing rapidly. In 2012, more than 14.1 million people around the world were newly diagnosed with some form of the disease. By 2035, the World Cancer Research Foundation expects these figures to increase to about 24 million new cases. These dynamics have attracted record numbers of researchers developing new therapeutics, diagnostics, and other tools designed to better treat patients.

Oncologists now have access to more than 500 new therapies in clinical development, 10,000 cancer-related clinical trials, and 100,000+ research papers published over the past year alone. With these figures rising each month, the problem has transformed from a lack of options to too many options. So-called "analysis paralysis" or "information overload" is now emerging as a bottleneck.

In this article, we'll take a look at how CollabRx Inc. (NASDAQ: CLRX) aims to solve the "information overload" problem using a combination of genomics, big data, and industry experts, as well as the potential financial opportunity for investors.

Bringing Personalized Medicine to Cancer

Personalized medicine employs diagnostic testing in order to select the most appropriate therapies for individual patients. For instance, Roche Holding Ltd.’s (OTC: RHHBY) Herceptin has a strong track record for cancer treatment, but only in patients that have an overexpression of HER2/neu receptors. By testing patients for the HER2 abnormalities, more effective treatment options become available.

These types of tests are relatively rare in oncology, especially since an estimated 85% of patients are treated in the community setting rather than academic medical centers. While genetic screening is widely available through companies like Quest Diagnostics Inc. (NYSE: DGX), there’s no automated way to search through the 500+ therapies or 100,000+ research papers to match them with treatment options.

Foundation Medicine Inc. (NASDAQ: FMI) and CollabRx Inc. (NASDAQ: CLRX) were both created to address these problems. By leveraging genomics-based precision medicine and big data analytics, the two companies provide oncologists with the ability to take a patient’s genome and match it up with potential therapies based on over or under expressed targets or other abnormalities.

David & Goliath Compete in the Space

Foundation Medicine had a spectacular initial public offering where its stock rose nearly 100% on its first day. Currently, the company is valued at around $930 million with about $30 million in revenue and a $43 million net loss over the past 12-month period. By comparison, CollabRx trades with a modest $7 million market capitalization with $821,000 in revenue and a $3.3 million net loss over the period.

While the two companies are targeting the same market – personalized cancer treatments - they are taking two very different approaches in the process. Foundation Medicine has spent hundreds of millions of dollars developing an end-to-end solution that handles everything from genomic sequencing for patients to the provision of potential therapies based on the genetic profile.

CollabRx has instead focused its efforts exclusively on the high-margin big data component of the business model. In partnership with companies like Quest Diagnostics, the company takes third-party genomic profiles and matches them up with potential treatment options using its unique platform powered by both big data analytics and a team of oncology experts that sort through research papers.

CollabRx's Two Unique Business Models

CollabRx is focused on two unique target markets:  laboratory customers like Quest Diagnostics, and clinical customers like oncologists. Multiple revenue models provide the company with diversified and recurring income from laboratories, advertising revenue, fee-for-service revenue, and other sources.

For laboratories, the company provides genetic variant annotation apps and services to interpret sequence-based cancer mutation panels and identify the best available therapeutic options using a software-as-a-service or fee-for-service business model. For example, Quest Diagnostics will receive and sequence a patient's DNA and then send it to the company to interpret the data and present the results.

For physicians, the company has developed its TherapyFinder(TM) to identify optimal therapeutic options for lung, melanoma and colorectal cancers by having doctors input patient information. Surveys have shown that 70% of oncologists have an "extremely positive" view of the service and would definitely use TherapyFinder(TM) again while 72% found the tool "extremely useful" and would tell others about the technology. 

Potential Opportunity for Investors

Many investors have embraced Foundation Medicine as a premier player in the personalized cancer space, but CollabRx could offer an equally compelling opportunity that works with third parties instead of doing everything in-house. With an extensive database covering over 400 genes, 1,600 variants, 3,300 drugs, and 3,800 clinical trials, the service is invaluable to both labs and oncologists. 

Currently, Foundation Medicine trades with a lofty price-to-sales ratio of about 7.3x and a compelling valuation. If CollabRx succeeds in capturing even a fraction of the personalized cancer therapy market, its valuation could greatly exceed its current $6.3 million market capitalization. Management's early successes in attracting large customers and positive feedback have made these outcomes increasingly likely. 

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