XDx marks a spot: An $86M IPO for gene-expression diagnostics

(UPDATED: See below.)

xdx-logo.jpgWhen XDx yesterday filed to raise up to $86.3 million in an IPO, the Brisbane, Calif., company joined just a handful of similar molecular-diagnostic companies to test the public markets. XDx specializes in a new type of diagnostic test that measures gene activity — technically, “gene expression” — in blood.

Gene-expression diagnostics have only been around for a few years, and they’re been slow to catch on. The tests use “gene chips” that measure the RNA produced when genes are active, and can do so for thousands of genes at a time. In practice, however, commercial gene-expression tests tend to involve only a handful of genes (and, sometimes, their common variants). Examples of such tests include Genomic Health‘s Oncotype DX, which measures the risk that breast cancer will return after surgery, and a similar test offered by Agendia of the Netherlands.

XDx launched its first product, AlloMap HTx, a test designed to monitor heart-transplant recipients for rejection, in January 2005. The test analyzes the activity of 20 genes in white blood cells, which play a key role in orchestrating immune-system responses, in order to determine whether the body is beginning to reject the transplanted organ. Ideally, such a test could help physicians better monitor the status of transplant patients without the need for heart biopsies, and could help them better determine necessary doses for immunosuppressive drugs. XDx is developing a similar test for lung-transplant patients, and intends to create a related test that can detect when the autoimmune disease lupus is about to “flare,” which it does periodically in many patients.

XDx runs its tests on samples sent to its in-house laboratory. Such “home-brew” tests are regulated less stringently by the FDA, which makes it much faster to get them to the market. While the tests are expensive — the AlloMap HTx costs $2,950, although that appears to be less than the cost of a biopsy — building a business for them takes time: XDx reported only $179,000 in testing revenue in the first year AlloMap HTx was on the market.

In the first half of 2007, XDx only pulled in revenues of $4 million and posted a net loss of $11.8 million. The company estimates that its test is used in only about 50 of the 190 heart-transplant management centers across the U.S. And XDx is not alone: Genomic Health, a pioneer in the gene-expression testing market, is also off to a slow start. A full three and a half years after launching its cancer test, the company reported diagnostic sales of just $27.7 million and a net loss of $14 million in the first half.

Of course, Genomic Health’s luck may be about to change, given that the American Society of Clinical Oncology recently endorsed the Oncotype DX test as standard practice in certain types of breast-cancer treatment. XDx and other makers of genomic diagnostics will just have to hope other doctors eventually follow suit.

NOTE: This item originally appeared in the life-sciences briefing for Oct. 24.

UPDATE: I somehow neglected to note our earlier coverage of XDx here. By the way, the company has raised $100.5 million since its inception, according to VentureWire.