(DGX) Quest Diagnostics’ Simplexa Passes FDA Test

Quest Diagnostics (DGX), a prominent player in the field of diagnostic testing, recently received the U.S. Food and Drug Administration’s (“FDA”) 510(k) clearance for its Simplexa Flu A/B & RSV Direct test, which was developed by the company’s Focus Diagnostics Laboratory and a global technology company 3M (MMM). Subsequently, Quest Diagnostic launched this test in the U.S. Earlier in 2011 this test received CE mark approval in Europe.

As another addition to Focus Diagnostics’ array of Simplexa branded molecular tests, the new assay will operate on 3M’s Integrated Cycler technology for the qualitative detection and differentiation of RNA of influenza A and B viruses and respiratory syncytial virus (RSV), which are the common causes of respiratory illness.

Being the first-of-its-kind moderate-complexity molecular test among the Simplexa product line, it received Clinical Laboratory Improvement Amendments (“CLIA”) moderate-complexity categorization mark by the FDA. Accordingly, from now on, this cutting-edge test can be performed in the moderate complexity labs which lag high-complexity medical support.

The alliance between Focus Diagnostics and 3M was first formed in 2009 through an exclusive global collaboration. Since then, several Simplexa molecular tests were introduced including the first FDA-approved influenza A H1N1 (2009) virus test.

As the influenza and respiratory virus diseases are growing at an alarming rate, reporting test results at a fast pace becomes very important. In this scenario the Simplexa test kits are expected to show encouraging results, further boosting Quest’s latent area of diagnosis testing.

Quest Diagnostics has been currently focusing on areas with high potential such as gene-based esoteric testing for cancer, cardiovascular disease, infectious disease and neurological disorders. The company has experienced increasing demand for gene-based and esoteric tests compared to routine tests.

In the recent past, Quest Diagnostics developed a number of gene-based and esoteric tests. In September this year, the company launched TERC test to help physicians recognize molecular changes to cervical cells that increase the probability of cervical cancer in women. The company believes that this test, which is designed as an addition to Pap and HPV tests, will act as a second opinion for doctors to confirm malignancy in the initial stages.

Earlier in May, the company expanded its endocrine diagnostics portfolio with the introduction of four new test panels for congenital adrenal hyperplasia (CAH), an endocrine disorder mostly found in newborns, children and women. Earlier this year, Quest acquired S.E.D. Medical that provides full-service drugs-of-abuse testing.

Quest Diagnostics is relying on the strong growth prospects of S.E.D. Medical, which the company expects to be in sync with its strategy of further expansion in high-potential areas. Encouraged by these factors, we expect higher sales from esoteric testing in the forthcoming period.

In order to bolster this specialized niche, Quest Diagnostics has engaged itself in accretive acquisitions such as Athena and Celera. This apart, we are encouraged by Quest’s efforts to improve its sales effectiveness and strengthen its relationship with health plans and payers.

However, the company continues to witness challenges with respect to physician office visits, which remain soft. The competitive landscape is tough as well, with the presence of Laboratory Corporation of America Holdings (LH). 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 over the long term. The stock retains a short-term Zacks #3 Rank (Hold).

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