Quest Diagnostics on Thursday said it will pay up to $450 million to acquire Haystack Oncology, an early-stage company developing liquid biopsy tests to detect residual or recurring cancer.
The announcement came as Secaucus, New Jersey-based Quest reported a nearly 11% year-over-year drop in first quarter revenue to $2.3 billion on faster-than-expected declines in COVID-19 testing.
Excluding COVID testing, revenue from Quest’s base business rose 10% to $2.2 billion, boosted by strong volume growth across customer types, CEO James Davis said on the company’s earnings call.
“We saw faster growth in a number of tests per requisition across a broad range of clinical test categories,” Davis told analysts. “This suggests more people are returning to the healthcare system for routine care, after delaying care during the pandemic.”
Per deal terms for Haystack, Quest will pay $300 million in upfront cash and has agreed to pay as much as $150 million more should certain milestones be reached.
Haystack was founded in 2021 by physician-researcher Bert Vogelstein and his team at Johns Hopkins University. Its liquid biopsy technology is based on more than two decades of research, Quest said. A liquid biopsy is a blood test that detects cancer cells or DNA circulating in the blood.
Davis, on the earnings call, said Haystack’s assay is able to find one fragment of cancer DNA per one million parts. “That is an incredibly low limit of detection,” he said.
Quest selected Haystack after holding “many discussions with many of the players” pursuing minimal residual disease, or MRD testing, Davis said.
“We think it’s a best-in-class assay,” he said. “Haystack’s liquid biopsy technology, combined with our strengths in screening, pathology and sequencing, will now position us to play a leading role in the fast-growing MRD category.”
The company expects to focus initially on colorectal, breast and lung cancers.
The acquisition is expected to be slightly dilutive to earnings per share over the next three years and accretive to earnings by 2026, Quest CFO Sam Samad said on the earnings call. “We anticipate Haystack oncology to begin contributing revenue in 2024 and to have a positive [return on invested capital] by the end of 2025,” Samad said.