BioWorld International Correspondent

Epigenomics AG lost 41 percent of its market capitalization Friday on news that the Roche Diagnostics arm of F. Hoffmann-La Roche Ltd. was exiting their four-year alliance to develop molecular diagnostic products for colorectal, prostate and breast cancer screening.

The shares plunged to €2.71 (US$3.57) Friday, down €1.90, but recovered slightly during trading Monday to close at €2.83. Tuesday the stock price climbed up to €2.90.

All rights to and licenses associated with the programs will revert to Berlin-based Epigenomics, which said it would seek alternative partners for its proprietary technologies, which can provide early identification of cancers based on changes in DNA methylation patterns that can be detected in blood or in other body fluids.

"We're obviously extremely disappointed by that decision on the part of Roche, given that we had very positive and very exciting clinical data we developed over the last 12 months in our colorectal cancer screening program, as well as in our prostate cancer screening program," Epigenomics Chief Financial Officer Oliver Schacht said on a conference call.

The colorectal cancer screening program was the most advanced of the three. In a recently completed prospective study involving 561 patient samples, the company was able to detect early stage colorectal cancer with 66 percent sensitivity at 93 percent specificity with a test involving Septin 9 and one other biomarker.

Epigenomics Chief Operating Officer Christian Piepenbrock said the company had consulted with a panel of clinical experts, which advised that a test offering sensitivity of greater than 60 percent would offer an improvement on currently available tests involving analysis of fecal blood and fecal DNA. Moreover, the latter suffer from poor public acceptance.

The data were not sufficiently compelling for Basel, Switzerland-based Roche, however.

"The official reason that they've given is that in their view the clinical data on the colorectal cancer screening to date does not meet [Roche's] internal development criteria for an [in vitro diagnostic]," Schacht said.

The companies had co-operated on the study design, Piepenbrock said. "It was clear from the start how the study would be analyzed. There was no pre-agreed set of criteria that would have to be met for Roche to take a positive development decision - at least not a catalogue of criteria that we know of," he said.

Epigenomics had received between €25 million and €28 million from the collaboration, including up-front, R&D and milestone payments, as well as reimbursement for costs it had incurred. Roche's withdrawal will leave it with an annual shortfall of €3 million to €4 million, Schacht said. "It's a sizeable chunk, there's no doubt about that, but it's certainly only a portion of the overall revenue," he said.

The company reported a net loss of €3.7 million in the third quarter, revenues of €1.2 million and €21.2 million in cash and securities.

Epigenomics now is seeking alternative partners for commercializing its cancer detection tests and is in late-stage negotiations with U.S. reference laboratories. The shape of future corporate deal may differ from the Roche alliance, however.

"We're not saying we're going to take all the programs together and try to duplicate a Roche deal. I think there are different partners for different indications and different programs that are ideally suited," Piepenbrock said.

In October, Epigenomics disclosed plans to cut 34 positions at its Berlin headquarters by scaling back on research and technology development, software development and administrative functions. By the end of the first quarter, it aims to have 118 people on the payroll in total, with 40 in Seattle. Its co-founder and CEO Alexander Olek resigned in August. The company hopes to appoint a successor by early 2007 if not sooner, Schacht said.

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