FDA Clears Quest's Simplexa Test - Analyst Blog

Quest Diagnostics (DGX), a leading player in diagnostics testing, received 510 (k) clearance from the US Food and Drug Administration (FDA) for its Simplexa Flu A/B & RSV test to run on 3M's (MMM) Integrated Cycler. This test, developed by Quest's Focus Diagnostics business is meant to detect influenza A, influenza B and RSV virus infections.

This is the first cleared molecular test for detecting flu viruses that will not require a confirmatory test. Moreover, the Simplexa test requires an hour to execute following RNA extraction from a specimen.

The Simplexa test is the second product to receive approval that runs on the Integrated Cycler. Earlier, in May 2010, the Simplexa Influenza A H1N1 test had received FDA clearance to detect 2009 H1N1 influenza and other influenza A viruses. Through an agreement between Focus Diagnostics, an infectious disease diagnostics company, wholly owned by Quest and 3M, the Simplexa test runs on 3M Integrated Cycler.

Clearance of the Simplexa test will enable physicians to diagnose the cause of their patients' respiratory illness quickly. Influenza and RSV are two primary causes of respiratory tract infections in the US. Millions of patients worldwide are also infected by these viruses, in some cases leading to death in infants and young children.  

Recommendation

This approval will further strengthen Quest's portfolio of tests. The company reported a 1.7% decline in revenues to $1.9 billion in the third quarter of 2010, driven by continued softness in physician office visits. Clinical testing revenues, which account for most of Quest's sales, declined 1.7% compared with the prior year.

While clinical testing volume (measured by the number of requisitions) during the quarter declined 0.3% driven by a general slowdown in physician office visits, revenues per requisition were lower by 1.3% compared with the year-ago period and remained unchanged sequentially.

We appreciate Quest's move of repurchasing shares and paying dividends to drive shareholder value. Besides, the company is adopting strategies such as suitable acquisitions, increased sales force and targeting additional geographies to drive its top line. Although the near term volume and pricing outlook will continue to remain under pressure, we believe the company is well placed to rebound with a gradual improvement in the economic scenario.

We are currently Neutral on Quest in the long-term. It also corresponds to the Zacks #3 Rank in the short term.

 
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