PDI Enters into Collaboration Agreement to Commercialize Molecular Diagnostic Tests

PDI, Inc. has announced the signing of a collaboration agreement with a privately held molecular diagnostics company (the Company) to commercialize the Company’s molecular diagnostic tests.

The initial test to be commercialized is fully developed. For competitive reasons, the name of the company and the specific focus area of the initial test to be commercialized are not being disclosed at this time.

Under the terms of the collaboration agreement, PDI has paid the Company an initial fee of $1.5 million and has received an option to purchase the Company.

The option price is dependent on the achievement of certain milestones during the collaboration period (the period up to the exercise of the purchase option or termination of the collaboration agreement) and could be up to $6 million if all milestones are achieved at their maximum levels.

PDI can terminate the collaboration agreement if all milestones are not achieved within one year and would receive a $1 million termination fee from the Company.

If all milestones are achieved within one year and PDI has not exercised its option, the Company can require PDI to exercise the option to purchase the Company or terminate the collaboration agreement and pay PDI a termination fee of approximately $2 million.

If PDI purchases the Company, in addition to the option price based on the achievement of milestones, beginning in 2015, PDI would pay a royalty of 7% on annual net revenue up to $50 million with escalating royalty percentages for higher annual net revenue capped at 11% for annual net revenue in excess of $100 million.

During the collaboration period the Company and PDI will partner to pilot various sales and marketing programs and build additional supportive sales and marketing materials while working together to achieve the contract milestones which are focused on launching the test on a broad basis in the most impactful, profitable and cost effective manner.

“As we have previously stated, we have been pursuing commercialization opportunities for products aimed at adding more predictable, higher growth, higher margin businesses that can leverage the substantial full commercialization capabilities of PDI,” said Nancy Lurker, chief executive officer of PDI, Inc. “Should we exercise our purchase option, this opportunity could meet all of our criteria.

“For competitive reasons, at this time, we are not disclosing the name of our collaboration partner or the area of focus of the initial test we plan to launch. What we can say is that we believe the core technology of the test is unique and sound, the value to the health care system is potentially significant, the clinical value to patients is compelling, the accuracy of the test is high and reimbursement from both private and public payors is expected to be very attractive. There is a large market, a well-defined patient population and a concentrated physician base servicing these patients which should allow for a very efficient use of PDI’s broad base of commercialization capabilities.

“From a time line standpoint, we currently estimate that the collaboration period will run through the first quarter of 2014 and by then we should be in a position to determine if we would exercise our purchase option. If our purchase option is exercised, we estimate that a full commercial launch could occur sometime in the second quarter of 2014.

“In summary, we are very excited about this opportunity and what it could do for PDI. While there is no guarantee that the important milestones that need to be achieved before we commit to full commercialization will be met, we have structured a collaboration that allows us to move forward in a meaningful way with minimal financial risk,” Ms. Lurker concluded.

PDI confirmed that it is not revising its 2013 full year revenue, gross profit or operating expense forecasts as a result of this announcement.