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Castle Biosciences, a diagnostics company that currently markets tests for skin cancers, uveal melanoma, and Barrett’s esophagus, announced this week that it will acquire molecular diagnostics company AltheaDx and its IDgenetix pharmacogenomic (PGx) test for for depression, anxiety and other mental health conditions.

Under the terms of the purchase agreement, Castle will pay $65 million in initial consideration to AltheaDx security holders, consisting of $32.5 million in cash, subject to adjustments for cash, debt, transaction expenses and working capital, and $32.5 million in common stock of Castle. The definitive purchase agreement also includes the potential for an additional $75 million to AltheaDx shareholders for the achievement of certain milestones and expanded coverage of the IDgenetix tests by Medicare.

Upon closing of the transaction, AltheaDx will become a wholly owned subsidiary of Catel and the the executive management team and other AltheaDx staff are expected to continue with the company. AltheaDx’s laboratory and operations are expected to remain in San Diego.

“As a company, we focus on transforming disease management through the personalized information our innovative tests provide,” said Derek Maetzold, Castle’s president and CEO in a press release. “Similar to our acquisition of Cernostics in December 2021, the pending acquisition of AltheaDx enables us to offer a testing solution that we believe has the potential to accelerate our impact on patient care in an area of high unmet clinical need, significantly expand our in-market expected estimated U.S. TAM to approximately $8 billion and offer incremental value to patients and clinicians over standard of care. Further, this acquisition would enable us to potentially develop a mental health franchise, starting with a test that currently receives Medicare reimbursement for depression.”

Maetzold pointed to the results of a randomized controlled clinical trial conducted by AltheaDx to support the decision to acquire the company. That trial demonstrated the clinical utility and an improvement over the standard of care of the IDgenetix test in patients diagnosed with moderate and severe depression and anxiety when physicians used the test prior to prescribing a medication.

“The data demonstrated that in patients diagnosed with moderate and severe depression, response rates and remission rates were significantly higher in the IDgenetix-guided group as compared to the control group at 12 weeks,” Maetzold noted. “We believe two forward-looking decisions made by AltheaDx contributed to these study results. The first was recognizing that both drug-gene and drug-drug interactions may impact the effectiveness of individual therapies, and the second was their proprietary approach to analyzing genetic data.”

The test promises to fill an unmet medical need in the prescribing of medication for people with mental health conditions, particularly the prescribing of selective serotonin reuptake inhibitors (SSRIs) whose response rates in patients ranges from 40% to 60% of patients and remission rates range from 30% to 45%.

“We believe the value of IDgenetix lies in providing important genetic information to clinicians, with the potential to help improve their patients’ chances of response and/or remission, by identifying appropriate medications more efficiently than the standard of care trial-and-error approach,” Maetzold concluded.

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