Pathway Genomics scores $40M in Series E round for genetic test development

Pathway Genomics CEO Jim Plante

Pathway Genomics reeled in $40 million in Series E financing to spur development of its genetic tests, funds that will come in handy as the company sets its sights on international growth and moves beyond a legal dispute with the U.S. Department of Justice (DOJ).

Investors in the recent round include IBM Watson, which Pathway teamed up with in November 2014 to create a mobile health app using IBM's artificial intelligence (AI) expertise. Additional Series E investments will be made in the first quarter of 2016, the company said in a statement, bringing Pathway's total amount raised to more than $130 million.

A fresh pot of cash will help the company expand its footprint in the U.S. and abroad, potentially allowing Pathway to grab a bigger share of a global genomics market estimated at $38 billion, the company said in a statement. "This capital will allow us to continue to expand and validate the tests we offer, grow our sales force, and invest in cutting edge technology for our CAP and CLIA accredited laboratories," Pathway CEO Jim Plante said in a statement.

Pathway could use a boost after facing a rough patch at the end of 2015. In September, the FDA came down on the San Diego-based company for improperly marketing its liquid biopsy test a couple weeks after Pathway rolled out its product directly to consumers. Pathway planned to offer its CancerIntercept Detect product to customers for $299, allowing high-risk individuals to check DNA in their blood for early warning signs of the disease.

But FDA records did not show any "approval, clearance or listing of these devices," the agency said in a note to Pathway. Plus, Pathway has not demonstrated that its tool can effectively screen for cancer, the FDA said. The agency cited a white paper published on Pathway's website that did not provide any information about the test's efficacy.

"Based on our review of your promotional materials and the research publication cited above, we believe you are offering a high-risk test that has not received adequate clinical validation and may harm the public health," the FDA said in its note.

Still, the company seems to be heading for calmer waters in 2015. Pathway recently settled a dispute with the DOJ, which had accused the company of offering kickbacks to healthcare providers to get patient referrals. While Pathway "admits no wrongdoing as part of the settlement," it chose to put the matter behind it to "stay focused on our growing business and avoid the time and expense of a potentially lengthy litigation process," the company said in a statement.

- read Pathway's statement
- get more about Pathway's settlement with the DOJ