Quest acquires its needle in a Haystack

Quest Diagnostics is buying Haystack Oncology from sponsor Catalio — netting the private equity firm an immediate $100 million for investors on the deal, two sources with direct knowledge told Axios.

Driving the news: Quest announced plans to acquire the business for $300 million in cash at closing, with an additional $150 million committed tied to milestones.

• Assuming Quest pays the full $450 million, "Catalio would net more than $250 million," one source says.
• "As of right now, they are netting more more than $150 million," the source continues.

Details: Catalio’s co-founders and co-managing partners George Petrocheilos and Jacob Vogelstein will serve on the board.

• The transaction is expected to be completed in the second quarter, subject to customary regulatory review.
• Catalio owns more than 50% of the company, which it helped build.
• Catalio declined to comment.
• J.P. Morgan Securities and Weil, Gotshal & Manges advised Quest, while Goldman Sachs and Goodwin advised Haystack.

How it works: Haystack uses minimal residual disease (MRD) testing to help detect residual or recurring cancer earlier and better inform therapy decisions.

• MRD testing is a fast-growing category of liquid biopsy tests that identify circulating tumor DNA (ctDNA) in the bloodstream of patients following surgery and treatment for cancer.
• Quest expects to adapt the MRD test developed at Haystack as the basis for new clinical lab services available starting in 2024.
• Development efforts will focus initially on MRD tests for colorectal, breast and lung cancers.