Stakeholders are hoping that the regulatory environment for personalized medicine brightens in the Obama administration, but uncertainty persists about the business case for drug-diagnostics partnerships.

There still is no fair reimbursement model for personalized medicine tests, but there is cause for optimism in 2009, according to panelists speaking at a Windhover Information webinar entitled "Is there a business model for companion diagnostics?"

During the March 26 event, a range of in vitro diagnostics business models were presented by industry pioneers such as Dako, bioMerieux and Tethys Bioscience. Kristen Cirello Pothier, vice president of the consultancy Health Advances, presided as moderator.

"The field is so compelling and the drivers are so strong that growth is inevitable. It's not a question of if but when," said Iain Miller, senior director of theranostics at bioMerieux, of Basingstoke, U.K.

Miller noted in particular the "receptive" new administration with Obama, viewed as an industry friend, at the helm. As a senator, Obama introduced the Genomics and Personalized Medicine Act of 2007, which touted the potential to dramatically increase the efficacy and safety of drugs, while cutting costs ¹ Also see "Dear Daschle: HHS Advisors Draft Personalized Medicine Priorities For 2009" - Pink Sheet, 8 December, 2008.). Among other things, the bill called for incentives to develop companion diagnostics.

Another positive development is that FDA officials have resumed work on a concept paper for drug-diagnostic co-development that was drafted back in 2005 (² [A#00670160023]). It seems likely that guidance will finally be released this year "We are encouraged by the momentum across multiple constituencies," Miller said during the webinar.

With officials starting to ask questions about the availability of biomarkers to show the true value of particular therapies, pharmaceutical companies are "really starting to see the pharmacoeconomic benefit of companion testing," said panelist Rosanne Welcher, general manager and vice president of R&D at Dako, which specializes in tissue-based cancer diagnostics.

In partnership with pharma companies, Dako develops diagnostic tests that match drugs in early clinical trials.

"There has been a real change in the last three to four years, with partners embracing companion diagnostics as part of the development program from day one," she said. "It's no longer an afterthought in Phase III."

It makes sense for traditional drug and device companies to collaborate, but alliances are still relatively uncommon, according to Health Advances' analysis of data from Windhover's Strategic Transaction database.

Four in-vitro diagnostic alliance deals were struck in 2003, rising to 14 in 2005, then dropping to 11 in 2007 and six in 2008, Pothier pointed out during the webinar.

The number of publicly announced deals is disappointing, Miller observed: "It's regrettable that we still have very few success stories," he said. "We have all talked about Herceptin and HER2 for too long. There's a lot of scope for much higher deal volume."

Go it alone or partner with Big Pharma?

A variety of business models for companion diagnostics are now being road-tested, but to date none has emerged as the winner. Some testing companies are taking a go-it-alone approach, developing their own products independently and seeing them through the long approval process.

Others are aiming mainly for partnerships with pharma companies that don't have their own in-house diagnostics expertise. Among other things, a diagnostics partner can help pharma design less costly clinical trials, pick the right patients for therapy, and manage regulatory requirements, Dako's Welcher pointed out.

"They are looking to us for regulatory know-how, technical know-how, manufacturing and commercialization. If a pharma is missing any one of those, they will seek outside help to commercialize a diagnostic test along with a drug," she said.

Roche and Abbott are among the few that still have in-house diagnostic businesses (³ Also see "Roche Makes Early Headway With Pharmaco-Diagnostics" - Pink Sheet, 30 June, 2008. p. 15). Novartis recently announced its pharma division will establish a molecular diagnostics unit this year (⁴ Also see "Novartis Pharma To Add Diagnostics Unit In 2009" - Pink Sheet, 8 December, 2008. p. 15).

Collaborating can be challenging because drug makers and diagnostic developers have different economic incentives. Drug makers want a diagnostic to be as cheap as possible and to price drugs at a premium, while those in diagnostics need to build a sustainable business, noted expert panelists at another Windhover webinar held earlier this year (⁵ Also see "Drug, Diagnostic Firms Should Partner, Not Merge, To Personalize Medicine" - Pink Sheet, 23 February, 2009. p. 17).

Determination of who pays what in development costs is an important part of the partnership negotiation process, Welcher said.

"I have seen a very good response from pharma partners on how to fund these programs," she said. "It's done on a case-by-case basis. They know that the diagnostic company is assuming greater risk. Not knowing whether a clinical trial will work out, we may never commercialize anything at the end of the day."

Having concluded that asking for money was a sure way to slow down the partnering talks, start-up Tethys Bioscience has decided to go-it-alone, using venture backing to fund development of PreDx, its molecular test for predicting future development of diabetes.

Founded in 2005, Tethys says PreDx will improve screening of the more than 50 million people at near-term risk for developing type-2 diabetes and help identify the best candidates for early-stage intervention. The Emeryville, Calif.-based company expects the test could head off more than $11,200 in diabetes care costs per patient over 10 years.

CEO Mickey Urdea and other Tethys executives hail from Chiron Diagnostics, which successfully introduced blood screening tests for HIV patients.

During the webinar, Urdea recalled the 1990s talks that resulted in the pairing of Chiron's viral load test with Merck's protease inhibitor Crixivan (indinavir).

"We said: 'You want to sell more drugs and we want to sell more tests, why don't we work together?'" Urdea said.

The business deal amounted to a handshake. A handful of Tethys employees trained about 500 Merck sales reps in a day, sending them off with brochures detailing where patients could get viral load testing. It was an arrangement that paid off for both parties, he said.

Urdea advises spending a lot of time on health economics studies to prove that a particular test will save money for the health system.

"It's extremely important that we put this in the context of what it's worth to [payers]," he said.

Moving on from past failures

But that isn't so easy. According to bioMerieux's Miller, payers are typically interested in tests for drugs have been around for a long time and are backed up by extensive literature.

"We love to work with them, but find they are looking for quite a mature scenario to invest in. The earlier-stage studies are not so attractive to them," Miller said.

On the pharma side, since the turn of the decade, alliances have formed with "lot of fanfare at launch," only to "later die a quiet and slow death," said Miller.

"We need to select and validate best biomarker and only bet on the ones that are likely to be winners. Pharma has tremendous knowledge of pathways. We can't hope to equal that, but we can invest smartly and do better deals than those done historically. We need stamina - this market is taking a long time to evolve."

- Emily Hayes (e.hayes@elsevier.com)

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