The New Diagnostics Companies
This article was originally published in Start Up
A small number of start-ups are developing novel specilalty-focused diagnostics that capture drug-like revenues and margins without taking drug-like development and regulatory risks. Questions about the business model abound, since most companies need multiple tests to reach profitability and a changing regulatory climate may force these companies to seek FDA approval for their tests, dramatically increasing development risk and cost.
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Pharma is keenly interested in new cancer diagnostics tools, which in many cases are aimed at selecting the best therapy for a specific patient, measuring response to therapy and predicting or more sensitively measuring relapse. These technologies are often the same as those used in pharma's drug development efforts. But deciding with whom and how to ally for the development and distribution of tests is difficult, showing just how uncharted, and bumpy, is the current diagnostics terrain.
For most diagnostics companies, the prospect of premium pricing has been an elusive dream. The health care landscape is peppered with expensive novel drugs priced to underscore their clinical impact on patient care. A similar strategy for pricing novel diagnostics with significant clinical impact makes sense, especially since many of them are driving the decisions to deploy novel drugs in the first place. Now, strong system economics arguments are becoming more mainstream and payors are beginning to reward companies with reimbursement of their premium priced tests, based upon rigorous clinical arguments supporting the diagnostics' benefits to clinical decision-making and compelling economic arguments customized to each major payer.
Traditional diagnostic tests for Her2 (the target of the drug Herceptin) have well-documented failings. In July, Monogram Biosciences launched a new Her2 test, and two months later, Genomic Health added Her2 status information to its breast cancer test. They believe that more comprehensive, multianalyte tests may better guide therapy and yield a pharmacoeconomic benefit, even at eight to 10 times the cost. These developments point to the need for a more nuanced approach to the management of cancer as a chronic disease and a more nuanced view of personalized medicine.