This post was written by, and reproduced with the permission of Gitte Pedersen.
Diagnostics have traditionally been the stepchild of biotech. Why develop a cheap $100 dollar test that a patient will use once compared with a cancer drug that costs the $5,000 per month for the duration of the patient’s life?
And for the above reason, VC’s and investors in general have not had an appetite for diagnostics.
It most certainly did not help that Myriad’s patents on the BRCA gene were proven invalid by the Supreme Court. So now you can’t protect yourselves from competitors by filing patents! Patents are a cornerstone of the way biotech works.
It gets worse. The high value diagnostics such as OncotypeDx from Genomic Health and CardioDx from Corus CAD reduce the cost of care by eliminating other costly treatments. However, these two companies had to conduct extensive clinical studies costing hundreds of millions of dollars to get key opinion leaders on board, and even after presenting data, they faced the hurdle of first, reimbursement, and then, adaption.
Adaptation has proven a very hard one because both tests take revenue away from the same doctors who use the test, and in a commercially driven health-care system, such as the one we have in the United States, doctors are not giving up revenue without a fight.
Thus, it’s been a hard and long road for the few companies that succeeded. The companies that did succeed enjoy a market cap of +$500 million market cap/diagnostic product launched.
And for the above reasons, diagnostics remains less than 2 percent of the total cost of health care, whereas the answers to those tests drive 70 percent of all clinical decisions.
If we want more evidence-based health-care delivery, we have to change the above dynamics!
Two relatively recent companies had the guts, vision, and money to do so, and both have come out of nowhere and within a very short time, made it from Zero to one to use Peter Thiel’s definitions.
Foundation Medicine founded by ThirdRock has redefined the diagnostic category and revolutionized cancer treatment, despite the fact that it has very little IP to protect its innovation. However, it moved so fast and raised so much money, that competition just couldn’t keep up. And now, Roche acquired majority share of Foundation Medicine for +$1 billion.
Foundation Medicines’ comprehensive cancer panel falls under the “One Assay”concept that assists doctors in identifying treatments that work on the patient’s individual genetic alterations. This kind of information can save lives of patients who otherwise do not respond to treatment. It is the new hope for cancer patients.
Theranos is also a “One Assay”concept but went after the existing tests that are standard to perform in a blood sample. We all go to the doctor once a year for our annual checkup. Last time, it took three vials in order to send my blood to three different labs. Theranos solves this problem by enabling all the tests to be performed in as little as one drop for much less than the existing tests cost.
Theranos’s plan is to make standard blood tests a commodity that you get at the pharmacy, similar to your flu shot. You save the scheduling and waiting in the doctor’s office, and you have the results when you meet him or her, making the visit more productive.
Both Foundation Medicine and Theranos are revolutionizing delivery of health care, and they have also made very nice returns for their investors.
Which leads me to my next point. Visiting your doctor once a year is not an effective way to deliver health care. It corresponds to flying an airplane and turning on the radar once per hour. We need to monitor our health in a much more continual manner to prevent disease. And if we can do that, we will be able to, for the first time in history, reduce the cost of care.
For that reason, I also believe we are about to see many more companies revolutionize delivery of health care, either with novel diagnostic concepts or new models for monitoring health and delivery of health care.
Genomic Expression is focusing on developing cancer diagnostics that save lives and make health-care delivery more effective—and we are launching products now. We got started with a large grant in Denmark overcoming some of the hurdles of funding with non-dilutive capital.
If our RNA assay is a recording studio, we can develop disease prognostics algorithms/songs if we have access to historic samples with clinical outcome data. And, as a matter of fact, we do have that access. So stay tuned; we signed up partners and are very much looking forward to our first year with revenue.
Gitte, and the full article can be found here.