January 1, 2008 (Vol. 28, No. 1)

VCs and Pharmaceutical Firms Need to Invest in the Theranostics Industry

Healthcare spending per capita in the U.S. is much higher than in other countries, according to the Organisation for Economic Co-operation and Development. It is reportedly at least 24% more than the next highest spending countries and over 90% higher than many other nations that we would consider global competitors. R&D costs in the U.S. were well over $50 billion last year and will continue to increase in the near future.

Given the rising price of healthcare, as well as the recognition of an individual’s genetic variation and heterogeneity of disease, the life science and healthcare industries must accept the fact that these variabilities inevitably require individualized therapeutic decisions. A completely integrated healthcare system for the 21st century must recognize that in designing drugs and therapeutic programs, one size does not fit all.

About 0.1% of the three billion bases of DNA differ from person to person. These polymorphisms and methods for using them can assist with designing clinical trials, epidemiology studies, and serve as links to human disease and drug response.

Clearly, it is a natural next step to move to personalized medicine and theranostics, the marriage between diagnostics and therapeutics. In recent years, our knowledge of the genome, proteome, and metabolic pathways has increased exponentially, given improvements in research techniques and the population of databases. The field of theranostics thus allows us to use detailed information about a patient’s genotype and to monitor the individual’s particular therapeutic regimen and assess the patient’s response to it.

Investors Must Diversify to Include Theranostics

The theranostics industry is set for expansion, assuming the financial markets can recognize the opportunity. While development of the combination of a predictive test and a drug may be a shift from the standard therapeutic business model, it seems that the healthcare industry has evolved in this direction as a result of increased understanding of our genetic blueprint.

It appears to be shortsighted on the part of investors and pharmaceutical companies to invest primarily in therapeutic companies lured by the possibility of the next blockbuster and multiples on their return of initial investment. It seems impractical that they would not diversify their portfolios with diagnostic and theranostic companies.

The general outlook, though, seems to be that the pharmaceutical industry and the venture capital community may be reluctant to embrace the theranostics field since personalized medicine is contrary to the blockbuster drug model that relies on marketing to the masses. Focusing on only particular subpopulations of patients would logically not be in the best interest of participants in the standard drug model. Again, shortsighted?

Pharma Would Also Benefit

If there is a test to predict adverse reactions or resistance to a drug or to target the patient selection for a clinical trial, the risk of clinical failure goes down tremendously. It would seem that development of a drug based on genetic information may also shorten the time of development, which today stands at about 12 years. More importantly, it should require fewer dollars from R&D to the clinic and on to the market.

The number of serious adverse drug events reported to the FDA more than doubled between 1998 and 2005 as did deaths associated with adverse drug events. In recent years, we have seen several drugs pulled from the market, including Vioxx, Bextra, and Tysabri. These facts highlight the importance of the public health problem and illustrate the need for improved systems to manage the risks associated with drugs.

A handful of theranostic products on the market have already led to successful treatment decisions for patients with cancer and HIV. Yet, the number of such commercialized products today is still unacceptably low. Some of these tests are DAKO’s Herceptin Hercep genotyping test; BRCA1/BRCA2 test for breast and ovarian cancer risk; Roche’s AmpliChip that predicts a patient’s response to therapies; Monogram’s Trofile for HIV tropism; and Bayer’s Trugene HIV tests.

In development are DNA Print Genomics’ Statinome, designed to measure a patient’s likelihood of developing myalgia as an adverse response to the commonly prescribed statins Lipitor and Zocor, and DermTech’s noninvasive skin test for melanoma. With Roche Diagnostics and Abbott Diagnostics dominating the in vitro diagnostic industry, and Becton Dickinson gaining significant diagnostic technologies through the acquisition of GeneOhm, it is hoped that we will see new products in the future.

Theranostics and personalized medicine have the potential to transform the medical industry and the overall approach to healthcare. Clearly, widespread adoption of theranostics will eliminate unnecessary treatment of patients for whom the treatment is ineffective or even dangerous, with an end result being major drug cost savings for the patients and the entire healthcare industry.

Yet, a paradigm shift from the blockbuster drug model to a theranostics and personalized medicine model will require investors and pharmaceutical companies to accelerate their investment in this sector. Despite the advancements made in genomics and proteomics in the last decade, the diagnostics industry has only seen a growth rate of about 4% per year.

Private insurers rarely reimburse for genetic tests, thus, new policies and government-funded medical care issues also need to be addressed.

For the first time in the history of the U.S., the largest proportion of the population is older than 65. The theranostics industry, which is currently experiencing a lack of significant investment or acceptance, provides benefits that are evident. Clearly, widespread adoption of theranostics will eliminate unnecessary, ineffective, and dangerous treatment of patients, which will mea n significant cost savings for the patients and the entire healthcare industry.

Lisa A. Haile, J.D., Ph.D.

Lisa A. Haile, J.D., Ph.D., is a partner at DLA Piper U.S. and cochair of the firm’s life sciences practice group. Web: www.dlapiper.com.
Phone: (858) 677-1400. E-mail: [email protected].

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