September 15, 2008 (Vol. 28, No. 16)

Challenges Create a Significant Discrepancy between Potential and Actualized Markets

Diagnostics follow therapeutics, goes the old industry axiom. When there is no therapeutic approach toward treatment of a disease or condition, it makes little sense to define the disease in detail. With the increase in genetic knowledge and the later rapid success of the Human Genome Project, the old axiom is being turned on its head.

As the field of nucleic acid therapeutics emerged, the link between genomic data and therapeutics grew stronger, and so did the idea that therapeutic problems can be solved by genomics and related biomarker testing. The pairing of a diagnostic test to a therapeutic, the essential element of theranostics or companion diagnostics, is in some cases already a reality and predictions are being made for its future success.

Theranostics are considered the pathway to what has been termed personalized medicine. This has given the diagnostics field a huge boost in terms of publicity/public attention, revenue potential, and investment interest. Still questions exist as to how extensive such testing will be and how soon we will see its growth in clinical application. There are many hurdles to overcome. Researchers are confident, however, that these can be handled.

It is now possible to characterize diseases, e.g., cancer, by their molecular profile. Historically, the diagnostic classification of cancer has been based on the organ or tissue location where it originated in the body, e.g., pancreas, lung, stomach. These days, cancers can be classified by the genes that are expressed, the tumor’s cell surface proteins, and other molecular attributes. Such information may provide keys to understanding how cancer may spread and which therapeutic route may be the most effective.

Many experts believe that if such testing is included in clinical practice, we could be looking at an entirely new era of healthcare delivery. Such testing may provide substantially more information about a patient’s condition, including disease susceptibility and progression and likely drug responses. Due to the potentially predictive nature of such testing, it may form the basis for preventive interventions, or it may not.

Challenges for Theranostics

Despite these promising benefits, the use of companion diagnostic for personalized medicine applications will not have an easy route to and through the market.

First, the molecular diagnostic tests associated with companion diagnostics face the challenge of a healthcare finance system that has become dependent on visible disease symptoms and gross clinical classifications.

Simultaneously, the ability to classify diseases into distinct molecular subcategories challenges traditional pharmaceutical business models that focus on one-size-fits-all drugs. As a result, the economic rationale for personalized medicine in healthcare decisions needs to be based on the cost-savings that result from proactive and preventive interventions.

Second, physicians have an uneasy relationship with clinical diagnostics as it is. Despite the fact that they need this information to properly diagnose their patients, it is an aspect of their practices that is beyond their control. Physicians, by their very nature, must feel in control of the patient’s care. What companion diagnostics and personalized medicine are asking them to do is to accept direction in prescribing for their patients. If that direction is contrary to their experience, it raises conflict.

The third key issue is that of privacy. Currently, the legal picture regarding medical privacy issues that may affect personalized medicine and companion diagnostics is a patchwork of federal, state, and local laws. HIPPA not withstanding, these offer various levels of protection against the misuse of genetic information.

Biomarker discovery is another issue. Companion diagnostics have largely been the product of biomarker discovery. The identification of biomarkers, however, has mostly been a one-at-a-time approach. Many of the well-known biomarker assays have been identified based on clear biological insight from genetics, physiology, or biochemistry. As a result, only a few markers at a time have been considered for development. While genomics and proteomics are providing strong bases for biomarker discovery, the process is still a laborious one that experiences significant technical difficulties.

Finally, at a time when the healthcare system is seeking cost containment, companion diagnostics introduce new complexity into successful diagnosis. Complex genetic relationships (i.e., multiple affected genes) and rapid mutational states present key problems for companion diagnostics.

Market Factors and Estimates

The number of companies actively engaged in development, manufacture, and marketing of companion diagnostics is large—somewhere on the order of 150 companies or more. As a result, the number of companies involved in this area may continue to increase over the next few years. Their number may then dwindle as some cannot find alliances that allow them early access to proprietary genetic data from pharmaceutical firms; some will merge; and some will be acquired (or at least their technology will be bought out), by therapeutics firms wishing to maintain proprietary testing technologies.

Kalorama Information’s forecast for companion diagnostics presents what we believe to be the potential market for companion diagnostics in the U.S., and the actualized markets, including today’s ad hoc associated testing transitioning to the true companion diagnostic paradigm by 2015 or 2016.

The market for companion diagnostics is estimated to be at $27 million but will likely grow to $130 million by 2018 (Figure). This is a conservative forecast. It is based on the estimates of pharmaceutical industry executives who project seven-year horizons for each companion diagnostic product.

Therefore, since the industry is just now planning the complete companion diagnostic paradigm and entering the cooperative development process, it is likely that it will not be before 2015 or 2016 that any major surge in these markets will be seen. Some readers may have seen larger projections, but we believe these are unwarranted at this time. These figures are probably not what the diagnostics industry is hoping for.

To increase companion diagnostics revenues to the diagnostics companies, it is suggested that the diagnostics companies use a strategy of royalties associated with the sales of the therapeutics that their tests target. Because of the subordinate role that diagnostics has in the companion diagnostic relationship, such a strategy will show greater promise than some of the companion diagnostic marketing strategies commonly advanced. While the promises of theranostics for modern medicine are great, developing models that work in the reality of today’s healthcare marketplace will serve companies better than a completely futuristic view.

Benefits of Personalized Medicine

The potential benefits of personalized medicine include:

— The detection of disease at an earlier stage, when more effective treatment can be delivered such as in the case of cancer

— The ability to select optimal therapy, thereby reducing or eliminating trial-and-error prescribing

— The reduction of adverse drug reactions

— An increase in patient compliance

— Reduction in cost, time, and failure rates in clinical trials

— Revival of drugs that failed earlier clinical trials or were withdrawn from the market

— A shift in the emphasis in medicine from reaction to prevention. There is the belief in some quarters that personalized medicine will allow the use of biomarkers (genes and proteins) that signal the risk of disease or its presence before clinical signs and symptoms appear.

Kenneth P. Krul, Ph.D., is a senior analyst for Kalorama Information. Email: kkrul@kalorama information. com. “Companion Diagnostics: A Realistic Assessment” is available at

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