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New Genetic Diagnostic Tests-Financial Impact
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"A Crystal Ball Submerged in a Test Tube"
NY Times
April 13, 2006
By ANDREW POLLACK
When her hairdresser asked her last fall whether she would continue wearing her hair long, Elizabeth Sloan broke down crying. Unbeknown to the hairstylist, Ms. Sloan had recently had a breast tumor removed and was expecting to begin chemotherapy, which would probably mean losing her hair.
But later that day, Ms. Sloan received the results of a new $3,500 genetic test, which indicated that her cancer probably would not come back even if she skipped chemotherapy.
"It was a huge relief," said Ms. Sloan, 40, a mother of two young boys who lives in Manhattan. "I did not want to napalm-bomb my body with chemicals."
The test taken by Ms. Sloan, known as Oncotype DX and offered by a company called Genomic Health, is part of a new wave of sophisticated genetic or protein tests that are starting to remake the diagnostics business, both for the technology they use and the way they are developed and sold.
Traditionally regarded as a low-profit, poor cousin of prescription drugs, diagnostic tests are emerging as high-profit products in their own right. Test developers are "trying to do what pharmaceutical companies have done with their drugs," said Jondavid Klipp, managing editor of Laboratory Industry Report, a newsletter.
Unlike the conventional $10 cholesterol or blood sugar test, the new tests are expensive, often patent-protected and are marketed directly to doctors or in some cases patients instead of to medical laboratories. The effectiveness of some tests is being assessed using clinical trials, as Genomic Health has done with its Oncotype DX.
The company's test could receive new attention as a result of a major medical journal study, published yesterday, which found that women with a certain kind of breast tumor might not benefit from chemotherapy. Genomic Health's test could potentially be used for further screening by such women and their doctors.
But the trend toward such high-priced tests, many of them not yet covered by insurance, is raising concerns in some quarters that diagnostics could become a new contributor to rising health care costs - while increasing the gap between people who can afford good health care and those who cannot.
In any case, the new generation of tests represents some of the first fruit of the long-anticipated genome revolution and could help pave the way to personalized medicine, in which treatments would be tailored for each therapy, potentially making them more effective and less costly. Such tests are either now available or being developed for purposes like detecting cancer early, monitoring heart transplants and choosing which drugs might work best to treat cancer, AIDS or heart disease.
Within its industry of genetic testing - a business now estimated at $5 billion and growing by 25 percent annually - Genomic Health is being seen as a model.
"They are raising the tide for everyone else," Jorge Leon, the president of Leomics Associates, a diagnostics consulting firm, and the acting chief science officer at Orion Genomics, which is developing tests to detect cancer. He said Genomic Health had done a "fantastic" job of validating its test using clinical trials and then of "packaging it in a Starbucks package at a high price."
Kleiner Perkins Caufield & Byers, the prominent Silicon Valley venture capital firm that provided early financing for Genomic Health before it went public last year, is now backing four other companies with the same business model, said Brook Byers, a partner. But some experts are concerned that Genomic Health and companies with similar business models perform all the testing in their own laboratories, rather than selling or licensing the tests to a variety of hospital and commercial labs. That makes it difficult to measure a laboratory's reliability by comparing it with others, and it lowers the pressure to improve the test.
"I don't think having a sole provider of a medical service, a test, is in the best interest of public health," said Dr. Debra Leonard, a professor of pathology and laboratory medicine at Weill Medical College of Cornell University. "It can't be validated by other people. And there's no making the test better. And there's no competition on pricing."
The Food and Drug Administration has also become concerned that such tests are not properly regulated. Tests done by a single laboratory are currently classified as laboratory services and do not usually need F.D.A. approval, unlike test kits that are sold to hospitals and doctors. But the F.D.A. has sent letters to some providers of these tests saying that tests used to diagnose disease may legally be considered medical devices and require agency approval.
One such test, to detect ovarian cancer, is still not on the market two years after its developer, Correlogic Systems, received such a letter from the F.D.A. Genomic Health got a letter in January, raising at least the prospect that its test may have to come off the market while it undergoes F.D.A. review.
Randy Scott, co-founder and chief executive of Genomic Health, said the company was in discussions with the F.D.A., but he would not comment further.
Many testing laboratories say that requiring F.D.A. approval at the outset would make it uneconomical to develop many tests, which have smaller sales than drugs. Genomic Health, for example, performed only about 7,000 tests in 2005, the second year the test was offered. And it is still losing money.
"I'm not sure we could exist at all if we were required up front to have F.D.A. approval," said Mr. Scott. He said that, industrywide, there were hundreds of genetic tests, only a handful of them approved by the F.D.A.
Mr. Scott also said that the price of the Oncotype test might not be much of a barrier. "We didn't see much price sensitivity once you get above $1,000," he said.
He and others in the industry argue that diagnostics account for only a few percent of overall health care spending but have a potentially great impact. Mr. Scott said the Oncotype test could save money over all by allowing many women to skip chemotherapy, which can cost $20,000 or more.
In deciding to finance Genomic Health and similar companies, Mr. Byers, the venture capitalist, said, "we went and looked at decisions that would lead to expensive treatments and for which there is little information."
Another company Mr. Byers is backing, XDx, offers a $3,000 blood test that analyzes whether a transplanted heart is being rejected. Such a test may be able to substitute for the heart biopsies now used to test for rejection, which themselves cost several thousand dollars and are invasive.
Genomic Health, which is based in Redwood City, Calif., is not the first company to offer a high-priced genetic test as a laboratory service. Myriad Genetics of Salt Lake City has been offering a patent-protected test for the risk of developing breast cancer since the late 1990's. It charges $3,000 for the most thorough version.
At an investor conference in January, Peter Meldrum, Myriad's chief executive, extolled the "pharmaceutical-like" profit margins on the breast test and three other cancer risk tests. Myriad's testing sales reached $71 million in the fiscal year ended June, 2005, up 75 percent from the previous year.
Monogram Biosciences, based in South San Francisco, Calif., offers tests costing up to $1,460 that help doctors tell which drugs would be best to use for a particular patient infected by the AIDS virus. It had $48 million in revenue last year.
Not all such tests succeed. Exact Sciences has experienced slow sales of a $500 DNA test, performed on a stool sample, that screens for colon cancer. Eric Book, chief medical officer of Blue Shield of California, said Blue Shield decided not to pay for the test, in part because it appeared little better than a $5 test that looks for blood in the stool. Exact Sciences maintains its test is better, although it is working to improve it.
Genomic Health, though, expects about 70 percent growth in sales of its Oncotype DX tests this year, to 12,000. The stock closed yesterday at $9.92, down from the $12 initial public offering price.
Oncotype DX is only for women whose tumors' growth is fueled by estrogen and has not spread to lymph nodes. That accounts for about half of the 230,000 cases of breast cancer diagnosed in the United States each year, according to Genomic Health.
Previous clinical trials have shown that after the tumor is surgically removed, 85 percent of such women, even without chemotherapy, will not have a recurrence within 10 years if they take tamoxifen, a hormone therapy. But because there has been no good way to determine who among the estrogen-sensitive cancer patients might benefit from chemotherapy, many women have taken the treatments anyway, exposing themselves to needless toxicity. Genomic Health is promoting the Oncotype DX test as the way for those women to better gauge their prospects.
In January, the company won approval for reimbursement for its test for most Medicare patients. But many insurers still do not reimburse for the test. Last year, a committee that evaluates technology for Blue Cross Blue Shield said Genomic Health had not adequately demonstrated a medical benefit.
Ms. Sloan, of Manhattan, is still working on getting reimbursement from Oxford Health Plans.
Mary Sullivan, who is 47 and lives in Lido Beach, N.Y., had the test early in 2005. She said she was still trying to obtain reimbursement from her insurer, UnitedHealthcare, which in a letter to her termed the test "unproven."
Ms. Sullivan said it took more than two months to get her test results back from Genomic Health, instead of the two weeks advertised, because additional samples of her tumor were needed. By then, she said, she and her doctors had already decided to skip chemotherapy. The test later classified her as low risk for recurrence.
Ms. Sullivan said she and her husband had wanted all the information possible to deal with a life-or-death situation. "We were going to go through with it whether the insurance company would pay for it or not," she said.
Other companies are hoping for similar patient demand. In February, Aureon Laboratories, a start-up in Yonkers that has attracted investment from Pfizer as well as Becton, Dickinson & Company, began offering a $2,000 test that combines protein analysis, pathology and other measurements and uses a computer algorithm in an effort to predict recurrence of prostate cancer.
Asked about the price, Rob Shovlin, Aureon's executive vice president for sales and marketing, replied, "It's less than the Genomic Health price of $3,500."
He added, "Patients have given us feedback that they'd be willing to pay more than that to have this information."
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