Drugmaker Aveo Oncology and test developer Biodesix entered into a partnership last week in which the two will share more equally the risks and profits of developing a personalized medicine product.
Industry observers have generally held that because the profit margins in the diagnostics industry are so small compared to drug profits, a test developer would never be able to put enough skin in the game where they could justify taking a piece of the drug profits, which pharmaceutical firms don't share anyway. But Aveo and Biodesix have flipped the traditional Rx/Dx deal structure on its head by agreeing to a scenario where Biodesix would invest $15 million to conduct a proof-of-concept study that will test out the ability of its VeriStrat diagnostic to pick out best responders to Aveo's investigational non-small cell lung cancer drug ficlatuzumab.
Thereafter, any additional development, regulatory, or commercial costs related to the drug would be split evenly between Aveo and Biodesix. And as a result, the partners stated that the drug profits, should ficlatuzumab successfully make it market, would also be divvied up between the two companies. Meanwhile, Biodesix would shoulder full development, regulatory, and commercial costs for advancing VeriStrat as a companion test, and would retain all the revenues from test sales.
"From our standpoint, we believe that a diagnostic can have as much impact [as a drug] simply by taking the armamentarium and finding the patients that benefit from the drug and those that don't. So, we have the opportunity to have as much impact on therapeutic outcomes while improving efficiency as drug companies," Biodesix CEO David Brunel told PGx Reporter.
Biodesix's VeriStrat is a multivariate, blood-based, protein test that can help physicians guide treatment decisions for patients with advanced non-small cell lung cancer. The test identifies patients who are likely to have good or poor outcomes after treatment with either EGFR TKI therapy such as Tarceva (erlotinib) or with chemotherapy.
According to Brunel, VeriStrat's diagnostic capabilities have been explored in some 80 studies to date, and based on this data the privately held firm's board backed the deal with Aveo to investigate using VeriStrat as a companion test for the drug. "We believe in what we're doing, we've looked a lot at it, and if we can find a partner that is willing to take our support and help … our board and investors thought it was a very sensible partnership and investment," Brunel said.
Biodesix's board includes Chairman Robert Cawthorn, who was a major investor in the company and previously managing director of Global Health Care Partners; Jack Schuler, former COO at Abbott Laboratories; and John Patience, co-founder and partner at private investment firm Crabtree Partners, among others. Aveo's board includes a number of precision medicine experts, including Robert Epstein, who launched Medco's personalized medicine program, and Raju Kucherlapati, who served as the scientific director of the Harvard Medical School-Partners HealthCare Center for Genetics and Genomics.
"[Biodesix's] board has seen fit to let their company spend $15 million on this," said Keith Batchelder, CEO of Genomic Healthcare Strategies, a company that advises life sciences firms. "That means they're looking at the whole value chain."
Biodesix and Aveo's decision to sign on with each other was spurred by a Phase II trial in first-line NSCLC patients comparing ficlatuzumab plus AstraZeneca's Iressa (gefitinib) compared to just gefitinib alone. Although this study failed to reach its primary endpoint, when researchers used the VeriStrat test, it gauged not only which patients treated with tyrosine kinase inhibitors would have better outcomes, but the test also could predict which patients would have improved overall survival and a progression-free survival advantage when they received the ficlatuzumab-containing regimen versus Iressa alone. The study results have yet to be published (see related story in ProteoMonitor).
Aveo CEO Tuan Ha-Ngoc highlighted that the two companies will attempt to work as closely as companies that have in-house diagnostics and pharmaceutical capabilities, such as Roche. "It's about bringing two sets of expertise and resources, focusing on two critical components, which is the therapeutic agent and the companion diagnostic, and having them work closely together," Ha-Ngoc told PGx Reporter. "The … critical factor is to bring the drug and diagnostic together, not in a vendor relationship, which is how most companies work together, but in a true partnership."
Noting that there are uncertainties in whether the collaboration will ultimately prove to be a good investment for both parties, Batchelder said he was optimistic about the Aveo/Biodesix deal. "Here, people are looking at the entire value chain to capture the value propositions," he said. "The healthcare system is looking more at [improving] outcomes, and in that you have to have the diagnosis and the therapeutic so you can capture that outcome."
Industry observers have opined that moving beyond a vendor relationship between drug and diagnostics firms, and on to a more equal footing, would require the test developer to take on more risk. But even then, a drug firm sharing its profits with a diagnostic company? "I will be dead and in my grave before that happens," Diaceutics CEO Peter Keeling recently told PGx Reporter. "The concept that a diagnostic company will take a royalty out of a drug is never going to happen," he said, predicting that it's more likely that larger diagnostics shops such as Abbott and Qiagen can hope for heftier milestone payments if they enter into risk-sharing arrangements.
Diaceutics specializes in helping drugmakers plan out their personalized medicine programs and has overseen more than 50 such projects over the last eight years involving drugs such as GlaxoSmithKline's HIV treatment Ziagen (abacavir), Pfizer's HIV drug Selzentry (maraviroc), and AstraZeneca's Iressa. Since Biodesix and Aveo still have to successfully take their drug/test combination product through the FDA and launch it on the market before Biodesix can partake in the profit sharing, Keeling doesn't have to start digging just yet.
Reflecting on the Aveo/Biodesix arrangement, Keeling and Christof Koelsch, executive VP of strategy at Diaceutics, recognized it as a first for the personalized medicine field.
"This deal structure is indeed refreshingly different, probably a first in the agreement on a – supposedly – substantial drug-profit sharing opportunity for a diagnostic partner in an Rx/Dx commercialization partnership," Koelsch told PGx Reporter over e-mail. "A lot has been discussed in recent years about the asymmetry in value generation through such Rx/Dx co-development and co-launch agreements but so far, as we all know, pharma has carefully avoided deals of this kind."
One of the reasons that a deal of this type might have come about may be because it involved a smaller pharmaceutical company. "It's not going to happen with a pharma that has a market cap of $12 billion," Genomic Healthcare Strategies' Batchelder said.
Aveo generates most of its revenues via drug development collaborations for various investigational agents, which dipped to $1.3 million last year from $19 million in 2012. The drop in collaboration revenue was largely due to the fact that in 2012, when the FDA accepted a new drug application filing for tivozanib in advanced renal cancer, it triggered a $15 million milestone payment to Aveo from Astellas. This payment did not recurr in 2013, and meanwhile, the FDA did not approve the renal cancer NDA and Astellas this year ended its partnershp with Aveo.
"What may have triggered this structure, may be a need to share costs on the side of Aveo," Koelsch said. "They have not been performing exceedingly well, their short-to-medium-term financing cover may be pretty thin, and they needed a CDx for their asset." At the end of last year, Aveo held cash, cash equivalents, and maketable securties of $118 million, compared to $161 million at the end of 2012.
The drugmaker still plans to advance tivozanib when all rights for the agent revert to it in August. Several other investigational agents in Aveo's pipeline are in earlier stages of development, leaving the hepatocyte growth factor (HGF) inhibitor ficlatuzumab as the company's most advanced product. HGF regulates critical cellular functions related to embryonic development by binding to the c-Met receptor and activating TK signaling. When normal HGF activity is thrown off, it results in abnormal TK signaling, which can lead to cancer development and drive growth of tumors.
In some tumors, HGF/c-Met overexpression occurs in tandem with EGFR overexpression. When HGF/e-Met is upregulated in patients, they can become resistant to EGFR inhibitors, and when EGFR is upregulated, patients can be resistant to drugs targeting the HGF/c-Met pathway. As such, studies have suggested that ficlatuzumab may be effective against various cancers as a single agent or in combination with EGFR TKIs, such as Tarceva.
For Biodesix, the decision to put up $15 million for the proof-of-concept study and then splitting the cost of drug development with Aveo may be a small risk, even if ficlatuzumab fails, given all the opportunities for VeriStrat in the NSCLC space, Koelshch noted.
While Biodesix has performed the test on around 5,000 patients since its launch in 2009 and conducted numerous studies involving the test, its regulatory pathway and the adoption trajectory are far from assured. In a paper published last year in Current Medical Research & Opinion, Biodesix reported that roughly 40 percent of surveyed physicians changed their patient treatment plans based on the results of the VeriStrat test.
In June last year, the company reported data from the first prospectively designed trial on VeriStrat, in which second-line NSCLC patients deemed to have "poor" prognosis lived longer on chemotherapy than on Tarceva, while those the test deemed to have good prognosis did equally well on Tarceva or chemo. But as reported by ProteoMonitor, some doctors are still hesitant to use VeriStrat in their armamentarium, trusting other studies that show chemotherapy is generally a better option than Tarceva as a second-line NSCLC drug.
A major risk for Aveo in the deal is whether the companion test will make it through regulatory approval. Biodesix is taking full responsibility for developing VeriStrat as a companion test, taking it through the FDA, and commercializing it. Biodesix has previously expressed its intent to garner regulatory approval for the test, which uses mass spectrometry to gauge variations in the protein composition of patients' samples but doesn't return quantitative data on specific protein analytes. The type of evidence FDA will ask for when considering this type of test as a companion to a drug remains to be seen.
"We take a correlative approach and we have some good ideas about what VeriStrat is measuring," Brunel said. "We're measuring a systemic inflammatory response and targeting HGF. It's likely that it is actually inhibiting the c-Met pathway, which in this context is relevant."
If the Aveo/Biodesix deal plays out successfully, it might become a positive example for smaller, cash-strapped small pharma and biotech firms. It "could indeed trigger a paradigm shift in such deal structures," Koelsch reflected. In the long term, if this type of risk-sharing, co-investment Rx/Dx model becomes more popular, it could put some pressure on Big Pharma as well. Koelsch noted, however, that drugmakers big and small need to still be careful not to lock themselves up with one specific technology platform for their companion diagnostic needs.
"In [Diaceutics'] view the most efficient diagnostic markets for pharma are ones in which multiple tests and platforms are supported in a technology-agnostic strategy," Koelsch said. "While this looks good as a short-term deal for Aveo, it places huge dependence up on Biodesix to build the optimum diffusion strategy for their test, something few diagnostic companies have done well, quickly."