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Investment Bank Reports Advantage of CLIA Labs in Driving Adoption of OncotypeDX

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The US Food and Drug Administration's stalled attempt to regulate complex laboratory-developed genetic tests has helped Genomic Health's Oncotype DX assay to attain dominance in the breast cancer-recurrence screening market, according to a report by investment bank Thomas Weisel Partners.

"The regulatory overhangs in front of Genomic Health, while still visible, seem stuck in neutral since 2007 when the draft guidance was released on [in vitro diagnostic multivariate index assays]," Peter Lawson, director of the life science and diagnostics division at Thomas Weisel Partners, wrote in a note to investors following a meeting with Genomic Health's executive team last month.

Citing FDA's ongoing review of KRAS testing to help identify subpopulations most likely to respond to certain EGFR-inhibiting monoclonal antibodies, Lawson's report asserts that in the near term complex genetic tests such as Oncotype DX should be "performed through CLIA labs, and not held up by slow regulatory processes."

"Mutations in the KRAS gene have been overwhelmingly associated with decreased efficacy of the [targeted colorectal cancer] drugs Erbitux and Vectibix," the report states. "However, the drug labels do not include KRAS testing, yet it is becoming more necessary."

The FDA's position on KRAS testing for colorectal cancer patients differs from European regulators' recommendation that ImClone/Lilly's Erbitux and Amgen's Vectibix be prescribed to patients whose colorectal tumors carry the wildtype KRAS gene.

For its part, the FDA has refused to make such a recommendation in the absence of prospective clinical trial data. The agency has said it is currently working with Amgen and Imclone/Lilly to obtain "adequate information" to update the agents' labels using retrospective clinical data [see PGx Reporter 02-04-2009].

As the labels for these drugs are being considered by the FDA, DxS has submitted its KRAS Mutation Test Kit to the agency for approval. The test already has CE-IVD clearance in Europe, but is only available for research use in the US. Once approved by the FDA, however, the company expects that its test will be included in the labeling for Vectibix and Erbitux.

In the meantime, for Oncotype DX "the CLIA route is the only available way to get the test to doctors and their patients who would greatly benefit from the results, and this situation could actually aid Genomic Health," the report said.

Currently, genetic tests can come to market through two regulatory pathways: the Centers for Medicare & Medicaid and the FDA. While CMS has traditionally regulated laboratories that develop tests under CLIA, the FDA has said it intends to regulate the IVDMIA subset of such tests.

The FDA in 2006 and 2007 issued two draft guidances on IVDMIAs. In response, makers of laboratory-developed tests have called the guidelines confusing, said they would hinder innovation, and that they fall outside the agency's regulatory purview. Nearly a year after it issued the second draft guidance, however, the FDA has not provided a timeline for when it plans to finalize its IVDMIA guidelines [see PGx Reporter 08-01-2007].

The Thomas Weisel report also added that the growing influence of direct-to-consumer genetic tests sold by companies like 23andMe have "also taken the focus away from the [lab-developed test] regulatory path."

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Although there is much debate about regulation of DTC genomics firms in scientific and regulatory circles, the FDA has not shown any desire to oversee these firms. CMS has said it is working with DTC firms to ensure their labs are CLIA-compliant.

In Thomas Weisel's meeting with Genomic Health officials last month, the company "made mention of anecdotal examples of FDA inconsistencies" on the regulation of lab-developed tests, the report notes.

Genomic Health officials have previously acknowledged that they will likely have to submit a pre-market application for Oncotype DX under FDA's IVDMIA guidelines. However, the company has yet to submit a PMA for OncotypeDX. Discussions between the company and the agency have been ongoing for several years, according to Genomic Health. In the meantime, the FDA has allowed the company to continue marketing the test.

"There's not yet clarity regarding how the regulation of advanced diagnostics will be handled in the future," a spokesperson for Genomic Health said this week. "Today, the appropriate pathway remains under CLIA."

Using CLIA as the pathway to bring the test to market in 2004, Genomic Health has since then been working aggressively with payors and the scientific community to drive adoption of Oncotype DX.

Genomic Health's marketing and education efforts appear to be fruitful. The company netted $110.6 million in revenues last year, compared with $64 million in 2007. It delivered 39,600 test results in 2008, a 62 percent increase from the year-ago period. As of 2008, the company estimates that more than 90 percent of the node-negative breast cancer patient population is covered for the test.

The Thomas Weisel report acknowledged this growth. The report identified Genomic Health's strong IP position around gene combinations and algorithms and its payor- and patient-education efforts as the main barriers for competitors looking to compete in the same breast cancer diagnostics space.

According to the report, the company's R&D efforts in expanding Oncotype DX's platform into other cancers, such as colorectal cancer and ductal carcinoma in situ, provides the company room for growth.

The company has also expanded its sales forces, growing from 60 sales reps to 80 reps as of April 1. Company officials have said they are expanding OncotypeDX to markets outside the US. Currently, the most successful market outside the US is Israel, where Genomic Health has secured 75 percent insurance coverage for the test.

Despite this growth, "management reiterated that they expect to be breakeven in 2010," the Thomas Weisel report notes. "Gross margins could improve slightly in 2009."

Thomas Weisel is maintaining its 2009 revenue estimate for Genomic Health at $150 million — which would be an 35 percent increase over 2008 — but lowering its earnings-per share estimate from $.25 per share to $.30 "to better reflect increased SG&A spend due to the additional sales hires, as well as costs for new assay development and marketing."

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