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Personalized Medicine in 2012: Industry Takes a Wait-and-See Approach Due to Market Unknowns

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Roche made a splash last year with its repeated overtures to acquire genome sequencing firm Illumina, but for the most part, 2012 was a quiet year during which players in the life sciences industry took modest steps to increase their capabilities to advance personalized treatments.

Due to continuing economic challenges and an uncertain regulatory and reimbursement environment, drug companies, diagnostic firms, and instrument developers tended to avoid acquisitions and instead favored less binding partnerships to discover biomarkers, interpret data from genomic studies, and advance drug/test combination products. Still, a few platform developers, such as Life Technologies and Agilent, made strategic purchases hoping to increase their footprint in the medical diagnostics market and bolster their ability to provide research and commercial testing services to pharma.

The consequence of some of these personalized medicine-focused acquisitions was to gut the consumer genomics market, which seemed poised to take off just a few years ago. Life Tech and Amgen last year purchased Navigenics and Decode Genetics, respectively, leaving 23andMe as the sole US survivor in the DTC genetic testing sector. Life Tech and Amgen acquired these companies for their personalized medicine-focused assets – Navigenics' CLIA lab and Decode's large database of genotype-phenotype data – and said that they have no interest in continuing the consumer genomics aspects of these businesses.

While some industry players built up their genomic medicine knowhow in 2012, a segment of the healthcare sector engaged in downstream delivery of medical products took a step back from the space. Following the merger of two of the largest pharmacy-benefit managers in the US, Express Scripts and Medco, personalized medicine proponents at Medco left the company. While Express Scripts is still offering pharmacogenetic testing for certain drugs, the company hasn't publicly disclosed any plans to continue Medco's clinical utility research programs for molecular tests. Following this, without the competitive pressure from Medco to invest in the space, CVS Caremark also cut similar genomic medicine-oriented programs.

Regardless of how many collaborations there are between drug and test developers, personalized medicine can't advance without engagement of consumers at a basic level and the buy-in of key stakeholders, such as PBMs, which are at the center of healthcare delivery. This pullback by PBMs from the personalized medicine space is likely due to the fact that payor groups are increasingly balking at paying for expensive medical interventions. Molecularly targeted cancer drugs, such Roche/Genentech's BRAF inhibitor Zelboraf, exceed the $100,000-per-year mark.

Moreover, in a working paper released in March, national insurer UnitedHealthcare reported that its health plan participants racked up nearly $500 million in genetic and molecular diagnostic testing costs in 2010, a 14 percent increase on a per-person basis since 2008 (PGx Reporter 3/14/2012). Payors contend that most of these tests have insufficient evidence showing that their use in patient care improves outcomes and saves money, a view that has created an uphill battle for diagnostic shops to garner reimbursement for their tests.

"This year was kind of an aberration" due to the economic challenges and the unknowns specific to the personalized medicine space, Vamil Divan, VP and senior analyst covering life science tools and the diagnostics sector at Credit Suisse, told PGx Reporter. "However, I don't think this signals a lack of interest on the part of drug developers or that they are skeptical of the potential of genomics."

Collaborations over Acquisitions

Due to market uncertainties and the evolving nature of the genomic medicine market, drug developers interested in this space for the most part maintained a platform-agnostic stance and partnered non-exclusively with test makers.

"Generally in the market, mergers and acquisitions were down. And a lot of that was due to general macroeconomic uncertainty," Divan said. "So some companies that otherwise would have made acquisitions held off on doing that." Limited NIH funding and conservative cash flow projections at companies also played a part in a lot of life science players shying away from large acquisitions, he added.

In terms of partnerships between drug and test developers, Foundation Medicine, which last year launched a targeted next-generation sequencing-based cancer profiling test, was perhaps the most successful, netting deals with Ariad Pharmaceuticals, AstraZeneca, Eisai, Novartis, Sanofi, and Clovis. Foundation Medicine's growth in this regard signals pharma's growing appetite to incorporate data from genomic profiling of patients in its drug development programs.

Myriad Genetics, meantime, added Pharma Mar to its already long list of drug development partners interested in using its BRCA test to identify best responders to PARP inhibitors (PGx Reporter 8/1/2012). In past years, Myriad has inked companion diagnostic development agreements with several drug companies who are developing PARP inhibitors, including Abbott Pharmaceuticals, AstraZeneca, and BioMarin Pharmaceuticals. Growing its companion diagnostics capabilities is part of Myriad's plan to diversify its revenue base, in addition to launching new tests and increasing its commercial presence in Europe.

Instead of inking a one-time Rx/Dx deal, test developers are increasingly establishing more flexible relationships with pharma within which they can play a variety of roles, from doing biomarker discovery work to screening patients in drug trials to eventually becoming a companion diagnostic partner for a marketed drug. For example, Genomic Health partnered with OncoMed Pharmaceuticals last year to use its next-generation sequencing capabilities to discover biomarkers linked to patient response to cancer antibodies OncoMed is developing. Under the terms of the deal, Genomic Health may also use the identified biomarkers to identify best responder populations in drug trials (PGx Reporter 5/9/2012).

Dako is one diagnostic firm that has been particularly successful in establishing long-term companion testing partnerships with pharma. Aiming to further penetrate the cancer molecular diagnostics market, Agilent last year purchased Dako for $2.2 billion precisely because of the diagnostic developer's track record with drug makers (PGx Reporter 5/23/2012). Dako has companion diagnostic deals with Amgen, AstraZeneca, Bristol-Myers Squibb, and Genentech.

Similarly eyeing the downstream personalized medicine market, Life Tech, through a combination of acquisitions and partnerships, is working on developing a decision-support tool that doctors can use to deliver targeted treatment strategies for cancer patients. After testing patients with one of Life Tech's diagnostics, doctors can sign into the so-called Interpretation Portal and learn about different treatment options, clinical trials, and what the published literature has to say about patients' molecular profiles.

In order to develop this portal — targeted for launch this year — Life Tech is drawing on the expertise and tools at three companies (PGx Reporter 10/10/2012). Through its acquisition of bioinformatics firm Compendia last year, Life Tech will gain access to a library of mutation profiles and biomarker data on 62,000 cancer patients, as well as a cloud-based analytics tool, called Oncomine, that can help researchers discover associations between genetic signatures, clinical status, and drug response. Additionally, Life Tech partnered last year with Ingenuity and CollabRx to advance the Interpretation Portal. Ingenuity markets software that allows researchers to gain insights from biomedical research, and CollabRx houses an online application that provides patients and physicians with information about clinical trials and targeted treatment options.

Shrinking Consumer Genomics

Often in emerging markets, trends that seemed promising at first don’t always pan out. This was the case last year with DTC genetic testing firms, which appeared poised for a boom when the consumer genomics movement first took hold a few years ago.

The environment for companies marketing genetic interpretation data online turned grim after members of Congress and the US Food and Drug Administration expressed concern in 2010 that these firms were selling medical tests without regulatory oversight. After several hearings in Washington, DC, the majority of companies in this space changed their business model and began marketing to doctors.

Among the top DTC genomics firms, Navigenics began selling its services to physician practices and employer groups focused on delivering individualized medicine (PGx Reporter 7/28/2010); Pathway Genomics shifted its focus to doctors; and Decode Genomics turned its attention to conducting biomarker research on rare diseases.

Following these events, many industry observers predicted that DTC genetic testing wouldn't be a successful business model. Those prognostications seemingly came true last year when Navigenics and Decode were acquired by industry players with no plans to maintain the consumer genomics portion of the businesses.

As part of its plan to grow its presence in the molecular diagnostics market, Life Tech purchased Navigenics to gain access to its CLIA lab, which will serve as the central site where Life Tech validates tests, launches lab-developed and FDA-approved diagnostics, and conducts genomic studies for pharma (PGx Reporter 7/18/2012).

Then, in a move that left some investors scratching their heads, Amgen purchased Decode in December (PGx Reporter 12/12/2012). Amgen said that Decode's genomics research knowhow and DNA database of 140,000 Icelanders will help it gain early insights about drugs in its pipeline. However, as Peter Keeling, CEO of the personalized medicine-focused consultancy Diaceutics, pointed out, it's not yet clear whether the drug developer has a clear plan for integrating genomic data into its drug development workflow to individualize treatments.

With Navigenics' and Decode's consumer testing services out of the picture, 23andMe remains one of the only companies still waving the DTC banner. A new company called Gene by Gene last year launched a DTC exome and whole-genome sequencing service for research use. However, Gene by Gene only provides consumers with their raw genomic data and does not interpret how certain markers may be associated with diseases or drug response – something 23andMe does.

In the short term, it's unlikely that 23andMe will face significant competition from another firm with a consumer genomics ethos before FDA's regulatory intent toward the space takes definitive shape. Last year, 23andMe submitted the first of several de novo 510(k) applications to the agency to gain its stamp of approval for its Personal Genome Service (PGx Reporter 8/1/2012). Subsequently, FDA officials said that the agency plans to issue guidance on DTC marketing of genetic tests this year (PGx Reporter 1/2/2013).

Despite the whittling down of commercial DTC genomic testing options in 2012, those with the desire and money to gain access to their own genome data can still get it as part of research efforts, such as the Personal Genome Project and the Coriell Institute for medical research. According to Credit Suisse's Divan, consumer demand for gaining unfettered access to personal genomic data hasn't died and will likely continue to grow. With a customer base currently north of 180,000, 23andMe late last year cut the price of its service to $99 in hopes of reaching its goal of 1 million customers.

"I don't think people are going to move away from DTC genomics." Divan said. "I think companies are taking a wait-and-see approach but I'd be surprised if one to two years from now there aren't more companies doing direct-to-consumer activities in genomics. I just think we're in a bit of a transition period."

Divan foresees a revival of consumer genomics once the current economic and regulatory murkiness passes. "A lot of companies have hinted at interest in the space, particularly Illumina," he noted, highlighting the company's release of the My Genome iPhone application as a sign that it recognizes the value of engaging directly with consumers. Illumina has offered a personal whole-genome sequencing service since 2009, but the test needs to be ordered by a physician. Until recently the company did not provide clinical interpretation, but it has begun to offer interpretation of 344 genes as an option for the service.

"I think eventually we'll see a natural blend of consumers being more active with their medical care and [accessing] genomic data, particularly when you bring in social media and personalized medicine aspects," Divan said.

'First Mover Disadvantage'

When Medco began providing pharmacogenetic testing services to its payor clients several years ago, many industry observers had hoped that the involvement of pharmacy benefits management firms would be a game changer that would push personalized medicine into mainstream healthcare.

Indeed, in purchasing the genomics-focused healthcare utilization and education firm DNA Direct two years ago, Medco was gearing up to become a leader in applying personalized medicine strategies to drive down healthcare costs and improve patient outcomes. Medco launched programs such as "Genetics for Generics" to use evidence-based genetic testing to drive greater use of off-brand drugs, and began conducting clinical utility studies to investigate whether genetic testing could more efficiently administer widely used drugs with a high rate of adverse reactions, such as the anticoagulant warfarin. In launching these programs, Medco highlighted personalized medicine as one of its key future growth areas.

But in 2012, due to economic pressures and consolidation in the PBM space — namely the merger of Medco and Express Scripts — the big players scaled back their investment in the space. Medco's programs experienced a setback after genomic medicine proponents at the company, such as Chief Medical Officer Rob Epstein and Felix Frueh, president of the Medco Research Institute, left the company after its merger with Express Scripts.

Express Scripts has denied that it has cut Medco's personalized medicine programs. A spokesperson for the company told PGx Reporter that the company is offering "turnkey testing programs for drugs like clopidogrel and warfarin, and warnings on more than 50 drug-gene interactions." The representative added that there is "strong interest and enrollment" in PGx prior authorization programs.

However, there are no signs that Express Scripts is currently doing much more beyond offering pharmacogenetic testing for a limited set of drugs. On Express Script's website dedicated to its personalized medicine efforts, the company highlights that it is offering pharmacogenetic testing services for the following drugs: BCR-ABL testing for the leukemia treatments Gleevec, Sprycel, and Tasigna; CCR5 tropism testing for the HIV drug Maraviroc; CYP2C9 & VKORC1 testing for warfarin; CYP2C19 testing for the antiplatelet agent lopidogrel; and HLA-B*5701 testing for the HIV drug abacavir.

In its 2011 Drug Trend Report, Express Scripts mostly highlights traditional PBM strategies for controlling unnecessary healthcare spending and reducing costly adverse reactions, such as programs to ensure that patients adhere to their medications. In that same report, the firm characterized personalized medicine and pharmacogenomics as a field that "holds great promise" but "comes with associated costs and many unanswered questions" (PGx Reporter 5/9/2012).

Perhaps more telling of PBMs' current stance on genomic medicine was when a few months after the Medco/Express Scripts merger, competing PBM CVS Caremark also nixed two areas of its personalized medicine program: an effort to work with molecular diagnostics firms to conduct clinical utility research for their tests and another project aimed at helping payors craft reimbursement policies for tests based on their impact on patient outcomes and their cost-effectiveness.

The programs CVS discontinued were being administered by genetic testing benefits management firm Generation Health. Although CVS Caremark purchased the rights to maintain the Generation Health brand, it let go of most of the unit's staff. Similar to Express Scripts, CVS appears to be maintaining only its pharmacogenomics testing services for clients and hasn't revealed any details on what it plans to do in the realm of research (PGx Reporter 8/29/2012).

These changes last year led industry observers to wonder whether the PBM experiment in personalized medicine failed before it even got off the ground. "I think most knowledgeable people in the field agree that pharmacogenomics will play an increasingly important role in patient care over the long term," Rick Schatzberg, former head of Generation Health, told PGx Reporter over email. "In the short run, however, there are only modest opportunities to implement pharmacogenomics programs using the 'PBM platform,' where the trigger for action and active management is the receipt of a prescription by a retail or mail service pharmacy."

PBMs provide drug benefits to more than 200 million people in the US. They serve as the middlemen that process prescription drug claims, maintain drug formularies under insurance plans, and negotiate discounts with drug manufacturers. As such, their experience lies largely in processing prescription drug claims. When it came to providing drug benefits based on patients' molecular markers, PBMs had to concern themselves with driving use of molecular diagnostics.

Although critical for the delivery of personalized care, the economic environment for developing and administering molecular diagnostics is evolving, uncertain, and yields nowhere near the margins for drugs. Molecular diagnostics are projected to grow to a $25 billion market by 2025, but are currently valued at $5 billion, representing a small slice of the $44 billion business for in vitro diagnostics and an even smaller portion of the overall clinical testing market.

PBMs have never disclosed how much of an investment they have made in personalized medicine. The financial details Medco's purchase of DNA Direct or CVS Caremark's stake in Generation Health are not known. Industry analysts estimate that personalized medicine represents a very small, niche business for Express Scripts and CVS Caremark, both of which net tens of billions in annual revenue.

It's likely that PBMs were losing money on their personalized medicine investments. Although Express Scripts hasn't broken out the revenue contribution of Medco's personalized medicine efforts, CVS Caremark reported in a filing with the US Securities & Exchange Commission that the minority shareholders in Generation Health incurred a $2 million net loss during the first half of 2012.

"Medco's vision was to create a true personalized medicine approach to administering drugs and to incur savings by reducing adverse reactions and favoring generics over labeled drugs," said Jorge Leon, head of Leomics Associates, a consulting firm that previously advised Generation Health and a number of other firms in the personalized medicine sector. Ultimately, Leon and other industry observers believe that PBMs never hit on the right business model for implementing personalized medicine and lacked the commitment to grow this business by conducting robustly designed clinical utility studies on novel molecular tests, implementing multiplex testing, and building bioinformatics capabilities.

"PBMs are not in the business of designing and executing rigorous prospective, randomized clinical studies. They don’t have the capabilities for conducting complex and rigorous randomized-controlled trials," Avi Kulkarni, VP at the consulting firm Booz & Company, told PGx Reporter. "In a world that required the gold standard of RCTs, the PBMs produced ex-post analysis of data and analysis based on data-mining and observational studies. This evidence got payors and some of the scientific bodies that set guidelines intrigued, but the evidence did not rise to the level of the standards asked for by payors."

Indeed, when Medco presented data from its clinical utility study on warfarin PGx testing, the observational trial design was criticized because the researchers did not randomize the study population or blind physicians to which patients were genetically tested. The lack of blinding was viewed by many in the research community as a major flaw, since the benefit of genetic testing may have been biased by the so-called Hawthorne effect — a scenario in which study subjects improve behavior simply in response to being studied and not as a result of the intervention (PGx Reporter 3/17/2010).

With or without PBMs' participation in clinical utility studies, the need for such data continues to grow as more molecular tests come to market. For example, the Centers for Medicare & Medicaid Services has charged contractor Palmetto GBA with reviewing the clinical utility and cost-effectiveness of molecular diagnostics and has asked it to establish reimbursement policing and pricing based on the value the tests add to patient care (PGx Reporter 2/29/2012).

Under its MolDx Pogram, Palmetto will be responsible for reviewing the clinical utility and pricing for 3,000 tests, Leon estimates. "They need to see [this type of] data," he said. "And companies don't have the data."

In the absence of PBM involvement in conducting clinical utility and cost effectiveness studies for molecular diagnostics, newcomers may fill the need. Soon after he left his position as the head of Generation Health in July, Schatzberg launched a new firm, called MetaDiagnostic, which conducts clinical utility and cost effectiveness studies for test developers, and will work with third-party payors to track utilization and craft coverage policies for molecular diagnostics – the very services that CVS Caremark discarded.

Other players that might take up these types of activities, according to Kulkarni, are large national clinical labs, such as Quest and Laboratory Corporation of America, or entities such as Cardinal Health that manage the medical supply chain.

"There is a school of thought … that [PBMs] will get back into the [personalized medicine] business," Kulkarni reflected.

"Some markets, such the market for genetic testing and personalized medicine, required a shift in mindset of payors and practitioners. First movers had to make considerable investments in educating the user and payor community, which the PBMs began to do (but were unable to complete the task in full)," he said over email. "This is a case of a first-mover disadvantage, and someone — in this case the PBMs — had to make the first move."

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