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Transgenomic Enlists PDI to Market Cardiac PGx Test; PDI Entering MDx Space

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This article has been updated to note that PDI is moving away from the contract sales business with drug companies. Originally published Oct. 22.

Molecular diagnostics firm Transgenomic has partnered with PDI to launch CardioPredict, a pharmacogenetic test that gauges genes associated with response to a number of commonly prescribed drugs for heart conditions.

Under the terms of the agreement, Interpace Diagnostics, a subsidiary of PDI, will be in charge of US-based marketing and promotions for CardioPredict, which the companies plan to launch in the US later this year. Transgenomic will run the test in its CLIA lab and provide customer support.

"Both sides will bear the cost of their respective expenses and we will split profits on a formula basis," PDI CEO Nancy Lurker said during a call to announce the deal with Transgenomic. PDI has traditionally been a contract sales organization for pharmaceutical companies, but due to the uncertain returns of that business is moving away from contract sales activities with drug developers and is trying its hand at commercializing molecular diagnostics.

The partners will execute the commercialization program in two phases, according to an 8-K filed by Transgenomic with the US Securities and Exchange Commission. In the first phase, Interpace will lay out a commercialization pilot program to market CardioPredict in the US through a limited sales force and other so-called "non-personal promotion capabilities." In this regard, PDI offers digital and telephone-based detailing resources, for example, which allow the company to remotely educate and market to doctors about healthcare products without sending sales reps to visit physicians' offices.

"We have no intentions of going out and utilizing a very large and expensive personal field force as the only main promotional vehicle," Lurker said. "So, it will be a combination of various tactics that we're going to be deploying and we plan to do it in a very … cost efficient way."

Once this pilot period expires or when the partners decide to advance into the second phase, Interpace will expand its capabilities to establish more "comprehensive marketing and promotional efforts for CardioPredict," Transgenomic stated in the 8-K filing. Lurker told investors that PDI expects this second phase to start in the first or second quarter of 2014. PDI plans to eventually build a sales force dedicated to marketing CardioPredict, but the company didn't provide any projections as to how many reps it will hire.

If Interpace decides not to move into this second phase, then the arrangement between Transgenomic and Interpace will end. Once embarking on to phase two, however, the marketing partnership around CardioPredict is slated to continue for eight years and three months, with opportunities for renewal.

During both phases, Interpace and Transgenomic will share profits depending on sales volumes of CardioPredict. During phase two, Interpace may also provide loans, capped at $3 million, to Transgenomic in the form of secured convertible notes. Interpace can opt to convert the loaned amount at any time into shares of common stock of Transgenomic at a rate of $0.75 per share.

CardioPredict analyzes via a buccal swab sample more than 40 variants in 10 genes and determines how sensitive patients may be to various drugs and how well they are likely to metabolize these treatments. Doctors can use the results from CardioPredict to adjust dosing or administer treatments to which their patients have the best chance of responding. CardioPredict also gauges whether patients have a hereditary risk for certain clotting disorders.

In its 8-K filing, Transgenomic stated that it will discuss with PDI the possibility of working together to commercialize another one of its tests: the clopidogrel genetic absorption activation panel.

MDx opportunities

This is PDI's second MDx commercialization deal in the last two months. In August, PDI announced it was working with an unnamed molecular diagnostics firm to market and promote a fully developed test. PDI hasn't yet named the MDx partner or the test it will market, citing competitive reasons.

As part of that first deal, PDI paid the other firm $1.5 million and retained an option to purchase the company contingent on the achievement of certain milestones. Not unlike the deal with Transgenomic, PDI and this unnamed partner are first promoting the test through a pilot phase and moving to full launch sometime next year if PDI exercises its purchase option.

These two collaborations are part of PDI's larger strategic plan to become a commercialization partner to companies in the molecular diagnostic space. According to company executives, PDI will seek additional opportunities to commercialize molecular tests that are positioned like CardioPredict.

After surveying the MDx space, Lurker believes there are numerous molecular testing companies that have diagnostics ready for market launch but lack the commercialization capabilities. "We see PDI to be very well positioned to be the commercial arm of these types of companies through Interpace Diagnostics," Lurker said.

PDI, which was known as Professional Detailing until it changed its name in 2001, was established in 1987 by John Dugan, who started his career as a sales associate for Pfizer and later went on to found and head up the Medical Advertising Agency Association. PDI, for most of its history, has been a contract sales organization that offered commercialization services to drug companies that want to focus their resources on product development rather than marketing.

In 2002, a few of the company's large pharma partners terminated their drug commercialization contracts with PDI, resulting in a financial hit for the firm. Lower rates of drug approvals by the US Food and Drug Administration in the past decade also negatively impact the contract pharma sales market. As such, in recent years, the company's business has experienced some volatility.

Last year the PDI reported approximately $127 million in revenues and around $25 million in operating loss, compared to $157 million in 2011 revenues and an operating loss of $4.7 million. In 2010, the company's revenues were $145 million with an operating loss of $4.3 million, compared to $80 million in 2010 revenues with $35 million in operating loss.

Having turned its attention to the MDx space, PDI is hoping to garner "more predictable, higher growth, higher margin business." To this end, PDI is eyeing MDx projects that demand a modest investment and require the company to take on minimum risk. Noting that the commercialization of molecular tests require a lower level of investment than pharmaceuticals do, Lurker said PDI was pursuing MDx opportunities that can yield "margins substantially better" that the company is currently recording through its contract sales business.

According to Lurker, PDI inked the latest MDx deals with Transgenomic and the unnamed firm because their tests have clinical value to a specific patient subset, will be used by a well-defined physician base, and address a large disease market. "In evaluating future opportunities, we expect to focus on tests that generally have these same characteristics," Lurker told investors during the call.

Most importantly, the two MDx tests PDI currently plans to commercialize also have a positive reimbursement outlook, according to Lurker. PDI told investors that it expects the Centers for Medicare and Medicaid Services to reimburse between $1,000 and $1,100 per CardioPredict test performed.

Unique challenges

Although PDI envisions lower commercialization barriers for molecular tests compared to the pharma products, the MDx space has its own unique challenges, including an uncertain regulatory and reimbursement environment.

PDI's hopeful reimbursement projection for CardioPredict comes a few weeks after CMS issued national payment limits for a number of molecular diagnostics described by Tier 1 CPT codes (PGx Reporter 10/2/2013). In negotiating pricing for their tests, many molecular diagnostics companies expressed frustration with CMS and its contractors, and have complained that, for the most part, Medicare contractors have failed to reimburse tests at levels commensurate with the value they add to patient care. Many of the molecular diagnostics that industry players cite as being undervalued by CMS are pharmacogenetic tests.

While pricing for some CPT codes has decreased, the cost of others has increased, Lurker told investors during the call, noting that the projected $1,000 reimbursement rate for CardioPredict was a "rough estimate." Transgenomic won't know the reimbursement rate for CardioPredict until its Medicare contractor reviews the test and establishes a price.

In launching this test, Transgenomic will also enter a relatively crowded market, where a number of diagnostics firms have launched PGx tools to help doctors determine treatment strategies for patients considering medicines metabolized by the CYP2C19 enzyme, such as the anti-platelet drug clopidogrel. For instance, Spartan Bioscience in September garnered FDA clearance for its rapid-analysis CYP2C19 genetic tests; and FDA has also cleared CYP2C19 genotyping tests marketed by AutoGenomics and Nanosphere (PGx Reporter 9/4/2013).

Although these competing tests have FDA clearance, Transgenomic is planning to launch its test as an LDT performed in a CLIA lab. LDTs have been traditionally overseen by CMS and although the FDA has said it plans to regulate these types of tests, that agency hasn't yet issued formal regulatory guidance on the topic.

Still, a number of companies marketing molecular tests with a pharmacogenonetic indication or tests meant to be used to help inform treatment strategies have decided to play it safe and garner the FDA's blessing anyway. When characterizing the lower barriers to entry in the MDx space relative to the pharmaceutical market, Lurker highlighted to investors that most tests in the MDx market are LDTs that don't need FDA's OK.

In describing the competitive landscape for CardioPredict, Lurker acknowledged that while "there are assays out there that are doing things somewhat this way," these tests "tend to be somewhat regionally focused" She added that PDI and Transgenomic will position CardioPredict as a "broad-based cardiovascular assay" that is "available across the country."

CardioPredict gauges markers associated with clopidogrel response, but PDI didn't discuss any of the other drugs for which the test might be able to guide treatment decisions. Transgenomic didn't respond to emailed questions about CardioPredict ahead of press time.

The FDA recommends genetic testing to characterize patients' response to clopidogrel, a drug for which there are nearly 30 million prescriptions annually, according to PDI. The company further estimates that between 25 percent and 43 percent of patients prescribed the drug carry genetic markers that impact their response to it and place them at heightened risk for stroke, myocardial infarction, and hospitalization. "So that is a very, very large patient population that could substantially benefit from utilizing this assay," Lurker said.

Despite these projections, adoption of cardiac PGx tests has been hindered by the lack of evidence from large, prospective studies proving that such interventions are cost-effective and clinically useful. Moreover, studies have shown so far that CYP2C19 gene variants may only be clinically meaningful for certain cardiac patients with specific heart conditions prescribed clopidogrel after having undergone a stent procedure. Other factors limiting test adoption are turnaround time and incorporation of genetic information into patients' electronic medical records to ensure that test results are available when doctors need it at the point of care.

A number of academic centers have launched projects to try to pinpoint the specific circumstances under which PGx testing for clopidogrel saves money and improves patient outcomes (PGx Reporter 8/21/2013; 9/11/2013).

Despite these challenges in the MDx space, PDI expects its investment in CardioPredict will positively impact its business. PDI CFO Jeffrey Smith estimated that if the national commercialization strategy for CardioPredict is launched in the second quarter of next year, then the company can hope to break even on its investment at the earliest by the end of 2014. During PDI's fourth-quarter earnings call, company executives said they will provide more details on how much the commercialization of CardioPredict will add to PDI's spending.

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