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Economic Turmoil Could Spur DTC Gene-Dx Shops to Focus on 'Savings,' Not 'Fun'

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With a deepening US recession and consumers cautiously spending on luxury items, the burgeoning personal genomics industry may need to change its marketing message from focusing on "fun" to emphasizing "savings."

"In the coming months, there might be a transition in terms of marketing where it is directed not so much as a tupperware-turned-genomic-profiles, where you're hosting these little parties, and making it the catchy thing to do," Jonathan Witonsky, an analyst in Frost & Sullivan's Healthcare group specializing in drug discovery technology and clinical diagnostics, told Pharmacogenomics Reporter last week.

Among the consumer genomics firms, Google-backed 23andMe has taken the most glitzy and eye-popping marketing approach, dressing up its web service with attractive graphics and throwing "spit parties" with celebrities in New York City. More conservative competitors Navigenics and Decode Genetics' DecodeMe have tried to distance themselves from 23andMe's portrayal of genetic testing as "fun."

Navigenics recently partnered with a physicians group to market its testing service [PGx Reporter 12-08-2008]. Decode has tried to paint its competitors as marketing firms and present itself as being more focused on developing novel genetic tests and discovering genetic risk associations.

Instead of focusing on the lighter aspects of genetic testing, consumer genomics firms "might position it more in terms of the potential cost savings that you might realize with these types of tests," Witonsky said. Although consumers may not see these healthcare savings in the short term, "what we're seeing is that the general consumer is understanding the idea of predictive medicine and preventative medicine as not only having an impact on their own health but in terms of finances, that certain future healthcare costs might be averted."

According to the Pew Research Center, as a result of the economic downturn, 60 percent of Americans say they are changing the way they save and invest money as of December, a nearly 30 percent increase from October. Nearly three-fourths of people with annual family incomes of more than $75,000 — essentially those with the most expendable income — have said they are cutting back on spending as a result of the economic crisis.

Based on the rapid growth in most areas of US healthcare spending in recent years, some industry observers had projected that the healthcare industry would be recession-proof. In reality, however, it hasn't exactly played out that way.

Over the past year, several large pharmaceutical companies, including Merck, Schering-Plough, and Wyeth, have slashed jobs amid fewer blockbuster drugs, increasing generic competition, patent expirations, and lower spending as a result of the economy.

Meanwhile, one of the largest players in the diagnostics industry, Laboratory Corporation of America, lowered revenue growth in 2009 from between 3.5 percent and 5.5 percent to between 2 percent and 4 percent.

"Given the ongoing deterioration in the economy, it seems prudent to forecast lower growth for 2009," said LabCorp CEO David King in a statement. "Our revised guidance reflects the expected impact on earnings from economic factors that worsened during the fourth quarter."

How the economic crisis has impacted the emerging consumer genomics companies is hard to gauge since many of the firms are not public. However, if consumers are cutting back spending across the board, then paying 23andMe almost $400 to learn if eating asparagus will affect the smell of their urine may be on the chopping block along with other non-essential healthcare spending, such as BOTOX and LASIK eye surgery.

After several companies recently reported declines in breast implant and laser eye surgeries, industry observers projected that the recession may have a negative impact segments of healthcare sector perceived as medically non-essential, such as the cosmetic surgery industry.

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In addition to the recreational aspects of 23andMe's service, the company also screens for people's genetic risk for various diseases. However, there is disagreement as to how clinically valid some of these disease/risk associations are and how clinically useful the information is. The company itself has maintained that the genetic risk information gleaned from its service should not be used to make medical decisions.

"If you look at how the marketing for these companies has been done over the past six to 12 months, the first thing that comes to mind are these 'spit parties,' gathering the more well-to-do folks in society and having them pony up a couple of hundred dollars to have a test conducted," Witonsky said. "It requires a degree of affluence, and clearly folks may not be willing to spend [to get screened] in the coming months."

Among the top three consumer genomics firms, 23andMe, Navigenics, and DecodeMe, financial figures are not available for the first two, which are private. Although DecodeMe's parent firm Decode Genetics is publicly traded, the company does not break out financials for its consumer genomics arm, suggesting that it does not contribute significantly to overall revenues.

Decode shares have certainly taken a beating in the stock market. In October, Nasdaq sent the company a letter stating that for 10 consecutive trading days the market value of Decode's common stock has been below $50 million, the minimum level required for continued listing on the Nasdaq Global Market.

Shortly thereafter, Decode informed investors that it was undertaking a review and would seek to sell non-core assets. The company's 52-week stock price was $0.15, recorded Nov. 20, 2008. The company's stock was trading at around $.23 per share at press time.

Navigenics CEO Mari Baker told Pharmacogenomics Reporter toward the end of last year that the company had seen some growth in customers from its partnership with Scripps Translation Science Institute, Affymetrix, and Microsoft to study how personal genomics data impacts lifestyle or medical decisions [PGx Reporter 10-17-2008].

However, Baker noted that the company is cautiously moving forward in the bad economy. She acknowledged that consumer cutbacks on spending could potentially impact Navigenics' earnings.

Meanwhile, 23andMe has been the most opaque about its business. A spokesperson for the company maintained that the price drop of its testing service from $999 to $399 last year had nothing to do with the economic crisis.

"The price of our service is partly linked to the cost of the Illumina genotyping technology we use, which has been dropping precipitously over the past several years," the 23andMe co-founder Linda Avey told Pharmacogenomics Reporter. "We will also offer expanded genetic profiles in the future, including an option for full genome sequencing, which will have higher price points."

The company has no plans to change its marketing message to reflect the more conservative spending mood, but is hoping that its research partnerships will give consumers more incentive to pay for its service.

"We don't really think we need a strategy in that regard. If anything, we will continue to partner with consumers, as well as the medical community, as to how genetic information can play a role in overall health assessment," Avey said.

"We also think our research ambitions give people a reason to participate in our service that isn't considered unnecessary or a 'luxury' spend," she added.

"It is difficult to say what impact, if any, the economy has had on 23andMe because the economic news coincided with some very positive news for the company, including our price drop, which has made it possible for many more people to purchase our service," Avey continued.

Frost & Sullivan's Witonsky pointed out that although most of these companies are not public, the impact of the economy on the consumer genomics industry can be gleaned from how much these businesses factor in the growth prospects of their partners.

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For instance, LabCorp does the genotyping for 23andMe. However, the company has told Pharmacogenomics Reporter in the past that DTC genetic testing is not a focus at the company, and that the majority of its genetic testing business comes from clinical diagnostics marketed to physicians.

"If you look at how personal genomics business is being presented as a component of partner public firms [like Illumina and LabCorp] … it's been, for the most part, nonexistent," Witonsky said. "There hasn't been, from the equity analyst side, any evidence of revenue being associated with this.

"This is still a very nascent space," he said, adding that in a Frost & Sullivan survey of those in the life sciences industry very few people have been genetically tested through any of these services.

According to Witonsky, consumer genomics firms could benefit in the difficult economic climate from shifting their marketing message to focus on DTC genetic testing as being a critical component of their future healthcare planning.

Unfortunately, this shift away from "fun" might have serious regulatory implications for the companies. 23andMe, Navigenics, and DecodeMe have maintained that they can legally market their services directly to consumers in most US states since information garnered from their personal genomics services are not used to make medical decisions [PGx Reporter 06-25-2008].

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