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Payors See ‘Marginal’ Return on Personalized Medicine Investment, Deloitte Report Finds


WASHINGTON, DCA new Deloitte Center for Health Solutions report has shown that payors reimbursing for genetic tests to guide treatment can expect to see a “marginal” return on their investment, while drug developers investing in developing diagnostics that will narrow the population for their therapies will see a negative return on such efforts.

The study, called “The ROI for Targeted Therapies: A Strategic Perspective Assessing the Barriers and Incentives for Adopting Personalized Medicine,” showed that “all stakeholder groups experience a positive ROI under certain conditions, although payors received only a marginal benefit and that is after six years.”

By comparison, “the group that consistently experienced a positive ROI across all scenario conditions was the consumer,” the report showed.

To arrive at their findings, which were unveiled this week at a conference here hosted by the Personalized Medicine Coalition, Deloitte investigators developed a return-on-investment framework using data from 75 published articles culled from among 300 papers. The report focuses on four stakeholders — consumers, biotechnology/pharmaceutical companies, diagnostic companies, and payors — and presents the potential costs and benefits they might see after investing in personalized medicine.

The authors specifically investigated stakeholders’ ROIs under two scenarios: investing in diagnostic tests that alter the standard course of therapies, and in new drug/diagnostic combination products.

Under the first scenario, consumers are likely to see a return on investment within the first year, the report found. For patients, the ROI will increase “over time due to the alteration of the current course of therapy, either because no therapy is required, or because they are better informed about a high risk of disease recurrence,” according to the study.

Diagnostic firms likewise stand to benefit by making “a sale for every customer tested.”

In this scenario, however, payors and pharmas aren’t likely to fare as well.

According to the report, pharmas and biotechs stands to “consistently” experience a negative ROI since diagnostic tests that change the course of therapies will invariably segment the market for cash-cow drugs.

During a panel discussion on the report at the PMC conference, Aidan Power, Pfizer’s global head of molecular diagnostics, noted that while “it might be great for [pharma] to have 10 drugs with peak yearly sales of $300 million [rather] than one drug worth $3 billion, the cost of developing the drugs in the first instance has to be low.”

Payors, meantime, can expect to develop an ROI over a six-year period. “This is a substantial financial challenge for commercial payors, given the annual turnover rate in member populations,” the Deloitte investigators state. “Public payors can realize a positive ROI if their members’ average tenure is over 6.35 years.”

At the PMC conference, James Utley, VP and medical director of the HMO provider Coventry Health Care, noted that payors take on additional risk by investing in DNA-guided medicine, and must account for tests that yield false results, for labs that have improper quality control, and for physicians ordering tests unnecessarily or inappropriately.

Utley emphasized that in order to reimburse for a genetic test, payors need to see that the technology improves patient outcomes and is applicable in the “real world setting.”

In the second scenario, in which stakeholders invest in interventions resulting in a new targeted therapeutic using a drug/diagnostic combination product, patients receive a positive ROI once the initial exposure to the therapy exceeds initial adverse events, life-course costs, and quality-of-life-year scores.

Biotechs and pharmas also benefit in this instance “due to the addition of the targeted therapy to the standard treatment, which produces new sales revenue,” the report found. The study added that ROI to drug companies will be particularly meaningful if using genomic technologies helps to reduce the length and expense of clinical trials.

Although conventional wisdom about pharmacogenomics holds that the science will help pharmas conduct faster and cheaper clinical trials, industry officials have noted that the science will likely not yield savings in the short term [see PGx Reporter 04-17-2007].

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Indeed, recounting Genomic Health’s experience working with pharma partners, Executive Chairman Randy Scott held the view that pharmacogenomic-guided clinical trials will increase the cost, length, and complexity of clinical trials in the short term. Scott, who also spoke at the conference, said Genomic Health recently had to tell a potential pharma partner that using pharmacogenomics in the clinical setting would double the size of the Phase II trial, add one year between the completion of the Phase II and start of the Phase III trial while samples are collected and analyzed, and add an additional $20 million to trial costs.

“Then there is the realization that you can fail on the drug or you can fail on the diagnostic,” Scott said. “Needless to say the company didn’t go for it.”

In this second framework — investing in a diagnostic for a new targeted therapy — payors and diagnostic companies take a loss.

According to the Deloitte report, diagnostic testing companies in this regard “receive no benefit.” Even though the companies are still making a sale per patient tested, this revenue does not offset the “substantial” R&D investment necessary to develop a test.

It takes pharmas around $800 million and 15 years to bring a new drug to market. While diagnostic development is not that costly or time consuming, it has its own challenges.

Genomic Health’s Scott noted that it took more than $100 million and five years to develop Oncotype DX. Following market launch, the company then had to invest significantly in conducting and publishing clinical trials to establish the clinical utility and validity of the test. Payors and physicians began adopting the test only after the test was included in treatment guidelines and discussed in peer-reviewed journals.

The report notes that diagnostic companies can benefit from ”decreasing the R&D cycle time.” This “would affect the investment required, as well as shorten the time to ROI benefit,” the report states.

In this scenario, however, payors “never” achieve a positive ROI. But Deloitte’s analysis does not reflect benefits payors could see after covering for an evidence-based treatment that is more effective and incurs less adverse reactions.

Coventry’s Utley pointed out that there is a gulf between how payors and the Deloitte report calculate patient benefit. While the study considers ROI in terms of the individual consumer, payors make decisions based on what is beneficial for consumers as a group.

Despite the limited ROI to payors, the report advises payors “to factor in personalized medicine products into the equation as the employer-sponsored model evolves into a retail health insurance model, providing the opportunity to include customized products.

“Plans may also benefit as personalized medicine may help slow the advancement of conditions and diseases that, left untreated, result in more expensive acute care interventions and institutional care,” the report states. “Additionally, they may also desire government subsidies, premium tax reductions and abatements to make coverage of personalized medicine more profitable.”

Utley noted that payors may be reluctant to cover diagnostic tests that through early interventions might prolong patient life, which, in turn, could increase premiums as elderly populations need coverage for other conditions and diseases.

“We need to come to a national consensus on what we as a society are willing to spend healthcare dollars on,” Utley said.

Partnerships between diagnostic firms and payors to study the clinical utility of genetic tests might be one way to get payors to reimburse for this type of technology. For instance, Scott noted that Kaiser Permanente was the first payor to reimburse for Oncotype DX in 2005, since Genomic Health conducted a study with the insurer for the genetic test.

In addition, the national pharmacy benefit manager Medco and the Laboratory Corporation of America penned an R&D alliance to determine if Roche’s AmpliChip can help physicians prescribe the breast cancer drug tamoxifen to those patients most likely to respond [see PGx Reporter 10-31-2007].

Ultimately, policymakers can help change the cost and benefits calculation for stakeholders and encourage investment in personalized medicine, the report concludes.

“Policy makers will need to consider incentives for commercial health plans to adopt personalized medicine by leading by example (for example, reimbursing these technologies),” the Deloitte authors state.

“They can also consider leveraging the connection between personalized medicine with the Orphan Drug Act, as well as supporting R&D tax credits (or other strategies) for the biotech/pharma industry to encourage its personalized medicine development efforts.”

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