It seems the payors are starting to catch on.  Yes, it makes sense to pay for a $2,000 esoteric cancer test if it will show that a $20,000 drug treatment is unnecessary and potentially harmful – seems simple, right?  The advent of powerful diagnostics and biomarker technologies that can better characterize a patient’s individual cancer will slowly usher out the age of one-size-fits-all medicine, but it is also creating new challenges for payors, who are faced with determining a new set of values in the treatment chain – as well as drug makers and diagnostics companies who are shifting traditional ideas about buasiness models in a post-blockbuster-drug era.

Rhonda Greenapple, President and founder of New Jersey-based Reimbursement Intelligence(www.reimbursementintelligence.com), noted this shifting landscape in an article published this Summer in FierceBiotech (http://www.fiercepharma.com/story/industry-voices-personalized-medicine-will-drive-management-and-restrictions-health-plans/2008) as it relates to insurance reimbursement and the new family of K-ras genetic biomarkers.

Our take is that the value chain will continue to tilt from big pharma towards diagnostics companies as tumor characterization and individual biomarkers become standard and as companion diagnostics are eventually required to be paired with new targeted therapies.  Those smallcap companies that will likely see those benefits are specialized cancer testing companies and labs, includinginclude Clarient, Inc (Nasdaq:CLRT) www.clarientinc.com, Esoterix www.esoterix.com, and Genoptix (Nasdaq:GXDX) www.genoptix.com.

One Response to “Payors Response to Personalized Medicine Will Shape Business Models at Diagnostics, Biopharma Companies”

  1. Mollie Roth
    January 8th, 2009 at 8:45 pm

    While the writer is absolutely correct that focus will continue to shift onto new and innovative diagnostics that better predict therapy response, absent support from either the pharmaceutical or VC industries, the diagnostic industry simply does not have the financial footprint to move this space forward at present. The costs to develop these tests and the investment necessary to conduct prospective clinical trials to assess validity and clinical utility, as the FDA seems to have indicated is its intention, are investments at present far beyond the diagnostic industry with their historically high volume, low cost business model. Furthermore, the diagnostic industry has no experience with how to effectively launch and facilitate adoption of new technologies in the market, which often leaves their products languishing for years. Historically, this has not been a problem due to the low cost of developing tests and the fact that they have been largely unregulated and therefore no clinical trial funding has been necessary. As we move forward in this space, that will no longer be the case and the diagnostic industry faces an uphill battle if they continue to try to do “business as usual” and don’t make stronger efforts to figure out how to align their business model with that of pharma.

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