Your SlideShare is downloading. ×
A Business Model for a New Generation Of Diagnostics Companies
A Business Model for a New Generation Of Diagnostics Companies
A Business Model for a New Generation Of Diagnostics Companies
A Business Model for a New Generation Of Diagnostics Companies
A Business Model for a New Generation Of Diagnostics Companies
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

A Business Model for a New Generation Of Diagnostics Companies

2,752

Published on

Published in: Economy & Finance, Business
1 Comment
1 Like
Statistics
Notes
  • Thank you for sharing this . Its really helpful to have information regarding Diagnostic companies
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
No Downloads
Views
Total Views
2,752
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
167
Comments
1
Likes
1
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. VENTURE CAPITAL A Business Model for a New Generation Of Diagnostics Companies Venture capital has tended to shy away from diagnostics companies, whose products are not predicated on the blockbuster model of pharmaceuticals. But several new diagnostics companies are developing products that hold immense potential to improve healthcare delivery. Here’s why venture investors should take another look at the diagnostics area. Gary Kurtzman, MD BioAdvance Medicine is changing. As a physi- Advances in biomedicine are imaging, and biomarkers — are at cian and long-time biotechnology combining to link genetics, gene ex- the center of this change. entrepreneur, I see firsthand the pression, and disease diagnosis and At BioAdvance, The Biotechnol- newly emerging but growing impact treatment in a way that was never ogy Greenhouse of Southeastern of the “omics” (genomics, pro- before possible. We now are able to Pennsylvania, we are using our $33 teomics, cytomics, metabolomics) begin to determine the best treat- million in tobacco-settlement funds revolution. Developments in these ment approach for some cancers, to invest in new life sciences enter- areas are changing the way we un- based on the genetics of the tumor prises. In just a little more than two derstand and treat disease, as well as or the genetic makeup of the pa- years, we have helped to promote how we discover and develop drugs. tient. The shift from a one-size-fits- 29 startup companies and acade- This dynamic transformation is ac- all approach to treatment regimens mic projects. The following diag- celerating, as new biomedical tech- that are tailored to individual pa- nostics ventures are among those nologies and tools become easier to tients’ needs — the promise of phar- in the BioAdvance portfolio: use and less expensive. The effects of macogenomics or personalized • Avid Radiopharmaceuticals is this revolution are already evident medicine — has begun and is ex- developing novel approaches to in day-to-day medical care in the pected to gain greater momentum diagnosing Alzheimer’s disease, field of in vitro diagnostics (IVD). in coming years. other neurodegenerative dis- As a result of these advances, eases, and cancer new diagnostic technologies are • Cira Discovery Sciences is ap- Author correspondence: providing us with wholly new ca- plying pattern discovery to de- Gary J. Kurtzman, MD pabilities. We are entering an era velop the next generation of di- BioAdvance where we will have the ability to agnostics based on proteomic 3701 Market Street predict disease susceptibility, detect information Philadelphia, PA 19104 disease with greater accuracy and • Eagle Vision currently has a Phone: (215) 966-6217 at an earlier stage, and predetermine noninvasive diagnostic agent in E-mail: an individual’s response to drugs. clinical testing that will enable gkurtzman@bioadvance.com Diagnostics — including the fields cardiologists to assess blood flow of molecular diagnostics, molecular to the heart 50 BIOTECHNOLOGY HEALTHCARE · OCTOBER 2005
  • 2. VENTURE CAPITAL • RetinaPharma markets Tono- nologies driving up total costs, the Drivers underlying the expected Pach, a device recently approved need to allocate resources more rapid adoption of these new diag- by the U.S. Food and Drug Ad- cost-effectively is the biggest factor nostics include the growing cost of ministration to improve ease and supporting wider use of predictive drug therapy, rapid increases in the accuracy of diagnosing glau- diagnostic tests. Diagnostics can do costs of drug development (includ- coma more than help save money; there is ing clinical trials), and — most im- • SonoMedix is developing con- technology available that can make portantly — our increasing ability venient, home-based systems to existing drug therapies safer and to target therapies to patients on the monitor blood coagulation more efficacious. basis of their genetics or the genet- Our experience at BioAdvance Consumer involvement in ics of their disease. This ability will has provided valuable lessons about healthcare decision making also is enable drug developers and pre- what does and does not work for accelerating the pace of change. scribers to conserve resources by companies that are vying for early- These trends are supported by a reserving therapies for patients in stage funding. Despite our new emphasis on transla- whom they will be safe and effec- enthusiasm for diagnos- tional research to apply tive. tics, diagnostic startups advances in knowledge Recent successes with targeted generally have had trouble and technology to medi- therapies, including trastuzumab obtaining venture financ- cal care. The diagnostics (Herceptin) for breast cancer, gefi- ing. I believe that several field represents an out- tinib (Iressa) for lung cancer, and fundamental factors un- standing example of how isosorbide (BilDil) for African derlie this situation. The new knowledge can be Americans with congestive heart most important is that, Gary Kurtzman applied swiftly to the de- failure (in this case, using ethnicity MD often, the diagnostics livery of health care. as a surrogate marker for genetic business model is neither Much of the focus in differences in drug response) have understood nor appreciated by ven- this field now is on molecular diag- highlighted the tremendous poten- ture capitalists — and, too often, nostics, which I define as including tial of pharmacogenomics. for good reason. The good news, all tests and methods to identify a Currently, more than 100 clini- though, is that solutions exist, and disease, determine its course, eval- cal trials of targeted new therapies several new diagnostics companies uate response to therapy, or identify are under way for cancer indica- have the elements that are essential one’s predisposition to a disease by tions alone. The FDA supports this to securing equity financing and analyzing one’s DNA, RNA, or pro- trend, encouraging drug develop- building a sustainable and success- teins. ers to include pharmacogenomic ful business. Molecular diagnostics encom- studies as part of the drug discovery passes those tests that are based and development process. Because DIAGNOSTICS, on a fundamental understanding targeted therapies typically require RISING SLOWLY of normal biological processes an accompanying diagnostic test to A variety of factors make diag- and how they are involved in the identify candidates for the therapy, nostics a field whose time has come. pathogenesis of disease. the launch of these new drugs Although diagnostic expenditures This area represents a small pro- should increase the value of com- represent less than 5 percent of total portion of all diagnostics expendi- panies marketing molecular diag- national healthcare expenditures, tures today, but Leomics Associ- nostics. correct diagnosis and treatment of ates, a New Jersey-based molecular disease greatly affects the other 95 diagnostics consulting firm, esti- TEPID INTEREST or so percent of our nation’s $1.7 mates that it will increase from the Despite the clinical and com- trillion healthcare bill. With an current level of $2 billion in U.S. mercial promise of molecular diag- aging population and the availabil- revenues to around $8 billion by nostics and the great advances in ity of new, expensive medical tech- 2010. technology that make routine use of OCTOBER 2005 · BIOTECHNOLOGY HEALTHCARE 51
  • 3. VENTURE CAPITAL this approach feasible, venture capi- strictions. Despite the promise of In assessing potential diagnos- tal (VC) investment in diagnostics far greater efficiency and effective- tics investments, venture investors companies has remained minimal; ness from pharmacogenomic- bring along their preferences for according to BioCentury, only about guided therapies, insurers may be candidates with strong potential 3 percent of all healthcare VC dol- reluctant to pay in the absence of return on investment (ROI), near- lars were allocated to diagnostics guarantees of near-term, tangible term revenues, a predictable regu- companies in 2004. financial benefits. Payers may not latory environment, a generous (or Why are venture investors hesi- be won over easily by studies that at least manageable) reimburse- tant, despite an opportunity to in- show benefits to patients but lim- ment climate, and tangible ways to vest in a field seemingly poised for ited cost savings, and they may balk manage risk. Based on the factors major commercial growth? at paying for disease-susceptibility described above, VCs do not see Certainly, skepticism is to be ex- testing — where the payoff from how most diagnostics ventures can pected, given the promise of large lifestyle changes, prophylactic mea- score well using these criteria. and rapidly rising revenues by a sures, and early diagnosis may be multitude of genomic enterprises far in the future. REASONS TO LIKE THE FIELD launched in the boom years of 1999 Regulatory issues can be just as So, as an institutional investor in to 2001 that failed to materialize for confounding for investors. While diagnostics, why am I bullish? I be- investors. After that ex- lieve that future leaders in perience, venture in- Two reasons investment in the new diagnostics space vestors understandably have the potential to re- come to meetings carry- diagnostics is attractive today: turn handsomely on the ing a resolute “show me” Technological advances are ROI criterion. In some attitude. ways, they mimic the spe- Diagnostics startups facilitating the discovery of cialty pharmaceuticals also are hampered by the better biomarkers, and earlier model that has been a fa- fact that they generally revenues are possible than with vorite of life sciences VCs serve smaller markets for the past few years. than pharmaceuticals, therapeutics. Optimally focused diag- with little promise of the nostics ventures require blockbuster phenomenon that fuels pharma companies confront the re- much lower up-front investments investor enthusiasm. Compound- ality of a shift from the blockbuster than do traditional biotech enter- ing the situation is fear of the lower model of drug development to new prises to reach revenue generation, margins that traditionally have models focused on targeted or per- thus reducing the amount of in- characterized much of the diagnos- sonalized therapies, there are few vestment required to achieve an exit tics industry. Fierce competition role models, nor is there a clear for investors. Although the most and commoditization of routine regulatory path for the codevelop- likely exits will be through acquisi- services has driven down prices and ment of diagnostic and therapeutic tion, I believe the possibility exists margins in the large service sector tools. for at least a few of the significant that dominates the field. These environmental factors are players to integrate revenues from Another major deterrent to ven- not the only hurdles to greater VC research and development and ture investment is third-party pay- investment in diagnostics. Com- from service, and to build signifi- ment. The many uncertainties pounding the problem further is the cant diagnostic franchises. about who will pay for the new gen- fact that venture investors do not In all this, technology is a key en- eration “prognostic” assays, as well fully understand the IVD company abler. High-throughput, multipara- as the extent to which third-party model — a situation that is made metric analysis of nucleic acids and payers will adequately cover the worse by the fact that too few of the proteins in normal and diseased tis- costs of new tests, exacerbate con- new diagnostic ventures have artic- sue is facilitating the discovery of cerns about price-and-margin re- ulated a compelling business model. more informative biomarkers. The 52 BIOTECHNOLOGY HEALTHCARE · OCTOBER 2005
  • 4. VENTURE CAPITAL establishment of highly annotated biobanks of tissue, DNA, and other Company snapshot: XDx biological samples is facilitating AlloMap, launched in April, targets the postcardiac transplant mar- rapid validation of those markers. ket. AlloMap is performed in XDx’s reference lab and is priced at The development of platforms, par- $2,950, which is seemingly high until one realizes that it replaces an ticularly those based on micro- and invasive biopsy costing upward of $5,000. nanotechnology, ultimately will en- able the translation of these new with exiting IVD manufacturers, or well positioned to prosper as phar- biomarkers into useful assays in the out-license. macogenomics and molecular test- clinical testing lab. Another possible new business ing become more widely used. A Another enabler is a regulatory approach is a mixed product-and- pioneer in developing genomic as- process that can be simpler and service model, whereby companies says to help physicians monitor and more straightforward than that for can reap the financial rewards of tailor therapy for HIV patients, drugs. Importantly, products can their unique diagnostic assays ViroLogic has an established refer- be brought to the point of revenue while participating in the margins ence lab to assay patient samples generation without extensive FDA from the service element of the and a service business to support oversight as “in-house developed” business. biopharmaceutical companies de- or “home brew” tests in a CLIA- In this model, discovery and de- veloping treatments for HIV and certified reference laboratory to velopment of new markers is lay- cancer. perform tests of “high complexity.” ered on an existing menu of tests A public company, ViroLogic As a result, revenue can be gener- performed in a reference lab. The generated revenues of more than ated by running these tests while value here is the potential to move $36 million in 2004, and has a mar- additional clinical data are being diagnostics and platforms rapidly ket capitalization of more than collected. Depending on the partic- from discovery phase through $300 million. ular test, full FDA review then can validation, using an established in- XDx, another top-tier, venture- proceed under the less rigorous frastructure that includes opera- backed molecular diagnostics com- 510(k) process or through a more tional, regulatory and reimburse- pany, is applying microarray, real- extensive premarket approval ap- ment expertise. time polymerase chain reaction (or plication. PCR, a technique for amplifying a In the diagnostics space, a com- WHAT MAKES SUCCESS? selected region of a DNA molecule) pany with a compelling platform We already have examples of and other bioinformatics technolo- capable of yielding a pipeline of di- new IVD companies that have at- gies to develop new ways to moni- agnostics can move rapidly through tracted significant investment from tor the immune system. the research and development VC and other sources of capital. The The success of the XDx AlloMap process to commercial launch, and following represent three of these molecular expression profile test do this in an iterative way. Revenues examples: (see box, above) recently led ven- can be generated early by perform- ViroLogic (see box below) is ture backers to reward XDx with ing tests in the reference lab while leveraging its diversified product $20 million Series D financing. the decision is being made whether base in HIV, immunologic, and can- Yet another pioneer illustrating to commercialize and market the cer testing to build a sustainable, the potential of this new business tests oneself, develop a partnership high-growth business that seems model is Genomic Health, which has top-tier VC financing (includ- Company snapshot: ViroLogic ing the firm that first funded Gen- In its mission statement, ViroLogic defines itself as “committed to entech), and it has begun commer- advancing individualized medicine by discovering, developing, and cializing its first product as a home marketing innovative products to guide and improve treatment of brew. serious viral, immunologic, and oncologic diseases.” Data generated in its clinical studies, recently reported in the New 54 BIOTECHNOLOGY HEALTHCARE · OCTOBER 2005
  • 5. VENTURE CAPITAL nificant rewards for patients who Company snapshot: Genomic Health will receive improved medical care, • Innovation inherent in its research-based approach as well as for the investors who will • Clinically validated pharmacogenomic approach obtain attractive investment returns. • Well-capitalized financial structure Yet there is a potential monkey • Investment in leading-edge science wrench in this otherwise promis- • Proprietary high-margin nature of its first product ing picture — the issue of third- • Reference lab approach party payment. Without fair and • Sophisticated early-marketing efforts consistent policies governing pay- ment for this new generation of di- agnostic tests, the commercial and England Journal of Medicine, support companies need a platform for de- clinical potential of these powerful its Oncotype DX test measuring the veloping and launching the multiple new tools could remain largely un- expression of a number of selected pipeline products needed for com- realized. This necessitates a major genes in breast cancer as being mercial success. policy change that will not take more predictive of patient outcome 3. Access to patient data also is a place unless the value of these new than standard pathology testing. necessity — validation is required diagnostics in the delivery of medi- The new test is intended to help from large patient cohorts, both cal care is better quantified and doc- physicians and patients make ratio- from well-annotated banked speci- umented. nal decisions about the manage- mens and well-designed and exe- Such a change also will necessi- ment of newly diagnosed breast cuted clinical studies. tate proactive efforts by many par- cancer. 4. Establishing early proof of the ticipants. We therefore look to life The features listed in the box at company’s ability to generate rev- sciences researchers, medical the top of this page make Genomic enues is important. The establish- providers, diagnostic companies, Health a good model for future VC- ment of an in-house reference lab- forward-looking biotech and drug backed ventures. Consistent with oratory provides revenue, as well as companies, trade organizations, its first-mover status, Genomic the means for data generation and and advocacy groups to contribute Health recently announced the fil- early acceptance by healthcare to the process needed to bring ing of an S-1 registration with the providers. about this shift. U.S. Securities and Exchange Com- 5. Building regulatory experi- At BioAdvance, we believe that mission for its initial public offering. ence, from operating a clinical ref- the new era of molecular diagnos- erence lab and through design and tics is an idea whose time has LESSONS LEARNED execution of validation studies and come. We intend to continue to As BioAdvance considers invest- clinical trials, is critical. work with the rich life sciences re- ing in these new-era molecular di- 6. A strategy that ensures ade- sources available in our region to agnostic firms, what lessons have quate third-party payment will be support the development and ven- we learned from our examination challenging, but it is essential. Se- ture funding of new enterprises of the field? curing this will necessitate a proac- that will help drive the coming 1. The combination of propri- tive, collaborative, and sustained ef- revolution in targeted and per- etary technology and demonstra- forts. sonalized healthcare, with all the ble clinical and economic benefits benefits to individuals, the health- is key. Successful companies focus POLICY CHANGE NEEDED care system, and society that these on assays that address an underly- I believe that the positive changes innovations make possible. BH ing biology or disease state, and in medicine from the “omics” revo- apply high-throughput techniques lution largely will be driven in the Gary Kurtzman MD, is managing and bioinformatics technologies to coming years by new, more predic- director and chief operating officer of identifying valuable biomarkers. tive diagnostic tests. Commercial- BioAdvance, the Biotechnology Green- 2. The pipeline is essential — IVD ization of these tests will provide sig- house of Southeastern Pennsylvania. OCTOBER 2005 · BIOTECHNOLOGY HEALTHCARE 55

×