Scientia Advisors Impact Of Microarray In M Dx Oct 2008

2008
Scientia Advisors, LLC
Boston ■ Palo Alto
Scientia Advisors LLC
One Main Street, 7th Floor
Cambridge, MA 02142
www.scientiaadv.com
Impact of DNA Microarrays on Molecular Diagnostics
By Scientia Advisors LLC

All materials copyrighted and can not be used without explicit permission2Scientia Advisors LLC
Agenda
• Market Overview
• Product case study, Regulatory, and Reimbursement Overview
• Technology Overview and Emerging Array Technologies
• Conclusions
• About Scientia Advisors and Contact Details
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Microarrays for molecular diagnostics (MDx)
Definition
Microarrays for MDx
Microarrays consist of biological material hybridized to a solid surface or a bead
bound probe in aqueous suspension. They are used to profile gene expression,
compare genomic hybridization, determine protein binding sites on a gene, detect
single nucleotide polymorphisms, assay the expression of alternative splice forms of a
gene and to empirically detect expression of transcripts or splice forms that may not
have been previously known or predicted.
Includes DNA and microsphere microarray diagnostic tests; multiplexed diagnostic microarray tests;
automated diagnostic microarray analyzers; microarray kits; microarray consumables
Excludes sample preparation; splice variant microarray technologies; microarray technologies used in
drug discovery
Source: Scientia analysis
Focused arrays are those that are capable of multiplexing 25-50 targets
Arrays are typical high density microarrays capable of multiplexing 50+ targets

Microarrays in MDx
Small market today with attractive growth prospects driven by multiplex tests
for complex diseases such as cancer
$0
$100
$200
$300
$400
$500
$600
$700
2007 2012
WW Microarray MDx Market
Infectious Disease Breast Cancer CF HLA Other
US $ MM
Key Trends & Growth Drivers
• Array market today is limited to genetic testing such
as CF, HLA, transplantation rejection, and PGx^
(cancer market is small)
• Since many diseases and potential treatment
outcomes are determined by the function of
multiple genes and pathways; molecular assays will
require multi-dimensional analysis of genetic
alterations, pathways, and processes. This
has resulted in a pressing need for reliable
technologies such as microarrays with high
multiplexing technologies
» A large number of microarray based diagnostic
products such as those for breast cancer prognosis,
sepsis are set to enter the market over the next few
years and drive further growth
» Tests for sepsis, breast cancer prognosis are high value
tests that command premium price due to their ability
to address unmet needs and change clinical paradigm
• Breast cancer arrays are set to grow at a rapid pace
driven by products from Agendia, Veridex, and
Roche. Both Veridex and Roche are expected to
launch products soon and will be based on
Affymetrix GeneChip
• Autoimmune, cardiovascular, and diabetes represent
long-term opportunities (as biomarkers still need to
be validated)
$160M
$660M
33%
* Other includes PGx^, other cancer types, and other emerging tests
^ PGx = Pharmacogenomics
*

Competitive landscape
Luminex has a head start but market is likely to become fragmented in the
future as numerous companies are positioned to enter the market
Key Observations
2007 WW Microarray MDx Market: $160M
* Other includes Autogenomics, Nanosphere, Osmetech,
Pathwork diagnostics, and other emerging companies
• Today the microarray market is dominated by Luminex,
with its own product in CF and platform partnerships
with One Lambda and Tepnel lifecodes for HLA typing
• Although, Agendia MammaPrint Dx for breast cancer
recurrence was the first IVDMIA to be approved; the
product is not as well accepted as Genomic Health’s
OncoType Dx
• Although Roche/Affymetrix was the first to enter the
market with FDA approval; reception of the AmpliChip
has been lukewarm
• Currently, Innogenetics (now Solvay Pharmaceuticals) CF
product is based on its line probe array and will be
switched to its array 4-Mat microarray platform soon
• XDx is gaining traction with strong performance of
AlloMap to monitor heart transplant rejection
• Roche and Veridex (JnJ) are expected to launch several
assays in the oncology area in the near future using the
Affymeterix GeneChip
• Emerging companies such as Almac, Autogenomics,
Combimatrix, ExonHit, GeneWave, Nanosphere,
Osmetech, Pathwork Diagnostics, and Xceed Molecular
are positioned to enter the market with offerings in
oncology, pharmacogenomics, genetic testing , diabetes
and inflammation
•Agendia
•Innogenetics
•Roche/Affymetrix
•Tepnel/Luminex
•Tm-Luminex
•XDx
•Other
Luminex/One
Lambda

Agenda
• Market Overview
• Conclusions
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Roche’s AmpliChip CYP450 Case Study
This test has had limited adoption due to a lack of physician education and
reimbursement
• Although the test was FDA approved; acceptance
of the test has been lukewarm
• One of the key reasons the test had limited
acceptance was lack of sufficient evidence for
incorporation of into guidelines for clinical practice
» The professional journal American Family
Physician stated in August 2007: “As new
genetic testing technologies are approved and
made available for clinical use, it is important to
emphasize that FDA approval is based on test
accuracy rather than on demonstration of
improved clinical outcomes. Availability of
technology should ideally be paralleled by
availability of evidence regarding its impact in
clinical practice (through methodologically
sound studies), which unfortunately has not yet
happened in the case of CYP450 genotyping.”
» Most insurance companies do not cover the cost
of the test due to uncertainty of cost benefits
• Array companies seeking to launch products need
to keep in mind that besides regulatory approval;
reimbursement and physician education through
clinical outcomes studies are paramount
Key Learnings
The Roche AmpliChip Cytochrome P450 Genotyping test based on the
Affymetrix GeneChip Microarray aims to identify slow and fast drug
metabolizers by capturing genetic variations in two genes, CYP2D6 and
CYP2C19 in the cytochrome P450 system.
Source: Scientia analysis, Roche, American Family Physician, Aetna

Regulatory Requirements
Clinical burden varies by regulatory filing; EU less stringent than the U.S.
US Regulatory Bodies EU Regulatory Bodies
IVD Directive
Guides
requirements for
clinical diagnostic
products and
manufacturing
practices (device
classification)
CE Mark
Seal of approval to
sell clinical
product – to be
renewed every 5
years
CLIA
Extends regulation
for devices for
performance sites
Source: Scientia analysis, FDA
Regulates
diagnostic
products and
related
manufacturing
practices
• Research use only (RUO)
• Investigational use only (IUO)
• Special purpose reagents (SPRs)
• 510(k) [Class I or II]
• Premarket Approval (PMA) [class
III]
• In vitro Diagnostic Multivariate
Index Assay (IVDMIA)
• Analyte Specific Reagent
(ASR)
» Can only be sold to high
complexity CLIA labs
» Prohibited from making
any statement regarding
analytical or clinical
performance
• Manufacturer’s self-
declaration of conformity to
the Medical Devices Directive
(MDD) and its essential
requirements
» Intervention of a
notified body is not
required
» Firms are subject to
inspection for
conformance to ISO
standards
• Device classification is based on
adherence to Annex II, IV, V, VI,
and VII
• These devices must not only
be compliant with the basic
requirements under the EU IVD
law, but also require a
conformity assessment by a
notified body
FDA

Source: Scientia analysis, FDA, Nature, HHS
• On September 7, 2006 the FDA issued a draft guidance
interpreting and explaining the ASR* rule, and on July 26,
2007 the In vitro Diagnostic Multivariate Index Assays
“IVDMIAs^”
» Agendia’s MammaPrint Dx for breast cancer recurrence
was the first IVDMIA^ test cleared by the FDA in February
2007
• With these new guidance and policies the FDA intends to
regulate the novel, high value multiplex MDx tests from the
moment they are introduced into the market. Manufactures
will no longer be allowed to register them as ASRs
• The FDA is requiring more pharmacogenetics information.
The agency relabeled Warfarin to accompany
pharmacogenetic testing by approving the first genetic test
for Warfarin sensitivity, “Verigene” in September 2007. The
test can determine an individual’s ability to metabolize the
anti-coagulant medication, this information is critical to
determining safe and appropriate dosing
» Osmetech’s Warfarin sensitivity test was cleared by the
FDA in July 2008
• These moves indicate that the agency recognizes MDx as
being paramount for personalized medicine and better health
outcomes
» This outlook from the FDA will drive pharma to change
their perspective on personalized medicine tests
^ In Vitro Diagnostic Multivariate Assays multiplexed tests that use a computer software to
analyze the test results to make a final diagnosis or diagnostic recommendations)
* Analytic Specific Reagent
Cleared by FDA on February 2007
Key Takeaways
The FDA is Being Proactive About Array based MDx Tests
Array based test was the first approved IVDMIA

IVD Reimbursement
Reimbursement differs by geography; better policies are needed for new high
value diagnostics*
Source: Scientia analysis, The Lewin group
xx
xx
U.S.
EU
• Reimbursement in the U.S. is determined by CMS and private insurers
• CMS pays for each test based on a fee schedule using CPT codes determined by American Medicare Association
(AMA)
• CMS decisions can influence private insurers
• Many new laboratory tests that are substantially similar to existing tests may be assigned to the same code
• New tests can petition for a new code from the AMA, but this process can be lengthy and often results in delays.
Outcome studies are essential to prove perceived value of tests; The AMA in conjunction with a panel of experts,
may assign substantially new tests a new code. CMS then decides on a method of payment
• MDx companies such as Genomic Health and XDx are blazing the path for reimbursement of high value MDx tests
such as breast cancer prognosis. Third party payers such as the California Medicare contractor, National Heritage
Insurance Company, United and Aetna are starting to reimburse these tests
• The reimbursement of in vitro diagnostic tests in Europe is determined by individual government bodies. European
nations have compulsory health insurance for citizens, high levels of coverage and public ownership of hospitals
• In U.K, the pricing environment is affected by budget constraints, as budgets are based on historical spending rates
rather than future demand. NHS local lab directors decide how to spend their allocated diagnostic budget. NICE is
starting to screen diagnostics and make recommendations as part of broader disease management plans
• The DRG^ payment system in Germany is developing and can considerably affect diagnostic reimbursement. Office-
based payment for tests may depend on findings of a technology assessment committee
• The French reimbursement process is also made via DRG and requires an assessment of medical benefit by a
government commission
*=Tests that provide critical information to help physicians make clinically relevant decisions; as a result command premium price
^ Diagnosis related group: A new reimbursement system based on the number and type of procedures rather than bed days

MDx Tests Reimbursement
Although codes and regulations are evolving, better policies are still needed
** Includes relevant old and new codes
* Hospital associated infections
^Secretary’s Advisory Committee on Genetics, Health, and Society
• Historically several MDx reimbursement claims have been denied
due to inaccurate codes use
• Recent changes to MDx coding, including the addition of eleven
new codes in the 2006 and 2007 CPT are expected to partially
improve this situation
• Several organizations such as SACGHS^, the Lewin Group have
questioned Medicare’s coding for MDx and believe
reimbursement needs to be re-adjusted to reflect their added
value
• Under new Medicare regulations, hospitals will no longer receive
higher payments for the additional costs associated with treating
patients for certain hospital- acquired infections. These new rules
will go into effect in October 2008 and will compel hospitals to
improve care by migrating to fast turnaround time MDx tests
• When reimbursement bodies switches to DRG^^, only MDx tests
showing significant clinical utility will be reimbursed
• MDx companies such as Genomic Health and XDx are blazing the
path for reimbursement of high value MDx tests such as breast
cancer prognosis
• Reimbursement agencies need to implement better policies to
better accommodate high value multiplex MDx tests* that are
changing the healthcare paradigm (currently there are no codes
available to bill for multiplex tests such as MDx tests for sepsis
causing pathogens)
Key Takeaways
CPT Code
Total # of
claims
submitted
% of
Claims
Denied
83890 (extraction) 162,297 48%
83896 (DNA Probe) 422,628 25%
83898 (amplification) 639,134 40%
83901 (Multiplex
Amplification)
85,105 36%
83902 (Reverse
transcription)
42,670 30%
87798 (infectious agent) 54,939 10%
Procedure CPT Code
Molecular diagnostic assays 83890 - 83914
Assays which identify or quantify
infectious agent antigens
87470 - 87660
DNA based studies on culture
material
87149
Lack of an organism specific code
for a DNA based infectious agent
assay
87797-99
Total number of claims for molecular diagnostic laboratory tests
submitted to all Medicare carriers, ’00-’04
Relevant CPT Codes**
Source: Scientia analysis, CMS, other industry reports
^^ Diagnosis related group
*=Tests that provide critical information to help physicians make clinically relevant decisions; as a result
command premium price

Agenda
• Market Overview
• Conclusions
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1
2
4
5

Microarrays in MDx
Arrays are invaluable multiplexing tool; however, widespread use in MDx will
require reproducible, fully automated and easy to use array platforms
Characteristics of a well engineered microarray platform: miniaturization, massive
scale-up, low costs, reproducible data, complete automation and minimal biological
sample requirements
Source: Scientia analysis, IVDT
Workflow of developing a diagnostic array
• During the past decade, DNA microarrays have been
used in every facet of life science research, from basic
science to the study of clinically relevant diseases
• In MDx, arrays have been historically viewed as
powerful research tools to identify markers; However,
with the recent advent of commercially available,
low-cost, reproducible, technically simple arrays, and
easy-to-use analytical software, the direct use of
microarrays as diagnostic platforms have emerged
• With their ability to gain more information from a
limited clinical sample by using highly parallel
expression-analysis techniques; arrays are powerful
MDx tools. Since many diseases and potential
treatment outcomes are determined by the function
of multiple genes, DNA microarrays will be important
in advancing molecular diagnostics

Comparison of MDx technologies
Although arrays score high in multiplexing; TaT^, ease of use, and ability to
quantitate need to be improved for wide spread clinical adoption
Real Time PCR
Other Amp.
Tech.
Signal Amplifi-
cation
Focused
Arrays*
Arrays**
Sequencers
(incl. Nex Gen)
Multiplexing
Quantitation
Automation
TaT^
Accuracy (Sens. &
Spec.)
Ease of Use
Low Med High
Source: Scientia customer survey and analysis
* Focused arrays are those that are capable of multiplexing 25-50 targets
** Arrays are typical high density microarrays capable of multiplexing 50+ targets
^ TaT = Turnaround time
Scientia Confidential

Emerging Array Technologies
Several promising technologies on the horizon
Nanosphere
Illumina
Asuragen
• Illumina’s BeadArray Technology is based on 3-
micron silica beads that self assemble in micro wells
on either of two substrates: fiber optic bundles or
planar silica slides
» Allows for stringent quality control, high reproducibility
» Allows for multi sample testing
NimbleGen
High throughput, cost effective array
High sensitive, easy to use array
mi RNA array for diagnostics
Epigenetics array
• NanoSphere’s Verigene system has many
improvements
» Utilizes nano-sized magnetic beads
» Two mechanisms of signal amplification for analytes
with low abundance, reports 2-3 fold greater sensitivity
• Asuragen’s miRNA arrays are based on Agilent and
Affymetrix arrays
» Allows for high sensitivity, specificity, and
reproducibility
• NimbleGen HD2 arrays offer the highest density
microarray platform currently available for CGH and
ChIP analysis
» Fewer arrays , less sample are required leading to a
significant reduction in cost
» Greater flexibility with increased sensitivity, specificity,
and reproducibility

Microarray
Planar
Array
BeadArray Probe-
based
(TaqMan)
Sanger
Sequencing
"Next Gen"
Sequencing
Affymetrix (AFFX) x
ABI x x x
Helicos x
Illumina (ILMN) x x x
454 / Roche (ROHHY) x
ATTRIBUTES
Flexibility for custom content -- + ++ --
Robustness of fixed content + + -
Accuracy / Reproducibility - ++ ++ ++ ++
Throughput: # GT's sample + ++ - -- ++
Throughput: Samples / Study -- + -- +
Per Genotype Cost + ++ - -- -
Per Sample Cost - ++ ++ - -
APPLICATIONS SUITABILITY
Candidate Gene Association + ++ -- -- --
Whole Genome Association + ++ -- -- --
Disease Panels / Pathways ++ ++ + + ++
Clinical diagnostics - ++ + -- +
NexGen Sequencer
Next Generation (NexGen) Sequencing
Potential to displace arrays as they become faster and cost effective
Key Takeaways
• NexGen sequencers have favorable features such as accuracy and suitability to clinical diagnostics (as highlighted in the
table)
• In its current state, arrays fare better than NexGen Sequencers in MDx
• Ultimately, when the price per base goes down , throughput increases, and informatics solutions improve NexGen
Sequencers have the potential to displace arrays
Scientia Confidential

Agenda
• Market Overview
• Conclusions
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Conclusions
• The microarray market is small today with tests in genetic testing and
pharmacogenomics. The market is expected to grow rapidly due to increasing need
for multiplexing and expected launch of several high value tests such as breast
cancer prognosis and sepsis
• Luminex is currently the market leader; however market is likely to become
fragmented as several companies including Veridex (JnJ) are positioned to enter
the market
• Regulatory, reimbursement, and physician education are hurdles to adoption
• Although arrays are exceptional in multiplexing, inability to quantitate and lack of
ease of use is likely to hinder wide spread adoption when compared to MDx
technologies such as real time PCR
• Although current forms of next generation sequencing may not be threatening;
ultimately, when the price per base goes down , throughput increases, it has the
potential to displace arrays
• Several promising new array technologies are on the horizon that could address
limitations of current products on the market
• All in all, arrays are powerful MDx tools and is likely to continue its overall growth
over the next 5-10 years

Agenda
• Microarray Diagnostic Market
• Conclusions
• About Scientia Advisors and Contact Details5
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