Richard J. Tinsley, Putnam Associates

Advances in genetics and biochemistry—personalized medicine&mdash;promise to tease apart factors that explain why some patients benefit dramatically from a therapy while others receive no benefit at all, and lead some to experience undesirable side effects. For these and other reasons, drugmakers are increasingly partnering with diagnostics companies to develop companion biomarker technologies. 

While the total market for molecular diagnostics is on the order of $2-3 billion—and is expected to double over the next four years, only a small sub-segment of these products is what we would consider “companion” diagnostics. Currently, five tests are required by FDA through indication on drug labels. Approximately 25 additional biomarker tests are either recommended by FDA in combination with drug therapies, or designated as informational. 

Diagnostics companies operate in a very different business and regulatory environment, and therefore partnerships should be entered into carefully. Use these seven guidelines:

1. Do you understand the value proposition that a diagnostic brings to your drug?

 A companion diagnostic can help investigators select patients most likely to produce cleaner data, thereby reducing sample sizes and development costs. In some cases, a diagnostic could even rescue a drug candidate that might otherwise fail. Market size might be increased if a diagnostic identifies suitable patients receiving a competing drug. However, companion diagnostics are not always a panacea and may limit opportunities by eliminating some who would otherwise be prospective patients, potentially reducing market share. 

2. Have you considered all the adoption hurdles that diagnostics face?

 At the time of product launch, the diagnostic’s science and technology may not yet be at the same confidence level as a drug would be and the true relevance of chosen biomarkers to clinical outcomes may still be considered indirect and less than 100% predictive. Then, even if the test is ready, the market may be reluctant to immediately accept the diagnostic. Convenience, costs, and speed of the technology/testing platform may not yet be optimized. 

3. Is there enough competition within the market for your diagnostic and why is this essential to your success?

 Biopharma companies should foster competition between diagnostics companies to spur on next generation tests, if possible. Wedding a drug to a single diagnostic platform can be risky if it is a poor fit for the target market. 

4. Do you understand how the perspectives/motivations of the diagnostics company differ from yours?

 Most diagnostics companies are usually not well-capitalized, making them more risk averse. They may therefore demand concessions from a potential partner, such as a financial investment or a fee-for-service agreement. In addition to financial investments, diagnostics companies also are trending towards developing intellectual property around their tests or retaining rights to the test after launch in hopes of creating a long-term revenue driver. 

5. Does your regulatory team appreciate that diagnostics play by different rules?

 Diagnostics face a much lower regulatory burden than pharmaceuticals and have a shorter life cycle. Some diagnostics do not require FDA approval, are launched with less supporting clinical data than physicians and payers are accustomed to seeing for pharmaceuticals, and often can have reimbursement issues. 

6. Will managed care or central payers pay for your diagnostic?

 Insurers typically insist that a diagnostic create value and directly contribute to a better clinical outcome in order to be reimbursable. From the insurer’s perspective, a diagnostic must create value, often by screening patients to avoid inappropriate treatment and reduce costs. 

7. Is the diagnostics market a “one size fits all” market?

 Those with patients who are at immediate risk of a condition will have no use for a test with a high rate of false negatives regardless of cost and convenience. On the other hand, the same physician might accept a high false positive rate as long as the safety risk and cost of the accompanying treatment are comparatively low. 

Companion diagnostics must be viewed with a broader understanding of the diagnostics environment. Consider the value a companion diagnostic brings to the drug. Will it increase or decrease market share? Make certain the test developed is in line with physician needs and disease characteristics. In the early stages of clinical research, encourage competition by conducting exploratory studies with companies using a variety of platforms, and then select the most promising for further development.

Richard J. Tinsley is a Partner at Putnam Associates, a strategy consulting firm headquartered in the Boston area, founded in 1988, and serving the pharmaceutical and biotechnology industries on a global basis (rtinsley@putassoc.com; phone: 781.273.5480; putassoc.com). 

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