The case for investing in diagnostics

The case for investing in diagnostics

The in vitro diagnostics sector has long been one of the lousier places to make money within health care. Although the market is reasonably large, profitability and growth pale compared with biopharmaceuticals and diagnostic imaging. But, as Genomic Healthcare Strategies’ Keith Batchelder and Peter Miller argue in the current edition of Nature Biotechnology, that may be changing.

Key points:

  • Unlike drugs, which need to undergo lengthy and expensive clinical trials, diagnostics have multiple paths to market. They can obtain a 510(k) from the FDA without a trial, or companies can bypass FDA entirely by setting up their own lab or selling components to testing labs as analyte-specific reagents. (This situation isn’t exactly new.)
  • Diagnostics have long played a central role in driving other health care spending. That will be even more true in the future as drugs and diagnostics are paired; diagnostics will increasingly be used ahead of time to determine who will be responsive to drug therapy.
  • Payers, who have traditionally been skimpy on reimbursement of diagnostics, are looking more favorably on paying for novel tests based on the value they add.

The authors predict that consumer marketing companies –e.g., makers of supplements, functional foods and the like– will see the value of offering diagnostics along with their products.

They also express enthusiasm for the following scenario; one that as a consumer I find disturbing:

[P]harma and biotech companies will need to acquire… diagnostics [as] companions to drug therapies. In some cases, where competitive therapies are being developed on roughly the same timeline, competition for one or two key diagnostic tests could be intense… [L]ocking up a range of diagnostics may provide a strategic… advantage by preventing competitors from finding quality diagnostic tests as companions for their therapies.

I don’t think the public will stand for having diagnostic tests “locked up” to benefit a particular drug maker.

I do think that diagnostics have real potential to rationalize drug pricing over time. For now, drug price realization and market share depend on a combination of patent protection, clinical efficacy (in general, not patient-specific), and marketing power. Outside the US (in Germany and the UK for instance), there are efforts underway to knock down prices of branded drugs to generic levels and to deny coverage for certain therapies entirely. In the US there is a tendency for well-promoted drugs to achieve success and a countervailing trend of increasing generic prescribing. Both policies are based on looking at the population overall, ignoring the possibility that certain drugs will work better for certain people.

In addition to efficacy, there is the safety issue. Now, a few deaths or serious adverse events can knock a drug (like Bextra) off the market or prevent it from appearing at all. Such drugs are often useful to others in the population, and when the drug disappears it’s a lost tool for the medical profession.

I’d be more comfortable in a world where drugs that work really well –even if only for a sub-population– are reimbursed at high rates, and drugs that are dangerous in general but efficacious for some are available on the market.

Trends in the diagnostics market won’t change health care overnight, but in a decade or so we’ll look back and see that the effect has been rather profound.

August 16, 2006

Leave a Reply

Your email address will not be published. Required fields are marked *