May 25, 2010 -- Putnam Associates, a Boston-based strategy consulting firm advising the biotechnology and pharmaceutical industries globally, released today an Inflection Point™ on how diagnostics are becoming key enablers of drug development, access and product sales. As a result, bio-pharmaceutical executives must understand the subtleties of the diagnostic business model.
Diagnostics companies operate in a very different business and regulatory environment, and therefore partnerships should be entered into carefully. In considering a partnership with a diagnostics company, evaluate the following:
1. Do you understand the value proposition that a diagnostic brings to your drug?
2. Have you considered all the adoption hurdles that diagnostics face?
3. Is there enough competition within the market for your diagnostic and why is this essential to your success?
4. Do you understand how the perspectives/motivations of the diagnostics company differ from yours?
5. Does your regulatory team appreciate that diagnostics play by different rules?
6. Will managed care or central payers pay for your diagnostic?
7. Is the diagnostics market a “one size fits all” market?
A companion diagnostic can benefit patients by identifying those most likely to respond to a drug and least likely to suffer side effects. It can help investigators select patients most likely to produce cleaner data, thereby reducing sample sizes and development costs. Market size might be increased if a diagnostic identifies suitable patients receiving a competing drug. A diagnostic may even rescue a drug candidate that might otherwise fail. Companion diagnostics may limit opportunities by eliminating some who would otherwise be prospective patients, potentially reducing market share.
At the time of product launch, the diagnostics 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. 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.
Bio-pharma 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 a poor fit for the target market. Once a diagnostic has been successfully developed and launched, its cost and reliability, not to mention its clinical utility, is central to its success in the market.
Most diagnostics companies are usually not as well capitalized, making them more risk averse and less likely to enter a market without some degree of certainty. Diagnostics companies 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.
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 are often not reimbursed. As a result, the medical community may be skeptical if costs are high, convenience is low, and false test results are frequent. It can take years to achieve widespread use of a new 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.
Lastly, when developing a diagnostic, companies should decide whether a diagnostic can meet the needs of all physicians and geographic markets.
According to Richard J. Tinsley, Partner at Putnam Associates, “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, conduct exploratory studies with companies using a variety of platforms, and then select the most promising for further development.”
Putnam Associates (www.putassoc.com) is a strategy consulting firm headquartered in Boston, founded in 1988, and serving the pharmaceutical, biotechnology, diagnostics, and medical device industries on a global basis. The firm’s services include: portfolio prioritization, licensing and due diligence, clinical trial strategy, forecasting, pricing, product positioning, market segmentation and customer targeting, sales force optimization, reimbursement and contracting, lifecycle planning, and alliance management. Two decades of experience and focus in their industries enable them to create significant value for their clients. Creative and disciplined strategy development processes blend with deep market knowledge for one purpose: to help their clients succeed. The company’s leadership includes: Kevin J. Gorman, Managing Partner (BA, Boston College; MBA, Harvard Business School); Richard J. Tinsley, Partner (BA, Wharton School, University of Pennsylvania; MA, Stanford University; MBA, Stanford Graduate School of Business); John A. Gordon, Partner (BA, summa cum laude, Tufts University; MBA, Harvard Business School); Eric C. Auger, Partner (BA, Providence College; MA, Boston University); and Domenick Bertelli, Partner (AB, Harvard University; MBA, MIT Sloan School of Management).
