Most biotech companies want doctors to write lots of prescriptions for their drugs. BG Medicine, a privately held diagnostics maker in Waltham, MA, sees opportunity in saying when that’s a waste of time and money.
Take, for example, Genentech’s Avastin. The drug, the first of its kind to choke off blood supply to lung, colon, and breast tumors, is one of the world’s best selling cancer medicines, with $2.3 billion in U.S. sales last year. It costs about $4,400 a month in a low dosage, and $8,800 for a higher dose for lung cancer patients. Yet studies listed in the drug’s prescribing information show it’s effective in less than half of patients, and many people who respond initially later develop resistance.
No surprise, health insurers want tests that can sort out who will benefit from such pricey drugs, and who won’t, says Pieter Muntendam, BG Medicine’s CEO. They apparently want them badly enough that they’re willing to pay high prices for tools to do it. One company, Genomic Health (NASDAQ: GHDX) of Redwood City, CA, has had success marketing a genetic test—for more than $3,400—that predicts whether an early-stage breast cancer patient is likely to relapse, and whether it’s worthwhile to take preventive chemotherapy. The market for such “molecular diagnostics” is expected to balloon from $18 billion in 2006 to $92 billion in 2016, according to Kalorama Information, a market research firm.
“The big opportunity is in better matching patients with treatments,” says Muntendam. “It’s hard to convince payers to pay $100,000 for a drug that works for 15 percent of patients.”
BG Medicine, for its part, envisions developing some low-price, high-volume tests for $20 to $150 apiece, and others that will cost $1,500 to $2,000, Muntendam says.
The company just raised new capital this month to make it happen. BG scrapped plans to do an initial public offering earlier this year, and instead pulled in $40 million from a group of venture capitalists to help commercialize its first product and continue work to discover new biological markers of disease, or predict response to medication. The group includes Legg Mason Capital, GE Asset Management, Humana, and Flagship Ventures.
BG Medicine was founded in 2000 as Beyond Genomics. It got its legs initially from doing tests for big drug companies who wanted to know early on which patients might suffer liver damage in clinical trials, so they could be weeded out, giving clinical trials a better chance at success. The effort attracted plenty of big name partners, including Pfizer (NYSE: PFE), Merck, (NYSE: MRK) and AstraZeneca (NYSE: AZN).
Now BG sees its future more in marketing its own products, says Noubar Afeyan, CEO of Flagship Ventures, and executive chairman of BG Medicine. First up, the company plans to ask the FDA later this year to approve its diagnostic that spots high amounts of a protein in the blood called galectin-3. That protein is supposed to predict whether patients will die of congestive heart failure within 60 days. Another test in the works looks for a protein in the blood that’s a sign of inflammation, which is thought to make the difference between fatty buildups sticking to the lining of artery walls, or busting loose and causing a heart attack, Muntendam says.
The desire on the part of insurers to control costs will continue to support the work of diagnostics companies, Afeyan says. “This notion that the health care system can offer a new drug that doesn’t really do a better job of treating disease is highly dubious. So what do you do? You identify responders from non-responders.”
Drug companies aren’t really resisting the change, which is already being pushed hard by the FDA in clinical trials, Afeyan says. Thousand Oaks, CA-based Amgen (NASDAQ: AMGN) has been touting data that shows its colorectal cancer drug Vectibix works for patients with normal KRAS genes, that control cell division, but doesn’t help patients with mutated forms, or an estimated 40 percent of people.
Successful diagnostics like Genomic Health and Biosite (now a unit of Inverness Medical Innovations (AMEX: IMA)) have proven to venture capitalists that there’s a lot more money than there used to be in diagnostics. “In the last 12 to 18 months, you’ve seen more exits at higher prices in diagnostics than you did in the prior 10 years combined,” Afeyan says. “Diagnostics are probably the hottest sector of all in life sciences.”
If BG can get its first products on the market, and convince doctors and insurers they represent a better way to practice medicine, then maybe BG will add its name to the list of successful ‘exits,’ that Afeyan is talking about.