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Diagnostics Are Warming Up in Era of Fast, Cheap Sequencing, Says MDV’s Rowan Chapman

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interest in getting patients on the right drug quickly, to minimize wasting time and money.

Rowan’s second example is Emeryville, CA-based Tethys Bioscience. This company looks at the genetic profile of certain markers in the blood to measure the likelihood that a person will get Type 2 diabetes in the future. This test, which has a list price of $585 and can be taken more than once, is thought to help scare patients to change the bad lifestyle habits (lack of exercise, junk food diets, etc.) that can put them on the road to diabetes.

While that’s a higher price than most diagnostics, it’s also cheaper than daily needlesticks to monitor glucose or giving patients drugs like Merck’s sitagliptin (Januvia), Amylin and Eli Lilly’s exenatide (Byetta), or various forms of insulin. Since insurers are truly freaked about diabetes—UnitedHealth recently said it expects U.S. health spending on diabetes to total $3.4 trillion between now and 2020—it’s possible they might be willing to pay for a predictive test that scares people onto the straight and narrow. Tethys, which has been marketing its test since the second quarter of 2009, had sold more than 27,000 through the end of 2010, according to CEO Mickey Urdea. He says he expects annual sales to double in 2011.

Since next-generation sequencing is making it much faster and cheaper to do the R&D that underpins tests like this, the ultimate payoff of a $500-per-test product starts to look more attractive than it once did, Chapman says. Especially if these tests can be given to patients more than once to monitor their progress over time, she says. The diagnostic tests have extra value to insurers, she says, if they can help get people off expensive drugs that aren’t doing much good.

“The common theme you’ll see in diagnostics is we are looking for large markets where the diganostic is actionable,” Chapman says. “The doctor and the patient have to have something to do based on the new information. It’s not nice-to-have information. It’s information that will direct decisions.” She adds, “We are really looking at high-value decision points, with expensive therapeutic options.”

There are certainly plenty of risks here. The FDA has been making noise for years about whether to crack down and require more evidence before it will allow companies to offer molecular diagnostic tests. And insurers are certainly going to want to see hard data, published in top scientific journals, before they reimburse for a $500 test, much like they do for a $4,000 test.

Apparently, those risks don’t seem quite as daunting as they did over the past couple years. Chapman says that this year at the JP Morgan Healthcare Conference in San Francisco she picked up on a much more optimistic vibe than in the past couple years, when entrepreneurs were hunkering down and wondering if they’d ever get financing again for their ideas.

“I was pleased to see that people are just getting on and doing it, building their businesses,” Chapman says.

Mohr Davidow, she says, is also in position to be bold, and make new investments in life sciences, rather than just help existing portfolio companies eke out a living. “These are exciting times,” she says.

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