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TRENDS & PERSPECTIVES

At a conference held in January by the Personalized Medicine Coalition (Washington, DC), the Deloitte Center for Health Solutions (Washington, DC) released a study that examined personalized medicine’s economic value proposition. The study looked at the importance of return on investment (ROI) for multiple stakeholders in advancing the adoption of personalized medicine. This report, “The ROI for Targeted Therapies: A Strategic Perspective,” developed a framework for calculating this ROI by examining case studies categorized into two scenarios across a number of clinical conditions ranging from HIV/AIDS to breast cancer.

Deloitte initiated this study to understand better the ROI of personalized medicine, specifically what is the ROI, to whom do the benefits accrue, and in what time frame. A literature review of the costs and benefits of personalized medicine provided the basis for establishing two fundamental scenarios for how personalized medicine might affect current care processes and the associated costs and benefits of current therapies. Those scenarios are the following: a personalized medicine IVD test alters the standard course of therapy, and a personalized IVD test results in introducing a companion targeted therapy.

The report found that under the first scenario, IVD companies would experience a consistently positive ROI during a 12-year time period. The one-time testing of all eligible consumers generates the ROI, due to a high price point for a personalized medicine IVD test. The flat line of the positive ROI is the result of this one-time testing. However, because of mutating pathogens, other clinical conditions, such as HIV/AIDS, require multiple IVD tests over time and would be likely to show a continued growth trend in ROI.

Under the second scenario, IVD companies would experience a slightly negative ROI, with no demonstrated breakeven point. Every consumer who has a condition will receive a personalized medicine IVD test. While such testing represents significant sales revenue, it is not sufficient to offset the large research and development expense to develop the test. It is important to note that the price that IVD companies are able to charge for the Her2 test that was used in this scenario is less than the price for the Oncotype DX test by Genomic Health Inc. (Redwood City, CA), which is used in the first scenario. Modest changes in assumptions for research and development expenditures and a price increase for the test would contribute to a positive ROI for IVD companies.

According to the study, personalized medicine IVD companies most likely to experience positive and significant ROI are those that can command high prices per test and provide testing for clinical conditions that require repeated testing. In those circumstances in which a companion targeted therapy is introduced and products cannot command high prices, increased exclusivity may help companies generate a positive ROI.

Personalized medicine IVDs also have considerable potential for disrupting current markets. When such IVDs render current therapies obsolete and additional personalized targeted therapies are added to current treatments, the prevailing business models are challenged. IVD companies may become increasingly attractive as investment targets to life sciences companies trying to diversify risk or launch personalized medicine therapeutics.

The report also found that the ROI implications for pharmaceutical companies are profound as the product paradigm shifts from blockbuster therapies to individual targeted therapies. To diversify their approach to personalized medicine, pharmaceutical companies may also view personalized IVD companies as prime investment or acquisition targets. Several factors could contribute to a positive investment scenario.

Pharmaceutical companies may focus on developing compounds whose improved profits and shorter development cycles could offset lower revenues from smaller, non-population-based therapies. In some cases, such compounds may demand protection from generics to help fund product development. To support the patient recruitment and multicenter trial requirements for more targeted study populations, drug companies may develop research and information collaborations with affiliates, academic medical centers, and research organizations. Such collaborations may also contribute to generating the evidence base that will demonstrate the efficacy of personalized medicine to policymakers and payers.

In addition, the study discussed the role of policymakers in personalized medicine. Three federal agencies are critical to the success of personalized medicine: NIH, CMS, and FDA. The policies and strategies of these three organizations and federal and state policymakers will be key to the adoption of personalized medicine.

For example, CMS should benefit from the potential of personalized medicine to reduce disease morbidity, recurrence, risk without benefit, and costs. As a policymaker, CMS has the potential to work across industries to assist in rationalizing the investment in personalized medicine, particularly when the financial value is in conflict with obvious improvements in efficacy, clinical outcomes, and costs.

A copy of this report can be accessed via Deloitte’s Web site at www.deloitte.com/dtt/cda/doc/content/us_chs_ROIforTargetedTherapies_January2009%281%29.pdf.