Molecular Diagnostics
and the diagnostic”17. In the case of a Phase III clinical trial for a cancer compound, it is widely known that such costs can exceed $100 million. However, a stand-alone clinical trial for the CD can exceed $20 million17. In addition, using typi- cal reimbursement prices such a cancer CD could command $20-50 million per annum. This creates a dilemma for CD companies. On the one hand many cannot do their own CD development because of the prohibitive cost of the clinical trial. However, the most likely partner, a pharmaceutical company, has an under-appreciation of the real value of the CD. Thus a number of different busi- ness models are now being developed and used to address this conundrum for the CD companies, as well as taking into account the myriad concerns of the pharmaceutical companies.
Business models
There is convergence of agreement by the pharma- ceutical and CD companies on the potential use- fulness of a CD in the development and launch of a therapeutic drug. However, as noted above, there is a divergence of opinion on the actual value of the CD in the process. As a consequence of this dis- parity the evolving business models of CD compa- nies must consider factors that are significantly dif- ferent from pharmaceutical companies and the two different approaches are discussed below.
CD company business model
Many CD companies are either early stage or small market-cap entities. As such they are resource- restricted and must be particularly sensitised to the needs of other stakeholders in their business model development. As a consequence, “the need to demonstrate clinical utility linked to a specific drug means that diagnostic companies cannot normally develop their own companion diagnostics”17. They must of necessity be reliant on the very cus- tomer they are trying to sell their products, and must be attuned to the specific needs of the phar- maceutical company. This means that custom designed CDs must be produced that can meet reg- ulatory approval, and result in global sales of the therapeutic agent.
In order to ensure that a successful CD is pro- duced and provided to the pharmaceutical client a number of criteria must be met17:
i Clinical: validation and utility must be demon- strated. ii Technical: assay must be reliable, robust, meet the specificity and sensitivity criteria and be compatible with diagnostic testing laboratory operations.
Drug Discovery World Summer 2010
iii Regulatory: approval needed for the drug, CD and in some countries (USA) the analytical instru- ment on which the test is performed. iv Availability: the CD must match the distribution of the drug in the global marketplace. v Reimbursement: who actually will pay for the CD test and how much? vi Legal: are all technology and reagent licenses in place? vii Commercial: different models needed depend- ing on pharmaceutical company involvement.
One of the most formidable barriers to con- vincing the pharmaceutical client that the CD has value is to demonstrate clinical utility. CD com- panies have taken different approaches to this problem and hence have developed different busi- ness models to accommodate such an important factor in building key relationships with pharma- ceutical clients. Little17 has described the most common business models and they are influenced by numerous factors including development time- frames and access to capital. One approach is for the CD company to license IP on an assay and create a sufficient revenue stream in order for them to pay for the discovery and development of the CD, and is referred to as the stand-alone option. The less costly approach is to partner with the pharmaceutical company(s) and share the costs. A one-stop shop approach is for the CD company to integrate the drug and CD delivery. Finally, a more risk-ladened, short-cut approach is to introduce a test based on preliminary data prior to a more rigorous demonstration of the clinical utility of the CD. The stand-alone, part- nership, one-stop-shop and short-cut approach- es17, have been adopted by CD companies in one form or another as executable business models. The attributes and consequences of each of the models for the CD companies are captured and summarised in Table 2.
Current CD company business models are for the most part driven by the needs of the pharma- ceutical company client. Hence the partnership model is emerging as a favoured model since it helps mitigate risk and reduce upfront CD costs. However, it is important for CD companies to recognise that certain criteria need to be considered when selecting a pharmaceutical company as a partner of choice and they include9:
i What are the current and future aspirations of the CD company, as well as assess synergies and needs since the pharmaceutical company will own the drug product?
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