An inaugural review of the diagnostics sector newly published by PricewaterhouseCoopers contends that growing interest in personalized medicine is a key factor driving partnering deals between pharmaceutical companies and diagnostics developers.

The report, entitled "Diagnostics 2009," assesses partnership agreements signed between 2004 and 2008 and identifies trends, drawing heavily on data derived from Elsevier's ¹ Strategic Transactions database.

Despite its title, PWC's report does not analyze any drug-diagnostic deals signed in the current calendar year. However, further analysis by "The Pink Sheet" shows 10 such partnerships were inked as of early September, including recent tie-ups between K-RAS test maker DxS and Lilly's ImClone division to develop a companion diagnostic for Erbitux (cetuximab) and an agreement between Abbott and Pfizer to develop a molecular test for the latter's novel non-small cell lung cancer agent, PF-02341066.

Activity levels in 2009 have not yet matched those seen in 2004 and 2007 when companies respectively signed 12 and 14 collaborations around companion diagnostics, PWC noted. Still, the numbers suggest deal flow in this space is poised to soar, having already surpassed the partnering numbers in 2008, when only seven alliances were forged in the companion testing market. "This looks like just the tip of the iceberg for personalized medicine," said Gerry McDougall, a PWC principal and one of the report's authors.

Policy decisions on Capitol Hill are one likely reason for the increased deal flow. Under the economic stimulus bill approved by Congress in February 2009, Congress designated $1.1 billion to evaluate the efficacy of various treatments for a given illness. While the bill doesn't specifically call for investments in companion tests, diagnostics execs believe President Obama's emphasis on "cost-effective" health care will serve to increase demand for biomarkers, if only by catalyzing new searches for proteins that could prove drugs actually are benefiting patients.

Another driver is likely to be the mounting evidence that companion diagnostics can indeed achieve their promise of predicting, based on an individual's genetic profile, whether or not that person will respond to a given therapy. The hope is such insights will translate into savings for the health care system; moreover, as test developers like to emphasize, they spare patients unlikely to benefit from certain therapies from the drugs' potentially nasty side effects.

Cancer Diagnostics The First Market Maker

While the number of deals is on the upswing, the majority of agreements being announced remain concentrated in oncology: eight of the 10 deals announced year-to-date are companion diagnostics for cancer drugs. Similarly, all the deals reported in 2008 focused on oncology, and almost half of the partnerships announced for companion diagnostics between 2004 and 2008 - 21 of 45 - were for cancer diagnostics.

The statistics are hardly surprising; oncology is the one therapeutic area for which there's clear evidence that a companion diagnostic aids in treatment decisions and there is greater regulatory certainty about such tests' use. Genentech's pioneering use of Her2 testing as companion to its Herceptin ( trastuzumab) for breast cancer has become a case study. So too has the experience with Amgen's Vectibix (panitumumab) and ImClone's Erbitux, where K-RAS testing is now clearly indicated on labeling in both Europe and the U.S. (² Also see "KRAS Testing Gets On Label Of EGFr Products; Will Tests Get To Clinic Soon?" - Pink Sheet, 20 July, 2009.).

Positive links reported mid-August in the New England Journal of Medicine between epidermal growth factor (EGFR) mutations and efficacy of certain cancer drugs could potentially fuel a comeback for Iressa (gefitinib), for example. That drug has been a spectacular failure in the marketplace in part because genomic markers that AstraZeneca relied on in the past weren't good enough. (See "Astra Zeneca's Iressa Problem" ³ Also see "AstraZeneca's Iressa Problem" - In Vivo, 1 July, 2004. and "Problems With Biomarkers: A Tale of Three Drugs, ⁴ Also see "Problems With Biomarkers: A Tale of Three Drugs" - In Vivo, 1 April, 2005..)

Roche Most Active Deal-Maker

According to PWC, the large pharmaceutical players to date are most interested in partnerships with diagnostic companies. Roche's pharmaceutical division - including its subsidiary Genentech - was the most active in the time period analyzed by PWC, inking 10 deals, primarily in the oncology space. Pfizer was also active, signing six diagnostics deals, while Merck and AstraZeneca respectively formed five and three over the 2004 to 2008 time period.

Interestingly, aside from Roche, Big Pharmas with in-house in vitro diagnostic businesses - namely, Bayer, Abbott and Johnson & Johnson - weren't very active licensors. Each announced only one deal with a third-party diagnostics firm during this time span. While it's possible these companies' pharma divisions are collaborating with in-house diagnostics units, PWC notes a dearth of information about such associations. Novartis, with its recent push to develop an internal molecular diagnostics group, is also being closely watched (⁵ Also see "Novartis Pharma To Add Diagnostics Unit In 2009" - Pink Sheet, 8 December, 2008.).

Bristol-Myers Squibb, which announced two companion diagnostics deals between 2004 and 2008, finalized another in January 2009. Last year, it asked Dako SA to design pharmacogenomic tests to predict which patients are most likely to respond to its cancer drug candidates. At the start of this year, BMS asked XDx to identify biomarkers for the immune disorder lupus; it plans to use them in a Phase III trial of its fusion protein, Orencia (abatacept), which it already markets as a treatment for rheumatoid arthritis. XDx got an undisclosed upfront payment, promise of milestone payments, plus rights to commercialize certain diagnostic uses.

Business Models Lacking for Rx/Dx Enthusiasts

Even as deal flow increases, many around the industry await the emergence of a business model that brings both drug and diagnostic makers real financial benefit (⁶ Also see "Drug, Diagnostic Firms Should Partner, Not Merge, To Personalize Medicine" - Pink Sheet, 23 February, 2009.).

"It's regrettable that we still have very few success stories," Iain Miller, senior director of theranostics at bioMerieux said in March during a Windhover Information Webinar, "Is There A Business Model for Companion Diagnostics?" ( ⁷ Also see "Companion Dx Pioneers Test Variety Of Business Models" - Pink Sheet, 27 March, 2009.). "We have all talked about Herceptin and HER2 for too long. There's a lot of scope for much higher deal volume."

Collaborating can be challenging because drug makers and diagnostic developers have different economic incentives. Drug makers want a diagnostic to be as cheap as possible and to price drugs at a premium, while those in diagnostics need to build a sustainable business. As a result, determining who pays what in development costs is a critical component of the partnership negotiations. "They know that the diagnostic company is assuming greater risk. Not knowing whether a clinical trial will work out, we may never commercialize anything at the end of the day," said Rosanne Welcher, VP of R&D at Dako, which specializes in tissue-based cancer diagnostics.

[Editor's note: To access replays of recent Windhover webinars on biomarkers and dealmaking, please email ⁸ fdcwindhover.custcare@elsevier.com or call 800.332.2181 or 908.547.2159.]

Dako's Welcher and representatives from companies such as DxS believe they have found deal structures that work well enough to provide a template for additional partnerships in the future.

In December 2008, DxS inked a deal to create a K-RAS test as a companion diagnostic to Amgen's Vectibix. This May, the small British firm agreed to adapt its TheraScreen test, which detects the 29 most common mutations in the EGFR oncogene, as a companion to Boehringer Ingelheim's candidate Tovok (BIBW 2992), in late-stage development for non-small cell lung cancer. The test is expected to be used in an upcoming Phase III trial.

By July, AstraZeneca decided that it too wanted access to DxS's TheraScreen for EGFR mutations, and completed its own deal for a companion diagnostic to its own NSCLC treatment Iressa. In early September, ImClone followed suit and signed a deal for TheraScreen with DxS.

No doubt diagnostics manufacturers beyond DxS are hoping their offerings will also become "must-have" complements to pharmaceuticals one day. But because the financial terms of DxS's deals remain undisclosed, no one outside the alliances can say for sure just how fair these deals actually are. Nor is it possible to predict whether the partnership economics will propel DxS to commercial success as an independent company.

More importantly, it's not clear how easy it will be for other firms to replicate the DxS model, which is platform-like in nature since it can be applied to all drugs belonging to the EGFR class rather than being tied specifically to one therapeutic.

Companies that claim to have platforms capable of detecting biomarkers linked to disease progression could eventually entertain even broader partnering options than DxS - but only if they identify and protect such markers or patterns of markers before others do. Establishing the validity of biomarkers remains a key challenge for all in this sector, and certainly a primary factor influencing deal pricing.

- Deborah Erickson ( ⁹ pinkeditor@elsevier.com )

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