Investors search for returns in Personalised Medicine

10 Mar 2010 | News
Cost conundrum: the investment in clinical trials remains the same but approved drugs will have a smaller market. So how is Personalised Medicine to be financed?

Helmut Schühsler, head of the life sciences group at Munich-based TVM Capital, believes personalised medicine is the future. But as an investor, he has a problem with it. “It is hard to find investments that make it worth the cost,” he says. “You must always ask yourself, will the exit value be exceeded by what you invest?”

In many cases, the answer is still no. The promise of personalised medicine is that genetic information can be used to help determine which subsets of people will most be helped by a therapy, making treatment more efficient. But a variety of obstacles still stand as barriers to investment in companies developing innovative therapies and diagnostics.

Companies are going up against well-established interests and ways of administering therapies, for one.  And getting an innovative diagnostic reimbursed is still a challenge, as conducting clinical trials is prohibitively expensive.  

The return on investment

Deloitte’s 2009 report, “The ROI for Targeted Therapies: A Strategic Perspective” sketches out several different scenarios for personalised medicine and the possible impact on stakeholders. In the first, a diagnostic alone is introduced into the marketplace, as is often the case today, without an accompanying therapy. That means new benefits for patients, according to Deloitte, but also new threats to pharmaceutical and biotechnology companies that fail to adapt to this model of smaller but more numerous markets.
In the second scenario, diagnostics are introduced with accompanying targeted therapies. Biotechnology/pharmaceutical companies experience a positive return on investment due to the addition of the targeted therapy, which produces new sales revenue. “Those who are early adopters of personalised medicine stand to receive significant return on investment as highly effective targeted therapies displace traditional therapies,” the report says.  Those companies that are slower to develop personalised targeted therapies risk losing substantial market share, not only due to these newer therapies, but also in situations where diagnostic tests alter the course of care.
Another key variable, the report notes, is the extensive R&D investment cycle required to produce personalised medicine targeted therapies. If the cycle and expenses are decreased due to improved patient recruitment and safety, there is likelihood of increased return on investment.

“The payer wants proof that this is going to work with trials in 10,000 people. In the US, you have to find out if Medicare will cover it. These companies are facing hurdles you cannot dream of,” says Schühsler.  

These are the kinds of issues that make it hard for startups to survive in the R&D-intensive life sciences industry. Yet large pharmaceutical companies also face the same issue: will the massive costs of developing new, more targeted drugs pay off in a differently-structured marketplace where therapies have higher success rates and are more effective, but each drug is suitable for fewer patients?

“If you need to offer five times the number of products because you are developing more drugs for smaller markets, you have an R&D problem to solve,” says Asif Dhar, senior fellow with the Deloitte Center for Health Solutions in Washington DC and co-author of a recent Deloitte report on of the financial barriers to the adoption of personalised medicine. “The biggest barrier is the high cost associated with R&D,” Dhar says.

Big Pharma, long accused of burying its head in the sand, rather than confronting promising new technologies that threaten the blockbuster drug model, is coming around to personalised medicine.  What it will mean is not throwing money at the problem, but restructuring the way pharmaceutical companies do business.  

Roche for example, says it has changed its thinking about target selection in the earliest stages of drug discovery.  “As we bring molecules to the development process we look at which diseases allow us to learn the most about the drug, and which subset of patients will benefit most in phase II and III,” says Thomas Metcalfe, Head, Science and Tech Incubator at Roche. “Our biologists must understand this; we now seek to hardwire this into how we do our drug discovery.”  

The company has intensified the link between diagnostics and drug development in recent years, appointing liaison managers to serve as a bridge between the two sides of the personalised medicine coin, in each of its five core business areas. It has also acquired new technologies to strengthen the diagnostics portfolio, for example buying Ventana, which makes tests for analysis of cells and tissues, and Nimblegen, which provides tools for analysing genetic data.

Roche says the results can already be seen in its ability to develop diagnostics and therapies in tandem, such as Herceptin, approved for use in certain cancers when patients are found to over express the protein Her2, and PLX4032, a drug in Phase III trials in the targeted treatment of half of skin cancer patients that have the BRAF tyrosine kinase mutation.

Roche isn’t the only one looking to intensify the link between diagnostics and therapy. Pfizer also is constantly on the lookout for collaborations with diagnostic companies to support its own R&D efforts, says Aidan Power, VP, president and global head of molecular medicine. “We have a significant interest in seeing that companion diagnostics required for our drugs are commercially available when our drugs are commercialised.” Pfizer has collaborations, for example, with Abbott Molecular and Qiagen, which are both developing diagnostic tests to accompany Pfizer drugs.

These are steps in the right direction. But Deloitte for one believes that market participants will increasingly turn to new kinds of collaborations to share the costs of R&D development. An example is M2GEN, a Tampa, Florida based link-up of the H. Lee Moffitt Cancer Center & Research Institute, and Merck & Co, which last year completed construction of a joint research centre to develop personalised cancer treatments.  

M2GEN researchers will collect tumor tissues from thousands of patients across the US to identify biological markers unique to tumours. Although it is a for-profit organisation, M2Gen has received some funding from state and local governments, as a potential job motor for the area.  

In Europe, Luxembourg has started a $200 million biomedical initiative focused on genomics technologies, in cooperation with US partners Translational Genomics Research Institute (TGen), the Institute for Systems Biology, and the Partnership for Personalised Medicine. The public-private initiative is building a biobank and tissue repository, two molecular biology programmes and a project focused on earlier detection and treatment of lung cancer.

Meanwhile, VCs continue to scour for opportunities. TVM has invested in Argo Therapeutics, which has developed a cell therapy that uses the patient’s own cells as an immune stimulus for cancer and HIV treatment.  In 2008, TVM led a $35.2 million third round funding for the North Carolina-based startup, which is currently conducting Phase II trials.

California-based Mohr Davidow Ventures (MDV) is one of the most active VCs in the field of personalised medicine. Investments have included Pacific Biosciences, which is developing a DNA sequencing platform, and Raindance Technologies, a microfluidics specialist.

“We look for the tools and information technology to drive personalised medicine,” says Rowan Chapman, partner, with MDV’s Personalising Medicine group.  “We must believe a question will be answered by a diagnostic that is actionable. We need to know if the market size is reasonable, what the prospects are from an economic perspective and what importance the test will have.” The VC already has had some exits, with, its portfolio firm ParAllele BioScience, a genetics research company, being sold in 2005 to Affymetrix for $120 million in Affymetrix shares, plus $11.7 million cash.

Never miss an update from Science|Business:   Newsletter sign-up