By: Beth W. Orenstein

 

IVD companies large and small stand to gain mightily as healthcare reform takes center stage in Washington, DC. That is the consensus of three leaders in the IVD arena, Amit Kumar, CEO and president of CombiMatrix (Mukilteo, WA), Mark Straley, worldwide president for Ortho Clinical Diagnostics (Raritan, NJ), and Stephen Ubl, president and CEO of the Advanced Medical Technology Association (AdvaMed; Washington, DC).

The reason for their optimism: As everyone looks for ways to control costs while still offering quality healthcare, the emphasis is shifting toward early diagnosis and personalized medicine, both of which IVD companies can help healthcare providers deliver. The executives see a paradigm shift not only in the United States but also throughout the world toward more cost-effective, evidence-based medicine. The executives believe that in such a world order, IVDs already play a critical role and will continue to do so even more.

However, while the demand for what IVDs can offer and promises even more of goes up, no one expects it will be easy for any IVD company, whether well-established or start-up. The executives point out that the industry faces regulatory hurdles as many outmoded rules are brought up to date and an overburdened FDA tries to ensure public safety the best it can. The economy also poses a challenge as the worldwide recession drags on and funding for research and development remains tight. The three executives believe, though, that going forward, IVD companies will have a bigger role than ever before in helping providers deliver the highest quality, most effective healthcare while keeping costs under control.

Amit Kumar, CEO and president, CombiMatrix

Kumar believes that being in IVDs is one of the best places to be in the healthcare field right now—if not the best. He sees a confluence of events taking place that will put IVD companies in an enviable position, especially when the economy rebounds.

First, he says, the science is evolving rapidly, enabling IVD companies to develop more tests that tell physicians whether a particular drug or course of treatment will work for their patients. Moreover, tests are being developed that enable physicians to diagnose diseases early, particularly cancers, which is when they are most treatable.

“In the early part of the decade, after the human genome was sequenced, a lot of people thought life-saving technologies would flow out in a very rapid way. While life-saving products did not come as rapidly as expected by the lay person, those who understood the science knew that sequencing the genome was just the beginning. Today, we probably understand a little bit about 10% of the genes in the human genome, but that's enough to develop a number of different products with diagnostic applications,” Kumar says. “The science, the knowledge of genetics, is increasing exponentially. And, as our understanding improves, our tests will get better and better.”

Second, he says, officials in Washington and private payers are looking for ways to control rapidly escalating healthcare costs. In the past, Kumar says, the emphasis and the money was on developing drugs to treat diseases such as cancer, roughly 1.2 million new cases of which are diagnosed in the United States each year.

“We annually spend tens of billions developing drugs for these people, yet we've spent less than a few hundred million on developing diagnostics to find their cancer as early as possible,” says Kumar.

As calls for healthcare reform grow louder, leaders are recognizing the flaws in that thinking, and the paradigm is beginning to shift in favor of diagnostics, Kumar says. Some new drugs that treat cancer can cost $20,000–$100,000 per patient. Healthcare providers realize that if a $1,000 test will tell them whether that drug will be effective for their patient, that's $1,000 well spent, says Kumar. His company has developed and launched a number of tests for cancer patients and is developing a noninvasive cancer screening product designed to identify cancers earlier than other invasive screening methods.

“Additionally, the investment community is starting to realize that diagnostics can be as valuable as drugs and that diagnostics are going to enable significant savings in all of the downstream costs and costly activities associated with the treatment of a disease that has progressed,” he says. As the paradigm shifts, diagnostic companies, especially those positioned well to take advantage of the shift, will benefit long term, Kumar says.

Kumar also is hopeful that FDA will soon issue final regulations for and thus clarify its oversight of standard laboratory-developed tests (LDTs) and the more complex in vitro diagnostic multivariate index assays (IVDMIAs.) “My gut tells me that from a practical standpoint, in its final rules, FDA is going to want to look at, number one, those tests that are asking physicians to make big medical decisions based on the results of that test, and, number two, those that are being used in high volumes.”

What's most important, Kumar says, is not whether FDA issues additional regulations, but that it establishes specific standards so that those developing the tests know what they are up against. “There is never going to be a situation where every company is going to know what scrutiny its potential product will face,” he says. “But to the extent greater certainty can be offered, the easier it will be for that company to proceed with its research and development.”

Kumar expects the economy to slow the development of some new IVDs. “Even in the best of economic times, eight or nine out of 10 entrepreneurial companies don't make it,” he says. “The current economy makes it even more difficult and the percentage of start-ups that succeed goes down even more.”

That may not necessarily be a bad thing, Kumar says. “There may not be room for 500 genetic diagnostic companies that under better circumstances might have been around or formed in the next couple of years.” What it should mean, he says, is those companies that are able to survive and thrive in this tough economic climate “will be very successful and very impactful” when the economy rebounds, which he expects to happen in the next 2–3 years.

What is happening in the IVD arena could be described as the perfect storm, Kumar says. The science is enabling innovative companies to develop valuable diagnostic tests that can result in the prevention or at least the early intervention of disease. Policymakers are beginning to recognize the need to promote and fund such diagnostics as a way to help control healthcare costs downstream. FDA is willing to work with diagnostic companies to determine the best way to regulate such products. And the economy should rebound, giving IVDs the opportunity to play a bigger role in healthcare decision-making.

“I see everything fitting into place for the IVD industry in the next few years,” Kumar says. “That's why, if I look into the healthcare space, this is where I'd like to be, in diagnostics. The future for IVD is going to be very exciting.”

Mark Straley, worldwide president, Ortho Clinical Diagnostics

Straley sees positive changes for the IVD industry as a result of likely healthcare reform and other changes on the horizon. He believes the successful IVD companies will be those that position themselves as partners with providers under the new way in which healthcare will be valued and delivered.

“We're still waiting to see how it ends up,” he says of the healthcare reform packages working their way through Congress. Any healthcare reform that is adopted should provide greater access to healthcare for patients, Straley says. “That's going to mean that more people will have greater access to general healthcare services and the associated testing they need.”

However, Straley says, because of the growing emphasis on cost-containment and evidence-based decision-making, it will not be business as usual going forward.

“We're no longer about just trying to sell our customers analyzers and tests,” he says. “We just can't say, ‘We have a new test. Everyone please sign up for it.'” That strategy under healthcare reform and current worldwide economic conditions just will not work anymore, he says. “Whoever is paying, either government or private insurers, will not accept innovation for innovation's sake,” Straley says. “To be successful, IVD products will have to fulfill unmet medical needs,” he says. “They will have to offer significant advances and not just be incremental steps.”

Successful new products will provide productivity benefits to the lab, Straley says. “We've got to work with our customers and show them how our products will help them be as efficient as they can be.” If the company can, with a new test, system, or service, help the labs optimize the time it takes from when a specimen comes in until the result goes out, it will result in savings, Straley says. “Then we can show them how those savings can be spread to areas where they are most needed, helping them to become as effective and as efficient as possible.”

An example of this approach to productivity and efficiency is OCD's recent introduction of the Vitros 5600 Integrated and 3600 Immunodiagnostic Systems, Straley says. It includes a broad assay menu of more than 100 tests and also encompasses valuable process and service solutions. “Our first-of-its-kind Remote Monitoring Center is designed to detect potential issues before they occur to maximize uptime, keeping labs operating with minimal interruption,” Straley says.

OCD also provides its ValuMetrix Consulting Service to help laboratories maximize their effectiveness and achieve operational improvements, including increased capacity, elimination of waste, and improved quality. To be successful, IVD companies will have to be committed to developing such types of innovative solutions that go beyond improving existing technologies to meet the changing needs of the medical community, Straley says.

Straley also agrees that because of the growing emphasis on personalized medicine, going forward a larger share of the healthcare pie will be devoted to prevention and wellness. “The science of the last 15 years has unlocked a lot of components, different indicators and markers that can find possible conditions and disease early when healthcare providers still can do something about it.” Prevention and early intervention is the most cost-effective means to provide healthcare and is in the best interest of the patient. “That's the heart of our strategy at OCD,” Straley says. And it is incumbent, he says, on companies looking to compete in the IVD arena to “bring the data forward that makes that case” as well.

Straley believes that to be successful in the future, IVD companies will have to partner not only with their customers but also with the regulatory bodies, such as FDA. “As the landscape continues to change, we have to be willing as the diagnostics industry to sit down with regulatory agencies and ask for whatever input or guidance they are willing to give us. Then we should stay in touch with them throughout the development process, partnering with them prior to coming to market.” The key, Straley says, is for the IVD companies to look at FDA as a partner rather than a gatekeeper. “If we do, we will find it easier to bring new products to market at a time when regulations may be in flux or when clarification is needed,” he says.

Current economic conditions also are affecting the IVD industry, Straley says. “Venture capital and private investment are tight right now.” Straley expects that some financial issues for entrepreneurial IVD companies can and will be solved through acquisitions and strategic partnerships. “Larger, well-established companies can offer sales, marketing, and operational expertise that can accelerate the introduction of true innovation into the healthcare system,” he says.

Straley agrees that it is an exciting time to be in the IVD arena. To continue that excitement, though, he says, IVD companies will have to embrace change. “If they do, I think there is nothing but opportunity for those in the diagnostic space and for the customers and patients we serve.”

Stephen Ubl, president and CEO, AdvaMed

Ubl believes IVDs are well-positioned for the reforms that are likely to be made to the healthcare system. “IVDs are absolutely vital to identifying disease and managing, evaluating, and identifying treatment strategies and stratifying patient populations according to risk,” he says. “One of the major goals of healthcare reform is to develop a higher-performing healthcare system. In the sense that we want to improve quality and efficiency, we believe that IVDs are going to be at the center of any high-performing system.”

However, Ubl says, for IVDs to achieve their full potential under any new system, both the regulatory and the reimbursement processes will have to be modernized. He is optimistic it will happen. “We believe there needs to be fairly fundamental changes on both the regulatory side and the reimbursement side to propel the development of diagnostics and create the right incentives for them,” he says.

For example, under a second draft guidance issued in 2007, FDA has retained discretionary authority over laboratory-developed tests (LDTs), many of which are becoming increasingly complex. Ubl's hope is that FDA soon will issue final guidance clarifying regulatory treatment of LDTs.

He also believes that FDA should adopt a risk-based approach that is more focused on tests that raise new scientific questions or that have more novel solutions rather than well-established, low-risk tests. AdvaMed is fleshing out a matrix decision tree for FDA and policymakers, which they can use to determine which diagnostic tests present very low risk and can be exempted from review altogether and which may require additional resources and further scrutiny.

Not only does the regulatory process need updating, so does the reimbursement side, Ubl says. The Medicare reimbursement fee schedule for diagnostics has been fairly static. “The fee-schedule updates for inflation either have not occurred or have been reduced for 15 of the last 21 years,” he says. AdvaMed, Ubl says, would like to see a more transparent process and one in which the potential value of the diagnostic test is built-in.

“If we have a clear, predictable, dedicated process that has built in a consideration of the value of the test to patient care, that will send a signal all the way upstream and encourage the development of diagnostics. One of the concerns that I have as I talk to the venture community and others is that they avoid diagnostics because of the regulatory and reimbursement issues and the lack of predictability around the processes,” he says. “Nothing kills investments more than uncertainty and lack of ability to predict the product's reimbursement. That is something that we must prevent from happening.”

Much of the discussion on healthcare reform has centered on prevention and quality versus volume of care. That's why Ubl expects healthcare payers to demand increased evidence for different types of medical technology. He suspects IVDs will be no exception. While Ubl believes that diagnostics can answer those demands, the industry has to make it clear that its results cannot be evaluated the same way they are for new pharmaceuticals. It would be difficult for a diagnostic company to tie its particular test to an ultimate clinical outcome, to mortality and morbidity.

“Diagnostics are used to basically target better treatment, to manage patients more effectively, to identify or stratify a particular patient's risk.” That's why, Ubl says, “we think the impact on patient care management should be the most appropriate measure of a diagnostic test as opposed to demanding hard clinical outcomes. Oftentimes, diagnostics fundamentally change the way a physician will treat a patient, but it is not necessarily possible to measure a specific outcome that changes with the diagnosis. When it comes to diagnostics, there needs to be a unique, holistic approach that takes into consideration the role and value of diagnostics.” Applying standards used to evaluate therapeutic technologies would raise the bar to the point that diagnostic tests could not be offered or made accessible to patients, he says. Ubl is optimistic that AdvaMed and others can convince policymakers that they need to look at diagnostics in this light.

While the economy is slowing some of the progress that has been made in diagnostics recently as a result of the Human Genome Project and other scientific advances, Ubl expects the industry to “come out of this.” As the economic climate improves, he expects diagnostic companies will be less tentative and proceed with developing tests that help them contribute to delivering quality healthcare at affordable costs.

“We hear a lot from members that there is incredible potential on the scientific side,” Ubl says. “The work of the National Institutes of Health, from the genome project, and others, there's just incredible work that's done in the field of science.” All of which makes him optimistic about the outlook for IVDs. “I think,” he says, “this is a terrific environment in which to make headway on both the regulatory and the reimbursement side, and as we are able to do that, we will realize the full potential of the IVD sector. I do think we're pretty well positioned both on the regulatory side and the reimbursement side to make a lot of progress going forward. We really do see the shape of healthcare reform as very conducive to growth in the diagnostics sector.”