Getting More Personal

If you have rheumatoid arthritis, the odds of getting the best treatment for your condition are only slightly better than beating a Las Vegas slot machine.

Why? Because there are a number of drugs on the market, but only one is most effective for your particular condition. It’s left to the wisdom of your physician to determine which one. And that often means trial and error, not to mention adverse drug reactions and increased risk of hospitalization.

But as with any crisis, there is great opportunity for anyone or anything that can solve the problem. That’s why Kleiner Perkins Caufield & Byers and Mohr Davidow Ventures invested $15 million last June in Crescendo Bioscience (formerly Riley Genomics), which is developing a range of diagnostic tools to provide rheumatologists with deeper clinical insights to better manage patients with the inflammatory disease. The Crescendo diagnostic could potentially help doctors determine from the get-go what treatment their patients would respond to, and what the most appropriate dosage should be.

“What is exciting and real is that there are new diagnostic tests already being used by doctors for their patients to improve medical decisions,” says Brook Byers, a partner at Kleiner Perkins. “There are dozens of good companies in this field now.”

Last year, U.S.-based venture firms invested $467 million in 57 companies developing medical diagnostic biotechnology and DNA probes, according to Thomson Reuters (publisher of VCJ). That compares to $594 million invested in 54 such companies a year earlier.

Notably, more VCs are getting in on these deals, with 100 firms participating last year, up from 83 a couple of years earlier. The most active investors in the diagnostics space are Kleiner Perkins, which backed six companies last year, and Atlas Venture, Domain Associates, Highland Capital Partners and Mohr Davidow, all of which backed three companies each in 2008.

What is exciting and real is that there are new diagnostic tests already being used by doctors for their patients to improve medical decisions.”

Brook Byers

But some progress is now being made on the regulatory front. FDA and CMS officials recently said they will “explore ways” to clarify their roles in regulating genomics-based diagnostic products. Additionally, a new FDA working group said it hopes to release guidance on the co-development of diagnostics and drugs in 2009. Many believe the day is fast approaching when all drugs on the market will require a corresponding diagnostic. Such a mandate would be a huge boon for the personalized medicine industry as a whole.

Another major hurdle for personalized medicine is reimbursement. Even Genomic Health has discovered it takes significant effort for a diagnostic to get properly reimbursed from the health insurance system. And if Genomic Health is having trouble, imagine how difficult it will be for newer, unheralded companies.

Kathryn A. Phillips, professor of health care and economics at the University of California in San Francisco, argues that the problem with reimbursement remains a lack of clinical data outcomes around these products. “Where is the evidence in personalized medicine? What do payers want in terms of evidence? How do they view and use it? This is the key to coverage and reimbursement,” she said at personalized medicine conference hosted by Burrill & Co. back in 2006. And things haven’t improved much since then.

VCs, for their part, argue that the value of diagnostics is inherent. If, for instance, a diagnostic test could steer a patient away from an ineffective treatment like chemotherapy, potentially saving the health care system $50,000, wouldn’t such a test be very valuable to insurers, and wouldn’t they be willing to pay for that test based on the money it could save them?

“I believe in the next three to five years, tests like that will be reimbursed at thousands of dollars because the data will be so compelling and actionable,” says Greeley.

The current fuzziness around personalized medicine pricing has given rise to an interesting startup called Generation Health, which raised a $2.7 million Series A round in November led by Highland Capital. The growing number of diagnostics coming to market has led to confusion among both physicians and payers in terms of which tests to choose, and which, if any, qualify for reimbursement, says Bob Higgins, a general partner at Highland.

Diagnostics cost less money to develop than therapeutics, and can actually lead to greater success, which makes them a wise investment.”

Chad Waite

Generation Health hopes to clarify matters by bringing to market an organized approach to reimbursement that could help employers and other health care payers better manage the complexities of genetic tests. Specifically, the company plans to establish a framework for covering and excluding specific genetic tests based upon clinical validity and utility. It will also negotiate discounted testing prices with a network of genetic testing labs. Higgins believes the company’s success “will have a very significant impact on the rapidly evolving field of personalized medicine.”

In the meantime, however, many consumers seem willing to pay upwards of $2,000 out of pocket for genetic tests that can pinpoint their potential health risks. And VCs appear equally eager to invest tens of millions in these direct-to-consumer services with names like 23andMe, DNA Direct, Knome and Navigenics (see “DNA Detectives, April 2008 VCJ). Navigenics, for instance, has raised more than $25 million from several firms, including Kleiner Perkins and Mohr Davidow.

Navigenics performs a DNA scan of a customer’s personal genome and then processes it through a proprietary database. The gene scan, says the company, can help consumers make better medical decisions by determining family history and identifying potential problem areas before they show up.

Siegel of Mohr Davidow says one young woman recently signed up with Navigenics and discovered a high risk of colon cancer through the test. This led her to get a colonoscopy at a much earlier age than she would have normally. As it turns out, she had a large polyp, which if not removed could have turned malignant.

Siegel says services like Navigenics make too much sense for people to ignore. “It does not mean you have a cure for everything, but you are presented with a lot of actionable data for you to improve your health,” she says. “This is the type of business VCs can invest in because it provides a revenue-generating service today. And, in the future, you can imagine these results being incorporated into the health care system in a way that ultimately becomes part of the standard of care, just like your family history and your lab results are today.”

But others VCs are skeptical of these direct-to-consumer genetic services. “There’s this idea that the information is useful enough or interesting enough that people will pay directly for it,” says Douglas Fambrough, a general partner at Oxford Biosciences. “That still remains to be seen. What’s clear, however, is that health insurance companies won’t pay for it. And that’s because it doesn’t actually help anyone deliver care, so why should they reimburse it?”

The technological advances in gene sequencing have been staggering. This is really the Holy Grail when it comes to personalized medicine and understanding particular disease states.”

Bob Higgins

The bottom line, Fambrough says, is that the information hasn’t been shown to have medical value, and it could be potentially dangerous if people start making life-altering decisions based on inconclusive data.

One thing both Siegel and Fambrough can agree on, however, is the ultimate promise of personalized medicine. They both envision a world, some 20 or 30 years from now, where everyone has his or her entire genome sequenced at birth. This data will travel with us wherever we go in the form of a mobile chip or digitized credit card. Massive databases of genetic data could match potential disease states to your personal genome in a matter of microseconds. Ultimately, they both believe that a person’s genetic code will become the single most important factor in his or her health care, helping that person make the most appropriate medical choices.

To get there, however, a lot more work needs to be done. A key piece of the puzzle is being able to sequence the human genome quickly, cheaply and routinely, so that everyone can get it done.

Venture-backed startups are increasingly active on this front. Today, it currently costs about $350,000 and takes many months to sequence an individual’s entire genome. But companies like Pacific Biosciences of California—which has raised a total of $185 million from the likes of Alloy Ventures, Intel Capital, Kleiner Perkins and Mohr Davidow—are hoping to do the sequencing in a matter of minutes and for just hundreds of dollars. Siegel believes Pacific Biosciences is creating critical enabling technology with the potential to dramatically advance the entire field of personalized medicine.

Other venture-funded companies seeking to cut the time and cost of DNA sequencing include Helicos BioSciences, backed by Highland Capital; Complete Genomics, backed by OVP; and Oxford Nanopore, backed by Illumina. “The technological advances in gene sequencing have been staggering,” says Higgins of Highland Capital. “This is really the Holy Grail when it comes to personalized medicine and understanding particular disease states.”

OVP’s Waite adds that advances in genetic sequencing are “driving personalized medicine to places people couldn’t have envisioned just a few years ago.”

But that doesn’t mean true personalized medicine is here today, or will arrive anytime soon. Leaning on the overused baseball analogy favored by all VCs, Higgins says we’re only in the second inning.

He believes the next critical piece is inventing more diagnostic tests that can produce useful, actionable information. These genetic tests are popping up slowly but surely, each with the potential to better inform individual medical decisions. But they require their own battery of studies that need to be set up, funded and eventually approved by regulatory authorities.

“People like to look for eureka moments or tipping points, but that’s just not the nature of the highly regulated health care business,” says Fambrough. “We don’t have tipping points and we seldom have eureka moments. Everything requires a lot of data, study, time and money.”

If anything, he says, personalized medicine will gradually insinuate itself over time. Today it is still rare and unusual. Eventually it will become not so uncommon. And one day, unnoticed by most of us, it will be routine.