Part 2 of 2 - Who is the Customer? Restructuring the Relationship Between Diagnostics Providers and Payors - Hannah Mamuszka, CEO of Alva10

Has a downward pressure on prices and commoditization of tests stifled innovation in the lab industry? Can diagnostics providers begin racing to the top and capturing some of the immense value their tests provide?  

Hannah Mamuszka has had a career spanning over two decades in both pharma as well as diagnostics. She is CEO of Alva10, a company looking to bring diagnostics the forefront of precision medicine by restructuring the relationship between diagnostics providers and the payors.  

…continued from part 1 

Hannah Mamuszka: I've spent most of the past twenty years in diagnostics either in the lab side or on the business side.  When you're on the lab side, you think that you're doing all the hard stuff. You think that the biomarker discovery and the analytical validation and the clinical validation is all the hard stuff.  Then you get on to the business side, and you see how difficult it is for diagnostic companies to actually be successful and to gain traction.

You see companies that have gotten real venture capital investment really struggle to make it into the clinical market. I've been there.  I've worked in diagnostic companies where we've had great VC backers. We've had great physician support. We've had great KOL networks and amazing technology.  But we really struggled with that communication with the payors.  At one of the companies I was with, we'd spent many millions of dollars of our VC money before we started talking to Medicare, who, for this test, was going to be our most important payor.  Medicare looked at our test, and looked at the CPT schedule, and told us that we would be getting maybe a couple hundred bucks for a test that we'd spent tens of millions of dollars developing.  It was at that point that a light bulb went off in my head, and I said, “How did we never talk to the customer?”

How did we never say, “You know, this test is going to be really valuable for these reasons. We think that it's going to improve patient outcomes and reduce risk and save costs to you?” How did we not get that buy-in? Then I stepped back and did some consulting for number of large IVD companies in the industry to see if they were viewing the market any differently, and I realized that absolutely no one was talking to the customer.

It just made no sense.  Without gauging the market and figuring out what are the needs of your customer and figuring out how you can develop something to fit those needs, it's not surprising that we're still stuck in this cost-based vs. value-based pricing discussion.  I really think that this is the opportunity to get past that and really see payers as partners and customers, where we can change healthcare by pulling in innovative diagnostic technology.

Joseph Anderson, MD: That sounds like a real “light bulb moment.” I guess what's simple is not always obvious.

Some of the early successes we've seen and diagnostics in terms of personalizing therapies have been in the area of withholding therapy - sparing the patient treatments and toxicities where they're not likely to get any benefit.  As we move forward, though, do you see any potential in choosing between “treatment A” and “treatment B?” Do you see any other avenues to creating value in diagnostics aside from just simply withholding therapy?

 And second - we've seen a lot of activity in the cancer space - what about in other disease states?

HM: Sure, absolutely. The example I gave before in heart failure for the use of the cardiac re- synchronization, actually shows that even though the upfront cost of using the diagnostic and putting in the device is expensive, it actually saves costs in the long term. That's one example of where diagnostic is actually incentivizing the use of an expensive tool right up front.  Because of the outcomes benefit and the cost benefit on the back end, I think there are a lot of other areas where diagnostic tools can also have a similar outsized impact.  

Outside of oncology, if you look at a disease like multiple sclerosis, you have twelve drugs that are equivalently approved in relapsing and remitting multiple sclerosis.  Diagnostic tools are not intended to pull a patient off therapy. All of those patients are going to get treated.  Most of them are going to get treated with some form of biologic therapy.  All of those patients are going to get treated. It's not about just pulling a patient off of a drug.  It's about getting patients on the right drugs.  Right now, the average MS patient has to cycle through four therapies before they get on one that effectively mitigates their symptoms, increases their symptom-free days and allows them to have some semblance of a normal life.  These costs involve not only paying for therapy that is ineffective but also in paying for the costs of managing side effects from ineffective therapies. And in a progressive disease like MS, you’re also paying for the fact that the patient is getting worse while they’re their cycling through these ineffective therapies. 

If you think about self-insured employers, they really care about this.  They really care about being able to get patients on the right drugs on the first try instead of waiting until the third or the fourth try because that allows that patient , who's their employee, to come back to work and to be productive.  I think that there are so many opportunities that aren't about simply withholding a drug. We can really begin to allow for making better decisions up front, and diagnostics can really lead the way in precision medicine.

JA: Hannah, you've been somewhat of an outspoken critic on the relationship between pharma and diagnostics companies in the development of targeted therapies and companion diagnostics.  Depending on how you count, we’ve had roughly forty indications for targeted therapies with a companion diagnostic in the past twenty years or so.  Have things been misrepresented to us? What can we do better? And where do things stand now?

HM: I think we've got off to a good start.  The stories around Gleevec and Herceptin are incredible for their ability to shift how we treat patients, particularly oncology patients. We’ve moved from treating patients as if they were all genetically, genomically, and proteomically the same, to really optimizing their care based on the specifics of their disease.  I think that we’re off to a great start.  The challenge has really come from the issue who should be in charge of developing these diagnostic tools.

It’s been the pharma companies who have largely been responsible for developing companion diagnostics even though they may not be the ones to actually build them in their laboratories.  They design them and pay for them and usually own the intellectual property that goes in into their development and into their commercialization.

And yet, they may not be the best entities to be developing them because it's really a cross interest.  What I mean by that is that it’s not in the interest of the pharma company to develop a tool that’s going to reduce its market any more than the FDA or any other regulatory agency is going to require.  The current state of companion diagnostics is that diagnostic developers are generally paid on a fee-for-service basis to develop tools that are, for the most part, owned by the pharma companies.

This means that the diagnostic company doesn't have the intellectual property ownership and doesn't have the ownership of the market.  It isn't able to control the market of the product it develops.  Diagnostic companies have been very receptive to this model because it allows them to take in non-dilutive cash.  Companion diagnostic deals can be for anywhere from six million to thirty million dollars to develop a test.  That's obviously very attractive. Its attractive for large IVD manufacturers, and its attractive for diagnostic companies on their series A deals, because it's non-dilutive cash.  It doesn't affect the cap table.  But it also doesn't allow them to have any ownership in the market.

You had asked me a question earlier about Keytruda, which is a drug from Merk, used in a number of oncology areas.  I think it’s actually a perfect example of what I'm talking about. If you look at how the biology of Keytruda works and you talk to any and diagnostic developer, I would challenge you to find even one of them to say that PD-1 is the marker that they would have developed as a diagnostic for stratification of response.  If you look at actual patient response in the clinic, PD-1 expression has some correlation with immune activity, but it's really a surrogate marker. It’s not a marker for telling you how the patient is going to respond to Keytruda.  But Merk’s done very well with it.  They’ve really taken over at the immunotherapy market.  They’re definitively the leader in this space.

JA: There does seem to be that obvious conflict of interest - not sinister in any way. But, if you have a product, such as a drug, you want to sell as many units of that as possible and have it reach the largest audience possible.  Whereas, a companion diagnostic, will shrink your universe of patients who can possibly receive the drug.  Keytruda seems to be an interesting example. 

We've heard the term, “blockbuster.”  Is Keytruda a “blockbuster” or is it a targeted agent? They have indications, I think, for six tumor types: lung cancer, esophageal cancer, cervical cancer, squamous cell carcinoma of the head and neck, to name a few.  It's paired with an Immunohistochemistry marker and the threshold for calling something positive or making a patient eligible for therapy that seems like a rather low bar. They seem to be reaching a very large audience with this drug.

HM: They definitely are.  I think that everyone would agree that Keytruda is a blockbuster.  And I would also argue it's a targeted therapy, but we're just not using the right diagnostic tool to really identify what the targeted pathway really is.

JA: Before we go, I'd like to know what you think we have to look forward to in the coming decade?

HM: I think that we've got enough targeted therapies. Every drug developed in the past thirty years is a rationally designed targeted therapy.  I think that what's really exciting is that we're going to see a lot of patient stratification and diagnostic tools come into new disease areas.  Cancer has definitively led the way in the concept of precision medicine and that's true for a whole variety of reasons.  It's easy to get a piece of tissue from a cancer patient and it's easier to develop a diagnostic test based on tissue than it is on blood and so, therefore, I think oncology has led the way.  The state of technology, though, has evolved incredibly rapidly over the past ten or fifteen years. We're going to see diagnostic tools in autoimmune disease and cardiovascular disease and neuro-degenerative disease, which is going to be absolutely key to finding drug targets and populations that are going to benefit from targeted therapies.

We're also seeing new stakeholders come into the market as customers. When I talk about payers as customers, I'm talking about commercial insurance and Medicare, of course, but I'm also talking about new or self-insured employers that are really getting educated in health care. They're seeing it as a large line item spend that they would like to have a better handle on.  And they don't have all of the historical bias that I think some large commercial insurance companies may have - always doing things in a certain way.  They're really interested in developing tools and partnering with companies in ways that incentivize better outcomes for their patients, for their employees and for their members. They're really interested in innovative payment models and ways to incentivize better care for their members whether it's through a traditional insurance company or partnerships with physicians.  

I think that there's a ton to be really enthusiastic about in terms of innovation both on the technology side as well as on payment model innovation side.