Pharma-Diagnostics Lockstep: How Two Industries Can Work Together for Precision Medicine

By Allison Proffitt 

March 7, 2023 | Sarah Hersey, VP of Precision Medicine at Bristol Myers Squibb, gave a balanced view of the challenges and opportunities facing precision medicine in her keynote address at the Molecular & Precision Medicine Tri-Conference in San Diego this week. After her presentation she was joined by others in the space to talk about the future for diagnostics and precision medicine.  

Hersey didn’t mince words: for the nine to 12 new molecular entities that enter the drug discovery pipeline, only one will emerge as a therapeutic, and Forbes estimates that it costs $3.7 to 12 billion to bring a drug to market. “Drug development is fraught with failures,” Hersey acknowledged, “but I do believe that precision medicine offers us hope.” 

Precision medicine drives a significant value proposition, Hersey said, and can result in reduced drug failures, reduced development costs regardless of phase, and reduced time-to-market—all across multiple therapeutic areas.  

“The reality is, when you have more efficacious therapies that are in targeted populations it requires less patients to show a differential against standard of care, thereby further accelerating [delivery],” Hersey said. 

But even while painting a rosy picture of precision medicine’s promise, Hersey did not pretend that precision medicine is easy, cheap, or quick. “There are opportunity costs and risks,” she said. “Our incentives across the healthcare continuum, I believe, are misaligned.” 

Among the many “roadblocks” and “curveballs” that Hersey has seen in her career are that pharma and diagnostics are not walking together. Pharma companies—even ones with diagnostic channels in house—generally partner with diagnostic companies to access their unique data and technology, Hersey observed. Aligning these two companies’ incentives and processes can be challenging. Therapeutics with diagnostic or precision medicine components should be made globally accessible, Hersey said, which can present different challenges to the two companies. Regulatory requirements for both trials and approval vary from country to country.  

And there’s still a lot we don’t know about biology. Just finding and validating biomarkers is extremely complex, Hersey said, not to mention the regulatory and operational challenges of executing clinical trials. “When you add on top of that a diagnostic—and I say this lovingly because I’m a huge proponent—it adds another layer of complexity.”  

But Hersey isn’t laying the burden on diagnostic companies. “It’s challenging for all of us,” she said, “and I think that’s one thing that should unite us.”  

Diagnostic companies take on much of the risk and opportunity costs early in the development process, Hersey said, and when they join the pipeline later, they may be competing with laboratory developed tests.  

The reimbursement landscape is also not skewed in the favor of diagnostics companies. “Diagnostics are quite undervalued,” Hersey said. “At least 70-80% or probably more of medical decisions are derived off of diagnostic test results, but the reality is they comprise a very tiny proportion of our total healthcare spend… probably 5% or less.” This undervaluation impacts laboratories, diagnostics companies, and the industry as a whole, Hersey argues.  

Reasons to Believe 

Hersey sees changes, though, that promise progress. Pre-competitive consortia, for instance, see value in pooling data to, “accelerate our understanding and advance the space more rapidly.” She highlighted the work of PROLIFIC, the Prognostic Lung Fibrosis Consortium, that she’s involved in as well as MPAACT, a consortium to validate measurable residual disease assays. She also highlighted the work of advocacy groups like Friends of Cancer Research and the Personalized Medicine Coalition. 

She also had recommendations for the space. First and foremost: get diagnostics into the pipeline as early as possible. Often companies will default to, “worrying about the precision medicine piece later,” Hersey said. But at BMS, she said she’s trying to push precision medicine, “as early as humanly possible,” even building out a CLIA lab within BMS that can bring assays to the IO level to meet regulatory requirements and working collaboratively with diagnostic partners to develop those assays with their reagents and processes.  

The goal is to offset some of the early risk for diagnostic companies. “If and when we have better certainty that the asset is going to make it, and we have better certainty about what indications we’re going to go after, we then pivot and transfer [the diagnostic assay] out to those partners for further development… and commercialization.”  

But there is even more opportunity. Hersey repeats how improved diagnostics reimbursement would impact the whole industry. She also emphasizes the value of increasing education and awareness—not just among the public or patients, but within pharma companies.  

Panel on Education and Reimbursement  

In fact, the education component came up again at the diagnostic panel after Hersey’s presentation. Edward Abrahams, president of the Personalized Medicine Coalition, moderated a panel discussion including Hersey and other PMC members. He recalled an instance when he was accused—as president of PMC—of being “the guy who’s trying to destroy” the pharmaceutical industry. “Has that viewpoint really changed?” he wondered.  

Not enough, said Marielena Mata, formerly a Director and Diagnostic Lead at Pfizer. She called for more personalized medicine education across all levels of pharma. “Those value propositions that Sarah [Hersey] presented in terms of success rates—I don’t think that the highest executives always understand that or realize that. They look at the final numbers in terms of the projections of how much money we’re going to make from a drug, and of course if you reduce the number of patients, it looks like a lower number. But they’re not taking into consideration the earnings that you gain by actually succeeding,” she said.   

Mata also advocated for education of teams within pharma: What does the diagnostics industry look like? What is their business model? What do they need to complete their regulatory submission? Understanding the diagnostic partner’s needs will be key to meeting them and working closely together, she said.  

Hersey called for transparency and candidness in partner conversations, being clear about where challenges and opportunities lie for different stakeholders. “How can we partner together to improve the odds for you, improve the odds for us, and drive forward more effectively?”  

But Abrahams highlighted an uncomfortable truth: the pharma industry is depending on diagnostics—an industry that is less developed, more volatile, and less lucrative. Is there a way for pharma to share some of its value to shore up this developing—and valuable—industry? 

There are models that might work, Mata said, particularly in the rare disease space, but that’s a tough ask for pharma. “Cost-sharing sounds good,” she said, “but we have to remember we’re working on very different scales. When you’re talking about a multi-million-dollar drug… versus a $100,000 test... There’s not going to be full share, for sure, but I do think pharma could be a little bit more generous in terms.”  

“It’s difficult to mix the business models,” Paul Beresford, Vice President and General Manager of companion diagnostics at Agilent said. He recalled an instance with a former diagnostics company, where a drug failed in phase II except for a small subset of patients with a biomarker. The pharma and diagnostic company worked on a joint development plan, but the diagnostic company was not in a position to fund a $100 million Phase III trial, he said. They didn’t have the money, and they couldn’t convince their investors that it was in their business model. “I think going forward I probably wouldn’t do a deal like that again, not being able to convey that story from the value standpoint as a diagnostic player.” 

The business demands of diagnostic companies are different from those of big pharma, and attaining profitability is hard. David Fabrizio, Vice President of Translational Strategy at Foundation Medicine, remembers when his company planned to create great assays and grow the company to profitability through local reimbursements. “Of course, that illusion presented itself very quickly. This is a very difficult path. Really the only reasonable way forward is to get FDA approval and go through the parallel review process to get a national coverage decision by Medicare/Medicaid and set a reimbursement price nationally,” he said.  

Foundation has done that, and, Fabrizio believes, has set a precedent for other diagnostics companies, but he acknowledges that it isn’t easy or popular. Since its acquisition by Roche in 2018, Foundation Medicine is no longer a publicly traded company, so Fabrizio doesn’t have to share numbers. But for other diagnostics companies he noted that a large portion of revenue comes not from reimbursement of their tests, but from biopharma partnerships.  

“The model itself is hardly sustainable,” he challenged. “It needs to be rethought.”