Genentech Seeks to Tame Molecular Diagnostics

Genentech has filed a Citizen Petition with the FDA in an effort to encourage the agency into tighter regulation of molecular diagnostic tests according to a recent article in GenomeWeb Daily News. A number of companies currently manufacturer these tests some of which test for the overexpression of the HER2 protein in breast cancer tissues, an indication that the patient would benefit from the application of Genentech’s cancer drug Herceptin.

Since the prescription of Herceptin requires that patients be tested for their HER2 expression it is understandable that Genentech be concerned about the accuracy and quality of these tests. Although some diagnostic companies, such as the Danish firm Dako have voluntarily submitted to FDA approval process, it is not yet a requirement since the tests are considered a laboratory-developed test (LDT) and therefore outside of FDA regulation. Several other manufacturers, such as Clinical Data and Genomic Health, currently market tests that have not been approved by the FDA. These manufacturers do claim to be in compliance with CLIA regulations.

Clinical Data has already replied to the Citizen Petition, opposing it and stating that the FDA approval process would impose “excessive or inappropriate regulation” which would be “a powerful disincentive to the development of innovative healthcare products.”

New molecular diagnostics companies are on the rise, riding the wave of the coming age of personalized medicine. Ultimately it is the decision of the treating physician to determine which diagnostic test to prescribe. Equally important to the adoption of the tests is the rate at which insurance companies will reimburse for the tests.

Genentech's Pricing Rationale

In the WSJ's continuing quest to determine how and why drugs are priced as they are, Marilyn Chase interviewed Genentech's CEO Dr. Arthur Levinson. Levinson defended the rapidly escalating price of cancer drugs by comparing total domestic spending on cancer drugs, $15 billion, against the GDP, $13.6 trillion, which by my calculations is a drop in the bucket. But 42% of Americans will get cancer and half will die of it. So where are our priorities? Shouldn't we be spending even more money? Well, in fact we are. In 2007 the National Cancer Institute's budget was $4.8 billion and there are billions more coming in from private foundations. Nevertheless, it's still small compared with the GDP.

What about the other controversial pricing issue at Genentech, doctors using $50 worth of Avastin to treat age-related macular degeneration instead of $2,000 worth of Genentech's Lucentis, the drug approved by the FDA to treat AMD. Despite the fact that both Avastin and Lucentis are VEGF inhibitors the FDA wasn't about to approve Lucentis without Phase III clinical trials costing $40,000 to $45,000 per patient. Hence the added price.

Although Genentech's margins are healthy, pre-tax margin of 34% for 2006, Levinson points out that these are lower than both Microsoft, 37%, and Oracle. Oracle's fiscal 2006 pre-tax margin was actually 33%, but close enough. This does bring up a point however; would Genentech generate more profits if they could? Keeping profits below other industries by capping prices, free drug programs, large research budgets could be a strategy for sustainable and healthy growth without incurring the scrutiny of politicians.