Billions are spent every year on treating rheumatoid arthritis patients with drugs that sometimes work, and sometimes don’t. Now South San Francisco-based Crescendo Bioscience has pulled in more cash to help commercialize a diagnostic test that is supposed to help physicians better treat individual patients.
Crescendo is announcing today it has raised $28 million in a Series D venture financing led by Skyline Ventures and Safeguard Scientifics (NYSE: SFE). Existing investors Mohr Davidow Ventures, Kleiner Perkins Caufield & Byers, Aeris Capital and others joined the round. The company, which secured its Series A financing in 2007, has now raised about $100 million total, says CEO Bill Hagstrom.
The latest investment didn’t include Salt Lake City, UT-based Myriad Genetics (NASDAQ: MYGN), which has an option to acquire Crescendo at a pre-determined pricethrough September 2014 if the company can hit certain financial goals, Hagstrom says. Crescendo’s hope is that by taking the additional investment, it will be able to grow fast enough to hit some of the more aggressive goals laid out in its agreement with Myriad, he says.
Crescendo spent the past year building up a market for its first product, a diagnostic test called Vectra DA. The test is designed to help physicians see what’s wrong at the molecular level in patients with rheumatoid arthritis, a painful condition in which the immune system goes haywire and attacks joints. The Vectra test analyzes 12 key biomarkers of inflammation that are linked to clinical symptoms of disease like pain, fatigue, and joint damage. By looking at the biomarkers on the Vectra test, Crescendo says that physicians can see how sick a patient is at their initial diagnosis, how well they are responding to a certain therapy in the early days, and how they are performing against the disease over the long haul.
The potential market for such a diagnostic is big, especially by diagnostic industry standards. About 1.3 million patients in the U.S. have rheumatoid arthritis, and many of them live for decades with the disease. Once a patient gets diagnosed by a clinical exam, there are some generic therapies to try, like methotrexate. But the big money has been made in recent years on targeted biotech drugs from companies like Amgen, Johnson & Johnson, Abbott Laboratories, and Roche. The market for these therapies—which can cost $20,000 a year—topped $12.7 billion in 2010 and is on pace to reach $17.3 billion in 2015, according to Visiongain, a London-based market research firm.
While those drugs can be effective at relieving pain and swelling and stopping progressive joint damage, they don’t work for everybody. Researchers today can’t predict who will respond, and can’t measure how well the drugs are working at the molecular level.
Crescendo, as a private company, chooses to keep its financial results private. But Hagstrom said the company started the year with a roster of about 200 rheumatologists who would order the Vectra DA test in a given month, and ended the year with about 500. Once a physician tries the test, about 90 percent go on to order the test again, Hagstrom says. The company has grown to about 100 employees, and expects to continue adding about 10 more sales staff this year as part of its plan to pitch the product to all 3,500 U.S. rheumatologists.
About 80 to 90 percent of private insurers are currently paying for the test, and while Crescendo doesn’t disclose the exact price of each test, it is under $1,000, Hagstrom says. The company’s goal this year is to capture 25 percent of what it believes is the addressable market for this product, up from the 15 percent level it’s currently at, he says. Hagstrom says he’s confident Crescendo can get there.
“We processed samples from 30,000 patients, which is about triple where we were a year ago in 2011,” Hagstrom says. “We had a great year from the perspective of volume growth.”
Crescendo still has work to do in building a body of evidence that’s convincing enough to get more rheumatologists to incorporate Vectra DA into their everyday workflow. It also has taken great care to stay on the good side of the drugmakers, who might see such a diagnostic test as a threat, especially if it convinces doctors that high-priced biologic drugs aren’t doing a patient much good.
But Hagstrom says Crescendo has found a way to stay on good terms with the drugmakers, partly by helping them run experiments on new drugs in development, which can help determine when a drug looks promising, and when it’s a dud. Crescendo can also support studies that can show which patients are likely to respond, and which ones won’t. Or when a drug is having an effect, or whether a patient appears to be improving because of the “placebo effect.”
Since drugmakers spend so much money on trials that fail, the Vectra DA test could end up saving them a bundle. Even more importantly, Crescendo is counting on saving insurers some of the money they waste in paying of unsuccessful rheumatoid arthritis treatments. It’s a message that many are at least willing to listen to in this moment of cost-containment in healthcare.
“We have a very good value proposition when we are going to the payers,” Hagstrom says.
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