NanoString, Snapping Up Genomic Health Veteran, Seeks to Prove Economic Value of Cancer Diagnostic

2/3/11Follow @xconomy

There aren’t a lot of success stories out there in molecular diagnostics, but Redwood City, CA-based Genomic Health (NASDAQ: GHDX) is one. So if you’re the CEO of a small private company like Seattle-based NanoString Technologies, and you’re trying to find a way to turn an innovative scientific instrument into a bigger moneymaking diagnostic tool, that’s one obvious talent stable to raid.

That’s what NanoString did this week, as it hired J. Wayne Cowens, the former vice president of clinical oncology at Genomic Health, as its new chief medical officer. I figured this was more interesting than the average run-of-the-mill personnel blurb, given that so much of NanoString’s future is riding on its understanding of the clinical diagnostics business. Plus, Cowens brings an unusual blend of experience as a medical oncologist who treated patients, many years in the pharmaceutical industry, and years spent working on new molecular diagnostics for cancer.

“If you had asked me at the outset of our search, what would the ideal candidate look like, I would have said ‘Give me the guy who built the pipeline at Genomic Health,’” NanoString CEO Brad Gray says. “We were lucky enough to find him and attract him here.”

NanoString is now clearly charging ahead fast on its diagnostic plan with a mostly new management team installed since biotech industry veteran Bill Young joined as executive chairman a year ago, and Gray, a veteran of Cambridge, MA-based Genzyme (NASDAQ: GENZ), arrived as CEO in June. NanoString bears watching in the local innovation cluster, as a spinoff from the Institute for Systems Biology that has advanced through years of R&D to the marketplace. The company makes a digital instrument designed to help scientists determine the extent to which multiple genes are dialed on or off in a sample-what’s known as gene expression analysis. The company has built a roster of academic customers at top institutions like the Broad Institute of MIT and Harvard, Caltech, and the University of Washington.

NanoString's Wayne Cowens (left) and Brad Gray

NanoString first started selling its instrument, called nCounter, in July 2008, and although it raised $30 million almost a year later, it went through a period of more than a year with no permanent CEO calling the shots. But the company made some important progress on a couple key fronts in the past six months, Gray says. The sales team has started selling the nCounter machine to pharmaceutical customers, who now make up about 20 percent of the users. And in the final quarter of 2010, NanoString’s sales boomed, as it increased the installed base of its nCounter machines by about 20 percent, Gray says. That momentum has enabled NanoString to fill out its management team, boost its overall staff to about 90 people, and start having serious talks with investors about pumping in another round of financing during the first half of this year, Gray says.

One hot quarter doesn’t make a trend, and NanoString isn’t yet profitable, but Gray says the increase in the customer base is “a testament to the tremendous momentum we have on the commercial side.”

The momentum certainly didn’t hurt in recruiting Cowens, who says he wasn’t aware of NanoString until he heard from a recruiter. But as he listened to the company’s diagnostics ambitions, he liked what he heard.

It helps to understand a bit about where Cowens is coming from. Genomic Health runs a centralized lab where physicians send samples from patients with breast cancer. The company performs a sophisticated genetic test that predicts whether a patient’s cancer is likely to relapse after a tumor is surgically removed, or whether it’s likely to stay benign. That information—which Genomic Health charges $4,000 per patient to obtain—is supposed to help doctors and patients decide how aggressively to treat the malignancy, and help influence whether they should get chemotherapy or not.

Diagnostics are traditionally considered cheap commodities, but when Genomic Health and a competitor called Agendia came along, they needed to build a mountain of evidence to convince doctors that the test provided valid, useful information. Insurers—tired of hearing lots of grandiose claims that often lack substance—balked at the price. They required companies to perform long complex analyses that essentially show that spending several thousand dollars on a diagnostic test like this can save more down the road on costly and unnecessary rounds of chemotherapy and other aggressive treatments.

Cowens’ job at Genomic Health was, as Gray said, to build up the pipeline of tests after the original hit in breast cancer, to diversify with predictive tests for relapse of colon, prostate, and kidney cancers. But in his last year at the company, Cowens really focused on the critical question of health economics, particularly trying to amass evidence to convince payers in Europe that the Genomic Health test was worth the money. It’s often a line of thinking that companies worry about after they pour energy into generating clinical trial results to win over doctors. At NanoString, Cowens says he hopes to incorporate this broader worldview into the company’s strategy right at the moment it’s designing clinical trials to prove its device works as a diagnostic tool.

“You have to ask the question at the very beginning, ‘will you have the chance to prove that the test is cost effective before you even invest in it?” Cowen says. “One of the things we learned early [at Genomic Health] was that having forethought on health economic analysis is as important as having forethought in your clinical analysis. They are intimately intertwined.”

NanoString, as I reported here in early December, is seeking to make its case for a new breast cancer test that looks for patterns in a set of 50 different genes, known as the PAM50 signature. This is too many genes for other machines to analyze efficiently, but it’s thought to be a meaningful measurement of a patient’s prognosis, and it is something NanoString believes its machine can do simply and reliably. The company, now with Cowens’ input, is working on crafting the clinical trials that it thinks it will need to win over doctors and insurers. What’s interesting about NanoString, Cowens says, is that since it’s early in the game, it’s in a position to lay the groundwork now to win over both vital constituencies.

The plan is to gather data for the PAM50 diagnostic and seek FDA approval of its device as a diagnostic tool. Then Cowens will think hard about how to use this gene expression tool to come up with new diagnostic tests for other types of cancer. And from the get-go, the idea is to prove that it’s not only useful but cost effective in this era of cost-containment.

“Health economics is part of the game at the conception of the pipeline, it’s not an afterthought that you try to graft on later,” Cowen says. “Clinical data needs to be generated to influence physicians to change their behavior. And the health economics should be attractive to the payers. That’s a high bar for a new test to pass, but one could argue that it’s an appropriate bar to clear in this business.”

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