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In Tough Diagnostics World, Will Ruling Out Cancer Be Good Business?

Xconomy National — 

The high cost of cancer treatments is a huge topic of conversation these days. One way to trim those costs is to not give treatments to people who don’t need them.

That sounds like a no-brainer, but it’s a knotty problem, and it’s at the heart of the current debate over the nationwide practice of screening large swaths of people for cancer when they don’t have any symptoms.

Proponents say finding tumors earlier is better, and people of a certain age have come to expect regular mammograms or PSA blood tests for prostate cancer. But while scans, blood tests, and other detection technologies grow more sophisticated and find more suspicious growths that might or might not be tumors, those findings aren’t necessarily leading to better health outcomes, as has been recently reported with mammograms.

Critics argue that all this testing detects growths that, if left alone, wouldn’t have done harm—they call this overdiagnosis—and say we should dial back the screening. Indeed, guidelines have in recent years shifted toward reducing the frequency and reach of PSA testing and mammograms, not without controversy. (Guidelines for breast screening remain in flux.)

But the momentum is heading the other way with lung cancer, which is the biggest cancer killer in the U.S.

Prompted by studies that suggest an overall benefit of regular screening of high risk people (that is, heavy smokers), the U.S. Medicare system recently ruled it would begin paying for annual lung CT scans, a type of X-ray, as well as counseling. The new rules could add an estimated 8 million people to the mix of those already getting tested.

Based on previous evidence, as many as 25 percent of them will have nodules show up on their scans, and those nodules will often prove to be ambiguous, in a gray area between benign and malignant.

Those ambiguous scans will likely send a patient into more invasive tests, that is, various kinds of biopsies.

And therein lies a market opportunity: to resolve the ambiguity as soon as possible, sort out the benign lesions, and prevent a large percentage—perhaps as much as 30 percent—of those scanned from incurring more costs and more risk of something going wrong, like a lung collapse or puncture. (In this study, 23 percent of patients undergoing surgery to remove a suspicious lung nodule ended up with a benign diagnosis. The mean cost per patient was $25,515.)

Those pushing back against overdiagnosis and overtreatment might have their own technology to bring to the fight: New molecular tests that can tell someone who’s got suspicious lung nodules if he or she doesn’t have cancer and route them, like drivers sent to a side street to avoid a damaged bridge, away from unnecessary procedures. (There’s also a test to do the same with thyroid nodules, as we’ll see.)

New “rule-out” tests, based on genomic or proteomic analysis, are for now a very small piece of the diagnostics business. Only two companies—which are also competitors—have brought them to market, and only in cases of suspected thyroid or lung cancers. But with the new Medicare rules, the need for such tests in the lung cancer space could be significant.

One prominent critic who argues for less cancer testing, generally, says he would make a cautious exception for genetic rule-out tests.

“It’s a great direction to move, and intellectually I can appreciate the effort,” said Gilbert Welch, a professor of community and family medicine at The Dartmouth Institute for Health Policy and Clinical Practice in Lebanon, NH. “But the question is how well [do they] perform, and how do we decide whether the tests actually work?”

Welch, who wrote “Should I Be Tested For Cancer?” and more recently “Overdiagnosed: Making People Sick In the Pursuit of Health,” would like to see long-term follow ups of the people whose suspicious lung or thyroid nodules are deemed benign by rule-out testing.

He’ll have to wait a while. There aren’t any significant data, because the lung tests are too new. There’s one study of a thyroid test, which we’ll get to in a bit.

But first, a quick primer on lung scans. I mentioned that a quarter of all scans detect something. The guidelines for determining whether a lesion is benign or malignant are in flux, with new suggestions published earlier this year by the American College of Radiology.

The guidelines are complicated, but suffice it to say that nodules of single-digit millimeters in diameter probably aren’t worth intervention, and those patients go into a “watchful waiting” mode. Nodules more than 20 millimeters in diameter are red flags, and further investigation likely comes next. But in between? Nearly two thirds of people with nodules fall into that indeterminate category, according to this Cancer Prevention Research paper; the authors call such growths an “epidemic” whose incorrect diagnosis is costing the U.S. $28 billion a year.

Two companies are competing to solve the problem: Integrated Diagnostics, or Indi, a venture-backed firm in Seattle, and South San Francisco, CA-based Veracyte (NASDAQ: VCYT). The companies’ tests differ in at least one major way. Indi’s test, Xpresys Lung, only requires a blood sample. Veracyte’s Percepta, on the other hand, requires a procedure called a bronchoscopy, in which a tube is threaded down into the lung.

If Indi’s test rules out cancer, there’s likely no need for the tube or any other procedure for that matter (Indi stresses that the course of treatment is ultimately up to the patient’s pulmonologist). If Veracyte’s test rules out cancer, the patient is spared further procedures, but there’s still the initial bronchoscopy. The procedure is already routinely done when an indeterminate nodule is found on a scan as a way to allow a sample of the growth to be snipped off for a biopsy analysis. Percepta testing can be done as an add-on to that procedure by “brushing” a few cells from the patient’s airway for collection. In heavy smokers—the only people Percepta is used for—a 23-gene profile of those cells has a strong correlation to the status of the nodule in question, according to Veracyte. If the regular biopsy can’t determine whether the nodule is malignant, or if the bronchoscope can’t reach the nodule, the collected airway cells are analyzed with Percepta.

Gil Welch of Dartmouth warns that there is danger of lung puncture with a bronchoscopy, and that the complexity of the lung makes reaching many nodules difficult. The possibility of avoiding a bronchoscopy altogether with a blood test would be “a trump card,” he says.

Indi says it has isolated 11 proteins in the blood that serve as the telltale markers of the absence of cancer. Can the company prove to payers that looking at those markers is enough to put some patients on the “benign” track, sparing them discomfort, health risks, and saving everyone money?

Xpresys Lung was launched in late 2013.  About a year later, Indi said United HealthCare and six other insurance groups would reimburse for it. They’ve added a couple more insurers since then, representing a total of 225 million covered patients. The list price is $4,275 per test. How much those payers are actually paying is undisclosed; Indi, having raised $77 million in venture capital, remains privately held. CEO Al Luderer says he’s aiming for Xpresys Lung to be a $100 million business in “two or three years.”

The Seattle startup now wants to convince Medicare to offer coverage, too. Its main argument will be a study of 475 people with nodules in the 8 to 30 millimeter range. Indi spent $10 million to run it, says Luderer, and the company will also start gathering data on people who go into watchful waiting based on their Xpresys Lung results, but can’t say at this point when data will be published.

As for the others for whom cancer isn’t ruled out by Xpresys Lung—some 40 to 50 percent of people who take the test—Indi is developing a companion test to determine which ones are “most likely to have cancer,” says Luderer. It should be ready later this year, he says.

Veracyte is farther behind. Its test, Percepta, launched this year. Insurers need to sign on for revenues to start flowing; CEO Bonnie Anderson expects that to take a couple years.

A New England Journal of Medicine paper authored by the test’s inventor and published in May should help get insurers on board, says Anderson. The paper suggested that Percepta would keep 42 percent of patients whose bronchoscopy was indeterminate from undergoing further tests. “It’s a journey, for sure,” she says.

The National Cancer Institute’s director of cancer prevention Barry Kramer said in an NCI blog post, however, that one limitation was that the study only included patients strongly suspected of cancer, not a more general population of smokers.

Veracyte would do well to repeat the path taken with its rule-out thyroid test, Afirma. Four years after launch, the company says it has tested 35,000 people who have undergone a minor biopsy, called a fine needle aspiration, and steered 15,000 of them away from unnecessary surgery, saving $200 million in medical costs (the company’s own estimate).

The list price for the test is $4,875, but that’s not what insurers pay. (Medicare, for example, reimburses at $3,200 per test.) Revenues from Afirma have roughly doubled each year since 2012 to reach $38.1 million in 2014, thanks to several insurers that included it in their coverage once they were convinced that the test would change the way physicians practice medicine. “If the clinical question you chose to answer is not changing care, or not delivering value to the physician, patient, and payer, no one is going to pay for it,” says Anderson.

As far as I could tell, there are no other rule-out molecular diagnostics on the market. So far, only Afirma has provided an independent outcome study of the type Dartmouth’s Welch would like to see, and even that was of small sample size. It was published in early 2014, following 339 patients at five medical centers whose thyroid nodules were tested with Afirma. The test found 71 of the samples were benign, and those people steered clear of further procedures, which in other instances might have included surgery to remove the thyroid gland and a lifelong dependence on synthetic hormones.

Only one of the 71 test results was a false negative—the growth was found later to be malignant. Veracyte’s Anderson acknowledges it was a small sample size. She says the medical centers are working on a larger study but can’t say when more data will be published. (The lead author of the original study, a thyroid specialist at Brigham and Women’s Hospital in Boston, did not respond to questions.)

Anderson stresses that Veracyte isn’t only making rule-out tests. When it can find a way to resolve diagnostic ambiguity and avoid unnecessary procedures by “ruling in” disease, it will build those products, too, with tests for the rare, aggressive medullary thyroid cancer and for idiopathic pulmonary fibrosis in the works. “You always have to be thinking about the pipeline in this business,” says Anderson.

Veracyte remains in spend mode, with a $29 million net loss in 2014. First quarter 2015 sales, all from Afirma, were $11.2 million, with a $7.6 million net loss.

“To have a successful diagnostics company in this environment is a real challenge,” says Scott Allocco, a consultant at SPJ Healthcare Strategies and co-chair of the industry group BIO’s personalized medicine and diagnostics committee. “Bottom line is, all the money is in the drugs.”

Diagnostics are a tough business for three big reasons. Companies generally have to launch products and spend at least a couple years with little to no revenue, because insurers need real-world evidence before reimbursing. Second, the ever-lower cost of sequencing means more medical centers will be doing a lot of molecular diagnostics themselves. Third, the U.S. Supreme Court ruling in 2013 to prevent the patenting of genes means companies can no longer have exclusive rights to the detection and analysis of isolated genes, as Myriad Genetics once did with mutations that carry higher risk of breast cancer.

It’s now a race to serve up what Invitae CEO Randy Scott calls “generic genetics.”

Scott brought one of the first genetic cancer tests to market with Genomic Health, and now at Invitae (NASDAQ: NVTA), based in San Francisco, he wants to fold as many tests as possible into a one-stop-shop service. “The whole space is now wide open,” he says. “The [Supreme Court] decision is driving down prices and driving up competition.”

Amid the tumult, high-flying Foundation Medicine (NASDAQ: FMI) is the latest to take a hit. Last week it lowered near-term revenue estimates, with Medicare payments no longer expected this year. Investors lopped $7, or 24 percent, off its share price the next day. The stock fell $2 more Friday, to $20.30, only to inch back up yesterday to close at $21.94.

Allocco says companies like Veracyte can use algorithms based on several genes (or other factors) as “one means of protecting your business model. You might not have intellectual property around the algorithm, but it’s a trade secret no one can determine. There’s a lot of ‘magic’ in these tests that’s hard to quantify. And that’s intentional.”

It turns out Anderson knows first-hand the dangers of biopsies. She lost her father last year when a needle inserted through the wall of his chest to take a biopsy resulted in a lung puncture. He never emerged from the intensive care unit.

Her father had stage four metastatic lung cancer; if the biopsy hadn’t killed him, the cancer would have. “In some ways he was blessed to have gone fast,” Anderson says.

But plenty of people who undergo the procedure and a host of others don’t have cancer. We’re growing ever more sophisticated about—and giant businesses are built around—creating treatments for sick people. We’ll now find out whether companies like Veracyte and Indi can make a go of helping people who aren’t really sick avoid too much medicine.