How can a company charge $3,500 per patient for some new gee-whiz diagnostic test, and then go around claiming it will save the healthcare system money?
Lots of companies hem and haw when asked to prove their medical innovations save the system money, but South San Francisco-based Veracyte is putting cost-effectiveness front and center in its business plan. Its future essentially depends on it.
The company, backed by a prominent crew of investors like Kleiner Perkins Caufield & Byers, TPG Biotech, Versant Ventures, and Domain Associates, has started to make headway with this idea. Since January, Veracyte has been commercializing a gene expression test that’s supposed to help doctors determine when a lump in the thyroid gland is benign, or potentially malignant.
Thyroid cancer rarely kills people—each year, 48,000 get diagnosed and only about 1,700 die from it, according to the American Cancer Society. But diagnosis is tricky, as almost 500,000 suspicious thyroid lumps get biopsied in pathology labs every year, and about 20 to 30 percent of those tests offer “inconclusive” results. About 125,000 patients, fearing the worst, go on to have surgery to remove their thyroid glands at a cost of about $12,000 to $16,000 apiece, plus a lifetime of thyroid hormone medications, not to mention the inevitable complications from surgery. Veracyte’s big idea is that by charging $3,500 for its Afirma gene expression test, it can help doctors rule out malignancy early in the game, and help cut down on unnecessary surgeries.
So far this year, Veracyte said it has performed its gene expression test on about 1,000 of these iffy thyroid tissue samples.
“Anytime you can take a sample in doctor’s office, and provide information to make more informed treatment decisions that can take cost out of the system, we think that’s a good place to be,” says Veracyte co-founder and CEO Bonnie Anderson.
Most medical technology companies start out with an invention and look to find ways to best apply it, but Veracyte started in 2008 the other way around. It began, Anderson says, by looking for highly inefficient areas of healthcare that were ripe for disruption with a new medical technology. The company decided to start with thyroid cancer, as it has been growing in the U.S., and physicians have struggled with its diagnosis.
Getting the test to work right was a technical puzzle. Veracyte explored various technologies—whole genome sequencing, DNA copy number variation screening, and microRNA testing—before settling on gene expression as the basic technology platform likely to give a cost-effective answer.
There were lots of issues to consider. The critical sample to study is what’s known as a fine-needle aspirate, in which a doctor sticks a needle into the thyroid bump in three or four different places to extract cells for analysis under a microscope. Doctors use ultrasound imaging to make sure they are getting cells from inside the thyroid nodule, and not some other tissue. Sometimes different doctors in different places get different types of samples, and sometimes you get a little blood in there that confuses the issue on the microscope slide, Anderson says.
Veracyte sought to control for these factors from the outset. It set up an internal laboratory, equipped with Affymetrix gene expression instruments. These tools are made to determine the extent to which certain genes are active or inactive in a biological sample. Since there are about eight to 10 different molecular subtypes of thyroid cancer on the continuum between benign and malignant, Veracyte also had to develop algorithms to distinguish between those subtypes. And after much experimentation, Veracyte found 142 genes that are thought to play a role in whether a thyroid cancer is benign or malignant.
Once it had worked out some of the basic science, the question turned to the business model. The company isn’t seeking to replace pathology analysis, but rather, to add some more certainty to what pathologists are doing. So Veracyte developed a kit which it sells to the thyroid specialists who capture some of that precious sample. Some of the sample goes in a kit for a pathology lab partner of Veracyte, and some is saved for the Veracyte gene expression analysis. If the pathology test is inconclusive, then the separate sample will go in to Veracyte for further testing.
Since this test is still new, it’s impossible to say for sure what kind of impact it will make on thyroid cancer diagnosis, treatment, and cost-effectiveness in real-world use. But Veracyte’s test has been shown to rule out thyroid cancer malignancies with 95 percent certainty in samples that were previously deemed inconclusive, according to data presented in 2010 at the International Thyroid Congress. A year later, an economic impact model developed by Johns Hopkins University suggested the Veracyte test could result in a 74 percent reduction in surgeries to get rid of benign thyroid glands—essentially eliminating 50,000 unnecessary procedures per year.
Over 5 years, the average cost estimates for the current style of thyroid treatment were $12,172 per patient, and $10,719 when the Veracyte gene expression test is factored in, according to the Hopkins researchers. The Veracyte test also improved quality of life, presumably because people prefer not to have a surgical procedure leave a mark on their necks.
Paul Ladenson, a professor of endocrinology at Johns Hopkins University School of Medicine who authored the analysis in the Journal of Clinical Endocrinology and Metabolism, said Veracyte’s ability to remain cost-effective will depend in the future on a number of factors, including the price of the test, and the probability of patients getting surgeries after factoring in the new information. But he said he has started to incorporate the Veracyte test into his own clinical practice as of this month.
Veracyte has grown to have more than 50 employees, Anderson says. So far, she says, “many of the payers are reimbursing us,” in full, and that all the major insurers are reimbursing Veracyte to at least some extent, she says, without being more specific. About 100 physicians had used the test as of mid-October, she says.
The adoption of the test has been quick enough that Veracyte is already starting to look ahead at expansion to a second type of test for a pulmonary disease, Anderson says. The company isn’t profitable yet, and Anderson says it will be “a while” before that happens. But for the first year of a product introduction, it’s happy to be where it is.
“We are very encouraged with the early uptake,” Anderson says. “Driving adoption of a test that changes patient care is not easy. It requires a lot of education of the physicians, on clinical use, and the science behind the test. We have made a lot of effort so that physicians are knowledgeable and comfortable with it.”
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