At the beginning of the year, the Applera Corporation announced that it was melding its molecular diagnostic business, Celera Diagnostics, with its drug development company, the Rockville, Md.-based genomic pioneer, Celera Genomics. This move includes a workforce reduction of about 180 positions, with 60 more on the way, nearly all of which are in small-molecule drug development. Celera's transition away from developing therapeutics in-house to focus on the diagnostic potential of genomic information signals a shift in business models for this once high-flying company that started out as a database subscriptions business, shifted to small-molecule drug development, and is now changing its focus once again. Other high-profile genomics-based drug developers, however, are seeking their own path to survival and hoped-for profitability.
"We had a bet-the-company decision to make," says Celera CEO Kathy OrdoÑez. With three compounds in Phase I clinical trials and about $620 million in the...
Celera currently has four diagnostic products on the market in Europe and undergoing regulatory approval processes elsewhere. One test genotypes the HIV virus to look at drug resistance, enabling doctors to choose which cocktail of drugs to give patients. Another detects mutations that are associated with cystic fibrosis. OrdoÑez says one of Celera's most exciting new programs looks at multiple SNP markers to predict a genetic risk for coronary heart disease. "This is like a preventative diagnostic in that it can identify people at risk for heart disease who otherwise would not have been selected for treatment," she explains. Other similar genetic risk tests are in development for liver fibrosis, stroke, and thrombosis.
While the predictive genomics sector is still building momentum, OrdoÑez believes that time can only help. "For example, only about 1 to 2% of population genomics-based studies are replicable, but this is changing. The associations of genes with disease are getting stronger as more and more researchers study them with new high-volume approaches."
Many other genomics companies that became household names in the fundraising heyday of 1999-2000, however, have stayed with drug development. Incyte of Wilmington, Del., had a business model similar to Celera's back then, selling subscriptions to its gene databases. Incyte also realized its customers would not be willing to buy genomic information forever, and decided to pick up some biologists and medicinal chemists to develop drugs against established targets. Pam Murphy, vice president of investor relations and corporate communications at Incyte, says the firm does some work on validating new targets, but its main focus is drug development.
Millennium and Human Genome Sciences (HGS) also show little interest in diagnostics. Cambridge, Mass.-based Millennium has had great success at in-licensing drugs and taking them to market, though its internal discoveries have not yet borne fruit. HGS of Rockville, Md. has focused on in-house development of protein therapeutics and also awaits its first homegrown approved product. Neither company has reached profitability, however. HGS had a net loss of more than $240 million in 2005, leaving it with less than $650 million in cash and short-term investments as of December 31.
Still, HGS has a substantial pipeline that could pay off handsomely when financial provisions with GlaxoSmithKline (GSK), a major partner for HGS, begin to kick in. Jerry Parrott, vice president of corporate communications and public policy for HGS, says the company is looking at diagnostics for use in its clinical programs, but the firm is putting its money on therapeutic products. "If you look at the field broadly, it is taking longer to realize the therapeutic potential of genomics than was once anticipated. But the potential for yielding major advances in therapy remains great," he says.
Myriad Genetics and deCODE Genetics are two firms that seek to utilize both the therapeutic and diagnostic potential of genomic discoveries, though their business models are slightly different. Myriad, based in Salt Lake City, has an existing line of diagnostics that provides revenue to fund its drug R&D. Specifically, Myriad performs predictive diagnostics that detect mutations in various genes to determine a person's inherited susceptibility to various cancers, including breast, colorectal, endometrial, pancreatic, and melanoma. Reykjavik, Iceland-based deCODE, on the other hand, is more focused on getting its drugs for peripheral artery disease and asthma, for example, through clinical trials. The diagnostic aspects of its discoveries are used mainly to stratify patients in clinical trials rather than to sell as diagnostic products.
Charles Duncan, a research analyst for San Francisco-based JMP Securities, believes that finding drugs is the way to ultimately obtain the most value from genomic discoveries, but also sees diagnostics helping in that quest. "Value in the molecular diagnostics space is very underappreciated, especially by adding value to therapeutics. By predicting responses to drugs and treatments, diagnostics will capture some of that value," says Duncan. Indeed, according to recent numbers from industry consultancy Frost & Sullivan, the molecular diagnostics market could double to $2.6 billion over the next five years.
Duncan likes some of the relative newcomers to the molecular diagnostics sector, such as Redwood City, Calif.-based Genomic Health and South San Francisco-based XDx, each founded in 2000. These firms' first products do not diagnose disease or predict what drug a person should take based on genetic makeup; rather, they seek to improve patient outcomes with existing treatments. Genomic Health has a diagnostic product called OncoType already on the market; it tests breast cancer tumor tissue removed during initial surgery to quantify the likelihood of disease recurrence within the next ten years. Based on 21 genes, most of which encode endothelial growth factor receptors, this test can also predict a patient's response to chemotherapy, which enables the patient and physician to tailor future treatments.
XDx's blood test, AlloMap, measures the expression of 20 genes that can predict absence of rejection for a heart transplant recipient, thereby avoiding the current approach of regular biopsies. "AlloMap tells us when the body is preparing to reject the heart, not when it is rejecting the heart. This is important because it allows physicians to give the patient the proper level of immunosuppressants," says XDx CEO Pierre Cassigneul.
Investors seem happy with these streamlined business models: Genomic Health raised $53.5 million on the public markets in its November IPO, and privately-held XDx raised $26.5 million from venture capital funds in early January.
Celera's OrdoÑez is very clear that her company does not intend to abandon drug development altogether but will continue to advance its proteomics and genomics findings through partnerships. "There is no single right model to commercializing genomic discoveries; it depends on the company's situation," she says of her firm and others. "But we had the diagnostics option so we took it." And, she adds, we "will ride it to profitability."