I posted a blog note on January 28 (see: CLIA Certification and CRO/Pharma-Owned Molecular Diagnostic Labs) in which I commented on the new trend of Big Pharma purchasing molecular diagnostic labs. This served as an incentive for Joe Plandowski to send me his reaction, which I offer below as a guest blog.
I am not a fan of pharma-clinical lab combinations. While some of these combinations are occurring today, I'd watch for their demise over the next few years. I witnessed first-hand Pfizer and SmithKline trying to tie together the clinical labs they owned with their pharma businesses 25 years ago. It was eye-opening to see the far different operating mentalities between lab and pharma management. Pharma is a "blockbuster or bust" mentality with overall high margins. Labs is a "grind it out every day in a tough competitive environment" mentality with low margins.
Heceptin in an interesting case as the first companion diagnostic, a combination of a drug that could be ordered only if a specific test result deemed it would work on a particular patient. Because the drug actually only worked on about 30% of the patients and at an annual cost of $30,000 per patient per year, the FDA was justified in demanding the lab test be performed first before the drug could be ordered. Interestingly, the test was developed by DAKO, primarily a staining company, along with the biotech firm, Genentech. DAKO had no capability to perform the test so it was licensed to one of the large commercial labs and others came along with their own version of "Herceptest" as I recall the test being called. Wide testing accessibility was, and is today, the key. The national lab firms have patient service centers all over the country to make it convenient for patients to be tested.
Any pharma firm believing that by owning a single location lab they will be able to push through all the companion lab testing through their lab and walk away with a profit bonanza had better think twice about it. I can point to the recent haircut Abbott's UroVysion test took (see: CMS Greatly Reduces Its Reimbursement for the UroVysion Test). Haircut is a kind word. Scalping is more appropriate after Medicare fees for UroVysion were cut almost in half. In addition, running a lab is a lot tougher than sending barrels of drugs out to distributors who then sell and deliver the product to pharmacies.
Consider that in the lab business you have to collect specimens from patients and get them to the lab. You have to get the test result to the individual patient's physician. You have to have a patient/physician center that can respond to inquiries. You have to bill each patient or their insurance carrier and there are about 600 carriers, all with their own set of rules on deductibles and all with their own fee schedules. To present a high quality lab operation the lab ought to be accredited by the College of American Pathologists besides being CLIA registered.
Times change and maybe it will be different this time. However, I doubt it. The underlying mentalities are not different. Pharma firms ought to stick to their knitting of developing drugs and work closely with the national lab firms to develop companion lab tests. All patients will win in this scenario --- the healthcare system, patients, labs and pharma.
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