Stocks & Markets March 2, 2010, 10:30PM EST

Personalized Medicine Could Shake Up Pharma

New methods of targeting certain treatments to smaller patient populations could drastically change the sales patterns of well-known drugs—for better or worse

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In the game of pharma, companies may have to give up on the home run known as the blockbuster drug—products like Lipitor and Avastin that were marketed to large swaths of the population and generated billions in sales—and hope that well-timed singles and doubles can carry the day.

Drug manufacturers have been loath to surrender broad markets and efficient marketing campaigns for more targeted patient populations and, presumably, higher marketing costs. But the number of prospective blockbusters has dwindled—and some drug companies are slowly coming around to the potential benefits of targeting certain treatments to smaller patient populations who genetic tests show will be most receptive to them. The hope is that increased safety and quality assurance—and the possibility of moving drugs up into earlier phases of treatment—could bolster sales and help make up for narrower markets for each drug.

There's no certainty, however, as the markets for specific drugs shrink, that drug companies will be able to make up for the size of their lost blockbusters by developing enough new products to treat the same population their drugs previously treated, says Isaac Ro, a biotech analyst at Leerink Swann & Co.

At a time when the success of U.S. health-care reform legislation largely hinges on the ability to slash medical costs, the promise of saving billions of dollars by not prescribing drugs to patients who genetic testing shows won't respond to them could make a compelling case for an accelerated shift toward personalized medicine.

Genomic Testing

While the benefits of personalized medicine are already apparent to pharmacy benefit managers like Medco Health Solutions (MHS), the upside to the much larger world of drugmakers is just starting to be explored.

Greater use of genomic testing is enabling physicians to increasingly choose the best treatment for a patient with less guesswork. Drug manufacturers such as Genentech, acquired by Roche Pharmaceuticals (RO:SW) in 2009, and Amgen (AMGN) have started to develop companion diagnostic tests alongside new drugs early on in their research and development processes, whether in-house or with outside partners. Companion diagnostics can identify patients who aren't likely to respond to certain treatments based on genetic information. The U.S. Food & Drug Administration (FDA) so far has identified 32 distinct genomic biomarkers in current product labeling of assorted drugs.

Amgen partnered with Qiagen NV (QGEN), a Dutch producer of diagnostic tests, to develop a companion diagnostic for Vectibix, Amgen's colorectal cancer drug that was approved by the FDA for third-line treatment of metastatic, or late-stage, cancer. Prescribing the drug only for late-stage treatment offers a drug company a smaller market opportunity than drugs such as Avastin, which is approved for first-line treatment.

There's already evidence that using companion diagnostics to exclude patients based on genomic analysis can improve clinical trial data for a new drug and boost the odds of FDA approval for use in targeted patient populations, says Peer Schatz, chief executive of Qiagen. He believes enriching clinical data with the aid of biomarkers will become a standard process that will make it easier to market new drugs instead of limiting their market possibilities. And it may even enable certain drugs to expand their market size by seeking a higher standard of FDA approval as first-line therapeutics that would allow them to compete directly against existing first-line treatments like Avastin, he adds.