The Wall Street Journal - Friday, 6 June 1997.
Stephen D. Moore

"We know that some people respond very well to a drug, others not as well while a certain proportion of patients will be resistant to that drug," says George Poste, chief science and technology officer at SmithKline Beecham PLC. Drug makers struggle to explain those variations, and physicians rarely are able to identify nonresponders in advance, Dr. Poste says.

But breakthroughs in genetic research promise to provide remedies in coming years. "It's clear that a patient's genetic background will affect response to drugs -- and the linkage between therapeutics and diagnostics will be increasingly important in the future," Dr. Poste adds.

Premium-priced tests that remove the guesswork -- and save huge sums now spent on treatments that don't work -- already create heady growth within the otherwise lackluster $19 billion-a-year world-wide diagnostics industry. Underscoring the budding optimism, Roche Holding Ltd. bet on the future of diagnostics last week by agreeing to pay $11 billion for Corange Ltd., parent of the world's No. 2 diagnostics concern, Boehringer Mannheim Group.

The transaction, which is subject to regulatory approval, would catapult Roche past the current world leader in diagnostics, Abbott Laboratories Inc. It also marks a major step toward "disease management," a marketing strategy where pharmaceutical giants are trying to broaden their focus beyond traditional drugs -- and offer customers everything from diagnostic tests to other forms of patient care and, eventually, maybe even preventive medicine.

"We foresee a great convergence of therapeutics and diagnostics as we move forward with the concept of disease management," says Jean-Luc Belingard, the head of Roche's diagnostics division. "We are convinced the key to the future will be differentiation of patients -- segmenting responders to a given drug from nonresponders -- to allow optimum therapy, and optimimum cost of therapy."

Boehringer Mannheim pioneered one of these examples of disease management, in diabetes care. Boehringer Mannheim produces home test kits that most European diabetics use to monitor their blood glucose levels and time insulin shots. Compelling cost and benefit arguments have persuaded governments and insurers to reimburse the cost of tests, so diabetes kits have remained a burgeoning, profitable niche.

By contrast, in the mainstream laboratory diagnostics business, volume has been flat and margins have been squeezed as governments have scaled back reimbursements to clinical labs, the biggest users of diagnostics systems.

Meanwhile, Roche has carved out a buoyant niche with cutting-edge tests for viral diseases, especially HIV infection. Roche's tests, based on a Nobel Prize-winning technology called polymerase chain reaction, or PCR, make it possible for physicians to measure the level of virus in a patient's blood.

The tests have become an essential part of the multidrug regimens that drive the virus content in blood down to virtually undetectable levels in many patients, reducing hospitalizations and deaths. By monitoring viral load regularly, physicians can detect the emergence of resistant strains of HIV and reshuffle ingredients of the drug cocktail to make it work again.

Another PCR-based test from Roche for Hepatitis C is in wide use to screen patients who are candidates for treatment with alpha interferon. SmithKline's Dr. Poste estimates that 40% of Hepatitis C patients are resistant to interferon, a genetically engineered drug that costs roughly GBP 20,000 ($32,600) a year.

Analysts estimate that Roche has spent more than $1 billion to develop PCR since acquiring world-wide rights to the technology in 1991. Licensing pacts with diagnostics rivals such as Abbott and Johnson & Johnson have recouped part of that investment, and Mr. Belingard says the PCR foray is in the black, including the amortization of the original $300 million purchase price and later investments.

But, development outlays ate up virtually the entire profit generated from the division's modest revenue base, and an acquisition was needed to boost profitability.

The addition of Boehringer Mannheim fills that gap, quadrupling the diagnostic divisions annual sales to more than 3.5 billion Swiss francs ($2.4 billion) and providing extra marketing muscle as well as ample cash for research programs.

Continued sales growth hinges on development of more blockbuster tests. One crucial target for Roche labs is viral resistance. Roche and Glaxo Wellcome PLC are racing to analyze DNA of mutant HIV strains collected from thousands of patients and correlate the efficacy of drugs against those mutant versions. If successful, the results would be assembled in a data base that physicians could consult in planning treatments.

Roche's added clout also will enable Mr. Belingard to exploit the promising targets for new tests emerging from the $3 billion Human Genome Project. Any of dozens of genes discovered every week includes potentially valuable markers in diagnosing everything from cancer to Alzheimer's disease as well as biological clues to predict patients' response to drugs.

At SmithKline, which has led the drug industry's genetic research blitz, officials predict that diagnostic tests undreamed of today will be considered an integral part of most drugs within a few years.

However, there is disagreement about how fast this brave new world will arrive, especially in Europe where hostile public opinion has slowed progress of genetic research in major countries. Many physicians and pharmaceutical executives fret that gene-based diagnostic tests are being developed much more quickly than therapies for conditions are diagnosed.

Nowhere is that dilemma more vexing than in cancer. Julia Bellerby, a 39-year-old British journalist, grew up in a family where cancer struck early and often, including her mother who died of breast cancer in her early 40s. So Ms. Bellerby took an experimental test to show if she had inherited a gene defect that sharply increases the odds of developing breast cancer. When she tested positive, Ms. Bellerby had both breasts removed as a pre-emptive step, and she plans to undergo surgery to remove her ovaries next year.

Her case underscores controversy about how to apply results of such genetic tests. "There's a lot of demand from patients and physicians who have heard so much about these tests," says Shirley Hodgson, a physician at the Medical Genetics division at Guy's Hospital in London. "But we aren't rushing to do them. There's an enormous amount we don't know yet, particularly in breast cancer."

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