Consensus is building that NIPT should be viewed as a precursor for Liquid Biopsy. Diana Bianchi went so far as to declare: "NIPT is the poster child for the future of genomic medicine". Considering NIPT the first phase of the Liquid Biopsy "LB" market provides some context and clarity. The opportunity to disrupt health care is evidenced by recent venture funding for Invitae, Guardant, RainDance, Inivata and Epic Sciences, among others. This disruption will take the form of precision AND personalized medicine. Precision comes from the science of an individual's genome. Personal health care empowerment is increasing but clarity is needed to accelerate the pace of change. Improved treatment options through immunotherapies and genetic surgery will be enhanced by liquid biopsy, making cancer survivable and genetic testing one of the most attractive investment opportunities in biotechnology.
NIPT: The providers and their tests
- MPSS or Massively Parallel Shotgun Sequencing tests were developed in the US by Sequenom (NASDAQ:SQNM) and Verinata and in China by BGI and Berry Genomics. These tests screen for trisomy 13, 18 and 21 aneuploidies and most now offer additional screening for an array of sex chromosome abnormalities, microdeletions and microduplications. Sequenom launched the first NIPT in October 2011 stating: "Conceived in Oxford and Cambridge (1997), Delivered in San Diego (2011)". The 1997 breakthrough discovery was the presence of fetal DNA in maternal plasma. At launch, MaterniT21 screened for trisomy 21 only. In 2012 Sequenom added trisomies 13 and 18 to their screen. Verinata launched a similar test, Verifi, in March 2012. The average sales price "ASP" for MaterniT21 has been disclosed by the company at approximately $1,000 before seeing notable declines over the past two years. Financial statement analysis suggests a current blended ASP of around $725, influenced by the impact of the launch of VisibiliT at a lower price for the average risk market. Next week at the International Conference on Prenatal Diagnosis and Therapy marketing collateral suggests Sequenom will announce a new product branded MaterniT Genome. Details are not yet available.
- Ariosa (Pending:AROS) launched their test, Harmony in March 2012. Harmony takes a different approach described as Digital ANalysis of Selected Regions "DANSR". This approach improves processing cost by only sequencing chromosomes of interest. They analyze the results with their bioinformatics to provide a risk assessment for abnormalities. The test was priced well below the MPSS tests but does not offer the broad screening capabilities of MPSS. Pricing is hard to ascertain. The preliminary Ariosa S-1 data was used to calculate an ASP of $377 in Q1 2014. Note however that this ASP was superficially depressed from tests processed which were not reimbursed, generating only a nominal individual payment.
- Natera (NASDAQ:NTRA) was the last of the US companies to launch their NIPT, Panorama in December 2012. Panorama uses a Single-Nucleotide Polymorphism "SNP" approach that isolates a mother's white blood cells to identify her DNA. This information is then used to eliminate the maternal genotype. The remaining fetal genotype they believe provides a higher accuracy level in concert with their bioinformatics platform: Next-generation Aneuploidy Test Using SNPs "NATUS". This test has a higher "no call" rate (unable to report), apparently caused by insufficient fetal DNA remaining after isolation. The Natera S-1 2014 results indicate an ASP of $960 for Panorama. The March 2015 quarter increased to $1,243. This increase is consistent with company commentary describing higher pricing from a direct selling approach in the US. Prior period ASPs were lower due to the higher mix of US revenues from partners conducting certain sales, marketing and administrative activities on behalf of Natera. A disclosure referring to price reductions from the new billing code effective 1/1/15 suggests they are experiencing some price compression as these tests are reimbursed and recognized.
NIPT is a disruptive innovation that encountered many hurdles
It's interesting to note how many hurdles had to be overcome to achieve an NIPT adoption rate described as unprecedented. My June 2013 article: Sequenom: Disruptive Innovation Is Driving Investment in NIPT described the building blocks of the adoption cycle. A brief timeline includes:
- October 2011 MaterniT21 launch.
- March 2012 Verinata launch.
- March 2012 Harmony launch.
- October 2012 California Technology Assessment Forum "CTAF" recommended the use of cfDNA as a prenatal advanced screen for Trisomy 18 and 21.
- December 2012 American Congress of Obstetricians and Gynecologists "ACOG" recommended NIPT for high-risk pregnancies.
- December 2012 Panorama launch.
- April 2013 American College of Medical Genetics and Genomics "ACMG" clarified NIPT as screens and went on to conclude: "NIPS for fetal aneuploidy has arrived".
- Healthcare coverage and reimbursement was limited through early 2013. Today the reimbursement climate for high-risk is improved, though government insurance programs are minimally included in the covered lives of the test providers.
- The Centers for Medicare and Medicaid Service "CMS" discontinued the use of gap fill reimbursement at the beginning of 2013. Reimbursement became virtually frozen for months as organizations adapted to the changes.
- January 2015 a CPT code was finally established for MPSS NIPT to compliment the 2014 code applicable to Harmony.
The current guidelines endorse the use of NIPT for high risk only. This distinction played a critical role in the market adoption cycle.
- 2011 through 2012 - Early traction: All four US NIPT providers were in a land grab to gain share, build brands, gather data and expand the breadth of their tests. Guidance was slow, as were reimbursements. The companies processed tests at well below cost and many times for free.
- 2013 - Transition. Tests became a standard of care for high-risk. Insurers signed reimbursement contracts then had to adjust to the CMS reimbursement code and price issues. Some of the NIPT test providers offered tests to low risk patients while others stuck to guidelines. Illumina acquired Verinata.
- 2014 - Rationalization. Business discipline began to take hold as the companies tried to stem their losses. Ariosa tested the IPO-waters by filing a preliminary S-1 but they were unable to complete the offering, leading to their acquisition by Roche (OTCQX:RHHBY). This left only Sequenom and Natera as independent providers in the US. Sequenom and Illumina (NASDAQ:ILMN) settled their patent disputes and announced an IP pooling agreement that incorporated over 400 patents. Their stated intent is to license this IP to labs wishing to process their own tests.
- 2015 - Licensing & Liquid Biopsy launch: Sequenom and Illumina have pooled their NIPT intellectual property "IP" and are actively licensing it to clinical labs (24 at March 31st) who wish to process tests themselves. The lab developed test "LDT" regulations requiring plasma processing by the originating lab represent the primary driver. As a result we see a growing number of NIPT offerings from labs that have signed a license agreement, worked with Illumina and/or Sequenom to replicate or modify the test and have validated their tests according to country guidelines. Some examples include PraenaTest (Life Codexx), InformaSeq (NYSE:LH) and QNatal (NYSE:DGX). We should see initial IVD FDA filings this year.
Natera, Illumina and Sequenom have all announced product plans targeting liquid biopsy. Sequenom has profiled numerous cases of abnormal findings in NIPT which led to cancer diagnosis and treatment. Ariosa is in research mode with no product plans disclosed. Their targeted chromosome sequencing approach likely means they are a little behind those with a more in depth sequencing approach. Natera provided a detailed review of their diagnostic targets and projected market sizes in their preliminary S-1.
The NIPT market is minimally penetrated but most of the market is on hold
Pregnancies determined to be high risk due to advanced maternal age, family history or abnormal ultrasound scans are the only pregnancies currently recommended for NIPT. Endorsement as the standard of care will be necessary before average risk testing will become reimbursable: a requirement for widespread adoption. A recent article in Nature: Pregnancy: Prepare for unexpected prenatal test results authored by Diana Bianchi, provides an estimate of NIPT testing to date. The table notes these estimates represent GenomeWeb published data provided by the test providers. The footnote also mentions that the data excluded Natera test data. I've updated the estimates to include Natera as disclosed in their prospectus:
- 2012 approximate tests 225,000
- 2013 approximate tests 525,000
- 2014 approximate tests 1,000,000
These estimates are useful but must be kept in context. It's unclear whether all companies are reporting commercial accessions or if some include samples tested for clinical trials, etc. It's also noteworthy that only the tests accessioned by the primary test providers are included, therefore excluding licensees. This exclusion appears relatively minor for the years presented.
According to a recent Citi research survey between 10% and 22% of all NIPT currently ordered are for average risk pregnancies. I estimate that the US resident testing in 2014 was approximately 500,000. Assuming 80% for high risk would mean 400,000 tests in 2014 or a total market penetration of just over 50%. The average risk testing would be approximately 100,000 for a market penetration of under 3%. Constraints include:
- Low risk is not currently endorsed as a standard of care. The current testing is primarily self-pay.
- Government insurance in US represents approximately 23% of the market. This segment has been very slow to sign coverage agreements due to spending concerns.
- International markets typically are more reliant on government coverage than the US. Per capita health care spending also suggests cost has been a serious impediment.
- Some countries have restrictions relating to the transport of plasma out of the country for testing. There are also clinical infrastructure constraints in many countries.
Stepping stones to widespread adoption
- Low risk standard of care determination in the US will lead to reimbursement and accelerated adoption.
- Low risk pricing needs to drop to become cost effective and meet the realities of the marketplace. This started with Harmony pricing (see above) and Sequenom's trisomy 18 and 21 risk assessment test, VisibiliT. These tests are still priced too high relative to nuchal translucency. Cost effectiveness for high risk was a much easier argument given the savings from reduced invasive procedures. This is a harder argument for low risk which is why existing screens are commonly used as the measurement.
- International penetration is going to be driven by in-country processing and more affordable pricing.
- In Vitro Diagnostic "IVD" designation will be an important accelerant in the US and even more so internationally, reducing some of the current adoption constraints. IVD progress has been slow in the US but Illumina, Roche and Natera all appear to be prioritizing submissions in 2015. This will most likely be for low risk only where the screens are less likely to change. Sequenom has already disclosed plans to launch a high risk NIPT karyotype later this year.
- Improve communication with the patient. Genetic counseling today is not able to handle either the pace of change in NIPT or the number of women being tested. OB/GYNs still do not have the capacity or expertise to be the filter or conduit for the patient.
How will Liquid Biopsy adoption compare to NIPT?
Liquid biopsy can take the form of various liquids including saliva, urine, stool and plasma. Per a recent article in TheScientist - Toward Blood-based Cancer Detection, Bert Vogelstein of Johns Hopkins believes "Stool and urine might detect colorectal or bladder cancer, but blood has the capacity - at least conceptually - to detect all cancers."
Most early analyst reports expect that LB will exhibit similar adoption characteristics to NIPT. That leads to the following likely perspectives:
- Cost effectiveness will drive endorsement and coverage decisions. Usage that eliminates the need for invasive procedures and treatment monitoring will be early adopters. NIPT negative screen results have led to a 79% and 69% decline in amniocentesis and chorionic villus sampling "CVS" procedures in the US, respectively. This estimate was provided by Diana Bianchi in her plenary presentation: Women Lead the Way: Genomic Sequencing and the Transformation of Prenatal Care.
- Recurrence Monitoring and screening for Early Diagnosis will ramp more slowly due to cost considerations. Within this group it's likely a high risk segment will emerge and earlier become cost effective as a standard of care, leading to reimbursement by care providers before general population screening.
- Pricing will start high, leveraging savings from the elimination of invasive procedures. Accelerated penetration as a screening or recurrence monitoring diagnostic, will be tied to price reductions.
- Taking the test outside the specialty domains of cancer research, clinical trials and oncology will require the assistance of genetic counselors to help interpret results and counsel patient choice. This could become a major constraint to widespread adoption for screening purposes.
- Most markets outside the US will have a much slower adoption cycle due to health care spending and GDP constraints.
- False positives need to be examined to determine if they are truly false or just outside the diagnostic intent. Dr. Bianchi suggested that NIPT false positives were not necessarily a shortcoming of the technology, but rather a result of new aspects of maternal biology being discovered such as maternal CNVs and occult maternal malignancies.
- The overall market estimates for liquid biopsy are likely underestimated. Recently JP Morgan analyst Tycho Peterson estimates oncology blood tests will generate $20 billion annually by 2020 compared to only $100 million today. Cancer recurs, mutates and impacts individuals of every age, gender and ethnicity. Guardant Health reports that they have conducted almost 5,000 tests on multiple cancer types already, with an average patient sample having 3.3 alternations. They claim 99.9999% specificity in less than ½ the time of invasive biopsies. If the early promise of liquid biopsy for treatment monitoring is fulfilled, the urge to quickly move to high risk and then general population screen will increase.
Piper Jaffray 10th Annual Molecular Diagnostics Report
- Sized the C14 Molecular Diagnostics market at $6.8 billion, up 8% Y/Y.
- Genetic Testing $2.5b up 15%-20%
- STD/Infectious Disease $1.9b up 10%-12%
- Viral Load and Genotyping $1.4b up 4%-8%
- Blood Screening $975m up 3%-5%
- Market share leaders in Molecular Diagnostics market.
- Genetic Testing: Myriad 28%, Genomic Health 11% Roche 7% Sequenom 6%
- STD/Infectious Disease: Hologic 26%, Cepheid 23%, Becton Dickison 13%
- Viral Load/Genotyping: Roche 47%, Abbott 21%, Siemens 18%
- Blood Screening: Gen-Probe 53%, Roche 45%
- cfDNA is rapidly emerging as a core technology. NIPT experiencing fastest adoption seen leading to accelerated evolution underway beyond NIPT.
- Total US total available market "TAM" for Liquid Biopsy in 2020: 21.4m patients and $12.1b market.
- High Risk: 750k patients and $750m market
- Ave Risk: 3.55m patients and $3.25b market
- Detection: 1.658m patients and $500m market
- Treatment: 1.658m patients and $2.7b market
- Recurrence monitoring: 13.8m patients and $3.4b market
- Transplant: 28k patients and $1.5b market
Citi Research: Womb With A View
This May 2015 research report evaluated the average risk NIPT market based upon a survey of thirty care providers: 22 OB/GYNs and 8 maternal fetal medicine "MFM" specialists. They also assessed 83 countries where NIPT is currently commercially available. The report included the following summary:
- A majority of those surveyed expect ACOG guidelines to be revised to include average risk pregnancies by the end of 2016 and 75% felt the use of NIPT in average risk to be routine within 24 months.
- The two most common price ranges believed to be necessary for widespread US payer coverage for average risk were $250-$500 (43%) and $100-$250 (33%). Citi noted that the current cost for serum screening and nuchal translucency is $100-$200 and $200-$300, respectively.
- NIPT is clearly being used for average risk pregnancies already. On average, 22% of the tests ordered by the survey group represented average risk, though the response range was broad. The median response for average risk was 10%.
- 70% of respondents used MaterniT21 followed by Panorama (50%) Harmony (40%) and Verifi (37%). Verifi usage was much higher in the MFM group (63%). A majority of the respondents use more than one test with 33% using three or more.
- The global TAM for NIPT was estimated at > $20b based upon the 82 million annual births in the countries offering NIPT today.
- Citi projected the 2019 baseline market for the US and globally at $1.1b and $3.3b, respectively. Their bull-case estimates increased to $1.4b and $5.4b for the US and global markets, respectively.
Natera S-1 Liquid Biopsy market commentary
The Natera preliminary S-1 includes commentary on their development of oncology liquid biopsy tests. Some specifics include:
- There will be approximately 1.7 million new cancer cases diagnosed and more than 575,000 cancer deaths in the United States in 2015.
- Natera is developing a therapeutic monitor panel that is expected to address 65% or 1.1 million of these new cases representing an estimated U.S. addressable market of $6.6 billion annually.
- Natera is developing liquid biopsy diagnostics for early detection in lung, breast and ovarian high risk patients. The TAM for lung cancer is estimated to be 7 million individuals. The TAM for breast and ovarian cancer is estimated to be 6.5 million individuals. The size of these available high risk early detection assays is estimated to be $6.7 billion in the United States.
What is the objective of genome-based diagnostics?
Companies that answer this question in a way that is consistent with an era of personalized medicine will have an advantage. Consider the following answers in use:
- To direct therapeutic interventions, predict risk or onset of disease, or to detect residual disease.
- To diagnose and classify conditions at a DNA level.
- To identify fetal abnormalities or cancer cell response to treatment.
- To mitigate risk and reduce cost by eliminating unnecessary invasive procedures.
How about something that is "patient-centric" like: To allow informed personal decisions that improve health and reduce cost? Precision medicine comes from the combination of personal genetic bioinformatics and faster treatment monitoring. However, that isn't enough if the individual isn't brought into the process (personalized). Consider again Diana Bianchi's article. She writes: I reviewed the consent forms used by five major US commercial providers of non-invasive prenatal blood tests. In two of them the physician, not the mother, signs the form stating that the mother has been counseled. In two of the other three, the mother signs the form, but the form either does not mention incidental findings or it explicitly states that the laboratory will not report them. Only one notes that, "in rare circumstances, genetic testing may reveal sensitive information about your own health".
Personalized medicine needs more personalization as NIPT has shown. Clarity is critical to the consumer/patient involvement. Mothers are outpacing the medical community's ability to answer their NIPT questions or counsel about incidental findings. NIPT informed consent appears to be neither informed nor consent. Worse yet, it is becoming an impediment to the very disruption that is essential for reduced per capita health care spending. Clarity requires mass market communication not scientific literati-speak. When "the person" intersects with "the science", genetic diagnostics will fulfill its potential.
The NIPT and LB markets are still nascent but the longer term market opportunity is substantial. A reasoned approach to investing this space is essential. Intellectual property has not proven to be an advantage in NIPT. The courts have undermined the value of IP while the costs of defending it have been a serious drain on company resources. First movers generally have a substantial advantage but that has not proven to the true with NIPT. Achieving endorsement as a standard of care requires significant clinical data that is published and peer reviewed. Without IP protection, early adopters may pave the way, bearing the lion's share of this burden only to see better funded competitors enter the market with established sales and marketing capabilities to gain substantial market share. That said, next-generation sequencing is driving the momentum behind personalized medicine which is substantial and accelerating. To summarize from Piper Jaffray, Molecular Diagnostics - The Future is Now:
Personalized Medicine -
- Technology? Check
- Science? Check
- Payment? WIP (work in progress)
The simplest investment approach would be to focus on short-read sequencing platform providers. Long read is more costly and less appropriate for sequencing fetal DNA. Next-generation sequencer market share will be earned through core technology, processing cost efficiency and the menu of tests required to absorb the upfront capital outlay. Illumina currently is the market leader with a market share estimated at 80% per Piper Jaffray. The clinical lab platform land grab was the motivation for their acquisition of Verinata and the IP Pool agreement with Sequenom. Other short-read sequencing companies to consider include: Roche, Complete Genomics and Life Technologies. Look for acquisitions by these companies to improve their test lineups similar to the Ariosa and Verinata acquisitions.
Liquid biopsy test providers will likely outperform the market over the next few years given the growth profile and the probability of acquisitions. I'll be watching those providers that are focused on treatment monitoring, high risk early detection and personalized clinical trial diagnostics in the short term as they provide the highest probability of early monetization. All the NIPT providers have indicated an intent to launch liquid biopsy diagnostic products in the future. Illumina has indicated that they are currently in development but has provided minimal detail to date. Natera provided the above S-1 recap but did not guide with respect to launch time frame. Roche has not provided any substance though Ariosa has been hiring oncology and bioinformatics professionals indicating their intent. Sequenom has announced their company goal to launch a research use only test in 2015 that will interrogate over 100 genes for a dozen cancer types.
A technology solution for the genetic counseling capacity constraint needs to evolve. The need is already apparent with demand poised to increase exponentially once average risk NIPT and liquid biopsy gain traction. If one of the primary test providers (or a third party) announce a solution, it could mean accelerated adoption, market share disruption and/or increased ASP.
I've heard anecdotal evidence that some MFM specialists are experiencing reduced profits due to the decrease invasive procedures. A similar disruption is likely in the oncology space. Companies tied to the performance of surgical biopsies could see declining demand once validation of liquid biopsy drives increased adoption.
Disclosure: I am/we are long ILMN, SQNM.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.