BUSINESS (continuation)

Types of Cancer Testing

Cancer testing encompasses a wide variety of products and technologies, including the following: (1) assays for cancer markers; (2) imaging, such as mammography (a breast X-ray to detect tumors); (3) clinical chemistry assays that detect changes in normal physiological parameters; and (4) cytological and histological tests. Each of these procedures is used for at least one of three tasks—screening, diagnosis/monitoring, or imaging—each of which is briefly described below.

Screening. Cancer screening entails performing regular tests on people who have no symptoms. Mammograms, Papanicolaou (Pap) smears, and PSA tests are all examples of cancer screens. These tests can reveal hidden diseases, but need further corroboration, such as a tissue biopsy, to provide a final diagnosis. Most cancer marker tests are not sensitive or specific enough to be considered useful for cancer screening. Even the PSA test, which is routinely used to screen men for prostate cancer, is still debated as to its usefulness in older males.

Diagnosis/Monitoring. Cancer markers are primarily used for diagnostic and monitoring purposes. While typically markers alone are not used to diagnose a disease, they do help determine if cancer is likely. They also help monitor the progression of cancer, response to treatment, and potential for recurrence. To test for a marker, a sample of the patient’s tissue, blood or other body fluid is sent to a laboratory where the detection of the marker is determined.

Imaging. In healthcare, imaging is the process by which physicians obtain pictures of the body’s interior. Oncologists use imaging as a noninvasive method to help see tumors and detect occult metastatic cancer. Special dyes are often administered to enable organs to show up better on film. We believe that there are two primary unmet needs in imaging at present: (1) the existence of a marker test that can detect cancerous cells before the disease clinically manifests itself; and (2) the presence of a marker to identify secondary cancer after the primary treatment has begun.

Cancer testing is dominated by serum-based cancer markers, including CEA, PSA, CA-125 and CA15-3. In 2003, worldwide sales of these serum assays were approximately $860 million. We estimate that there are over 100 million serum screening tests performed each year. However, most of the assays are specific to a particular cancer and suffer from poor sensitivity and specificity. As an example, assay sales for CEA, a relatively insensitive assay for colorectal cancer, are estimated to be over $300 million annually. In The Nation’s Investment in Cancer Research: A Plan and Budget Proposal for Fiscal Year 2008, the NCI emphasized the need for improved markers for prostate cancer as well as the development of more markers for hard-to-detect cancers. In addition, the NCI specifically listed validating cancer markers for disease prognosis, metastasis, treatment response, and progression as one of its future strategies.

Reasons for Growth in Cancer Diagnostics

The following factors may affect the size and growth of the worldwide cancer diagnostic market:

Demographic shifts due to an aging population. The United Nations has documented a rapidly aging population worldwide. In developed countries, the number of individuals over 60 years old exceeded the number of children under 15 years old for the first time in 1998. While risk factors for cancer include tobacco and alcohol use, diet, and sun exposure, one of the most significant factors is age. For example, more than 65% of all prostate cancers occur in men over the age of 65, and overall, approximately 77% of all cancers are diagnosed in individuals over the age of 55.

Increased focus on early detection and diagnostics. According to the NCI, 85% of cancer patients are treated in community-based, private practice oncology settings. Accordingly, global expansion of cancer marker technologies may be fueled by an increased marketing of new diagnostic tests to physicians. In addition, as a growing number of people are considered to be at high risk for developing cancer, diagnostic tests may also be administered more frequently.

Reimbursement, third-party payers and financing for companies developing diagnostics. In the United States, the costs of a variety of medical procedures, including diagnostic laboratory tests, are covered by both federal and private insurance plans. We believe the reimbursement policies of healthcare providers will drive increased usage of cancer marker tests and that reimbursement amounts will reflect the usefulness of the tests—the more accurate the test, the higher the reimbursement amount. On that basis, a RECAF-based test, which has broad applicability and is highly accurate, should command a relatively high reimbursement amount. Due to cost containment practices of managed care organizations as well as federal healthcare programs, certain testing technologies may be used more selectively by medical providers. We estimate that reducing healthcare expenses could lead to the reduction or the elimination of cancer markers with low associated sensitivities and specificities. We aim to market RECAF as a high value-added test with widespread utility and significant predictive value that will meet applicable cost containment guidelines.

Funding for basic and disease-related research. The NIH invests over $28 billion annually in medical research, of which an estimated $5.5 billion was spent on cancer research in particular during fiscal year 2008, which ended September 30, 2008. Additionally, R&D spending is increasing, with the top 100 biotechnology companies having spent approximately $14.8 billion on R&D during 2006, up from $12.6 billion in 2005 and $11.2 billion in 2004.

An increased focus on lowering healthcare spending via improved diagnostic testing and patient monitoring that can reduce the costs of misdiagnosis. In 2006, U.S. healthcare expenditures totaled approximately $2.2 trillion, and are forecasted to reach $4.4 trillion by 2018. For 2005, healthcare accounted for 16.0% of the gross domestic product in the United States compared to 10.9% in Switzerland, 10.7% in Germany, 9.7% in Canada, and 9.5% in France. U.S. healthcare premiums increased by 8.8% between 2004 and 2005. The largest cause of this increase was a greater utilization of services, accounting for approximately 43.0% of the rise in premiums.

This growing utilization is attributable to new medical treatments, more intensive diagnostic testing (i.e., defensive medicine), an aging population, which requires more medical attention, and progressively unhealthy lifestyles.

As a result of rising costs, we believe that there is a demand for more cost-effective approaches to disease management, specifically for cancer, as well as for emphasis on screening and accurate diagnostic testing to facilitate early detection of potentially costly, severe afflictions. Likewise, a poll conducted by the Harvard School of Public Health in June 2009 found that 54.0% of respondents felt that high costs were one of the most important healthcare issues for the government to address. We also estimate that up to 20.0% of all diagnostic tests may eventually be performed in non-laboratory settings, such as by patients or non-medical professionals.