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Calling Out True Positives: NEA Invests in Innovative Oncology Diagnostics Company, PGDx

C-3PO: “Sir, the possibility of successfully navigating an asteroid field is approximately three thousand, seven hundred and twenty to one.”

Han Solo: “Never tell me the odds!"

- From Star Wars: Episode V - The Empire Strikes Back (1980)

The paradigm for treating cancer is evolving incredibly rapidly today. New targeted agents, immuno-oncology, and combination treatment strategies are increasing in availability and price at an accelerating rate, yet predicting any given patient’s response to therapies remains mostly a guess. This means that physicians, patients and payors increasingly need better diagnostics to guide therapy selection in an effort to both improve outcomes and manage costs. In parallel, the science of genomics is racing forward with dramatic declines in the cost of genome sequencing and workflow improvements that are facilitating the transition of next-generation sequencing (NGS) technology from research settings to the clinic.

The confluence of these events is creating a multi-billion dollar market opportunity in oncology where NGS-based diagnostics can enrich understanding of the molecular basis of a person’s cancer for treatment and inform targets for new drug development. New applications, such as the burgeoning field of liquid biopsy—where a simple blood draw is analyzed for the presence of trace amounts of tumor DNA circulating in a cancer patient—may permit the surveillance of ongoing treatment response, the early detection of cancer recurrence, and someday the screening of cancer in at-risk populations.

Despite these far-reaching opportunities, it has been harder to build sustainable start-up companies in the diagnostics space than it is to navigate the Millennium Falcon through an asteroid field when you can’t make the jump to light speed. Diagnostics companies operate against a backdrop of challenges that essentially come in three flavors: 1) FDA’s concerns in ensuring consistent quality standards in test performance and interpretation, 2) payors lagging in recognizing the relative value diagnostics bring to treating cancer with inconsistent coverage and payment policies, and 3) the ability of clinicians and local labs to develop internal expertise in genomics and bioinformatics to perform these tests and generate actionable insights that can guide treatment decisions. At the same time, most diagnostics company business models—developing tests and running them through a centralized CLIA lab, building a large and expensive commercial organization to market their test to 10,000+ oncologists, and struggling to collect reimbursement from payors on an out-of-network basis—has routinely proved to be an exercise in capital inefficiency with limited ability to scale.

For years we have been impressed with the dynamics of the diagnostics market and have sought to find an investment opportunity in a company that reconciles the market’s strengths and its challenges to create a durable leading franchise in oncology. We are glad to have found Personal Genome Diagnostics (PGDx), led by a team that shares our ambition and is venturing to seize the opportunity that genomic science can bring to improving cancer care. And today we’re proud to share in their excitement as their lead investor in the Company’s first institutional round of financing.

PGDx was founded in 2010 by a team of clinicians and researchers from the Johns Hopkins Kimmel Cancer Center. As pioneers in cancer biology and genomics, bioinformatics and clinical applications of next-gen sequencing, they performed the first genome-wide and whole exome sequence analyses of human cancers and have pioneered methods for liquid biopsy by sequencing circulating tumor DNA in the blood. Based on over a decade of work and tens of millions dollars in research funding, the PGDx team has created a superior diagnostics platform based on proprietary reagents and methods for sequencing. For example, PGDx’s bioinformatics algorithms—essential in identifying what gene mutations are driving a patient’s cancer and should be targeted with drugs—have been painstakingly developed against an exacting standard of whole exome Sanger sequencing of hundreds of millions of matched tumor and normal base pairs.

By way of head-to-head comparisons with competing offerings in this space, PGDx has been quietly winning customer after customer among the most selective pharma companies and top tier hospitals in the world. The quality of PGDx’s science is matched only by the creativity they bring to solving challenging problems in treating cancer.  This includes identifying molecular mechanisms of resistance to targeted therapies and successfully predicting response to immuno-oncology treatments, which have been widely cited in publications including Nature, Science Translational Medicine and the New England Journal of Medicine. The net result of this is a portfolio of best-in-class diagnostics for evaluating solid tissue biopsies as well as the burgeoning field of liquid biopsy.

What’s equally important in our investment is the business model innovation PGDx is bringing to widely distribute their testing capability. PGDx’s platform of laboratory products and bioinformatics tools enables clinical labs and hospitals to locally conduct their own NGS-based oncology diagnostics with the same excellence that PGDx’s team developed at Johns Hopkins and continues to expand and refine at PGDx. Like every other major diagnostic that has come before, local labs and hospitals already want to perform NGS-based testing in their facilities—not only to enhance patient care, but to distinguish themselves from their peers and to attract lucrative clinical trial opportunities. PGDx’s platform can be deployed using currently available next gen sequencing instruments, and their cloud-enabled bioinformatics solution is inherently scalable without requiring local labs to staff up with bioinformatics talent in-house. Importantly, local hospitals and clinical labs can bill for their testing services on an in-network basis, providing for more attractive coverage and payment dynamics. All of this is supported by PGDx’s growing commercial organization that is highly focused on addressing their lab customers’ specific needs. In addition to the operating efficiencies of this business model for PGDx and its customers, this approach provides an opportunity for the FDA to embrace the inevitable wider distribution of NGS-based testing in the community, but with consistently high quality standards and validated methods.

Without question there will be many twists and turns on the way to building a leading oncology diagnostics franchise. But we believe the PGDx team and their strategy has laid a foundation to do exactly that. While diagnostics has sometimes proven to be a challenging investment space (some VC's might even rather kiss a Wookiee), NEA strives to see value and opportunity where others do not. We are excited to back PGDx as their capital partner and look forward to sharing in the company building experience as a new part of their team.