How 23andMe Can Spur Growth for These Diagnostics Companies

The doors of controversy and debate were flung wide open when the Food and Drug Administration brought the regulatory hammer down on personal genome kit manufacturer 23andMe. The company, which has been widely praised for allowing individuals to cheaply and easily peek into and decipher their personal genetic information, is no longer allowed to sell its sole product, the Saliva Collection Kit and Personal Genome Service, or PGS. That's what years of failed attempts to bring your product into compliance will do.

23andMe won't be able to sell this to consumers anytime soon. Source: author.

Whether or not the FDA should classify the PGS as a diagnostic test is a debate for another day, although I don't think it matters much, since direct-to-consumer genetic tests will still likely be classified as Class 2 medical devices. Don't let a few regulatory hurdles for the industry lead you to think they're a scam or devoid of value. The truth is such kits can add a tremendous amount of value to the health-care industry if used properly. In fact, they could be key growth drivers for diagnostics companies such as Quest Diagnostics (NYSE: DGX  ) , Genomic Health (NASDAQ: GHDX  ) , and Myriad Genetics (NASDAQ: MYGN  ) , who make a living offering more comprehensive, more expensive tests.

Direct-to-consumer genetic tests as early warning system
One of the FDA's biggest concerns with 23andMe's PGS was the potential for it to create public health problems. I recently explained this in more detail, but it is worth reiterating part of the agency's warning letter to the company:

FDA is concerned about the public health consequences of inaccurate results from the PGS device; the main purpose of compliance with FDA's regulatory requirements is to ensure that the tests work.

A customer who takes action on results the company provides could be seriously harmed or lose his or her life if the results are inaccurate. Of course, that could also occur if the results are accurate (CEO Anne Wojcicki maintains that the data provided is 99.9% accurate). Nonetheless, companies won't abandon the development of direct-to-consumer genetic tests just because there's an added layer of regulatory compliance to contend with. The opportunity is simply too large and too valuable to ignore if the kits are used properly.

Consider a world where consumers had cheap access to basic genetic information. Even if the data provided to individuals lacked the comprehensiveness of full-blown diagnostic tests, it could still be used as a simple early warning system. Liken it to running a quick scan with your computer's antivirus software. If something is found, then you'll probably take the time to do a more thorough scan.

The best part is that nothing has to change to improve public health, except perhaps attitudes toward the kits. 23andMe already provides, er, provided genetic health risks for ovarian and breast cancer (BRCA genes), prostate cancer, and 120 other diseases and ailments. For instance, I am 1.4 times more likely to develop prostate cancer in my lifetime than the average male, according to my personal 23andMe test results. I shouldn't use those simple results to assume that I'll actually develop prostate cancer, but I could certainly use them to be more proactive.

I could take a more rigorous screening or diagnostic test from Quest Diagnostics, which offers a host of laboratory tests for prostate cancer. If I did, in fact, develop the disease, my doctor and I could utilize a number of health tests from Quest or Genomic Health for managing it. After all, the point of diagnostic tests -- whether seeking genetic, genomic, or other biological data points -- is to aid individuals in preventing and managing diseases.

The FDA is still worried about the potential for misuse, as relayed in its example for 23andMe's detection (or failure to detect) of BRCA genes:

For instance, if the BRCA-related risk assessment for breast or ovarian cancer reports a false positive, it could lead a patient to undergo prophylactic surgery, chemoprevention, intensive screening, or other morbidity-inducing actions, while a false negative could result in a failure to recognize an actual risk that may exist.

I think it's an absurd example: What doctor would perform such procedures without conducting further, less-invasive tests, such as those developed by Myriad Genetics? It would be far more beneficial for everyone involved -- diagnostic companies, individuals, insurance companies, investors -- to welcome the arrival and accessibility of direct-to-consumer genetic tests, while acknowledging they aren't perfect. Then again, is any product?

Foolish bottom line
Giving more people access to their genetic information earlier in their lives would no doubt lead to more business for diagnostic test distributors and, hopefully, prevent the progression of diseases in the general population. Whether direct-to-consumer genetic tests comply with current regulations for medical devices or get a special classification from the FDA is immaterial to one simple fact: Such products are here to stay. That will open up tremendous growth opportunities for companies such as Quest Diagnostics, Genomic Health, and Myriad Genetics that offer more thorough diagnostic tests that are actually designed to prevent, diagnose, and manage diseases.

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