America writes more than 4 billion drug prescriptions every year. And according to the research, 50% of them aren't working.

To start, that's an incredible waste of money. America's healthcare tab is more than $3 trillion annually -- some 18% of our total GDP -- and spending nearly $300 billion on ineffective drugs isn't helping.

an image of a bottle with pills spilling out

Image Source: Getty Images.

But more importantly, we should think more critically about why they're not working. Doctors offices are getting ridiculously overcrowded, which is leading to a rise in new fields like telemedicine. Companies like Teladoc (NYSE:TDOC) are now providing virtual medical consultations that take place over your computer or mobile device.

Between the overcrowded hospitals and the remote meetings, personal care physicians are getting less time to actually speak with their patients and diagnose their symptoms. That means that for several common conditions, such as a sore throat or a cold, they'll often prescribe a go-to medication that typically works well for most patients.

But healthcare isn't a "works well for most" type of field. We're all different, we have different genes, and we react differently to medications.

This is exactly why 50% of the drugs aren't working. We need to think differently about how our system as a whole administers prescriptions.

Enter Pharmacogenomics

Pharmacogenomics is a relatively new field that combines pharmacology and genomics. It studies gene-drug interactions, to explain how certain people will respond to certain drugs and then to optimize their medication recommendations.  

Companies like OneOme now offer pharmacogenomic tests directly to consumers, which include a full report and patient consultation to dig into the insights. For example, patients can learn which drugs are giving them decreased exposure to the active compound (i.e. "this drug doesn't seem to be working", which may require a higher dosage) or increased exposure ("I'm really feeling this", which could have unintended side effects). 

Scientifically, our genes play a major role in the way we metabolize those active compounds (other factors, such as drug-drug interactions and environmental factors also play a part too). The metabolic rate can range from "poor" to "ultra rapid", and all points in between. 

I personally took the OneOme test last month and found the results to be fascinating. I plan to bring the report with me to any upcoming doctor appointments, to serve as a guide for future prescriptions.

a photo of a man speaking with his doctor

Image Source: Getty Images.

And as an investor, I also believe there is a huge and growing opportunity for pharmacogenomics in America's healthcare system.

I recently spoke in greater detail about this with OneOme Chief Executive Officer Paul Owen, who is an expert at the forefront of this innovative trend. The company was recently named one of the World's 50 Most Innovative Companies by Fast Company, and they're emerging as a leader in the field.

Paul offered some excellent insight during our conversation, including:

  • The role of pharmacogenomics in American healthcare
  • Specific areas where it is receiving the strongest adoption
  • How the test was designed and how it actually works
  • How much the test costs, and the economics for businesses and insurers
  • The increasing interest of patients in their own health
  • What things investors should be watching

We'll be keeping an eye on this growing role of pharmacogenomics, to provide a more well-informed and less-expensive future for American healthcare.

Here is an audio player that captures the interview with Paul, as well as a full transcription below.

Transcript

Motley Fool Explorer lead advisor Simon Erickson: Hi everyone. Motley Fool Explorer lead advisor Simon Erickson joined this afternoon by Paul Owen. Paul is the CEO of OneOme which was recently named one of the world's 50 Most Innovative Companies for 2018 by Fast Company, including number two in the biotech category. Paul, thanks so much for joining me this afternoon!

OneOme Chief Executive Officer Paul Owen: Thank you, Simon. I appreciate the time.

Simon: Paul, we're talking today about this developing field of pharmacogenomics, which is quite a mouthful but it's also a powerful concept. This is the study of how an individual patient's DNA is impacting how they'll respond to certain drugs.

And just to frame this bigger picture, you and I were talking earlier about how there are four and a half billion prescriptions filled each year in the United States. But really a lot of drugs have only got a 50% response rate as their intended with the patients that they're targeting. But we've also seen other studies say that 95% of how a patient actually responds to medications is due to genetic factors.

So my first question for you is, what role do you see pharmacogenomics playing in the future of America's healthcare industry?

Paul: You bet. Thanks, Simon. You know as most people are unaware of, we all metabolize our drugs differently. We require either different doses or different types of drugs based on the way we metabolize the medication or don't metabolize it. So many individuals are considered poor metabolizers with specific genes. Some are considered normal and some are considered ultra-rapid. And in all of those cases, many of the medications that are commonly prescribed today are affected by one of those different variations or multiple variations.

So pharmacogenomics is a real opportunity both for the healthcare providers as well as individuals themselves to get a better understanding based on their specific genes on which medications are metabolized effectively with their individual genes and for themselves. And everyone is different. So there is a significant opportunity not only from the overall four and a half billion prescriptions being written out and somewhere approximately around 50% of them do not work as they're intended and prescribed. But there's also a significant opportunity for individuals -- as personalized medicine becomes more increasingly popular -- to really take on that responsibility with themselves.

And if you can make pharmacogenomics cost effective, the upside benefits to having a product like that that can be rerun at any time in your life, because your genes don't change, has a significant advantage to the healthcare system, the insurance system, as well as to the individuals-most importantly-themselves.

Simon: And when you talk about it like that, Paul -- in terms of individual or personalized medicine or the differences that we all have, this is very innovative but it's also very different than the healthcare system that we have today (at least how it's administered). We've got drug makers going after billion dollar blockbusters, we've got doctors writing prescriptions based on what's typically worked best for them. As a country we're spending about three trillion dollars a year on healthcare, the most expensive healthcare system in the whole world.

But rather than thinking of it in terms of trillions of dollars, can you tell me just more tactically -- where are you seeing this innovative concept of pharmacogenomics actually gaining adoption?

Paul: Yeah, great question. So it is all across the board, Simon. We are seeing adoption in many of your larger health systems across the country. They are now looking at this as an opportunity to not just reduce cost, but there is a tremendous amount of initial cost for prescription medication. But there's also a tremendous amount of downstream implications: if a patient can be earlier prescribed in the process of having the right medications prescribed immediately versus going through the current and historically trial and error process. So health systems have begun to adopt this and this is by far the most, the strongest area for OneOme that we have specifically focused on over the last two years since we launched our product.

And a lot of that has to do around the type of technology that we've created that makes it extremely user friendly for the provider, and it gives them a, almost a one stop shop that has technology surrounded around it so they can avoid adverse drug reactions when they're prescribing medications, and they have this beta for them not only at the immediate time that they see a patient, but they have it for the future integrated into their electronic medical records.

The second area that has received very strong adoption, and frankly I think our largest advocates for this test are the patients themselves. We've had patients contact us since the day we opened our doors that have heard about our technology and our capabilities and wanting to get the test ordered. So we have a process in place now that patients can go to our website and they can order the test. And a lot of that had to do with our strong scientific credibility. But it also had a lot to do with the fact that we're trying to make it an extremely easy process for them to gain access to. And, most importantly, that they can afford to do it.

And then the third area that is beginning to gain a tremendous amount of traction -- for us, at least, as an organization -- are employers. Employers are starting to recognize -- in particular your self-insured employers -- are starting to recognize that the healthcare costs -- overall pharmaceutical spend -- is a big, big part of their overall cost structure when they offer employee benefits. And when you can provide a test like this that is extremely comprehensive, it's a life long test, and it's cost effective, it's affordable for them to be able to provide to their employees. It's not only a win from an employee taking care of their well being. But it's also minimizing days of lost work because of the effects of not getting the right medications at the right time. The evolution of the costs that are the downstream for employers is pretty significant.

Simon: So it sounds like the combination of being user friendly, patients requesting this, and also a way to control costs are really the keys to driving the adoption right now.

Paul: No question. Absolutely. We recently did a study that showed that there is about a 7:1 ROI for employers offering this to their employee population that have major depressive disorder because of not only the lower cost of the technology but also the implications of patients that usually go through second or third time prescription process and fail and the amount of cost that that builds up over time.

Simon: Well Paul the 7:1 ROI definitely speaks to the investor in me. Speaking a little bit more about OneOme, I want to talk about -- this is verbatim what you had written online -- that "OneOme has a proprietary, algorithm based platform and creates a customized solution that informs providers with targeted, timely evidence based decisions by identifying optimal drug therapy for individual patients within their current workflow."

Again, quite a few words in there. But that's a powerful statement in how you are actually get this drug effectiveness to work, which kind of goes back to how we said that half or drugs aren't getting the patient responses that we want.

Maybe out of that last sentence, aside form the proprietary part, which you probably aren't able to talk about, but more generally, how are you analyzing patient data to find these correlations? And then, after you find those, how does that impact a doctor's ultimate decision-making process?

Paul: Great questions. So yes, we are using a technology that allows us with a very, very low input cost to create very high throughput genotyping data. So we receive the DNA from the patient, whether it be through a buckle swab, a simple buckle swab or blood that many health systems like to provide. And we are able to run that through our genotyping system. We have a multigene proprietary algorithm that was co-developed with the Mayo Clinic scientific team. And through that input then we are able to determine the metabolic pathways for the specific medications that either that patient is currently on, or that is in the overall medication list that are affected by metabolic pathways, and your specific genes.

With that output then we're able to put that into a very easily read document that shows by specific disease state. So we cover 30 different disease states. And it's integrated into electronic medical records with health systems that we have interfaces in place with. If we don't have an interface in place with the health system, then we have created a RightMed advisor tool, which is the portal that we have specifically for providers, and it allows them to look at the individual's specific genotype. It allows them to look at the individual's medications that they're currently on and they can run specialized reports just for those specific medications, or they can look at he entire comprehensive list and allows them to go in and identify medications that they should be prescribing and if that would have any adverse drug reaction effect on other medications that that patient may or may not be on at this given time.

We knew that going into this business, in order for providers to use our products and our tools as effectively as possible, it had to be within their current workflow and as clean and simple as possible. And we have achieved that. We have it in place and running today. And I think that is specifically what Fast Company recognized when we went through the process of being interviewed by them.

Simon: Back to the reimbursement point that you made a little earlier, this is definitely entrepreneurial. It's definitely innovative. But we still are tied to a system that's tied to physician fee schedules and CPT codes for Medicare. And I think that probably a lot of patients would love to know these reports and have them part of their EHR.

But I wanted to ask if this was something that is actually covered by insurers right now? You mentioned the smaller plans, the employers plans, but is this something that these tests are actually being reimbursed for? Or are you having patients just pay it out of pocket right now, and how much is that costing?

Paul: Yeah it is a little bit of both. Some payers are paying for it at this point in time. We do do third party billing for the providers that we work with. And it is all across the board depending on the payers that we are billing and the amounts that we are getting paid back, and that is why we spent so much time up front ensuring that we had a highly automated proprietary system in place that we could continue to drive down our cost. HSA's and FSA's from an employer's perspective often cover this as well. And then lastly, the patient can pay out of pocket. Currently our patient pay -- if you want to just go online and purchase the product from us which also includes a licensed physician in the state of which you reside in ordering the test on your behalf and a genetic counselor on the back end reviewing the results live with you -- that would be $349 out of pocket.

We have a tremendous amount of opportunity to continue to drive down those costs. We feel like we went into this, the co-founding of the business, with that goal in mind and we haven't stopped there.

Simon: And we've seen the costs of genomic sequences falling at a pace faster than Moore's Law for the last decade now. At $349 even out of pocket today, that's affordable for a lot of people.

We've discussed how pharmacogenomics can be used for several strains of cancer. We've seen that it works for cardiovascular drugs. We've seen it work for anti-depressants. I've seen a study from the University of Chicago that claims that DNA-drug connection covers 90% of the common US diseases that are out there right now.

How far into mainstream medical practice do you see this field actually going?

Paul: I think it will continue to drive into mainstream. I think at some point in time, and not in the too far distant future, we will see this being used almost as a pre-screening, because again when you have technologies like OneOme coming out with over 360 medications already curated, we cover over 30 different clinical indications, meaning cardiovascular, diabetes, etc., and at such an affordable cost. I see it getting more and more strongly implemented in to the overall mainstream of your current PCP's ordering the test before a patient even gets in there and/or sometime before or not too long after birth occurs for individuals. Because again, once your genes are established, they're not going to change.

And we offer -- and I can't say that all the other pharmacogenomic companies offer this -- but we offer a rerun of our report at any time at no cost. And also we give the patient the opportunity to set up their own portal so they can have portability to be able to send it to any of their providers. So if a patient goes to a doctor for a hip surgery and needs some kind of pain medication, but then six months later has a cardiac event, they can send it to their cardiologist. It's very streamlined with the most accurate and updated information that we've curated.

Simon: Yeah and Paul something I'm noticing that's kind of a common theme of a lot of what you've said is that there's a lot more information available to patients now. This is kind of different for healthcare, right? You've got a lot more -- I don't know if responsibility is the right word -- but knowledge of the conditions that you have and kind of the data is there for you now. Is that a fair assessment?

Paul: Right. That's very fair and I think that it's a very important point to bring up, Simon, because of what some genomic companies are choosing to do. We don't store the genetic data, so once the genetic data, the individual's DNA is run through our engines and we curate the data and everything, that is discarded. It's gone away. We have no intentions of reselling people's genetic information or anything like that. That's not a part of the organization we are and we take HIPA and patient health information privacy extremely serious.

Simon: Paul, one last question for you. Our audience here at the Motley Fool is individual investors. For those who are less familiar with pharmacogenomics, what's a couple things that we should be watching?

Paul: I think that what you should be absolutely watching, what kind of technology is being used? Even though next-gen sequencing and some of the more popular new sequencing materials that are out there, even though the cost as you said has been driven down pretty significantly, there's still a far, far reaching opportunity to go even lower. So I would encourage them to look at the technology that's being used. Because for pharmacogenomics specific purposes, you really need to be extremely targeted. You don't need a real, real broad brush of genetic data. You need a very specific and deeper brush of that.

So I would look at the technology and then I would look at their go to market strategy. If their go to market strategy is what your traditional diagnostic companies have been in the past -- which is raise a tremendous amount of venture capital, go through a number of clinical trials and work your hardest to get onto payer contracts -- that's one path. And then they charge a tremendous amount of money back to the payers.

We elected a different path, which was to raise the least amount of capital we possibly could to remain non-dilutive. All of our capital raises thus far have been through angel backed investors. And we have elected to go down the path of making it much more easy and accessible to consumers and providers, and in most cases providers are taking on the billing responsibility themselves, because they're already billing out for specific single gene testing that their doing anyway, and seem to be having a pretty decent amount of success through that. So that's what I would look at from an investor's perspective.

Simon: Well thanks very much. My guest was Paul Owen the CEO of OneOme. You can learn more about OneOme at their website oneome.com. Paul, thanks so much for joining us this afternoon!

Paul: I appreciate it, Simon. Thank you!

Simon: And thanks for tuning in. Until next time, Fool on.

Simon Erickson has no position in any of the stocks mentioned. The Motley Fool recommends Teladoc. The Motley Fool has a disclosure policy.