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At Terrain, we believe that precision diagnostics will remap the landscape of chronic disease. Precision therapeutics, after all, cannot truly be precise when prescribed blindly, without understanding whether a patient has the the right biological target. Precision therapeutics and diagnostics are therefore tightly tied together both scientifically and economically. In fact, many of the fundamental challenges to the successful development and adoption of molecularly targeted therapies are mirrored in the development and adoption of their corresponding diagnostics. It’s our view that overcoming these challenges is worth it - precision diagnostics offer more accurate, cost-effective, and personalized treatments for many chronic diseases. In oncology, where Terrain is focused today, these advancements are particularly groundbreaking and may facilitate targeted therapies that not only improve patient outcomes but also enhance the efficiency of our healthcare systems.
Yet, these innovations bring with them significant economic and social considerations. The economic potential of companion diagnostic tests lies in their ability to lower drug development costs, reduce healthcare resource utilization, and even decrease disease incidence through early detection. However, these benefits must be balanced against the realities of high test costs, complex reimbursement landscapes, and the potential to exacerbate existing health inequities. And importantly, the true value of these diagnostic tests will only emerge over time as their societal and economic impacts are fully realized.
For a startup like Terrain, the extended time-to-demonstrated-value magnifies these challenges. Building a robust evidence base requires significant upfront investment from mission-driven investors who share our vision of a better future for patients.
Who are the Stakeholders?
There are clearly many groups with a vested interest in the future of precision diagnostics. Patients, their families, and their physicians are constantly hoping for the best outcome, and thus the best treatment path. Payers are primarily focused on an overall reduction in healthcare utilization, lower treatment costs, and improved allocation of resources. Pharma and Biotech companies need more efficient drug development, lower R&D costs, and increased likelihood of successful clinical trials. What’s clear in my research is that there’s still significant work to be done to align these incentives and demonstrate the value of precision medicine (and thus diagnostics) to all stakeholders.
In truth, precision diagnostic testing is already the norm for many cancer types. An analysis by Optum and Illumina using real-world data to assess the rate of molecular testing found that 42% of cancer patients receive some form of biomarker testing. Think ALK-positive non-small cell lung cancer, or BRAF-mutant melanoma. Surprisingly, there is a relative dearth of research on patients’ understanding of and interest in precision medicine. In reviewing the available research, the general sentiment is that patients have a strong interest in targeted treatments, though surveys from ICON and others profiled physicians’ views of their patients’ understanding and not the patients themselves. It’s also clear that many patients have an incomplete understanding of how precision therapies work, and maintain significant reliance on clinicians’ recommendations. The takeaway is that as an industry, we must support continued education on the benefits, limitations, and potential risks so that patients and their families can make the most informed decisions for their treatments.
This raises another interesting point: when dealing with chronic disease, knowledge is power. When receiving a diagnosis, many patients choose to dive into clinical research or other information on treatment plans and outcomes. Precision diagnostic tests thus offer additional information on potential drug targets that could meaningfully impact their care. For many patients, this knowledge can provide hope for better treatment and also serve as the basis for collaborative interactions with their care team.
The cost implications of precision therapeutics
It may be counter-intuitive, but precision therapeutics cost less for drug makers to develop. The accounting here is complex; while traditional therapies have lower initial development costs, they also require larger clinical trials with typically higher failure rates. The net result is lower costs for the development of precision drugs. A often-cited study from researchers at Queen’s University Belfast compared the total development costs of precision therapeutics to ‘traditional’ therapeutics. They found that even when accounting for the cost of developing a companion diagnostic, developing a precision therapeutic saves nearly $1B. The reduction in cost comes primarily from a higher probability of success - a trend which extended across all phases of clinical research (see graphic below). In this analysis, the costs of failure are amortized across all the successes - so having more costly failures means that the successes cost more in the end.
Figure 1: Across all phases of clinical research, clinical trial success rates increase when patients are selected for the study based on a biomarker. Adapted from Wong 2019 Biostatistics.
Comprehensive biomarker testing can lead to more optimal treatment and reduce overall healthcare costs. This type of testing looks for all recommended biomarkers based on clinical guidelines, which can help to identify the most effective treatment for each patient. By avoiding ineffective treatments, comprehensive biomarker testing can potentially save money in the long run. For example, researchers from CVS Health examined the total medical and pharmacy expenditures for lung cancer patients comparing those who received a comprehensive panel test versus narrow, targeted tests. They reported a significant decrease in overall expenditure which the authors tie to the physicians ability to make timely and precise treatment decisions (average total expenditure in the broad screening group was $11,535 compared to $20,039). So while the upfront costs of precision oncology therapies may be higher due to the cost of biomarker identification and patient stratification, they can potentially lead to significant cost savings in the long run and higher efficacy rates. Additionally, the use of companion diagnostics can help to identify patients who are most likely to benefit from a particular therapy, reducing the number of patients who receive ineffective treatments and thereby lowering overall healthcare costs.
Our view at Terrain is that three things must happen in parallel to allow for precision therapies to be adopted: abundant targets must be identified, advances in drug development are needed to make those targets actionable, and comprehensive patient screening is necessary to identify who is most likely to benefit from those drugs. Next-gen sequencing enabled rapid growth in precision therapeutics for genetic targets, and we now see this pattern repeating for antigen-directed therapeutics. While precision protein therapeutics (particularly ADCs) have made significant advances in target validation and drug design, the field still requires a robust patient screening platform to fully realize their therapeutic potential.
Comprehensive precision protein diagnostics won’t be accomplished through IHC methods. Similar to NGS, comprehensive proteomics panels require innovation in the tools used. Multi-plex immunofluorescence is the most likely path forward for a number of technological reasons (which we’ll save for a separate analysis). Fortunately, much of the cost structure of this type of assay is well understood, affording the ability to push direct costs lower through standardization and automation (also deserving of a deeper dive).
Equitable access to precision diagnostics
That future aside, today’s costs for most precision diagnostic tests are high, potentially limiting access for some patients. This cost barrier raises serious concerns about health equity and demands immediate action. Ensuring equitable access to these advanced diagnostics is not merely an economic issue - it’s a moral imperative that benefits both individual patients and society at large.
Every patient, regardless of socioeconomic background, deserves the opportunity to harness the power of personalized medicine. To make this vision a reality, healthcare systems and policymakers must embrace innovative solutions such as value-based pricing, outcome-driven reimbursement models, and dynamic public–private partnerships that reduce costs without sacrificing quality. Expanding insurance coverage and leveraging government subsidies are essential steps toward democratizing access to these life-changing tests.
By championing affordability and inclusivity, we not only improve patient outcomes but also strengthen the overall resilience of our healthcare system. It is clear: equitable access to precision diagnostics is in the best interest of both patients, healthcare systems, and the general population, ensuring that the transformative potential of personalized medicine is realized for everyone.
Impacts on the healthcare system
And speaking of healthcare systems, precision medicine is also causing large-scale changes here as well. Healthcare workers generally have positive perceptions of precision medicine. They recognize its potential to improve patient outcomes by providing more accurate diagnoses, more personalized treatments, decreased toxicity, and earlier detection of diseases. Precision medicine also empowers healthcare professionals to make more informed decisions and deliver targeted therapies, leading to better patient outcomes, earlier detection, and more effective disease management. And importantly, by identifying patients who are most likely to respond to specific therapies, precision diagnostics can minimize the use of ineffective treatments and reduce the need for extensive trial-and-error approaches. The net benefit is an overall reduction in healthcare resource utilization, and thus cost.
When will we know it’s worth it?
The economic evaluation of precision therapeutics involves comparing the incremental costs and health outcomes of new interventions with existing alternatives. Cost-effectiveness analysis (CEA) is one method to generate evidence that can inform healthcare resource allocation decisions. A key tool in this analysis is the cost-effectiveness plane, which graphically represents the incremental costs (Y-axis) and incremental consequences, such as quality-adjusted life years (QALYs) (X-axis), between a new health technology and a relevant comparator. A scenario where a new intervention leads to both increased costs and increased health benefits is common in precision medicine. This situation, found in the upper right quadrant of the cost-effectiveness plane, necessitates a comparison against a cost-effectiveness threshold to assess whether the health gains justify the additional costs. The cost-effectiveness threshold (dashed line) represents the theoretical limit to additional cost that which could be imposed on the budget given the increase in QALY.
For example, consider a new diagnostic test that identifies a subgroup of patients likely to respond favorably to an expensive, targeted therapy (Scenario 1). While the diagnostic test and subsequent targeted therapy increase initial costs compared to standard treatment for all patients, the targeted therapy significantly improves the quality of life and extends life expectancy (QALYs) for the identified subgroup. To determine if this precision medicine approach is worthwhile, the overall cost per QALY gained must be evaluated against a predetermined cost-effectiveness threshold to determine if the new intervention represents an efficient use of healthcare resources. The economic case rests on whether the expected net benefit of treating patients according to their subgroup is greater than that obtained from a relevant alternative strategy. Scenarios where a new intervention results in a decrease in cost while simultaneously leading to an increase in quality-adjusted life years (QALYs) represents a highly favorable outcome in economic evaluations of health technologies (Scenario 2).
Figure 2: Cost-effectiveness plane for assessing new intervention scenarios. Adapted from Gavan 2018
Precision diagnostics are relatively new and population-scale health economic research typically lags behind clinical adoption of new technologies. As a result it may be many years before we truly appreciate the projected ROI for both precision therapeutics and the associated diagnostics. What’s more, the clinical utility of a given test may vary by demographics, indication, or other factors that complicate this type of analysis.
Recent clinical trials have underscored the transformative impact of comprehensive genomic profiling (CGP) in oncology. The NCI-MATCH Trial, which enrolled over 5,500 patients with various advanced cancers such as colon, breast, non-small cell lung, and prostate, demonstrated that CGP could successfully identify actionable genetic alterations in patients who had progressed on standard therapies or lacked standard treatment options. This genomic insight enabled the matching of patients to targeted or investigational therapies, even in cases where such treatments were not traditionally associated with their cancer types. Similarly, research from Providence Health, Illumina, and Microsoft Research involving 3,216 patients with advanced cancers, utilized a reflex-testing approach to implement genomic testing upon diagnosis - before the patient’s first oncologist consultation. Over half of the patients received biomarker-driven targeted therapy or immunotherapy, leading to a significant improvement in overall survival (25 months versus 17 months with conventional chemotherapy, p<0.001). Together, these studies highlight how timely and precise genomic diagnostics can enhance treatment strategies and patient outcomes in oncology.
Notably, demonstrating the clinical utility of precision diagnostics requires significant time and perseverance. The NCI-MATCH trial, for instance, took nearly 10 years to complete because of the large-scale basket nature of the trial. ASCO’s TAPUR study is still ongoing, and estimated to require just as long. Despite the lengthy process, these studies are quantifying the benefit of precision diagnostics / targeted therapies for patients lacking standard options. And importantly, research continues to pour out from the subprotocol research teams (ASCO maintains a page dedicated to the research findings of these basket trials).
Conclusions
The future of oncology is being steadily reshaped by precision diagnostics. With advancements in biomarker identification and patient stratification, our approach to cancer care is becoming more precise, cost-effective, and patient-centered. While significant upfront investments, complex reimbursement models, and the need for equitable access remain challenges, the long-term benefits (improved patient outcomes, reduced trial-and-error in treatments, and overall healthcare cost savings) are promising.
At Terrain, our research reinforces that precision diagnostics streamline drug development and enhance healthcare resource utilization. Real-world data and industry analyses consistently show that by identifying the right patients for the right treatments, we not only improve clinical outcomes but also support a more sustainable economic model in oncology care.
Moving forward, collaboration is essential. We invite patients, healthcare providers, payers, and industry innovators to join us in addressing these challenges and turning them into opportunities. By investing in robust evidence, continued education, and accessible solutions, we can transform the promise of precision diagnostics into a standard of care that benefits every cancer patient.
Together, we have the opportunity to build a future where targeted, effective treatments are within reach for all, driving meaningful change in both patient care and the overall healthcare system.
References
- Byfield, S. D. et al. Real-world analysis of commercially insured and Medicare Advantage patients with advanced cancer and rates of molecular testing. (2023). Poster Link
- Gavan, S. P., Thompson, A. J. & Payne, K. The economic case for precision medicine. Expert Rev. Precis. Med. Drug Dev. 3, 1–9 (2018). doi: 10.1080/23808993.2018.1421858
- Henderson, R. H. et al. Delivering the precision oncology paradigm: reduced R&D costs and greater return on investment through a companion diagnostic informed precision oncology medicines approach. J. Pharm. Polic. Pr. 16, 84 (2023). doi: 10.1186/s40545-023-00590-9
- ICON Survey: Innovation in oncology: Accelerating R&D in an evolving landscape. Link
- O’Dwyer, P. J. et al. The NCI-MATCH trial: lessons for precision oncology. Nat. Med. 29 , 1349–1357 (2023). doi: 10.1038/s41591-023-02379-4
- Wong, C. H., Siah, K. W. & Lo, A. W. Estimation of clinical trial success rates and related parameters. Biostatistics 20, 273–286 (2019). doi: 10.1093/biostatistics/kxx069
