Updated: 3:02 pm EST, 09 February 2013
Update 2: 12:11 am EST, 10 February 2013
Econintersect: How is it that a 15-year old high school student discovered a very reliable detection test for pancreatic, ovarian and lung cancer when nobody else had done it? When you follow the story, told by the student in a TED conference presentation, the reason may become clear: There was no big money to be made in doing this.* The cost of the test, which detects very early stage cancers when treatment is simple and has nearly 100% survival rates, is $0.03.
[Click Read more >> to view TED presentation.]
Click image to watch video at YouTube.
Andraka has won an international youth science award for his work.
If this pans out it is a breakthrough in medicine that will put Andraka in the company of Edward Jenner (small pox), Alexander Fleming (penicillin) and Jonas Salk (polio).
* Why no big money? Lets say, for example, that 100 million tests were run per year. If the cost for the test materials remains at $0.03, then the cost in getting the test into doctor’s hands would be the bulk of the expense (plus of course the doctor’s fee for administering the test). So a distributor of the test would have a product cost of about $1. With a 500% mark-up that means there is a $400 million gross profit per year.
That sounds attractive but the cost of doing what Andraka did in the laboratories of a pharma giant would run into many millions of dollars. Investing that amount in something that was working with materials so cheap would never pass a business plan test because the probability of success at the outset would almost certainly have been rated as low. And the reward for success would have been discounted by that probability.
If the probability of success was rated 5% at the outset and the $400 million a year was assumed as the reward, the probability factor times the reward comes in at $20 million. Spending several million to investigate the potential would have been put near the bottom of the possible projects list.
Large pharma companies have revenue streams of tens of billions – Merck (NYSE:MRK) had $48 billion in revenue for the last completed fiscal year. These companies put their money into efforts that will potentially bring in new products with multi-billion dollar revenue flows each year.
These companies will pick up developments like Andarka’s and do the distribution for the hundreds of millions in revenue and profit; they simply don’t go looking for such developments themselves.
The above assessment was based on the assumption that each test would be individually packaged. According to Wikipedia, the Andarka test is done by dipping a strip of paper in a bodily fluid:
The result of his project was a new dipstick type diagnostic test for pancreatic cancer using a novel paper sensor, similar to that of the diabetic test strip. This strip tests for the level of mesothelin, a pancreatic cancer biomarker, in blood or urine, to determine whether or not a patient has early-stage pancreatic cancer. The test is over 90 percent accurate in detecting the presence of mesothelin. According to Andraka, it is also 168 times faster, 26,000 times less expensive (costing around three cents), over 400 times more sensitive than the current diagnostic tests and only takes five minutes to run. He says the test is also effective for detecting ovarian and lung cancer, due to the same mesothelin biomarker they have in common.
This means the process is similar to testing for acidity using litmus paper, to give another example. Thus is is unlikely that the test would ever be packaged individually, but more likely in a vial containung a large number of strips.
So let’s run another hypothetical business analysis:
It is likely that this test strip would be packaged in small vials, the same way as litmus paper. At 100 strips per vial, and assuming $5 per vial for shipping and handling, plus a 500% mark-up, that means revenue per year of only $40 million for every 100 million tests run.
A billion tests could be run per year for a revenue stream of $400 million in sales of the test strips.
The materials cost to the doctor performing the test would only be $0.04 per test. Virtually the entire cost to the patient would be the doctor’s visitation, administration and evaluation fee.
This is likely to be a routine part of any patient visitation to a doctor anywhere in the world, at least on an annual basis. The market is likely to be easily 1 billion tests per year, perhaps significantly more.
One has to answer the question, though, is there any point in running the test for people who would have no means to treat cancer if detected? That could well limit the number of tests to a number far short of the 7 billion plus souls on the planet.
Thus the revenue stream in the last business case considered is likely to be in the $400 million to $1 billion per year with a profit margin of 80%.
One final note: Jack Andarka seems to be quite a normal kid with two professional parents. You might think that he is just in the extreme distribution tail of achievement for his genetics and upbringing. However, the Anadrka’s don’t seem to be doing just the average things that loving parents might do and got lucky with how Jack turned out. From Wikipedia:
Jack’s older brother, Luke, won $96,000 in prizes at the Intel ISEF in 2010, with a project that examined how acid mine drainage affected the environment. In 2011, Luke won an MIT THINK Award (Technology for Humanity guided by Innovation, Networking, and Knowledge), which recognizes students whose science projects benefit their communities.
Hat tip to Russell Huntley.