On Tuesday, February 27th, Gilmartin Managing Director, David Deuchler, hosted a webinar with Hannah Mamuszka (Founder & CEO, Alva10), Ipsita Smolinski (Founder & Managing Director, Capitol Street), and Isaac Ro (Partner, Catalio Capital Management). The panel discussed implications of FDA’s proposal to downregulate IVD’s from class III (high risk) to class II (moderate risk), FDA’s LDT proposal, and Palmettos MolDX on coverage for Proteomic diagnostic tests.
Moderator: David Deuchler, Managing Director, Gilmartin Group
Guest Speakers:
- Hannah Mamuszka, Founder & CEO, Alva10
- Ipsita Smolinksi, Founder & Managing Director, Capitol Street
- Isaac Ro, Partner, Catalio Capital Management
Key Takeaways:
Background
On January 31, the FDA’ Center for Devices and Radiological Health (CDRH) announced the intention to initiate a reclassification process (see here) for most Class 3 (high risk) IVD’s to class 2 (moderate risk) for infectious disease and companion diagnostics. In doing so, the potential approval pathway moves to a 510K approval from a premarket approval (PMA) process. Importantly, in downregulating to a Class 2 device, the standard of “substantial equivalency” becomes the bar for approval. Additionally, the FDA proposed a rule in September 2023 to regulate LDTs as IVDs are regulated, with a final ruling planned for April. Lastly, we discuss Palmetto’s MolDX coverage change, which will now provide a reimbursement pathway for protein-based tests versus solely DNA and RNA prior. With our webinar participants, we delve into the regulatory and payor landscape and identify key potential implications of the aforementioned rules and proposals.
The logistics behind a potential final FDA rule on LDT regulation or IVD reclassification largely remain up in the air
While the panelists acknowledged the potential for a 510k approval vs. a premarket approval (PMA) process with the down classification of IVDs, the 510k process could still take multiple years and require millions of dollars for labs to develop. Additionally, for the LDT proposal, Ipsita Smolinksi highlighted lobbying groups, including the American Clinical Laboratory Association (ACLA), are particularly vocal on the proposed rule. She believes if the rule were to be finalized in April, there could be potential for a variety of different process delays, including potential lawsuits and congressional engagement (in addition to a potential government shutdown) that could slow implementation. The VALID and SALSA Act’s, which have stalled in congress, could see renewed legislative attention following FDA’s action and subsequent litigation. The question of realistic implementation was also a topic of conversation, in which the FDA would likely need to implement oversight to thousands of labs, many of which are non-profits, which would likely bring complication to the process.
Private payors are not as concerned with regulatory policy (including a potential down classification of IVDs) as they are most concerned with test utility
Our panelists believe that the potential downregulation of IVDs is likely to be a lengthy process once it commences and will impact ~50% of high-risk class III tests. On the payor side, Hannah Mamuszka at Alva10 commented on payors’ lack of understanding the difference between IVDs and LDTs (or class II and class III IVDs). Rather, they are more interested in the problem the test solves, who will have access to the test, and which clinician, physician, or institution will utilize it. Importantly, payors are primarily concerned with test utility, which includes logistics surrounding patient management and the clinical workflow, improved patient outcomes, and ideally, improved economics. In other words, Payers are largely focused on understanding the problem that a test solves and whether it makes sense for a patient population, rather than solely focusing on clinical validity.
In terms of a potential IVD reclassification, investors are looking for diagnostic companies that will benefit from regulation or can navigate the change
In our discussion, it appeared that investors prefer to invest in companies who understand the regulatory landscape. Specifically, Isaac Ro indicated that he looks to partner with companies who understand regulatory and have a developed plan. He spoke to his experience examining companies who either benefit from down regulation or those who need to raise capital to contend with a new set of regulatory rules. His advisement to companies has been to “duck under the wave or get ready for it”, as he believes that some companies will not be prepared to navigate the potential new change. For the companies that Isaac works with, many of them have been navigating a potential IVD reclassification and remain well-prepared.
Regulation and potential reimbursement should be top of mind for diagnostics companies in their test development efforts
Engaging with payors earlier in development plans can be advantageous for companies in understanding clinical and financial payor problems that need to be solved. Our panelists believe it is critical for diagnostic developers to involve themselves in conversations with payors, both CMS and private, to gather feedback on study plans and their perspective on utility. This engagement is not only important for payors, but for investors as well, as Isaac Ro noted that they typically look for companies who build their business model around this dynamic as there is higher probability for success. Additionally, clinical utility and prospective data is not only important from a regulatory perspective but holds significant value to investors as well. Generally, companies attempting to raise capital have largely been asked to present utility data, which is the reason why we see companies performing large studies. Isaac highlighted that many companies he has worked with understood the importance of data prior to the launch of their company, and he stressed the advantage of undertaking utility studies with prototype tests prior to a company launch.
Palmetto’s MolDX coverage of protein-based diagnostic tests provides proteomics companies with a clear reimbursement pathway
Palmetto’s MolDX change released in January now includes coverage of protein-based diagnostic tests, in which proteomics companies under certain CPT codes will be required to go through the same pathway as DNA and RNA tests. The MolDX process includes utilization of a tech assessment framework and obtaining a Diagnostics Exchange (DEX) Z code. As a reminder, labs with LDTs are required to register their tests for a specific Z code while adhering to Medicare Administrative Contractors (MACs) jurisdiction policies. Hannah Mamuszka noted that the new coverage may benefit proteomics companies who do not currently have reimbursement, as it will provide them with a clearer pathway to coverage. Proteomics companies may now also benefit from discussions with MolDX, where there exists a technically educated group who is willing to engage with companies on utility and risk conversations. On the other hand, the change may present a challenge for reimbursed proteomics companies who will be required to submit a tech assessment and risk losing coverage. Overall, panelists view the MolDX proteomic coverage as a mostly positive development in the long term that will create more transparency for companies despite some current unknowns.
Gilmartin Group has extensive experience working with both private and public companies across the Medtech, Biotech, Life Science Tools & Diagnostics, HCIT & Digital Health. To find out more about how we strategically partner with our clients, please contact our team today.
Authored by: Gabby Gabel, Analyst, Gilmartin Group