19 Jun The world of in vitro diagnostics is another Midwest success story
I am in a real quandary this week: I have a number of juicy topics I wanted to review with you, including my recent participation in the annual Israel biotech/medical device conference (BIOMED 2006), recent participation in meetings about Indian and my growing insights into the Indian biotech market, happenings in Japan, and other research that has crossed my transom (including music).
I also started thinking back on why I originally wanted to start writing this column. I realized that during my days at Big Pharma, we had all the money in the world to acquire market research, and were, in fact, spoiled! My life as a biotech entrepreneur made me realize that hard-to-raise money can’t be spent on market research in the traditional way, because it is too darn expensive. In the process (and thanks to the power of the Internet), I learned how to find research sources that would provide me with information about markets that I could include in business plans, PowerPoint presentations, and even press releases.
I started thinking about all the companies and individuals in the same boat, and how it would be great to share this information and insights, but who had the time to do this? Well, at one point, I found I did have the time, and although that time has since evaporated due to multiple work obligations, the discipline of writing these articles and bringing forward information and perspective helps to keep me on top of my game.
So getting back to the original weekly quandary, what to do this week… Hmmm! Okay, I will pick a direction as I do have a publication deadline with my editors!
When last we met, I was able to give you a perspective on the leading medical device companies of the world, a market which Midwest companies dominate. That market did not include another important device-like market: the in vitro diagnostics (IVD) market (although it did include the diagnostic imaging market).
In last week’s article I mentioned that the medical device market (which I thought included the IVD market) probably broke the $200 billion sales revenue mark last year. In fact, according to a market research firm by the name of Health Research International, sales for 2005 topped $220 billion and included 4 market segments:
1. Cardiovascular disease therapies
2. Diagnostic imaging equipment, services and contrast agents
3. Orthopedic and spinal products
4. In vitro diagnostics (IVD)
Health Research predicts that this market will reach $312 billion in 2010 (only 4 ½ years from now!), or a total growth of 42% for this period.
Another publication, Medical Product Outsourcing, in its June 2006 edition, profiles the IVD segment by itself, and while they don’t give a total figure for this market, they do list the top 15 companies, which are worth analyzing. Let’s take a look:
Leading In Vitro Diagnostic Companies in 2005 (Medical Product Outsourcing, June 2006)
|Company/ Country of Origin||IVD Sales ($ Millions)||Total Company Sales ($ Millions)||IVD as % of Total Business|
|1. Roche Diagnostics (Switzerland – U.S. HQ Indiana)||$6,300||$27,000||23%|
|2. Abbott Labs (U.S. – Illinois)||$3,800||$22,300||17%|
|3. Bayer Diagnostics (Germany)||$2,500||$32,000||8%|
|4. Becton Dickinson (U.S. – New Jersey)||$2,500||$5,400||46%|
|5. Beckman Coulter (U.S. – California)||$1,900||$2,400||79%|
|6. Dade-Behring (U.S. – Illinois)||$1,700||$1,700||100%|
|7. Ortho – Clinical Diagnostics (U.S. – New Jersey)||$1,400||$50, 514||3%|
|8. bioMerieux (France)||$1,200||$1,200||100%|
|9. Sysmex (Japan)||$716||$716||100%|
|10. Bio-Rad Labs (California)||$618||$1,200||52%|
|11. Arkray (Japan)||$470||$470||100%|
|12. Diagnostic Products Corp. (California)||$399||$399||100%|
|13. Olympus America (Japan – U.S. HQ in Pennsylvania)||$ 384||$8,300||5%|
|14. Cytyc (U.S. – Massachusetts)||$362||$508||71%|
|15. Gen-Probe (U.S. – California)||$306||$306||100%|
|TOTAL Top 15 Companies||$24,555||$154,413||16%|
The top 15 companies represented almost $25 billion in sales for 2005, but sales start tailing off significantly with the last company. My guess would be that the total worldwide in vitro diagnostics market is somewhere around $27-28 billion for 2005, and according to sources, had less than double-digit growth for this year. The U.S. once again dominates in this category with nine of the top 15 companies. Surprisingly, three of the leading companies are Japanese, and only three are European. The top company, Roche Diagnostics, although a Swiss company, has this worldwide division managed not only in the U.S. but here in the Midwest (Indianapolis).
The Midwest has two, and in reality three of the top IVD companies (including Roche Diagnostics), with California having another four companies, and New Jersey with two companies and Massachusetts with one company. These figures don’t take into account the high numbers of smaller emerging biotech IVD companies that are growing quickly in the Midwest (Madison, Wisconsin, Chicago, and Minneapolis), California, the Boston area and even the Baltimore-Washington, D.C. corridor. In fact, the number of start-up diagnostic companies is growing quickly due to new platform technologies, and the FDA interest in new biomarkers for a variety of diseases.
Diagnostic companies generally do not require the kind of capital that their cousin biotech drug companies need to get to the marketplace given the lower regulatory hurdles (and time) to achieve an FDA approval. A 510k approval means relatively few if any clinical trials, though with reimbursement, a key issue for medical devices and diagnostics, a company is often faced with the question: do we take the more extensive PMA (pre-market approval) pathway with the FDA, or go with a quicker 501k development pathway? One means quicker time to the market (510k), while the other (PMA) may mean a quicker reimbursement price approval process (for a higher price level), but requires drug-like clinical trials (requiring more time and money) to demonstrate and achieve statistically significant clinical superiority.
The flip side of diagnostics is that a diagnostic “blockbuster” is usually significantly smaller than its pharmaceutical counterpart by tenfold. A diagnostics product “blockbuster” would be a product achieving $100 million or more in annual sales, of which there are very few.
Other key trends in diagnostics:
• Platform diagnostic machines capable of running multiple tests at once
• Diagnostic products (tests) that incorporate multiple disease targets
• Other fluids beyond blood, the most common source of testing; new fluids that are the source of testing include urine and saliva (the value of these last two is that they are non-invasive: no needle-stick!).
Steve Burrill of Burrill & Co. believes ardently, and I have heard him say this multiple times, that we are moving into a time of high growth of diagnostics given the need for personalized medicine and disease prevention (versus disease treatment).
In the former case, he states that 40% of most drugs don’t work (or don’t work well) in the chosen patients, and that in the future tests will decide which drug will be used with greater efficacy in a given patient.
A good example is the cancer diagnostic developed by Genentech for its breast drug Herceptin. Genentech’s diagnostic test is first administered to a breast cancer patient to see what type of breast cancer they may and to see if this type of cancer will be affected by the very specialized drug which interacts with the Her2neu gene found (or not) in these patients. I think Burrill is not only on the right track, but that his numbers are conservative: probably more like 60% of existing drugs don’t work well in target populations.
Another area where this type of diagnostic approach is being used extensively is in organ transplant therapy, where it is critical to know whether a key immunosuppressive drug will have an intended effect or not. A negative could mean a dangerous rejection process until the right drug is found!
The utilization of drug-specific diagnostics alone will drive market growth significantly according to Burrill, and I agree with him. The reality is that the drug companies should be seeking out these kinds of diagnostics to help drive a real therapeutic impact of their drug.
Unfortunately most Big Pharma companies don’t understand the diagnostic business and are not attracted to what they perceive as “small” product sales. They don’t understand the equipment part of this business. Of the Big Pharma companies, only Abbott, Roche, Bayer, and Johnson & Johnson have understood this equation, and all four have historically been involved in the medical device part of the business as much as drugs.
But the coming convergence of drugs, devices, and diagnostics will hasten the need for Big Pharma to pay attention to this important lesson, and get on the diagnostics bandwagon now!
The opinions expressed herein or statements made in the above column are solely those of the author and do not necessarily reflect the views of The Wisconsin Technology Network, LLC. (WTN). WTN, LLC, accepts no legal liability or responsibility for any claims made or opinions expressed herein.