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Take three very different IVD companies: Beckman Coulter (Brea, CA), Genomic Health (Redwood City, CA), and Response Biomedical (Burnaby, BC, Canada). Ask each company's respective top executive to speak about the challenges and the future of their company and their industry, and a very enthusiastic and optimistic picture emerges. Although each executive represents a company with unique products and roles, each sees in vitro diagnostics becoming more prominent in healthcare decision making as acceptance for IVDs continues to grow and their science and technology advance.

Though their companies are different sizes—small start-ups to well-established major players—the industry leaders all see a new and exciting landscape ahead. The top executives expect that all the merger-and-acquisition (M&A) activity in the industry will continue on its torrid pace. Eventually, the M&A activity could result in a significant decline, if not disappearance, of many of the midsized players, they say. However they agree, the changes will mean stronger and better IVD companies that will play an even bigger part in helping physicians and their staffs deliver better healthcare, faster, to more people.

They also believe that in the future, advances in IVDs will help control healthcare costs by allowing physicians to better diagnose and then choose only those treatments they know will be effective for individual patients.

Scott Garrett, president and CEO, Beckman Coulter

Scott Garrett

Like his counterparts at the smaller companies, Scott Garrett, president and chief executive officer of Beckman Coulter, is excited about the future of clinical diagnostics.

Garrett is excited because he sees new diagnostic tests being developed that have practical clinical applications. That was not always the case, he says. Up until the mid-1990s, he says, companies were devising new diagnostic tests but they weren't able to link the results of those tests to clinical actions. Today, he says, when companies devise new tests, “they can say, ‘Here's a new test and here's what you can do when you get the results.' Before, all they would say is, ‘Here's a new test. It's interesting but there's nothing you can do with it.” Thanks to the connection to practical applications, the diagnostics industry is very well positioned to benefit from the gain in knowledge and resulting development, Garrett says.

Garrett also sees increased integration between the laboratory and information technology systems, putting the laboratory in a better position to contribute to the hospital's productivity. “When you think about how hospitals work, where they get in trouble is in admitting and discharging patients,” Garrett says. “In both cases, accurate and timely clinical information from the laboratory can do wonders to speed up the admitting process from the emergency department or tell people they can go home because they have nothing to worry about.”

Getting the right information into the hands of the physicians at the right time means that they can confidently discharge patients—perhaps as much as a day or two earlier than they would have otherwise, adds Garrett. Advances in IVDs will help labs deliver timely and critical information, which in turn will help improve healthcare in critical care and outpatient settings, he says.

Garrett believes that recent merger activity in the industry speaks well for diagnostics.

“There's been quite a bit of M&A activity recently and the prices have been quite high,” he says. “I think that also reflects the expectation that diagnostics will become more and more an important part of healthcare going forward.”

Garrett sees no slowdown in the merger-and-acquisition activity and expects Beckman Coulter to remain an active player. He was somewhat disappointed when, earlier this year, Beckman Coulter withdrew its bid for Biosite (San Diego), after Inverness Medical Solutions Inc. (Waltham, MA) topped its offer. Beckman Coulter targeted Biosite to strengthen its presence in cardiac diagnostics and other immunoassay tests. Biosite's main product is a blood test called Triage BNP that helps detect heart failure.

“We felt it would have been a great addition to our company,” says Garrett, “but early on we established a limit on what we would offer, and we stuck with it.” Garrett expects Beckman Coulter will continue to work well with Biosite. “We saw the acquisition as a way to accelerate many of our strategies, but we look forward to working with Inverness and what continues to be a very attractive collaborator in the Biosite business,” he says. “We do think we will be able to accomplish everything we wanted to accomplish without owning Biosite. It just may take us a little longer to get there.”

Beckman Coulter will continue to look for strategic acquisitions, Garrett says. He points out that over the last two and a half years, the company has made three such acquisitions: Agencort Bioscience (Beverly, MA), Diagnostics Systems Laboratories (Webster, TX), and Lumigen (Southfield, MI).

The acquisitions cost roughly $500 million and all have worked out very well, Garrett says. “We will continue to look for those kinds of acquisitions and if something attractive came along again, we'd certainly be interested.”

Garrett also sees opportunity in the movement of diagnostic imaging companies, such as GE Healthcare (Fairfield, CT) and Siemens (Malvern, PA), into clinical diagnostics through acquisitions. Eventually, Garrett says, GE, even though its deal with Abbott Labs (Abbott Park, IL) was called off, and Siemens will be formidable competitors for companies like Beckman Coulter, which has 11,000 employees worldwide. There is opportunity for everyone because whenever there is significant change, some confusion arises with customers and employees and all of a company's constituents. Confusion could lead to opportunities for competitors of those businesses that are being acquired.”

Like his colleagues, Garrett sees researchers' expanding knowledge of the human genome resulting in the introduction of many new and exciting tests that will dramatically impact the practice of medicine. “All the promise of the human genome project is likely to be achieved through better tests and understanding of a patient's genetic profile. We will not only be able to determine the right drug for the right patient early on, but also that patient's predisposition for the disease,” Garrett says.

Bill Radvak, president and CEO, Response Biomedical

Bill Radvak

Bill Radvak, president, chief executive officer, and cofounder of Response Biomedical, is equally as optimistic about the diagnostics industry's future. His optimism is based on the great strides made in the industry and its growing acceptance as a result.

Until recently, many in the healthcare industry did not truly understand and accept the value of diagnostics and, more specifically, point-of-care diagnostics, Radvak says. “For much of the last decade or so, diagnostics, and in particular point-of-care diagnostics, were viewed somewhat as the poor cousins of biotech and pharmaceuticals. We were generally ignored as an integral solution…. Healthcare professionals regarded a $15 diagnostic test as an extra expense.”

However, as the technology has advanced, the outlook has changed dramatically, he says. As the diagnostic tests have become more sensitive and more reliable and the results available almost immediately nearer to the patients, people in healthcare are beginning to recognize their tremendous value. Today, physicians, hospitals, administrators, and insurers are beginning to see that “if you do four or five tests and spend $60 to $100, you will not only save thousands of dollars on overall patient healthcare costs but you also will improve patient outcomes,” Radvak says.

Years ago, Radvak says, he would have said the biggest challenge for diagnostic companies was for them to convince physicians and health insurers to embrace their products as real core solutions. “But now that has happened and it's widely accepted,” he says. A major reason for this acceptance, he says, is the publication of clinical outcome studies and Medical Practice Guidelines, which validate the use of diagnostics to improve patient diagnosis and prognosis.

Radvak believes the future is particularly bright for companies like Response Biomedical because the two areas of the highest margins and growth in the industry are infectious-disease testing and cardiovascular testing. “And clinically, we are focused solely on those two areas,” he says.

On the infectious-disease side, Response Biomedical recently partnered with 3M Co. (St. Paul, MN) to commercialize its rapid infectious-disease tests, including one for influenza. The companies hope to have FDA clearance to market a rapid qualitative chromatographic assay to identify the presence of influenza A and influenza B nucleoprotein antigen in patient specimens before the next flu season in the United States.

Radvak sees no letup in the frenzied pace of consolidation in the diagnostics industry. In fact, he expects the middle group of companies—those in the $100 million to $150 million range—to soon be gone as a force. “The several tiers of companies are transforming into either smaller technology-based companies or larger integrated companies,” he says.

On the downside, Radvak says, such consolidation could result in higher costs for testing as it reduces competition. On the plus side, he says, it will result in better patient outcomes because of the “wealth of resources that will be put into developing and commercializing different diagnostic tests.”

Historically, Radvak says, the top tier of companies in the diagnostics industry has been very risk averse. That risk aversion has made it hard for start-up companies to reach that $100 million mark as they have had to succeed on their own. The merger mania can be good for the smaller companies with leading-edge proprietary technologies as they are more-easily financed, he says. “Larger companies want to offer full diagnostic lines, and they have to fill their product gaps. As a result, they have moved to acquiring smaller companies.”

Radvak does not see the consolidation climate greatly affecting Response Biomedical, however. If anything, he says, “it should increase our ability to execute our strategy of partnering with major companies to market our products.”

Radvak, who is stepping down once a replacement is identified, is also optimistic about the future of point-of-care diagnostics. Even though it has taken a while—“as most things in healthcare do,” Radvak says—there is a growing recognition that the earlier a physician is able to make an accurate diagnosis, the better the outcome and the lower the cost of treatment. That's why he can see point-of-care, which is now about 15–20% of the marketplace on a worldwide basis, growing to as much as a third over the next five to seven years.

“Point-of-care diagnostics have experienced significant growth in the relatively short period of time they have been available…and this trend will only continue,” he concludes. “As point-of-care technologies continue to mature and become more trusted, they will empower caregivers to make better decisions faster, resulting in improved patient outcomes and lower costs.”

Randy Scott, chairman and CEO, Genomic Health

Randy Scott

When asked to look ahead, Randy Scott, who has served as chairman of the board and chief executive officer since Genomic Health's inception in August 2000, exudes enthusiasm. “I think this is going to be a tremendous time in diagnostics,” he says. “Over the next few years, you are just going to see incredible growth in the industry.”

Scott likens what is happening in IVDs to the computer industry, and the parallels feed his optimism. “We're similar to where the computer industry was circa the 1970s, the early dawning of a new age,” he says.

As computer technology advanced, the price of computing dropped to the level where most people could afford personal computers. “That really changed the entire computer industry and much about our daily lives,” Scott says.

Similarly, he says, genomic science is advancing to the point where it is possible to analyze multiple genes from a single individual patient sample at a reasonable cost and, more importantly, correlate that information with clinical trials.

As a result, Scott says, the industry is providing physicians with greater information about the potential effectiveness of drugs and other therapies on individual patients. “This is really going to usher in a new era of personalized medicine. What that really means is that we will do a much better job of selecting the right patients to receive the right drug.”

The pharmaceutical industry continues to develop more and more targeted therapies. The problem is that many targeted therapies only work in small subsets of patients, Scott says. “That's especially true in cancer, where we have some great new targeted drugs.” The fact that only fractions of patients respond is “creating a bit of a crisis in the healthcare system as we try to figure out how we are going to pay for all these expensive new medicines,” he says.

However, Scott sees the problem for therapeutics as an opportunity for diagnostics. “It's opening up a whole new area of diagnostics to step in and create value to the system by being able to offer very sophisticated diagnostic approaches to personalizing who is most likely to respond to these therapies in a way that could both improve the quality of patient outcomes and save costs to the healthcare system,” he says. The opportunity, he says, is clearly what makes it an extremely exciting time in diagnostics.

Genomic Health's initial diagnostic test, Oncotype DX, is already providing significant new insights for breast cancer treatment. Oncotype DX has been clinically validated to predict the likelihood of breast cancer recurrence, and it also assesses the benefit from chemotherapy.

With early detection, women with early-stage invasive breast cancer have a good prognosis today, Scott says. Eighty-five percent of women with early-stage invasive breast cancer will survive 10 years with no recurrence. Yet, while only 15% of these women are likely to face a recurrence, chemotherapy is recommended for nearly everyone. “We recommend chemotherapy to almost everyone, knowing it only reduces the recurrence rate by only 4%. That means 96 out of 100 women are getting all of the toxicity and none of the benefit,” Scott says.

Scott says that with its diagnostic test, physicians are able to predict the likelihood that a patient's breast cancer will recur and the likelihood she will benefit from a chemotherapy regime. Being able to do so with accuracy, he says, can save many patients from unnecessary treatments and unpleasant side effects, and the system from unnecessary expense. Conversely, he says, women who otherwise may have chosen to forego chemotherapy due to the toxicity may learn from Oncotype DX that they are at high risk and likely to respond to chemotherapy.

Genomic Health is developing additional tests for predicting the likelihood of recurrence and effectiveness of targeted therapies for other cancers such as colon. “We expect to do more with the drug industry over time,” Scott says.

Currently, Scott says, studies have shown that only 2–3% of the nation's healthcare spending is for diagnostic information. Yet 60–70% of physicians' decisions are made on the basis of that information. “There's a disconnect as to how much money we're spending to really understand the core root of the problem in diseases versus how much money we are spending to try and treat the disease.”

New diagnostic tests such as Oncotype DX can only help rebalance the RX/DX equation, Scott says. “Once that happens,” he says, “we'll have a much healthier and more-cost-effective system.”

Concludes Scott: “There is a real opportunity here to develop high-powered diagnostics that better allow you to find the right population to be treated with the therapeutics. That's why I think you're going to see a rebalancing in which the rate of growth of diagnostics could exceed that of pharmaceuticals for many years to come. It bodes very well for the whole diagnostics industry.”