An Inside Look at Diagnostics | Diaceutics

An Inside Look at Diagnostics


This case study illustrates the evolution of the diagnostic industry across different continents, diagnostic companies' evolving business models, stakeholder networks and the critical drivers of personalized medicine adoption in the diagnostic industry. It will help you understand:
  • The three market models in diagnostics
  • That most labs create their own diagnostics
  • How the lab sector differs from the diagnostic sector
Download this case study to learn more.

1: Case Summary

This case will help you understand:

The three market models in diagnostics:

  • low cost / high volume / many competitors
  • medium cost / low volume / few competitors
  • high cost / low volume / proprietary

That most labs create their own diagnostics.

How the lab sector differs from the diagnostic sector.

Key messages:

Between 50 and 90 per cent of diagnostic tests rely not on a kit but on a laboratory's in-house version of a test.

Outside the US the laboratory business is highly fragmented, with no single global player.

Unlike the diagnostic market, in which the top 10 companies control 80 per cent of the market, there are no globally dominant laboratory companies.

Key actions:

Understand how the lab sector is different from the diagnostic market.

Understand how the lab sector is structured in your target markets.

2: The Trade-Off Between Company Investment and Dx Pricing

So What?

Three market models in diagnostics:

  • low cost / high volume / many competitors
  • medium cost / low volume / few competitors
  • high cost / low volume / proprietary
Commentary

The diagnostic market is currently dominated by high volume/low cost testing where little or no investment is made in building awareness of clinical utility. Doctors are left mainly to decide for themselves if a test might prove clinically useful.

Clinical chemistry and immunodiagnostics together represent a $25bn industry, but the price of diagnostic tests and reagents in this segment rarely rise above $20 per test or component. For example, troponin testing is rapidly becoming the main immunotest for use in patients with chest pain. Laboratories pay diagnostic companies less than $10 for each test kit. Diagnostic companies and labs spent very little on convincing doctors of the test's utility.

Molecular diagnostics, which are more complex and carry a higher price tag, represent a break from this model. Cystic fibrosis testing, for example, costs a laboratory $100-150 in components and overheads. Genzyme, a US supplier of diagnostics and laboratory services, offers a cystic fibrosis test for around $200. Genzyme has started to invest more heavily in building market awareness, partly by funding clinical studies. Molecular diagnostics currently make up only a small percentage of the US diagnostic market.

Oncotype Dx represents an even more dramatic departure from the traditional lower-priced diagnostics business model. This $3,500 test was given a $200m launch, a budget that is more typical for the release of a new pharmaceutical product.

3: Lab Sector Lacks Dominant Global Players

So What?

Outside the US the laboratory business is highly fragmented, with no single global player.

Commentary

Unlike the diagnostic market, in which the top 10 companies control 80 per cent of the market, there are no globally dominant laboratory companies. Instead, each region is served by a combination of private, hospital and small specialty laboratories. An exception is the US, where two major laboratory companies, LabCorp and Quest, are used by 80 per cent of doctors. 

4: Most Labs Create their own Diagnostics

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So What?

Between 50 and 90 per cent of diagnostic tests rely not on a kit but on a laboratory's in-house version of a test.

However, in some situations, a lab may get a specialty laboratory to develop a diagnostic test, for example, when access to intellectual property (IP) is restricted or because using an outside lab is more efficient.

Commentary

In addition to buying diagnostic kits from in vitro diagnostic (IVD) companies, laboratory managers may develop their own in-house diagnostic test. In the US, for example, these laboratory-developed tests make up over 90 per cent of the diagnostic tests offered to doctors today.

Looking at the EU, it’s clear that the same trend applies. A majority of the more complex diagnostic tests for cancers are developed by individual laboratories using components purchased from reagent suppliers.

In deciding whether to develop its own diagnostic test or buy a finished kit, a company must consider expected demand for the test, kit availability and possible internal efficiencies. In other words, it’s a business decision.

5: One Company Controls the Japanese Lab Market

So What?

In Japan, SRL (Special Reference Laboratories) serves as a sales and marketing representative for a number of foreign clinical laboratories.

Commentary

SRL is the largest commercial reference laboratory network in Japan, with 80 comprehensive laboratory testing facilities focusing on highly complex tests, and extensive coverage throughout Japan.

It is the leading provider of genetic testing services, with close ties to local physicians.

6: One Company Could Dominate Companion Dx in the EU

So What?

In the EU, Labco is taking its first steps towards supporting the roll-out of companion diagnostic tests in the countries where it has a presence.

Commentary

Labco is the number one player in France, Spain and Portugal with a revenue of €568m in 2014. It has 180 laboratories and around 1,000 collection centres in France, Italy, Spain, Portugal, Belgium and Germany. 

It has acquired more than 130 laboratories since establishment (33 in 2011 and 15 in 2012). It serves 15 million patients a year.

7: Rx and Dx Networks Overlap in Personalized Medicine

So What?

The diagnostic industry shares many of the same key stakeholders as the pharmaceutical industry sector - doctors and payers, for example.

As pharmaceutics and diagnostics begin to converge, efficiencies and service innovations might emerge through partnerships among stakeholders.

Commentary

Although the diagnostic and therapy worlds co-exist alongside each other and have in common regulators, payers and doctors as stakeholders, they operate in completely different networks and under very different business models.

As the chart shows, diagnostics also shares many stakeholder groups with pharma. Laboratories and pharmaceutical companies are both close to doctors and payers. In addition, diagnostic companies and laboratories are increasingly regulated by the same entities.

Another set of players in this space are platform providers, who develop and market small to large analyzers to sell to hospital and private laboratories and occasionally doctors’ offices. These analyzers run their own and third-party reagents or diagnostic tests.

Some of the larger diagnostic companies are also platform providers. Other diagnostic companies simply research, develop and manufacture diagnostic tests and may distribute or market them to laboratories.

Laboratories serve doctors’ testing needs and are reimbursed by payers in the US and by payers and patients elsewhere.

8: A Few Labs Cover the Entire US Test Market

So What?

In the US, a network of laboratories can cover the whole country for the roll-out of a new test.

Two companies, Quest and LabCorp, provide coverage for 80 per cent of the market.

Commentary

Through a series of strategic acquisitions, the US has two major laboratory service providers (Quest and LabCorp) that together reach more than 80 per cent of all providers.

The biggest commercial laboratory company in the US is STAT Labs, with a network of 1200 regional laboratories. It offers all major molecular diagnostics via in-house and purchased kits.

9: Key Messages

Key messages:

Between 50 and 90 per cent of diagnostic tests rely not on a kit but on a laboratory's in-house version of a test.

Outside the US the laboratory business is highly fragmented, with no single global player.

Unlike the diagnostic market, in which the top 10 companies control 80 per cent of the market, there are no globally dominant laboratory companies.

Key actions:

Understand how the lab sector is different from the diagnostic market.

Understand how the lab sector is structured in your target markets.

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