The Public Side of Diagnostics | Diaceutics

The Public Side of Diagnostics


This case provides an overview of the global diagnostics industry and its potential for growth. It shows how the diagnostic market is complex and fragmented and that it is important to understand costs at every stage of the diagnostics value chain to maximize profitability. It will help you understand:
  • That the diagnostic market is growing but is still only six per cent the size of the pharmaceutical industry
  • How the diagnostic market is complex and fragmented
  • The cost of developing a test
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1: Case Summary

This case will help you understand:

That the diagnostic market is growing but is still only 6 per cent the size of the pharmaceutical industry.

How the diagnostic market is complex and fragmented.

The cost of developing a test.
Key messages:

The ten largest diagnostic companies have a combined market share of around 80 per cent. Molecular diagnostics make up about 16 per cent of the total.

In vitro diagnostics is a global industry worth almost $60bn and estimated to grow by 7 per cent a year.

Current estimates suggest that more than 50 per cent of future therapy pipelines will be biomarker-enabled.
Key actions:

Understand the overall diagnostics market and how it works.

Map out the Dx costs and profit chain relevant to your test.

2: IVD Market Continues to Grow

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So What?

The diagnostic market is growing but is still only 6 per cent the size of the pharmaceutical industry.

The ten largest diagnostic companies have a combined market share of around 80 per cent.

Molecular diagnostics make up about 16 per cent of the total.

3: The IVD Market is Dominated by Immunochemistry and Point-of-Care Diagnostics

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So What?

Laboratory services are dominated by clinical chemistry and immunodiagnostic tests. Both types of tests are run on automated equipment in large and small laboratories all over the world. Roche is the largest player in the IVD market with a 20 per cent market share. It is followed by Abbott Labs and Siemens AG with 11 and 10 per cent of the market respectively.

4: Size of IVD Markets Set to Change

Roche estimates, validated by an independent IVD consultancy
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So What?

While the growth in mature markets is predicted to slow down in the near future, the rest of the world market is bound to expand. The diagnostic imaging markets in Brazil, Russia, India and China (known as the BRIC markets) are expected to grow at a compound annual growth rate of 10.5 per cent. The Indian IVD market alone is expected to more than double to $5.5bn by 2020.

Commentary

The diagnostic markets in the EU and US are roughly equal in size. The smaller markets in Japan and the high-growth BRIC nations are also of about equal size, but that is about to change.

Growth in the US and EU markets is expected to be low until 2015. It will be lower still in Japan because it will be driven almost exclusively by the rise of more complex molecular and companion-diagnostic testing.

In contrast, the BRIC countries are expected to see a far more rapid expansion. By 2015, China's market is forecast to grow by 19 per cent and Brazil's by 16 per cent, overtaking Japan's market.

5: Roche Combines Rx, Dx Expertise (1)

 

So What?

Roche is a $49bn corporation, with 20 per cent of that total derived from its diagnostic division.

 

6: Roche Combines Rx, Dx Expertise (2)

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So What?

The Diagnostic division also recorded a larger growth compared to the company as a whole - 7 per cent versus 5 per cent (4 per cent in the Pharmaceutical division).

Roche continues to strengthen its position by personalized medicine-related deals and acquisitions.

7: Roche Leads the Market in Diagnostics

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So What?

Roche's Diagnostic division is the undisputed leader in the field of in vitro diagnostics with a 20 per cent share of the market. Roche's Molecular Diagnostics division is even more successful with almost a third (32 per cent) of the market.

8: Genzyme Focuses on Service

So What?

Genzyme is an innovative biotechnology company offering a premium laboratory service to doctors in the US, with a focus on high-quality service.

Commentary

Genzyme has grown from a small start-up in 1981 to a diversified enterprise with more than 11,000 employees in locations spanning the globe, generating revenues of $4.6bn in 2008. It delivers 200 million diagnostic tests a year to hospitals and other diagnostic companies.
Molecular testing in oncology and reproductive testing accounts for 11 per cent of Genzyme's income. The company also has an ongoing commitment to innovation and has a substantial development program for molecular testing in cardiovascular and neurodegenerative diseases, among other areas of unmet medical need.
Genzyme has acquired companies and intellectual property to complement its core areas of expertise. In 2008 it bought Exact Biosciences, supplier of a high-value molecular test for colorectal cancer, and Diagnostic Chemical Limited, a high-volume supplier of core reagents.
As a national provider of clinical laboratory and counselling services, Genzyme Genetics operates eight laboratories in the US and employs over 150 board-certified pathologists.
Genzyme's “service mentality” has produced a number of ways to help patients and doctors access and interpret test information.
The company offers a premium laboratory service to doctors in the US called 'Gold Connect'. This should allow physicians to access test results and patient histories online and thereby make the results process simple, fast and secure.

9: DxS Acquisition Signals Belief in the Future of Personalized Medicine

So What?

DxS was acquired by Qiagen in 2009 for a multiple of 20 times its revenue.

Why? Because of the company's future strategic importance in personalized medicine, as well as its multiple partnerships with pharmaceutical companies.

Commentary

DxS was a small UK-based company funded by venture capital, that worked in the development of companion diagnostics. It had no significant track record in commercializing products.

The company's strategic importance draws from the fact that scientists are discovering the central importance of the EGFR pathway and its mutations to oncology. DxS developed many of the EGFR-related tests in a range of CDx and research kits that identify mutations in oncogenes.

The TheraScreen range of CE-marked diagnostic products includes kits that detect mutations in the EGFR and K-RAS genes. Tumour-mutation products are available for research into the EGFR, RAS, RAF, PI3K, and BCR-ABL genes.

The company's key skills are in developing products using various innovative technologies and managing testing in clinical trials. DxS has also developed its own real-time polymerase chain reaction (PCR) technology called Scorpions.

10: SysMex Focuses on Companion Diagnostics

SysMex Sales by Destination

So What?

SysMex is an integrated Japanese diagnostic company with sales of over $1.5bn. About a fifth of its sales are made in Japan and it is increasingly becoming a global brand with EMEA sales exceeding those in Japan.

Commentary

SysMex has significant expertise in developing, manufacturing and commercializing diagnostic tests. The company currently focuses on developing new test technologies that combine in vitro diagnostics and life sciences.
A boost in R&D activity has allowed SysMex to develop more tests, especially in oncology. It has established partnerships to enhance its focus on targeted therapies and support greater efforts to launch new companion-diagnostic products.
SysMex is increasingly specializing in the development of diagnostic tests for oncology. For targeted therapies and companion diagnostic tests, the company has partnered with Affymetrix as well as with some smaller pharmaceutical companies, such as Oncolys BioBharma.

11: How a Marker Becomes a Saleable Test

So What?

The diagnostic market is complex and fragmented.

All diagnostic tests begin life as the result of biomarker research that leads to research assays that will test patient samples. From that point, however, development possibilities diverge as the diagnostic reaches new stakeholders.

Commentary

Sometimes a diagnostic company converts the research assay into a clinically-validated test, or a commercial laboratory buys an automated test platform and develops its own test. In either case, the test may be conducted by a doctor or by an insurance company.
In some cases, the patient may be asked to pay all or part of the test cost.

12: The Cost of Developing Diagnostic Tests

Range of development cost and development timelines.
Additional cost for Pharma (Multiplex test)

 yr1yr2yr3yr4yr5Total $
Test Development 100K 1.4M 1.4M 1.6M 100K 4.6M
Test Marketing   80K 250K 250K 1.75M 2.33M
Test Access   80K     1.4M 1.48M
Hands-on Use Study       5M 5M 10M
Test Sales         8.8M 8.8M
Total Additional Cost $100K1.56M1.65M6.85M17.05M27.21M
So What?

The basic cost of developing a diagnostic test can range from $500,000 to $15m, depending on the status and complexity of the biomarker/platform combination.

However, it costs far more to ensure that a typical molecular or companion diagnostic test is successful, because of the need for significant investment in market-building and development.

Commentary

The actual cost of developing a diagnostic test is just a first step in the process of co-developing a companion diagnostic. In order to ensure that the therapy goals are enabled by the test, rather than hindered by test confusion or avoidance, significant investment is required in building the market for the test, both independent of and in conjunction with development of the therapy market.
The cost and length of time required to develop a diagnostic test can vary greatly, depending on the complexity of the test. A simple lab test for a particular genetic marker may now be developed in less than a year, for as little as $0.5m.
However, a test that will identify multiple genetic markers - whether for multiple mutations related to a single disorder or for markers related to a number of different conditions - can take up to 2.5 years and reach costs of $2.5m.

13: Complex Reimbursement Hinders Test Development

So What?

Profitability is very important in the diagnostic value chain, with a complex flow of payments undercutting market efficiency.

Commentary

IVD companies and platform providers must negotiate a complex system in order to realize a profit.
IVD companies may pay royalties to both the biomarker researcher and to the platform developer. It must negotiate its payment from the commercial laboratories that sell the completed product.
Platform companies may receive lease payments from a commercial laboratory or royalties from the IVD company.

14: Price Pressures Drive Down Diagnostic Profits

So What?

In most markets, pricing pressure at the global level drives down the annual cost of diagnostic testing, forcing efficiencies at all other levels.

Commentary

The profit margins on higher-volume tests are relatively small, typically from 20 to 40 per cent of a product's cost. This margin encourages laboratories and diagnostics companies to sell high volumes of such tests. For newer molecular diagnostic tests, companion diagnostic tests and other tests of similar complexity, margins can be significantly larger. Sales volume need not be as high.

15: More Labels Incorporate Diagnostic Tests

Drug nameLaunch yearTest nameTest manufacturer
Lynparza™ (olaparib) 2014 BRACAnalysis CDx™ Myriad Genetic Laboratories, Inc.
Mekinist (tramatenib); Tafinlar (dabrafenib) 2013 THxID™ BRAF Kit bioMérieux Inc.
Gilotrif (afatinib) 2013 therascreen EGFR RGQ PCR Kit Qiagen Manchester, Ltd.
Kadcyla (ado-trastuzumab emtansine) 2013    
Perjeta (pertuzumab) 2012 HERCEPTEST Dako Denmark A/S
Xalkori (crizotinib) 2011 VYSIS ALK Break Apart FISH Probe Kit Abbott Molecular Inc.
Zelboraf (vemurafenib) 2011 COBAS 4800 BRAF V600 Mutation Test Roche Molecular System

16: Key Messages

Key messages:

The ten largest diagnostic companies have a combined market share of around 80 per cent. Molecular diagnostics make up about 16 per cent of the total.

In vitro diagnostics is a global industry worth almost $60bn and estimated to grow by 7 per cent a year.

Current estimates suggest that more than 50 per cent of future therapy pipelines will be biomarker-enabled.
Key actions:

Understand the overall diagnostics market and how it works.

Map out the Dx costs and profit chain relevant to your test.

Expert Insights

View all expert insights

Competitive Benchmarking Reports

March 16th, 2018
PM Readiness Report 2018 Summary
March 14th, 2017
Pharma Readiness for Diagnostic Integration 2017
View all reports

Publications

September 11th, 2018
BRAF mutation testing in melanoma – Poster presented at European Congress of Pathology 2018
BRAF mutation testing in melanoma: a study including Austria, Germany and UK, highlighting concordance for current technologies, and potential requirement of more sensitive technologies in future applications.
August 3rd, 2018
A Way Forward: Leveraging Advanced Diagnostic Testing to Unlock the Value of Precision Medicine
Read about how advanced diagnostic testing, ensuring that right patient gets the right therapy, at the right time, particularly with respect to therapies where the test result determines whether or not the therapy should be used (precision medicin...
View all publications
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