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BioMarket Trends : May 15, 2009 ( )
Are In Vitro Diagnostics Recession-Proof?
While the Industry as a Whole Is Predicted to Emerge Unscathed, Some Segments Will Suffer
Compared to the automotive or housing sectors, there is a general consensus that healthcare and diagnostics (as part of the healthcare industry) are fairly recession-proof. But are they really? According to Kalorama Information’s latest research report, “In Vitro Diagnostics in a Recession,” the answer may be: “Yes, but…”
Diagnostics starts with an advantage, for while there have been decreases in discretionary health spending, not all types of medical care can be put off. Heart disease, cancer, diabetes, autoimmune disease, and many other diseases strike regardless of the economic environment, ensuring a foundational demand for testing. This may seem an obvious conclusion—people get sick and will still need care, in spite of the state of the economy. But the safe-haven status that healthcare enjoys may be only relative to that of other industries.
In fact there is evidence that some patients are cutting back on care. A study conducted by the Associated Press found that people with diabetes are increasingly cutting back on doctor visits, treatment, and testing. Such a slowdown in doctor visits would impact most areas of the testing industry.
While testing now takes place in a variety of settings, most still occurs in hospital labs. Yet hospital funding is in jeopardy. A major source of hospital funding is derived from investment income. Some 80% of hospital asset financing is rooted in equity investments. With the constriction of the stock market, analysts estimate that most hospitals now have at least 50% less money to spend.
As a result of the cash crunch, weaker hospitals may not survive and will be acquired. This new wave of hospital consolidation is also not necessarily a positive sign for in vitro diagnostics (IVD) companies. There will be fewer purchasers of equipment and reagents. Traditionally, small labs pay more for reagents and supplies than larger labs, and thus there may be a slight reduction in the price point for some routine tests.
The Market in 2009
Overall it is Kalorama’s view that despite the recession the market will be primarily status quo for the IVD industry over the next three to five years. The world market for in vitro diagnostics will approach $47 billion in 2009. The United States and Canada represent roughly 44% of this market. There are a number of reasons why we would hold to our numbers on IVDs.
More expensive nucleic acid tests, pharmacodiagnostic tests, and immunoassays are widely expected to gain market share over the next five years. Some of these test segments may see some decreased utilization in the short term. But cost-benefit analysis, technological innovation, and investment in new test applications will lead to increasing market share for other segments. Cancer research will spur growth in histology/cytology, flow cytometry, and tumor markers.
As cost-management pressures continue to increase, private and public payers will make their decision whether to reimburse a new product based on its impact on patient care. No new test or test service can expect to be reimbursed simply because it appears to provide a technological improvement over the status quo.
Managed care, HMO, and fee-for-service plans create reimbursement formularies that dictate which tests can be reimbursed for which patient diagnoses. Payer groups demand medical evidence related to the clinical and economic implications of a test that is not inherent in an FDA market application. They will look more closely at patient selection and at the prevention, diagnosis, and treatment protocols that will be influenced by the incorporation of a new test into their family of covered services.
These developments will have a significant impact on all new tests but especially high-priced multiplexed gene tests for cancer. They are already coming under intense scrutiny, and most have been found to be investigational and so nonreimbursable except on a case-by-case basis.
Although individual product lines may suffer, Kalorama still sees high growth rates for molecular and pharmacogenomic tests as a category.
Bruce Carlson (bcarlson@market research.com) is publisher at Kalorama Information. More information on the current market and successful strategies for IVD companies can be found in the company’s “In Vitro Diagnostics in a Recession” report, available at www.kaloramainformation.com.
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