December 1, 2006 (Vol. 26, No. 21)
Predicting Growth in the Life Science Tolls Sector
The life science tools industry consists of a broad range of companies providing technology solutions that form the basis for drug discovery, applied market testing (e.g., bio-defense, environmental, food, forensics, etc.), and basic scientific and medical research. Our knowledge of life sciences from elucidation of the human genome to understanding complex diseases has been driven by advances and development in life science tools. Such tools not only form the fundamental building blocks of discovery and development of biopharmaceutical therapeutics but are a breeding ground for many clinically relevant in vitro diagnostic technologies.
TSG Partners defines the life science tools sector as made up of eight key subsegments: genomics, proteomics, cell biology, combinatorial chemistry, small animal in vivo analysis, bioinformatics, and general labware. Based on TSG Partners’ extensive study of the market, the company estimates that the life science tools sector will be approximately $25 billion in sales in 2006 and will grow at a 7% compounded annual growth rate.
The life sciences tools sector is a very complex market with its subsegments at various stages in their growth cycle. The ’90s saw the growth of genomics-oriented markets, resulting in the sequencing of the human genome. Today, growth is fueled by cell biology and small animal in vivo analysis, which by providing better data, leads to development of safer drugs.
In the genomics space, SNP genotyping, array-based expression analysis, and molecular cloning are key growth areas. While the sequencing market, on the other hand, has shown lackluster performance over the past several years, the advent of low-cost platforms and technology innovation will create new market opportunities.
Although the proteomics space has been adversely affected by the slowdown in Pharma spending, mass spectrometry has been the major contributor to growth. This has been fueled by technology advances, sales to applied markets, and increased utility as a clinical diagnostic.
In the case of cell biology, future growth will be fueled by accelerated drug discovery through high-throughput and high-content analysis, functional cell-based assays, and RNAi-based applications.
Noticeable shifts are also emerging among the consumers and buyers of these products. As Pharma shifts from a one-size-fits all approach to individually tailored therapeutics, the impact on the tools segment will be significant. Academic spending will slow due to budget cutbacks in the U.S. and EU.
The slowdown in mainstream customer spending has been offset by explosive growth in applied markets and home-brew testing both in the U.S. and overseas. Companies are trying to extend their core competency as tools and reagent providers for home-brew tests to mainstream clinical diagnostic players. Eventual market penetration and success will depend on their ability to understand market dynamics, develop commercial and regulatory expertise, and provide accurate and reliable tests.
Geographically, North America and Europe dominate the life science tools market. Growth is estimated to be flat in North America due to NIH cutbacks and slowdown in Pharma. Europe will exhibit moderate growth due to increase in CRO/CMO and applied market testing. We expect significant growth opportunities in India and China.
The quest for leadership in this market has spurned a flurry of M&A activity, none of which necessarily predicts market leadership. Despite the recent formation of global powerhouses, the life science tools market is still highly fragmented and is likely to consolidate further.
Harry Glorikian is managing partner, strategic advisory, at TSG Partners. Web: www.tsg-partners.com.
E-mail: [email protected].