June 15, 2006 (Vol. 26, No. 12)
Established Diagnostic and Therapeutic Players Eager to Build Molecular Diagnostic Franchises
Clinical application of molecular technologies to elucidate, diagnose, and monitor human diseases is referred to as molecular diagnostics, the most exciting growth segment of the in vitro diagnostics industry today. The segment has explosive potential, with multiple opportunities for entry and growth, as well as competition and change.
Molecular diagnostics is a cornerstone in the emerging field of pharmacogenomics and personalized medicine. Advances in technology are propelling both new and old companies forward with fresh capabilities. Currently, TSG Partners estimates the molecular diagnostics segment at $2 billion in sales and growing at 15% CAGR.
The infectious disease and blood screening segments account for the bulk of sales, at >70%. Growth from these segments, however, is expected to drop due to escalating competitive intensity. Genetic testing makes up the rest of the market. Although this segment is small today, it is an extremely fast-growing component of the market.
Geographically, the U.S. constitutes >50% of sales. Significant opportunities exist in the rest of the world, especially in the BRICs countries, such as India and China, with burgeoning population and increasing healthcare awareness. This attractive growth marketplace, however, has high barriers to entry, particularly with regard to intellectual property, technical intensity, physician education, FDA regulation, and obtaining reimbursement.
So far, Roche has been best positioned in this space, with a market share of 38% in 2006. Recently, the company started looking at new areas, such as CYP450 and sepsis testing, to foster future growth as its market share in virology is eroding.
Players like Gen-Probe and Chiron are gaining traction. Gen Probe/DiagnoCure’s PCA3 prostate cancer test is expected to have significant long-term potential.
Although, other companies, such as Abbott, Becton Dickinson, Bayer, and Digene, are becoming increasingly focused on molecular diagnostics and doubling their product expansion and collaboration efforts to gain market share, the market remains extremely fragmented. Abbott seems to be improving its position through its alliance with Celera, Vysis products, and its new real-time PCR platform. Digene’s HPV market share, on the other hand, could erode with the entry of Roche and Gen-Probe and the advent of HPV vaccines.
The recent launch of the GBS and BCR/ABL tests on Cepheid’s GeneXpert system introduced a new paradigm of point-of-care testing to the market. Thus, TSG believes that the current market dynamics are changing rapidly, and smaller players, including Cepheid, Nanogen, Tm Bioscience, Beckman Coulter, and Third Wave, are poised to deliver value with their innovative platforms and growing test menu.
Furthermore, it is important to note that this market estimate and analysis is based on test sales from closed systems. Esoteric testing done on open systems also make up a considerable portion of this market. This segment is increasingly serving as a means for companies with fledgling technologies to be utilized in clinical labs.
Another consequence of the rising importance of the esoteric testing segment is the aspiration of life science suppliers/drug discovery players, such as Applied Biosystems and Invitrogen, which typically provided components for a diagnostic assay (such as primers, probes, and instrumentation), to move into the mainstream clinical testing segments.
The market has been driven by transition to fully automated systems, real-time amplification, and growing development of point-of-care platforms. TSG Partners estimates that future growth will stem from emerging applications like genotyping for identifying drug resistant strains; bioterrorism testing applications within infectious disease; disease diagnostics and prognostic assays for disease applications like sepsis and nosocomial infections, such as MRSA, cancer, cardiovascular disease, and Alzheimer’s disease; diagnosis of inherited disorders; and theranosticscompanion diagnostics.
TSG Partners anticipates that industry consolidation is on the horizon, as larger players want to move into faster growing markets to expand their product offerings and/or geographical reach. Larger, established diagnostic players and therapeutic companies are eager to build molecular diagnostic franchises and are willing to pay premium prices for good technology. Furthermore, as advances in molecular diagnostics are gaining momentum, molecular diagnostic enterprises are increasingly becoming a part of portfolios of venture capital investors who traditionally stayed away from this space.