Instrument Firms Test Diagnostics Market

Recent acquisitions have highlighted the evolving relationship of instrument companies and the molecular diagnostics market. Last month, QIAGEN acquired Digene, the largest provider of human papillomavirus (HPV) diagnostics tests, for $1.6 billion (see IBO 6/15/07). Earlier this year, Agilent acquired Stratagene for $246.2 million (see IBO 4/15/07). These developments follow acquisitions last year by Luminex (see IBO 12/15/06), QIAGEN (see IBO 10/31/07), and Fisher Scientific (now Thermo Fisher Scientific) (see IBO 3/31/06), as well as Applied Biosystems’ deal with Celera for rights to sell instruments to the diagnostics market (see IBO 1/15/06). Conversely, the world’s largest molecular diagnostics company, Roche, has recently increased its investment in research instrumentation with the purchase of 454 Life Sciences (see IBO 3/31/07) and NimbleGen (see page 2). There is also a growing list of partnerships between instrument providers and molecular diagnostics firms.

The participation of companies in both the research and diagnostics markets is not new. Beckman Coulter, Bio-Rad Laboratories, Shimadzu and Tecan are among the instrument providers that have long served both markets. However, these companies are not focused on molecular diagnostics and have maintained separate businesses for their research and diagnostics products. However, for providers of sample preparation and consumables products that participate in both markets, such as Fisher Scientific and Invitrogen, the distinction has not been as defined.

For companies that make products for nucleic acid preparation and analysis for research applications, the transition to molecular diagnostics is a natural progression as their technology platforms can also be utilized to analyze patient samples for diagnostic purposes. In fact, for PCR companies, the transition has already been made successfully. Nearly all providers of PCR reagents and thermal cyclers participate in both markets, either through homebrew or FDA-approved tests. In fact, PCR is the largest segment of the nucleic acid testing market for clinical diagnostics.

For many providers of research products for nucleic acid analysis technologies other than PCR, the molecular diagnostics market represents a new market opportunity, for which their technology platforms can be utilized by providers of molecular diagnostics assays to create new clinical diagnostic tests. However, for some companies, such as Luminex and QIAGEN, it is a market where they offer not only the testing platform, but the assay itself. Such an approach has been successful in the PCR market and could be used to further develop and commercialize microarray and DNA sequencing, as well as sample preparation tools, for molecular diagnostics. And as nucleic acid testing’s potential is further realized for pharmacogenomics, including companion diagnostics, predisposition testing and therapeutic and targeted monitoring, the relationship between research and diagnostics platforms will grow closer, benefiting those companies that participate in both markets.

Molecular diagnostics is the fastest growing segment of the in vitro diagnostics market, with sales increasing 15% a year, according to Cambridge Healthtech Advisors. However, these numbers include only “closed systems,” or those systems for which reagent and system are designed to be used together. QIAGEN estimates the market at $2 billion in 2006. The largest segments of the molecular diagnostics market are infectious disease and HPV testing, but oncology is the fastest growing segment, according to Cambridge Healthtech Advisors. Only a quarter of clinical diagnostic labs perform molecular diagnostic tests, indicating the potential market that exists. In the first quarter of this year, Laboratory Corporation, the second largest clinical laboratory testing company in the US, derived 15% of its revenues from genomic testing.

For research instrument companies transitioning to the molecular diagnostics market, partnerships provide a reliable entry as diagnostic companies can provide expertise, distribution and marketing, and assistance with FDA approval. This was an approach initially utilized by Luminex. “Until very recently, Luminex had exclusively used a licensing model in the molecular diagnostics market model,” said Luminex President and CEO Patrick J. Balthrop. “Under this model, Luminex licensed our patented microparticle-based multiplexing technology, xMAP Technology, to other companies, who would then purchase our proprietary microspheres and detection instruments, and use them to develop and manufacture assay products” he explained.

However, for Luminex to take full advantage of the market’s opportunities, a change in strategy was required. “Several market segments for multiplexing showed promise for strong growth, with molecular diagnostics having the greatest long-term potential,” said Mr. Balthrop. “It soon became clear that, in order for Luminex to achieve rapid molecular diagnostics market penetration, and to maximize long-term shareholder value, we would have to take more control over the development and application of xMAP Technology in molecular diagnostics.”

In March, Luminex completed its $44 million acquisition of Tm Biosciences (see IBO 12/15/06). The acquisition gives Luminex additional manufacturing, R&D and product assets for the molecular diagnostics market. “Luminex does business in both segments, with approximately 55% of our 2006 revenues coming from the research segment, and 45% from clinical diagnostics. Our installed base of instruments, as of the end of the first quarter of 2007, was 4,300, spread across research and diagnostics,” said Mr. Balthrop. Tm Biosciences’ FDA-approved Tag-It Cystic Fibrosis Kit runs on the Luminex platform. Luminex also provides its system for molecular diagnostics assays under development by Bayer and Abbott and it is the platform for Digene’s HPV test.

Asked about the relationship between Luminex’s research and diagnostics businesses, Mr. Balthrop noted, “As instrument access is often a key factor in a company’s ability to sell new assays, our large base of installed instruments is a clear advantage. Luminex is one of the few companies with a platform and technology that is actually used in both segments with multiplexed applications in both nucleic acids and protein-based assays, or immunoassays.” Multiplex tests enable the simultaneous testing of multiple factors, enabling greater specificity and sensitivity.

With products in both research and diagnostic labs, Luminex can also take advantage of future developments that promise to more closely link drug development and diagnostics. “As we look toward the future, we believe that Luminex is as well positioned as any company to take advantage of the synergies that will develop, such as biomarkers moving from research into the clinic,” Mr. Balthrop noted. “And we see more companies moving aggressively to move from one of these segments to another. So again, we believe that Luminex is well positioned as a developer and manufacturer, as well as a technology provider.”

Serving both research and diagnostics markets has other advantages as well. “Luminex’s experience and capabilities in both markets are very synergistic. For example, instruments and kits for the research market have a lower regulatory burden, which allows our technology to achieve market penetration more quickly. At the same time, as researchers are evaluating their technology and platform choices, they see real benefits in Luminex’s status as a regulatory compliant developer and manufacturer,” said Mr. Balthrop. However, Mr. Balthrop admits to challenges in the molecular diagnostics market. “As a small company, we do not have the resources that the large players have, but we can move more quickly, we have a solid regulatory track record, we have significant market reach through our distribution partners and licensed partners, and we can leverage our presence with researchers. We have an overall cost advantage, and we have the opportunity to source proprietary assay markers to ensure that we are competitive,” he explained.

Part of Roche Diagnostics, Roche Applied Sciences serves the research market, generating CHF 632 million ($505.6 million) in sales last year. Roche Applied Sciences’ acquisitions of 454 Life Sciences and NimbleGen diversify the company’s product offerings, which have consisted primarily of PCR reagents, substrates and thermal cyclers. “This is an ideal fit: Results from sequencing experiments conducted for example with the 454 technology are used to define the content for microarray design, whereas qPCR (LightCycler) is the major technology employed for the validation and further detailed analysis of results from array experiments,” explained Manfred Baier, head of Roche Applied Science. “Therefore, the acquisition of NimbleGen closes an important gap in Roche Applied Sciences genomic research workflow and creates portfolio synergies with its sequencing and qPCR systems.”

Microarray and sequencing technologies could also hold tremendous potential for Roche Diagnostics as a whole. Roche Diagnostics’ molecular diagnostics 2006 sales totaled CHF 1.2 billion ($968.8 million) and accounted for 14% of Roche Diagnostics’ revenues. Roche Diagnostics was the first company to commercialize a FDA-approved microarray, the Amplichip, based on Affymetrix technology. However, Dr. Baier stated that the company has not committed to the application of its 454 and NimbleGen’s technologies in those markets. “For both technologies, Roche experts are evaluating the possibilities for use in diagnostics. Certainly, both technologies have the potential for this use,” he stated. Similarly, Dr. Baier told IBO the use of the techniques in Roche’s pharmaceutical business and for pharmacogenomics and other applications bridging drug development and diagnostics is under consideration. “We are in the first steps to evaluate this; it would be too early to say where exactly we can use microarray and DNA sequencing techniques. We have papers dealing, for example, with sequencing applications in virology research and in cancer research, but where it will find the way in the medical field is not clear at the moment,” he explained.

Like Roche, Agilent diversified its life science product offerings through an acquisition. The company purchased Stratagene, which offers gene, protein, and cell analysis kits, as well as PCR products for research applications. For clinical diagnostics, Stratagene’s Hycor subsidiary sells radioimmunoassays and enzymatic immunoassays for allergy testing, the KOVA System for microscopic analyses of urine specimens, enzyme immunoassays for autoimmune testing and automated testing systems. In 2006, Stratagene’s clinical diagnostics sales increased 5.6% to $24.6 million to make up 26% of revenues. “Stratagene provides capabilities that create a basis to enrich our measurement portfolio via amplification, purification, expression and labeling kits,” stated Nick Roelofs, vice president and general manager, Agilent Life Sciences Solutions Unit, in discussing Agilent’s purchase of Stratagene. Of particular value to Agilent, Mr. Roelofs noted, are Strategene’s kits and reagents. “We are very interested in genomic and proteomic workflow solutions. Stratagene augments our genomics interests with kits and reagents as well as a multidecade presence in PCR instrumentation and reagents,” he explained. In addition, Stratagene’s products fit with Agilent’s other life science offerings. “Stratagene also has a portfolio of reagent products which add value to protein-based measurement and can thus complement Agilent’s mass spectroscopy, liquid chromatography, capillary electrophoresis and microfluidic portfolio,” he said. Mr. Roelofs foresees Stratagene’s PCR, mutagenesis, and protein expression and manipulation tools as having the greatest growth potential.

In acquiring Stratagene, Agilent purchased techniques utilized in traditional segments of the diagnostic markets, such as immunoassays. However, Stratagene’s PCR products are used for molecular diagnostic testing and its molecular diagnostics partners include Bayer Diagnostics (now Siemens Medical Solutions Diagnostics) and Focus Diagnostics (now part of Quest Diagnostics). Agilent’s microarray technology is also used for diagnostic testing as the technology for Agendia’s FDA-approved Mammaprint test.

Asked about how Agilent plans to expand Stratagene’s diagnostics business, Mr. Roelofs explained, “Stratagene’s Hycor business is a solid diagnostic niche player whose products are deployed in urine analysis, allergy and autoimmune testing. We are looking to combine these strengths with Agilent’s efforts in cardiac disease and future genomic diagnostic testing.” Agilent’s participation in the diagnostics also includes the release last year of a test for use with its microfluidics electrophoresis product for the measurement of lipoprotein cholesterol, an indicator of risk for heart disease. The Molecular Profiling Institute and Specialty Laboratories announced last month that they would offer the CardioEvaluatR test nationwide. Thus, while Agilent has also taken an interest in molecular diagnostics, its offering extend to other parts of the diagnostics market as a whole.

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