OEM agreements are a well-established part of the instrument and lab product industry. With the growing need for cost savings and faster product introductions, the use of OEM agreements is increasing. Such agreements enable partner companies to concentrate on their areas of expertise and more efficiently allocate resources. For OEM suppliers, the agreements allow for the fullest application of their developmental and manufacturing expertise and stable demand. Among the markets where OEM opportunities are growing is life science and diagnostics due to technology maturation and workflow complexity. IBO spoke with three life science and diagnostic OEM suppliers about their businesses.

One company that offers both direct sales and OEM services for life science and diagnostics is Tecan. In 2011, revenue for its Partnering Business (the OEM business) increased 3.3% (7.8% in local currencies) to CHF 157.1 million ($176.4 million = CHF 0.89 = $1) to make up 38% of sales. Partnering Business sales consist of four product categories: Liquid Handling (55% of sales), Components (29%), Development funding (10%) and Detection (7%).

Although the history of the OEM business goes back to the beginning of Tecan, according to Martin Brändle, head of Corporate Communications and Investor Relations, Tecan began to refocus on its OEM business about five years ago. According to Mr. Brändle, “85% of our revenues in the Partnering Business are generated with customers from the diagnostics industry. . . . Taking out the components business, this ratio is above 90% looking at instruments only.” Tecan’s OEM diagnostic products include the Abbott Molecular M2000SP. The company also has OEM partnerships with Hologic for HPV testing, Luminex (see IBO 1/31/11) for newborn screening and DiaSorin for infectious disease testing. For research, the company supplies Roche NimbleGen’s MS 200 microarray scanner and Life Technologies’ Qubit 2.0 Fluorometer.

Providing a range of capabilities and products, as well as the ability to support them, is key to Tecan’s OEM business. “We can offer an OEM customer products and solutions on different levels of complexity—all developed and manufactured to meet the strict regulatory requirements of the diagnostics industry,” explained Mr. Brändle. “We also offer OEM customers services via the existing infrastructure.” This infrastructure includes installation, a help-desk facility, service training or customer service, a spare parts service and consumables.

The company’s history and size are advantageous to its OEM business. “The market-entry barriers to run an OEM business are pretty high, as an OEM company must be a reliable partner over the whole life cycle of an instrument, i.e. for 10 to 15 years,” said Mr. Brändle. “An OEM company needs to have a critical size,” he added, noting that the business includes R&D, supply chain management and regulatory affairs.

Tecan’s direct sales business also benefits the OEM business. “As almost all diagnostics applications were first used in research labs, we are familiar with these applications before they move into a regulated environment,” explained Mr. Brändle. “We can also use the products and platforms we developed for our own end-customers and adapt them to the specific procedures of an OEM customer, which translates into faster time to market.” The company’s direct sales business also distinguishes Tecan from other OEM suppliers. “Our OEM customers also benefit from the regulatory experience, the global sourcing and procurement as well as the global service and support organization—a setup that a classic OEM pure play would not have.”

Diagnostic firms have increased their use of outsourcing, said Mr. Brändle. “In a general major trend, the bigger companies in the IVD industry are refocusing on their core competences, i.e. the reagent and application development as well as sales and marketing, which leads to increased outsourcing efforts.” Another trend is the use of research techniques, such as MS and sequencing, in diagnostics.

Compared with Tecan, Sony DADC BioSciences is relatively new to the life science OEM business. Sony DADC is a developer and manufacturer of optical disc media formats. The company’s capabilities are used in the design and manufacture of microstructured polymer devices for life science and diagnostics. “This includes capabilities for injection molding precise microfeatures, deposition of high-quality coatings, integration of bonding and assembly techniques, and large-scale manufacturing including automation,” said Jessica Melin, senior manager of Business Development and Sales.

The DADC BioSciences unit was formed around five years ago. It has more than doubled its revenue every year, according to Manfred Koranda, head of Marketing. Among the products the company produces are microfluidic chips for PerkinElmer’s LabChip XT chip and RainDance Technologies’ HeatWave TS chip. To develop consumables for use with label-free detection techniques, Sony is working with Maven Biotechnologies and Axela. For diagnostics, the company has OEM development and manufacturing agreements with Quanterix and Anagnostics. The company also produces MALDI chips for Shimadzu.

Sony DADC BioSciences views its manufacturing capabilities as a significant part of its OEM business. “Life science companies are looking for OEM partners which can be a one-stop-shop for manufacturing their consumable devices, enabling them to smoothly launch their product onto the market and continue to work with the same manufacturing partner as the demand for their consumable device product grows,” Ms. Melin said.

Also valuable for Sony DADC BioSciences’ OEM business are quality control and assurance, ISO 13485 certification and long-term relationships with raw material suppliers, according to Ms. Melin. “It is the understanding of the application and the sum of all services that makes our real strength; the capability to cover the whole value chain—development, manufacturing, packaging, logistics.” Although the range of techniques and applications in life science and diagnostics demand different solutions, as she noted, “[t]here are often technical demands which are common to several applications—for example, low background fluorescence for applications utilizing highly sensitive fluorescence detection, high flatness for applications using a variety of optical detection and high-quality electrode integrity for various applications requiring integrated electrodes on-chip.”

Among the challenges of the life science market is the rapid pace of change in application end-markets. “Within the time span of a consumable device development program, i.e. from the point in time that the life science company initializes the program to the product launch date, market forces can have changed quite significantly, which impacts expected unit volume sales,” said Ms. Merin. Other trends she noted are the life science market’s emphasis on the price per consumables and price per data point, and the demand for higher throughput.

Sony DADC BioSciences’ expertise is also helping Sony increase its business in the life science and diagnostic markets, which included the acquisitions of iCyte Mission (see IBO 2/15/10) and Micronics (see IBO 9/30/11). This fall, Sony will release the Cell Sort SH800, a compact, easy-to-use flow cytometer utilizing Sony DADC BioSciences’s chip technology. But the system’s release will not affect Sony DADC BioSciences’ OEM relationships, according to Ms. Melin. “Whereas iCyt was acquired by Sony, Sony DADC is an independent subsidiary within the big Sony family. . . . Our independence allows us to keep our customer’s know-how confidential, if desired, even from Sony.”

Japan-based Precision System Science (PSS) is a provider of products for automated sample preparation for life science and diagnostics. The company’s largest OEM product line is its automated systems for DNA extraction, which utilize its magnetic bead–based Magtration technology. Among the firm’s OEM partners are Roche, QIAGEN, Life Technologies and Beckman Coulter. “We estimate that the market share of our combined OEM-branded systems is about 50% of the automated DNA extraction system market,” said Hideki Tanaka, the firm’s Investor Relations representative.

In fiscal 2011, the publicly held company recorded ¥3,142 million ($38.8 million = ¥83.05 = $1) in revenues, of which OEM sales accounted for 85%. Sales to Roche and QIAGEN represented 52% of revenues. The company also provides OEM consumables for use with its Magration systems, which in fiscal 2011 accounted for the majority of its ¥703 million ($8.5 million) in consumables sales. For fiscal 2012, PSS’s total sales are estimated to grow 15.2%.

PSS provides systems for both life research and diagnostics. The company’s dedicated diagnostic OEM partnerships include the supply of an immunochemical luminescence analyzer to Mitsubishi Chemical Medience Corporation and a partnership with Biotrin International. For research, the company has an agreement with Abbott to provide a sample preparation front end for the PLEX-ID automated microbial identification system. Last year, PSS expanded its OEM agreement with Life Technologies to include a sample preparation system for sequencing (see IBO 7/15/11).

Mr. Tanaka told IBO that the success of the company’s OEM business can be attributed to its Magration technology. Magration systems automate nucleic acid extraction utilizing an x-y-z pipetting robot, making the technique easy to use, he said. The technology utilizes a pipette head for magnetic separation inside the tip and can process microliter amounts of solution and work with various extraction targets, including DNA, RNA, mRNA and plasmids. This flexibility, along with its ability to work with different reagents, makes the system adaptable to different applications, he explained.

One challenge of the OEM business, said Mr. Tanaka, is that “increasing numbers of our OEM partners are in the same sample preparation markets.” PSS manages each partner’s OEM contract to avoid conflict. The firm is also careful to avoid conflict between its own products and partners’ products. “PSS’s new non-OEM products are mainly magnetic bead–based multipurpose/open-platform systems in the field of sample preparation,” he said, adding that this approach prevents direct competition with OEM partners and is based on an understanding of the diagnostics market.

As the company seeks to expand revenue from its own product lines, the OEM business is helpful. “[W]e can access useful information about current and future molecular diagnostic marketing demand and trend information from our OEM business partners,” said Mr. Tanaka.