A coming transformation: Control over important diagnostic technologies is about to change hands

This is an excerpt from a 2,920-word article in the March 26, 2018, issue of THE DARK REPORT. The complete article is available for a limited time to all readers, and available at all times to paid members of the Dark Intelligence Group.

CEO SUMMARY: Here’s the first look for the lab industry at an important new trend that probably will have the greatest impact in the short term on anatomic pathology groups that perform cancer tests. As this trend broadens, even clinical laboratories will find themselves dealing with new factors in the lab testing marketplace—particularly the ability to access or license valuable assays that incorporate the latest diagnostic technologies.

WHILE LABORATORY LEADERS ARE FOCUSED on the urgent need to cope with deep cuts in clinical laboratory test prices and more restrictive managed care networks, a greater disruptive threat to the clinical lab industry is gathering momentum.

This threat is the control that pharmaceutical companies and venture capital investors are gaining over diagnostic technologies, patents, and intellectual property. The basis of this threat is companion diagnostic tests. It’s a threat that could upend the historical control that the pathology profession and in vitro diagnostics manufacturers have on clinical laboratory testing and diagnostic technologies.

This disruption will not happen quickly. But market evidence is accumulating and several business transactions involving lab testing companies support this development.

The influence of pharmaceutical companies and venture capital in the clinical laboratory market was discussed in a presentation made at this year’s Frontiers in Laboratory Medicine (FiLM) conference in Birmingham, England, in January. THEDARK REPORT and the United Kingdom’s Association for Clinical Biochemistry co-produce the FiLM conference.

The speaker was William G. Morice II, MD, PhD, Chairman of the Mayo Clinic Department of Laboratory Medicine and Pathology, and President of Mayo Medical Laboratories. He discussed how new developments in science, technology, and finance will influence laboratory medicine.

Since his appointment to this position in 2015, Morice has taken on new responsibilities, one of which is helping the leadership of Mayo Clinic understand the speed and direction of changes in clinical laboratory testing, gene sequencing, and precision medicine.

“My role is to support the practice, which means that, in a place like Mayo Clinic, we cannot be about only the current state of medicine,” Morice said. “We have to create the future state.”

Doing so is particularly challenging today, given that the clinical lab industry is in transition, influenced by new disruptive factors it has not faced previously.

About these trends, Morice discussed three specific ones that Mayo Medical Laboratories considers to be disruptive. “First is massive parallel multi-analyte analysis,” he stated. “This is particularly true in the fields of next-generation sequencing and mass spectrometry.

“The second is high-speed, high-complexity computing,” said Morice. “This technology supports advances in machine learning and self-improving algorithms.

Disruptive trend number three is the miniaturization of many technologies used in clinical diagnostics technologies, as well as nanotechnologies, he added. “One example involves organic, light-emitting diodes which can deliver much lower limits of detection, compared to existing clinical laboratory instrumentation.”

Finance Is Disruptive Field

Finance is another field that will disrupt the clinical laboratory marketplace. In addition, Morice pointed out that both government and private payers will continue to influence how labs are paid and the stability of lab finances.

Morice added, however, that another source of change will have outsized influence on reshaping the services laboratories offer and how labs are organized to provide those services. “Compared to the past several decades, we are about to see pharmaceutical companies and venture capital investors become major drivers in clinical laboratory testing and anatomic pathology services,” predicted Morice.

Disruptive Financial Inputs

“We already have these entities putting disruptive financial inputs into the system,” Morice commented. “These disruptions are happening not just in the United States, but worldwide. We see, for example, a growing interest among pharmaceutical corporations and venture capital companies to invest in the laboratory industry.”

One early example of the financial influence pharmaceutical companies can have on the clinical laboratory marketplace was Novartis’ acquisition of Genoptix in 2011. In 2016, the Swiss-based pharmaceutical company had annual revenue of $48 billion.

“In 2001, Novartis introduced Gleevec, the first FDA-approved targeted therapy for cancer,” said Morice. “In 2011, that single drug accounted for $1.5 billion of revenue for Novartis out of $32 billion of its total pharma revenue.

“In that same year, Novartis announced the purchase of Genoptix for $470 million,” he explained. “Genoptix started in San Diego as a private laboratory doing bone-marrow analysis. They’d go into the physician’s office, leave a test kit, and the physician would send the bone marrow to Genoptix for a full workup.

“Having these bone-marrow specimens gave Novartis improved access to a $1.5 billion market for a single cancer drug,” Morice noted. “This deal was the first big notice that pharma was interested in the clinical laboratory industry.

“Since then, the numbers have gotten bigger,” he continued. “In 2015, sales of therapeutic drugs staged by a companion diagnostic test totaled more than $25 billion. To be prescribed, these drugs require a laboratory diagnostic test.”

A Parallel Trend

The explosion in knowledge about how genetic mutations are involved in cancer is a parallel trend that fuels growth in the number of drugs that require a companion diagnostic test.

“The number of cancers known to have mutations that can be targeted with a specific therapy is growing rapidly,” Morice stated. “With melanoma, for example, 73% of cases have targetable tumors.”

“In that $25 billion market, 90% of the sales are from oncology drugs, which fits right into the targeted therapy approach,” he added. “And 80% of those drugs are from three companies: Novartis, Bristol-Myers Squibb, and Roche. These facts demonstrate how a huge amount of revenue for these giant companies increasingly depends on the availability of a clinical laboratory to do the diagnostic test.”

How will these new trends in control over diagnostic technolologies impact your lab? Please share your thoughts with us in the comments below.