This is an excerpt of a 3,644-word article in the September 27, 2021 issue of THE DARK REPORT (TDR). The full article is available to members of The Dark Intelligence Group.
CEO SUMMARY: Our second installment in this series describes an emerging new class of in vitro diagnostics (IVD) companies. These companies have analyzers and tests designed specifically to be simple to run, generate results in minutes, use small sample sizes, and cost less than even high-volume routine tests run in core labs. These new IVD competitors expect to sell their diagnostic products to national chains opening primary care clinics in pharmacies and retail stores.
SECOND IN A SERIES
by Robert L. Michel
LOOMING OVER THE HORIZON IS A NEW CLASS of in vitro diagnostic companies and assays that will deliver very different performance characteristics compared to existing clinical laboratory analyzers and tests.
These are new players in the diagnostics space and they are off the radar screens of most clinical lab administrators and pathologists. One reason for their low visibility is because most of these in vitro diagnostic companies are still in the development mode and they continue to refine their testing systems and assays. In a few cases, certain pioneering in vitro diagnostic companies in this sector have gained EU marks or FDA clearance for their first products, but they are still in the early stages of marketing these products.
Second of Three Trends
This new class of in vitro diagnostic companies represent the second of three significant trends that lie at the heart of this special series presented here by The Dark Report. The three trends are:
- Emergence of a new class of buyers for clinical laboratory tests that will quickly become dominant.
- Arrival of a continuous flow of ever-smaller, faster lab analyzers and test kits that incorporate new and transformative diagnostic, digital, and AI technologies, and are specifically engineered for use in near-patient settings while also producing low-cost, speedy results at a competitive price per test.
- The new preferences of Millennials who—as patients—demand access to medical services and health information in radically different ways than earlier generations.
The first installment of this series described the different type of buyers for clinical laboratory tests and was published on June 14, 2020. (See TDR, “New Players May Alter Who Buys and Who Orders Lab Tests.”) Included in this new class of clinical lab test buyers will be large national and regional corporations that operate primary care clinics and medical care “hubs” in their retail stores.
Three types of chain store companies fit this description. First are the pharmacy chains, including CVS, Walgreens, RiteAid, and others. Second are national retailers, particularly Walmart and Target. Third are national and regional grocery stores that include pharmacies. The biggest of these supermarket chains include Kroger, Albertsons, and Publix.
As noted earlier, this installment describes the second trend that centers around the arrival of new types of in vitro diagnostic companies and how they are expected to disrupt the status quo in both the way clinical lab tests are ordered and used, as well as, the supply chain that delivers lab test systems and assays to end users.
Generations Y and Z
The next installment will describe our third trend involving the transformative impact of Millennials and Gen Y on healthcare generally and as users of clinical lab testing.
Odds are great that a fourth disruptive factor may develop in the new future. That disruptive factor is Amazon. It currently operates a network of clinical lab facilities originally built and scaled last year to provide COVID-19 testing to its almost one million employees.
The Dark Report expects that Amazon will repurpose its existing lab test facilities to provide the usual menu of clinical lab tests ordered by physicians on behalf of their patients. Amazon’s potential to be disruptive to the clinical laboratory industry will be the fourth installment in this series.
Biggest Global in vitro Diagnostic Companies
During 2020, the top 11 biggest global in vitro diagnostic companies had cumulative revenue estimated at $61.3 billion. That represents 82.7% of all global IVD sales in 2020 and shows how these 11 huge corporations dominate the IVD market. (See TDR, “2020 Rankings of the World’s Largest IVD Corporations,” Sept. 7, 2021.)
The biggest customers of these in vitro diagnostic companies are clinical laboratory organizations that operate large core lab facilities. Think of this segment of the lab profession as the relatively small number of lab buyers who regularly make substantial purchases of automation, analyzers, and test kits.
In the independent lab sector, Labcorp, Quest Diagnostics, and Sonic Healthcare Ltd. are among the world’s largest buyers of IVD instruments, tests, and supplies. Lab companies doing molecular and genetic tests are a fast-growing component of the independent lab sector.
In this country’s hospital and health system sector, integrated delivery networks (IDNs) such as Texas-based Baylor Scott and White Health (52 hospitals), Advocate Aurora Health of Wisconsin and Illinois (27 hospitals), and North Carolina-based Atrium Health (36 hospitals) are representative examples of IVD customers who buy large volumes of automation, instruments, and tests for use in their core labs and satellite facilities.
The other important sector of today’s IVD market is made up of physician office laboratories (POLs). Think of this sector as a relatively large number of buyers who each purchase small quantities of analyzers and clinical laboratory tests.
Historically, the largest in vitro diagnostic companies have organized their products and their marketing and sales programs to serve the two biggest types of buyers of lab test equipment and assays: independent lab companies and hospital labs. Economies of scale drive everything for both the IVD sellers and their biggest lab buyers.
Central and core laboratories performing substantial volumes of lab testing daily can buy analyzers, automation, and tests at lower prices. They also can produce lab test results at a lower cost-per-test because of the high volume of procedures.
Price Is Based on Volume
Clinical lab administrators and pathologists understand these fundamentals. It is standard IVD industry practice to price analyzers and test kits based on volume. IVD vendors will offer lower prices to a lab with a sizeable daily volume of tests. The greater the daily volume, the lower the prices for lab analyzers, automated systems, and test kits.
There are three more characteristics to the current IVD market that are relevant to our analysis and to what will be different about the emerging new class of IVD companies. These characteristics include:
- Choosing one of several methods available to test for the same biomarker.
- Using one of multiple methods for establishing reference or normal ranges for a diagnostic test.
- Selecting a name for a specific test to use in the test catalog and with physicians, payers, and patients.
These characteristics are relevant in our prediction that a new class of in vitro diagnostic companies is soon to emerge because each characteristic (or accepted lab industry practice) creates some level of ongoing confusion with physicians, payers, and patients.
In the first case, users of lab test results can be confused when different clinical labs select a different methodology for a specific biomarker, as noted above. Many diagnostic biomarkers can be measured by the use of two or more different methodologies.
New Type of IVD Firm
Further, The Dark Report believes that the coming class of new in vitro diagnostic companies will recognize this opportunity. They will design their tests and analyzers in ways that eliminate the problems caused by the same biomarker having multiple methodologies, different reference ranges, and different test names.
The timing of this development will coincide with the ongoing efforts of multi-hospital health systems to further integrate their operations, achieve standardization in methods and workflows across all hospitals, labs, and doctors’ offices, and deliver a unified electronic health record (EHR) system accessible to all providers within the integrated delivery network.
To sum up, today’s IVD marketplace has these attributes:
- Dominated by 11 global IVD giants.
- Biggest IVD buyers are the central labs of independent lab companies, hospital labs, and health system labs.
- Smaller IVD buyers are tens of thousands of physician office labs.
- IVD sales and prices are closely associated with volume. Larger volume equals lower price.
- Different labs use different methodologies for the same biomarker.
- Different labs develop different reference ranges for the same biomarker.
- Different labs use different names for the same biomarker and/or the same assay.
Pathologists and clinical laboratory administrators should use the baseline established above to understand how and why the coming new class of in vitro diagnostic companies has a solid opportunity to win market share and even transform the fundamentals of how lab analyzers and test kits are sold and used.
Over the past 12 to 18 months, The Dark Report has tracked progress of multiple young in vitro diagnostic companies that have several things in common.
Near-Patient Test Benefits
First, they share the primary goal of delivering an instrument and a test kit that provides a test result as close to the patient and patient care encounter as possible. This means creating a testing system that functions in near-patient and point-of-care settings.
Second, they are working to combine multiple new technologies developed outside the diagnostics field that:
- Simplify the test methodology used to produce a result;
- Reduce by a substantial magnitude the volume of specimen required to perform the test;
- Shrink the size of the analyzer used to perform the analysis down to a bench-top instrument or a hand-held device;
- Are cheaper to buy than core lab testing,even with lower volumes of tests daily;
- Make users of analyzers and tests more productive.
Third, their common goal is to develop a diagnostic test that can be performed by any individual in the doctor’s office or hospital. They want a CLIA-waived assay because it provides two benefits: a reduction in the cost of labor to perform the test, and it allows any individual within a provider’s office to run the test.
Fourth, these young in vitro diagnostic companies want to develop a testing system and assay that require just minutes to produce an accurate, reproducible result. This is the linchpin in the strategy of the new class of IVD companies we are tracking.
As buyers, office-based physicians and hospitals will welcome an instrument and test kit that deliver test results in minutes, with accuracy comparable to the same biomarker tested in CLIA-certified labs that do complex testing.
Major Buying Point
However, for the emerging new class of lab test buyers described in the first installment of this series, a fast time-to-answer while the patient is present and waiting to see the physician will be the single most important attribute. This will be a major buying point when buyers for national retail chains shop for lab analyzers and tests to put into their national net-works of primary care clinics located in retail pharmacies and other retail stores.
It takes a bit of digging to identify the emerging IVD companies that are developing instrument systems and diagnostic test kits that fit most of the attributes described above. That’s because they are either still under the radar during their development mode or their first diagnostics products and regulatory approvals with the European Union and the FDA did not get much news coverage.
Is your lab planning to buy testing systems and assays from the new class of IVD firms when they become available? Please share your thoughts with us in the comments below.