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 testing systems 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 firms are still in the development mode and they continue to refine their testing systems and assays. In a few cases, certain pioneering IVD 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 IVD 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 IVD 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.
It is helpful to describe the IVD industry as it exists today so that key differences in this new class of IVD companies become visible. At this time, the IVD market is dominated by 11 global IVD corporations.
In 2020, global IVD revenue was estimated to be $74.1 billion. (Remember, IVD firms sell their products at “wholesale prices” to labs, who then use them to produce test results they sell at “retail prices.”)
Biggest Global IVD Firms
During 2020, the top 11 biggest global IVD firms 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 IVD firms 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.
These three characteristics are relevant in our prediction that a new class of IVD firms is soon to emerge …
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 IVD players 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 drives 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 IVD 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.
Three TSH Test Methods
One good example is thyroid-stimulating hormone (TSH). At least three different methods are available. They are chemiluminescent assay (CLA), radioimmunoassay (RIA), and enzyme-linked immunosorbent assay (ELISA).
In the second case, the different approaches individual labs can take to establish the reference or normal ranges for the tests they perform can be a source of confusion among physicians, payers, and patients. Different methodologies generate different reference ranges. A lab also can develop its reference ranges based on testing the regional patient population it serves.
The third case centers upon the test names different labs give to the same assay. It is widely recognized that there is little uniformity in how individual laboratories name their tests. For decades, this has been a source of confusion for labs, physicians, patients, and payers.
The LOINC (Logical Observation Identifiers Names and Codes) system is one effort to help add clarity to this situation. LOINC is designed to help labs and healthcare providers share lab test data that was produced by different labs, given their choices of methodology, reference ranges, and names.
As noted above, each of the three characteristics involving test methodologies, test reference ranges, and test names often prove perplexing. This happens when physicians, payers, and patients want to understand how to interpret the same patient’s test results from different clinical labs that reported the same biomarker, but used different methodologies, reference ranges, and/or test names for that same biomarker. Pathologists and clinical lab managers deal daily with this problem.
The three characteristics described above are widely-recognized to be a source of confusion among providers. It is reducing or eliminating that element of confusion that is an opportunity for any IVD company that wants to be innovative.
New Type of IVD Firm
Further, The Dark Report believes that the coming class of new IVD 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 IVD 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.
… the coming class of new IVD 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.
Over the past 12 to 18 months, The Dark Report has tracked progress of multiple young IVD 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 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.
In the past year, clients and regular readers of The Dark Report have read profiles about a few of these companies that in some cases included interviews with their CEOs or other key executives.
The companies described below illustrate what we consider to be new members of this emerging new class of IVD companies. This is a small sampling of a much larger number of IVD companies racing to develop disruptive diagnostic tests and bring them to market. The companies below have raised significant amounts of capital in the past 24 months and have issued public statements about plans to obtain regulatory clearance in the EU and with the FDA. The companies below are presented in alphabetical order.
Founded in 2010 as a response to the swine flu epidemic which created consumer interest in a home test for this virus, San Diego-based Cue Health has a diagnostic device that connects to a smartphone and can deliver results in minutes.
In 2018, Cue Health entered into what turned out to be a timely collaboration with the federal Biomedical Advanced Research and Development Authority (BARDA), a division of the federal department of Health and Human Services (HHS).
The contract award was for $30 million. In a press release at that time, Cue Health said the project’s goal was to “accelerate the development and regulatory validation of an over-the-counter and professional-use Influenza and Multiplex Respiratory Pathogen diagnostic cartridge for the Cue Health Monitoring System.”
Following the onset of the COVID-19 pandemic, Cue Health obtained an FDA EUA for its SARS-CoV-2 molecular test. Then, in October 2020, HHS announced a $481 million investment intended to help Cue Health expand manufacturing capacity of its molecular COVID-19 test kits. (See TDR, “$481 Million Federal COVID Contract Awarded to Young IVD Company,” Oct. 26, 2020.)
COVID-19 Tests for NBA
At the time of that announcement, news stories reported that the National Basketball Association (NBA) used Cue’s test cartridge and smartphone-based diagnostic testing system during the summer and fall of 2020 for COVID-19 testing of its players and staff.
These developments provide evidence that Cue Health has a credible diagnostic testing solution which can be used in point-of-care settings or by consumers at home to produce accurate test results. When the pandemic subsides and routine clinical care resumes, Cue Health can be expected to begin marketing its diagnostic system to healthcare providers, retail chains, and consumers.
Even the Silicon Valley behemoths want a piece of the clinical diagnostics market. In January, Genalyte of San Diego raised $50 million. Verily, the life sciences division of Google’s parent company, Alphabet, led that round of financing.
Genalyte says its Maverick Diagnostic System (MDS) is a benchtop analyzer that “uses silicon chip-based photonic ring resonance technology to perform multiple, simultaneous, rapid tests on a small volume of whole blood or serum in twenty minutes.”
In 2020, Genalyte’s SARS-CoV-2 Multi-Antigen Serology Panel received Emergency Use Authorization (EUA) from the FDA. The panel uses the company’s Maverick analyzer to test for an autoimmune disorder and for SARS-CoV-2 antibodies. The company says it is on track to submit more tests for FDA review by year’s end. Genalyte’s board includes Andy Conrad, PhD, currently CEO of Verily, and at one time a Chief Scientific Officer of Labcorp.
A new player in hematology testing is Sight Diagnostics, founded in 2012 and based in Tel Aviv, Israel. Its flagship analyzer and test already has FDA clearance for clinical testing and is available for purchase in the United States and the European Union.
Sight Diagnostics obtained 510(k) clearance from the federal Food and Drug Administration (FDA) for its its hematology testing system in November, 2019. The Sight OLO CBC analyzer is cleared for moderately-complex testing in CLIA-compliant facilities.
This test produces a five-part CBC results with 19 parameters and signature flagging capabilities. What differentiates the Sight CBC testing system is that— compared to most hematology systems used in clinical laboratories today—it is engineered around a radically different mix of technologies.
To run the test, one drop of blood is placed in each of the two wells on the cartridge, which uses lateral flow technology to move the specimen through the required steps to create a monolayer of cells within a self-contained cartridge.
Next, the specimen cartridge is inserted into the analyzer which captures more than 1,000 images. Within 10 minutes, the instrument analyzes the images to produce the CBC results. (See TDR, “Two-Drop ‘Digital CBC’ Enters U.S. Market with FDA Clearance,” Jan. 19, 2021.)
San Diego is the home of another innovative young in vitro diagnostics company. Truvian Sciences, launched in 2015, wants to deliver a fully-automated benchtop blood testing system.
Investors seem impressed with Truvian’s technology. Last winter, the company raised $105 million to fund further development of its analyzer and tests. (See TDR, “Truvian Sciences Raises $105 Million for Near-Patient Lab Test System, Mar. 22, 2021.)
In a press release, Truvian declared that it was “developing a compact and fully-automated benchtop system that combines chemistries, immunoassays, and hematology assays in one device. There is no other single on-site diagnostic platform that covers the breadth of analytes that Truvian can address, with accuracy that rivals central labs.”
The company also stated that its goal was to combine “multiple testing modalities into one system [so that] clinics can perform all standard blood tests ordered during a routine check-up onsite, helping their patients realize significant cost and time savings.” Truvian’s comprehensive wellness panel will cover the most commonly ordered diagnostic tests, including a lipid panel, metabolic panel, and complete blood cell count.
More specifically, Glen Tullman, Managing Partner at 7wireVentures who co-led Truvian’s $105 million funding round in February, identified primary care clinics in retail chain stores as the major target for Truvian’s diagnostic products. “As we move to a more consumer-directed system of healthcare, providing easy, convenient access to a full suite of high-quality blood tests at a local pharmacy, an on-site clinic at work, or a physician office will be a game changer,” Tullman declared.
The emerging in vitro diagnostics companies described above illustrate the rich and diverse range of companies that want to revolutionize clinical laboratory testing. Investors are betting they can succeed.
“New rapid diagnostic tools are essential to provide health consumers with more information earlier in the process and equip clinicians with the information they need to provide high-quality care,” Tullman added.
There are numerous published reports, some dating back to 2018, that describe how teams within Amazon are developing diagnostic tests and analyzers. Amazon already operates several CLIA-accredited clinical laboratory facilities designed to provide COVID-19 tests for its one million employees. The company even has an EUA for its own COVID-19 test, which it sells to consumers on its website.
The emerging in vitro diagnostics companies described above illustrate the rich and diverse range of companies that want to revolutionize clinical laboratory testing. Investors are betting they can succeed.
Truvian Sciences Building Multi-Analyte Platform
THE PHOTO BELOW FROM TRUVIAN SCIENCES WEBSITE SHOWS how samples are loaded into the analyzer. In news reports, the company said it would launch with a panel that offers 40 of the most commonly-ordered diagnostic tests that can be performed on a single run with just five drops of blood, with results delivered within 20 minutes. The first tests will include a metabolic panel, a complete blood cell count (CBC) and a lipid panel. Truvian’s initial panel will target standard wellness markers, such as cholesterol and glucose levels, complete blood cell count (CBC), as well as thyroid, kidney and liver functions.
Sight Diagnostics Now Sells ‘Digital’ CBC Test
SIGHT DIAGNOSTICS OLO CBC ANALYZER utilizes machine imaging and artificial intelligence todeliver a five-part CBC result in about 10 minutes, using two drops of blood. One point of competitive differentiation between the design and function of the OLO CBC analyzer and most existing hematology instruments is the absence of complex tubing, pumps, and moving parts. This diagnostic test utilizes different technology from conventional hematology instruments, including artificial intelligence developed for self-driving automobiles.
Cue Health’s Diagnostic Test Uses Smartphone
THIS IS THE DIAGNOSTIC TESTING SYSTEM developed by Cue Health and now in use for COVID-19 testing. The federal Department of Health and Human Services sent $481 million in funding to Cue Health last year to ramp up production of this test. It is a rapid molecular test for SARS-CoV-2 that was granted an emergency use authorization (EUA). It uses a nasal swab to collect specimens from the lower part of the nose, feeds data from the test unit to a smartphone, and delivers results within 20 minutes.