CEO SUMMARY: Despite a decade of consolidation, competition among the world’s largest diagnostics manufacturers remains intense. In response to this competition, Ortho-Clinical Diagnostics (OCD) is preparing a variety of new products and services for its clinical laboratory customers. It’s already exploring diagnostic opportunities in the emerging field of pharmacogenomics. In the field of laboratory management, OCD has brought to market a consulting service built upon “Six Sigma” and “lean manufacturing” principles. Here’s an exclusive look at how Ortho-Clinical Diagnostics sees the future of laboratory medicine.
EDITOR’S NOTE: This is the second in a series of interviews with senior executives of the world’s largest diagnostics manufacturers. The interview which follows, is with Catherine M. Burzik, President, Americas, Ortho-Clinical Diagnostics, Inc.(OCD)
REMEMBER THAT FAMOUS COMMENT about the talents of the dancing team of Fred Astaire and Ginger Rogers? It went something like this: “Sure, Fred was a great dancer. But Ginger was the real talent. She matched Fred step-for-step, wearing high heels and going backwards!”
That statement makes a good metaphor for the clinical lab industry and its main supplier, the diagnostics manufacturers. It is certainly tough for lab administrators and pathologists to predict the immediate future for lab management and make the right decisions. But it is even tougher for diagnostics manufacturers to make those same predictions years earlier, and have the right products ready for their laboratory customers.
For this reason, one way to study the future of the clinical laboratory industry is to visit the leading diagnostic manufacturers. These companies are investing tens of millions of dollars today on the next generation of instruments and test kits. For these companies to succeed, they must have a perceptive and accurate view of the lab industry’s immediate future.
Recently, THE DARK REPORT sat down with Catherine M. Burzik, President, Americas, Ortho-Clinical Diagnostics, Inc. (OCD). This exclusive interview focused on three main topics: 1) OCD’s perspective on the current state of the market for diagnostic instruments and test kits; 2) developments with OCD and its parent company, Johnson & Johnson, to create effective healthcare solutions by integrating products in diagnostics, therapeutics and patient monitoring; and 3) specific business strategies within OCD that affect the types of diagnostic products and services it offers clinical laboratories and blood banks.
“The last few years were certainly difficult for all companies involved in the lab testing business,” said Burzik. Studies indicate a low overall growth in testing volume in recent years, ranging from 0% to 2% per year. Some diagnostics testing sectors actually declined during this period.
Decline In Utilization
“Certainly clinical chemistry testing was adversely impacted as utilization declined and new test panels were mandated,” noted Burzik. That seems to be changing, but year-to-year growth rates will remain modest.
“For the entire category of diagnostics, OCD’s studies indicate that the situation is now changing for the better,” she added. OCD projects an annual industry growth rate of 4% for integrated diagnostics in the immediate future.
“One area of business which is important to OCD is immunodiagnostics,” noted Burzik. “In our view, this segment will also see modest testing growth probably 2% to 3% per year. However, we think specific segments of immunodiagnostics, like infectious disease testing, cardiology, and cancer markers, will experience stronger rates of growth.”
Infectious Disease Testing
“Within the infectious disease segment, OCD is proud of the recent approval by the Food and Drug Administration (FDA) of our Anti-Hepatitis B Surface Antigen Assay (Anti-HBS),” continued Burzik. This is designed to be run on our random access, enhanced chemiluminescence immunoassay instrument, the VITROS¤ ECi Immunodiagnostic System. Approval of this product now allows smaller independent laboratories and hospital labs to perform this test.
“In addition to immunoassay technology’s applicability to infectious disease, cardiology, and cancer marker detection, our expectations are that molecular technologies will have widespread application in diagnostics. It will probably be another five years before this technology begins to realize its full potential,” stated Burzik.
Laboratory administrators and pathologists will be interested to learn that Ortho-Clinical Diagnostics has already declared molecular diagnostics to be a priority and has established an incubator group focused on this opportunity.
“Our molecular diagnostics unit is focused on opportunities that integrate nucleic acid and bioinformatic technologies and will concentrate on impact to patient outcomes,” observed Burzik.
“There are four legs supporting this effort,” she continued. “First is J&J’s pharmaceutical research group. Second is OCD’s focus on diagnostics. The rapid progress now occurring in the field of pharmacogenomics means these two business groups will work ever more closely together.
OCD Offers Lab Clients “Process Excellence”
DIAGNOSTIC MANUFACTURERS WANT to establish long-term relationships with their laboratory clients. To accomplish this, they must offer “value-added” services which reach beyond instruments and test kits.
At Ortho-Clinical Diagnostics, (OCD) one major “value-added” effort involves a consulting service which helps lab clients achieve “process excellence.” This OCD team, trained in the techniques of “Six Sigma” and “lean thinking,” is available to assist OCD laboratory clients.
Recently the BayCare Health System of Tampa, Florida, contracted with OCD to undergo “process excellence” training. This laboratory organization services ten hospitals and performs 2.3 million billable tests annually.
Victor Hruszczyk, Vice President of Laboratory Services at BayCare, reports that process redesign of lab work practices generated significant gains in productivity and quality. For example, med tech productivity climbed 44.5%, from 86,700 tests per technical FTE to 125,700 tests per technical FTE
Detect And Monitor Cancer
“Third is a joint effort between OCD and J&J Development Corp. to look outside for appropriate technologies to bring into J&J. One of our recent investments is with Immunicon, Inc., creating an alliance to develop proprietary products to detect and monitor cancers by detecting solid tumor cells in the blood and other body fluids,” noted Burzik.
“The fourth leg of this effort is centered on healthcare informatics,” she said.”We recognize the growing importance of collecting and managing the right clinical data. This group will create the database tools which support our ongoing research and development.”
Burzik’s comments demonstrate that Ortho-Clinical Diagnostics is actively investing to develop technology which combines diagnostics, therapeutics, and pharmaceutical drugs. This is the growing field of pharmacogenomics. (See TDR, September 8, 1998.) Pharmacogenomics plays a key role in the relationship OCD has with other business divisions within J&J.
Four Business Strategies
At Ortho-Clinical Diagnostics, the executive team is focusing on four main business strategies. These strategies promise to offer clinical laboratories expanded options for where and how they perform a range of clinical laboratory testing.
“First, we are investing in a new generation of clinical chemistry instruments,” explained Burzik. “These future instruments will incorporate our proven dry slide technology along with traditional liquid technology to offer the broadest test menu possible” including immunodiagnostic assays. The business objective is to increase the menu of tests which can be done by a single instrument.
“Second, there is a major push to expand the capability of our enhanced instrument systems. The clinical environment is requiring more accurate and reliable results from the laboratory,” she stated.
“A lack of accurate and reliable results increases lab test costs while reducing the quality of care. Across the clinical lab industry, there is a wide- spread acceptance of variability in test results and the retesting that is the consequence of this variability,” observed Burzik. “OCD wants to improve the accuracy of the first result, so physicians and laboratorians won’t question data.
Improved Fluidic Controls
“To accomplish this, we are investing in improved fluidic controls for reagent and sample metering,” continued Burzik. This feature is called “Intel- licheck“.” OCD intends to be the market leader in providing smart analyzers that accurately dispense fluids and generate accurate and acceptable results on the first test, results you can trust with full process verification built into each analyzer.
“Business strategy number three involves our enhanced chemoluminescence immunoassay (ECi) business. Outside the United States, we successfully launched a full menu of next generation HIV and hepatitis tests,” noted Burzik. “Our goal is to speedily introduce these tests into the United States to allow hospital laboratories to perform these tests on a fully automated, random access analyzer.
“The fourth business strategy centers on our Hepatitis C antigen (HPC Ag) diagnostic test,” stated Burzik. “It reduces the window of detection from 80 days to detect the antibody to hepatitis C to less than 40 days to detect the Hepatitis C antigen. Because of the relatively widespread prevalence of Hepatitis C in the population, this test offers important clinical benefits.
“There are over 4 million people in the U.S. and 100 million people worldwide with hepatitis C,” added Burzik. We believe the ability to detect and treat this serious disease early will improve the quality of life for millions of people.””
“We are now sharing our expertise in process management and manufacturing with our hospitals and laboratory customers.”
Catherine Burzik–President, Americas, Ortho-Clinical Diagnostics
Each of these four business strategies addresses traditional products and services offered by Ortho-Clinical Diagnostics. But OCD has other significant business initiatives underway which are definitely non-traditional.
“We are now sharing our expertise in process excellence with our hospitals and laboratory customers,” declared Burzik. You are well aware that all clinical laboratories are under sustained pressure to reduce costs while adding enhanced lab testing services. OCD and J&J can now directly help them accomplish these goals through techniques of process excellence.”
Major Commitment
“This is a service that directly flows from a current J&J strategic imperative,” noted Burzik. “Johnson & Johnson made a major commitment to “Six Sigma” management and “lean manufacturing” methods. These are management systems which reduce process variability, thus eliminating errors, reducing waste, lowering costs, and boosting quality.
“Throughout our company, we are training existing managers to be experts in these methods,” she continued. After training, they are called “black belts” and become internal consultants to every area of our business. In the last 18 months, OCD trained over 100 black belts. Within J&J, OCD is the farthest along on the Six Sigma transformation
“We are now training our hospital laboratory customers in these techniques,” added Burzik. “The first completed projects have generated impressive gains in lab productivity, while simultaneously lowering lab costs. There is great excitement at hospital labs now participating in our “process excellence” program.”
The Internet has not been ignored by Ortho-Clinical Diagnostics. Burzik has strong opinions about Internet- based diagnostic services.
Reimbursement Levels for Blood Banking Products Increasingly a Concern at OCD
BLOOD BANKING IS AN IMPORTANT PART of the clinical laboratory industry. It is also a major business within Ortho-Clinical Diagnostics (OCD). But serious issues cloud the future of the blood banking business.
In fact, the economics of blood banking products may be a unique preview at what might happen in other areas of diagnostic testing if reimbursement does not keep pace with regulatory requirements affecting quality, safety, and use of diagnostic assays.
“The term we use is ‘fragility of the blood industry in the United States’,” noted Catherine Burzik, President of OCD. “Currently the economics of the blood banking industry are such that only two companies in this industry remain committed to provide tests for blood typing in the United States. These are the tests which guarantee the safety of blood transfusions.
“The deteriorating economics of the blood banking business are such that all but a few companies have ceased to manufacture products for this market. It is safe to say that, without adequate reimbursement levels to allow blood bank laboratories, donor centers, and suppliers to recover costs and ensure a viable business model, new technology will not find its way into the blood banking industry. The future safety and availability of blood will be at greater risk than it is today.
“The situation is deteriorating faster than most laboratorians realize,” cautioned Burzik. “It now borders on becoming a matter of national interest for public health. OCD is working in a variety of way to collaborate with the American Association of Blood Banks, American Red Cross, and America’s blood centers to get the message to Congress that we must see improvement in reimbursement for blood products.
“All of this is a result of the increased demand for blood safety,” explained Burzik. “There are ever more requirements for mandating new tests and blood testing procedures, but no counterbalancing increases in reimbursement. It’s the same cost-versus-reimbursement squeeze that laboratorians have seen in other areas of diagnostic testing.”
“OCD believes virtually every aspect of laboratory testing will move to incorporate Web-based information management capabilities,” predicted Burzik. “One of the first areas of diagnostics to adapt the Web will be reporting of test results between lab and referring physician. The Web’s ability to move data instantly and at low cost will allow labs to offer ever-faster turn- around times.
Real-Time Communications
“OCD recognizes this fact. E-connectivity of our newest instruments will be reality in approximately two years,” Burzik said. We believe there will be real-time communications between OCD and our lab customers. Using this connection, OCD will monitor how the components of the instrument are functioning. OCD engineers will be able to identify malfunctioning parts, sometimes before they go bad, and schedule repairs so as to avoid instrument downtime.
“As the instrument operates in a customer” lab, OCD will also be able to monitor reagent usage,” she added. “This will allow OCD to help the customer reduce inventory levels and inventory waste, further saving money.
“Of course, test results will be transmitted using the Internet. In real time, as the instrument generates acceptable test results, the data will be posted to the clinical repository and notification will be sent to physician and even potentially the patient,” predicted Burzik.
Consumer Involvement
“The Internet is going to add another dimension to laboratory testing,” offered Burzik. “It will make it easier for consumers to participate in all aspects of laboratory testing. Laboratories should be ready for this change.
“We think there will be a rise in the amount of direct-to-consumer marketing done by both clinical laboratories and diagnostics manufacturers,” explained Burzik. “Pharmaceutical companies proved that direct-to-consumer advertising works.
“The day fast approaches when we believe a self-educated consumer will go to his doctor and request a specific test, for example, the Vitros HCV antigen test,”” noted Burzik. “At OCD, we fully expect that consumers will become a significant factor in the market for laboratory testing.
One market advantage which Ortho-Clinical Diagnostics expects to exploit during the next few years is its close working relationship with other operating divisions within Johnson & Johnson. As pharmacogenomics research develops new classes of drugs which rely on specific laboratory assays for diagnosis, prognosis, and patient monitoring, OCD’s close relationship with J&J s pharmaceutical divisions should give it a competitive advantage.
New Diagnostic Capabilities
“Despite all the tough times the lab industry has endured recently, the next few years will see a steady cascade of new diagnostic capabilities which should boost the importance of clinical laboratories to the healthcare system,” predicted Burzik.
“We are also excited at the potential of “Six Sigma” and ‘lean manufacturing” methods to help our laboratory customers boost productivity, lower lab costs, and enrich the quality of the lab services they provide to physicians and patients,” concluded Burzik. ‘These are all tools which will help make laboratories even more important to the healthcare systems that they serve.”
Ortho-Clinical Diagnostics is investing across a range of products and services, including some untraditional ones like “Six Sigma” expertise, to maintain competitive advantage. These business initiatives demonstrate how the needs and expectations of lab customers are changing.
