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Along with Growth Opportunities, Molecular Dx Market Likely to Bring a Wave of Consolidation

The molecular diagnostics space is likely to double to $4 billion by 2010, but the ever-increasing number of companies jumping into the space will trigger a wave of mergers and acquisitions as bigger firms swallow smaller players, according to life sciences advisory firm TSG Partners.

While larger firms can employ a variety of technologies and pursue acquisitions and alliances to grab their share of the market, many smaller competitors may succumb to regulatory and competition challenges and opt to put themselves on the block. This wave of integration may have already started as several multi-platform tool vendors have made acquisitions over the past couple of years aimed at increasing their stake in the molecular diagnostics arena.

"I think that we're looking at a market ripe for M&A activity," said Harry Glorikian, a partner at TSG, which is tracking nearly 200 companies worldwide involved in molecular diagnostics.

Market Breakdown

According to a new report from TSG, molecular diagnostics is the fastest growing part of the in vitro diagnostics field, currently valued at around $2 billion, but growing at a compound annual growth rate of 15 percent. "There are a lot of companies in this space," said Glorikian. "There are a lot of small companies, and the medium and large companies that are immunoassay-based are expanding their reach into molecular [diagnostics]."

According to the report, the infectious disease market is currently the largest slice of molecular diagnostics, accounting for roughly $1.6 billion in sales. "Infectious disease was a much easier level for this market to start at," Glorikian said. "You're going after a particular target, [and] the sequences are more known. It's not like looking after something complicated, like [cytochrome] P450, where you needed a tremendous amount of information."

Glorikian said, "It's getting very crowded in HIV." Though Roche is the leader in this area, there are now 19 companies selling molecular diagnostics for HIV, he said. But, "I think some companies are trying to pick areas where they're not going to be as head-on competitive," he said.

Genetic testing currently represents about $356 million of the molecular diagnostics market, and the rest is about $32 million. But cancer is a fast-growing segment as targets are quickly being discovered and microarray-based tests are being developed for diagnosis of disease state. According to Glorikian, revenue from molecular diagnostics for cancer is growing 26 percent annually.

According to TSG, Roche holds the largest market share in molecular diagnostics at 38 percent, but Gen-Probe — and Chiron, which recently agreed to be acquired by pharmaceutical behemoth Novartis — are gaining traction.

In addition, as other established in vitro diagnostic players, such as Bayer Healthcare, Abbott Laboratories, and Becton Dickinson have all expanded into the molecular diagnostics field, a number of smaller competitors currently in the field could become attractive acquisition targets over the next several years.

"If you just look at the list [of competitors], you can see that there's a lot and the number is going up," said Glorikian. "There are companies that have one assay here and one assay there, and those will be the companies that will be more prone to being absorbed."

He did not disclose who some of those smaller companies may be, but said that some smaller firms entering the molecular diagnostics market may be underestimating the amount of effort it takes to run the gauntlet from test development through regulatory approval — should they choose to go that route rather than developing home-brew tests. This could be another factor that encourages acquisition and alliance activity.

"If you just look at the list [of competitors], you can see that there's a lot and the number is going up. There are companies that have one assay here and one assay there, and those will be the companies that will be more prone to being absorbed."

Building a Molecular Dx Portfolio Through Acquisitions

Among firms in the BCW Index, Qiagen and Invitrogen have been actively acquiring smaller firms as a means to expand their offerings into molecular diagnostics. "Invitrogen's doing it through acquisition, although I'm not sure what their strategy is to bring it all together because they haven't necessarily articulated that," said Glorikian. (see related article on Invitrogen in this issue)

Invitrogen had a steady stream of acquisitions throughout last year, starting with its purchases of Zymed and Dynal and finishing most recently with its acquisition of Quantum Dot. The firm has been building its diagnostics business off of the acquisitions of Zymed and Dynal (see BioCommerce Week 1/13/2005 and 2/10/2005), which provided the firm with HLA typing and CISH (chromogenic in situ hybridization technology) pathology products. The Dynal acquisition provided Invitrogen with a magnetic bead technology that the firm expects will work well in molecular diagnostic applications.

In addition, Invitrogen's July 2005 acquisition of BioSource for $130 million shed additional light on its plans for the market (see BioCommerce Week 7/28/2005). Throughout 2005 year, Invitrogen added to its portfolio a variety of technologies for nanotech applications, imaging and microscopy, cell separation and analysis, labeling and detection, bead-based separation, and antibodies — many of which were placed together in the firm's recently established Enabling Technologies division, the focal point for the firm's molecular diagnostic products.

Meanwhile, Qiagen's goal is to "be the front-end sample prep of choice regardless of who is doing the diagnostic," Glorikian told BioCommerce Week. "That has been one of their strong positions, as well as making some interesting moves by acquiring companies like [Shenzhen PG Biotech] in China." (see BioCommerce Week 9/29/2005).

Although Qiagen is known for its preanalytical tools for upstream research applications, it also clearly has its eye on the molecular diagnostics market. Its $40 million acquisition of Artus in June provided the company with a key component — PCR-based assays — for its plans of operating in this market (see BioCommerce Week 6/2/2005).

According to Glorikian, many of the firms in the BCW Index that want to get more involved in the molecular diagnostics field are likely "going to do it through some level of acquisition."

Fisher Scientific, for example, recently acquired neurological-test manufacturer Athena Diagnostics for $283 million (see BioCommerce Week 3/22/2006). A Fisher spokesperson told BioCommerce Week at the time that "by developing assays and utilizing Athena's genetic markers and discovering new ones, we will be able to capture a growing share of the molecular diagnostic testing markets."

Fisher also paid $15 million for a 9-percent stake in microarray firm Nanogen, and the companies said they would collaborate on expanding Athena's proprietary biomarkers and tests.

Glorikian also cited ABI's announcement in January that it sold its 50-percent stake in Celera Diagnostics to Celera Genomics in exchange for the right to sell instruments to end-user diagnostic customers (see BioCommerce Week 1/11/2006).

A Variety of Competitors, a Variety of Technologies

"These companies that are entering [the molecular diagnostics market] are each going to have a different position, and should accordingly, depending on which sequence they're going after and what they're claiming they can do with that sequence," Glorikian said.

"The smaller companies are going to try and enter through an ASR or home-brew positioning. It takes a lot of effort to get something fully 510(k) approved and get it out the door from a funding standpoint," he said. "Even companies like Cepheid that are very well positioned and very well capitalized have some of their product in ASR, and then they are simultaneously filing for a 510(k) to push it through and get a better level of approval.

"People should not underestimate the complexity of getting through that system," said Glorikian. "That's why you only see a handful of very large players, because it's not a trivial matter."

Other mid-sized firms such as Stratagene, Third Wave Technologies, bioMerieux, and Digene are developing their own PCR-based assays.

Stratagene, which is part of the BCW Index, recently announced that diagnostics giant Bayer would sell customized versions of its Mx3005P instruments to clinical labs for molecular diagnostic testing worldwide (see BioCommerce Week 3/8/2006).

In addition there are a variety of microarray technology firms, including Affymetrix, Illumina, CombiMatrix, and Nanogen, that are sizing up their opportunities in the molecular diagnostics field. GE Healthcare and ABI also are major competitors in the microarray space, but it remains to be seen whether these rivals employ that technology or other tools in developing molecular diagnostics.

Affymetrix, the dominant player in the microarray field, recently revealed that it would open a clinical lab business next year and develop CLIA-certified tests for diagnostic partners based on the firm's GeneChip technology. The firm said the tests would enable partners to get their assays on the market quicker than developing tests that have to be cleared by the US Food and Drug Administration's 510(k) process.

No matter which technologies are employed, Glorikian said that he expects there will be plenty of alliances signed between molecular diagnostic players and pharmaceutical firms for companion diagnostics.

He also said that point-of-care tests are becoming more of a focal point, with molecular diagnostics tests, such as Cepheid's test for Group B Streptococcus, which the firm recently filed for FDA approval, moving the industry in that direction. His assertion also is backed up by Becton Dickinson's recent $230 million acquisition of GeneOhm Sciences, a privately held company developing molecular diagnostics designed to detect bacteria known to cause nosocomial infections.

— Edward Winnick ([email protected])

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