This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
SAN FRANCISCO — As the 25th annual JP Morgan Healthcare Conference came to a close last Thursday in San Francisco, it was clear that investors and molecular biology tool vendors agree that the molecular diagnostics market is a major opportunity that should not be shunned.
Nearly every firm covered by BioCommerce Week mentioned molecular diagnostics as an important future or present driver of growth, and nearly all mentioned that market when discussing potential acquisitions, alliances, and products in development. The potential of competing in this $2 billion market, which is growing rapidly, was also on the minds of investors, who asked about molecular diagnostics in just about every breakout session for the tool vendors.
Qiagen, which has steadily built a portfolio of molecular diagnostic products through acquisitions and internal development efforts over the past two years, focused a significant amount of its presentation on the market. CEO Peer Schatz said that roughly 25 percent of the firm’s sales currently derive from molecular diagnostic products, and roughly 150 of its 800 sales and marketing staff are focused on this market.
In 2007, “we’ll continue to see a rapid emergence of molecular diagnostics,” Schatz told BioCommerce Week. “We’re seeing phenomenal opportunities for us there.”
Meanwhile, Beckman Coulter Senior Vice President of Strategy and Business Development Paul Glyer said that the firm’s plans for the molecular diagnostics market would focus on developing and selling a new instrument specifically designed for labs in large hospitals — a core customer base for Beckman’s current clinical diagnostic offerings. His comments expanded upon those made by Jay Steffenhagen, senior vice president of the firm, who told investors at the Piper Jaffray Health Care Conference in New York last month that Beckman would launch a new molecular diagnostics platform around 2010 (see BioCommerce Week 12/6/2006).
Glyer said the goal is to develop a fully automated instrument that would dramatically simplify the process of running molecular diagnostic tests. He said although the firm does not anticipate that the instrument will be much faster than currently marketed systems, it would cut down greatly on the complexity of the tests, making it cost-effective for hospitals to run them.
Over the past two years, Beckman has added a nucleic acid sample preparation technology through its acquisition of Agencourt Bioscience and licensed RT-PCR patents from Applera and Roche (see BioCommerce Week 5/5/2005 and 7/19/2006). Both actions are seen as crucial to its development efforts in the molecular diagnostics space.
Glyer noted that the instrument itself would be entirely developed and manufactured by Beckman, but it is possible the firm would in-license or acquire assays to run on the instrument. He said that because Beckman is an engineering company, “acquisitions in the content area are attractive.” He cited Beckman’s acquisition a few months ago of Lumigen for $185 million as an example of the type of acquisition that would match the firm’s strategy.
Becton Dickinson also sees great opportunities in the molecular diagnostics field, but the firm is sticking with niche areas in infectious diseases for now. BD recently completed the $350 million acquisition of TriPath Imaging, which followed last year’s $230 million acquisition of molecular diagnostics firm GeneOhm Sciences. Vince Forlenza, executive vice president of Becton Dickinson, said at the conference that the firm planned to expand the menu of tests offered by GeneOhm, but would stick to hospital-associated infections.
Not So Usual Suspects
Agilent Technologies, a major player in several markets in the molecular biology tools field, has previously stated an interest in getting involved in molecular diagnostics. But like its rival Applied Biosystems, the firm has offered little insight into its strategy for the market.
Last week, Nick Roelofs, vice president and general manager of life sciences solutions, and CFO Adrian Dillon, provided a glimpse into the firm’s thinking on that subject. It appeared from their comments that Agilent’s preferred format for the molecular diagnostics market is its Lab-on-a-Chip technology.
While other tool vendors are developing microarray- or mass spec-based molecular diagnostic products, which would be possible for Agilent considering its product portfolio, these do not seem to be central in Agilent’s plans. Roelofs said that customers could pull Agilent’s technologies in these fields into the molecular diagnostics space as well — and if this happens, he said the firm would seek a partnership with an established diagnostics player.
Executives from Waters, who rarely mention diagnostics as a key area for the firm, said during the company’s breakout session that diagnostics is one of its fastest growing markets. The firm already partners on neonatal diagnostics with PerkinElmer, the market leader for maternal and neonatal testing.
“We think there are major opportunities for us” in molecular diagnostics, said Doug Berthiaume, Waters’ chairman, president, and CEO. He cited neonatal testing and immunosuppressant drug monitoring as potential revenue drivers for the firm’s mass spec technology.
Luminex is one of several firms that are focusing on multiplex platforms for molecular diagnostic applications. The firm, which counts among its partners some of the world’s largest diagnostics firms, such as Abbott Laboratories and Bayer Healthcare, recently made a move to directly enter the molecular diagnostics field through the proposed $44 million acquisition of Tm Bioscience (see BioCommerce Week 12/20/2006).
Executives of the molecular biology tool firms sought to convince investors that there were “major” or “phenomenal” opportunities in applying their technologies to the $2 billion molecular diagnostics market.
Luminex President and CEO Patrick Balthrop sought to assure investors that the firm’s partnership model, which has been the catalyst for its revenue growth, will not be adversely affected by the acquisition. Tm has its own portfolio of molecular diagnostic tests that could provide direct competition for Luminex’s partners who are developing multiplex molecular diagnostic tests based on the firm’s xMAP platform.
But Balthrop said Luminex would discuss assay development with its partners “in a pragmatic way” to ensure few conflicts between Tm’s tests and those being developed by the firm’s partners.
He suggested that the acquisition of Tm is a necessary next step for the firm, which is seeking a greater cut of the molecular diagnostics market. According to Balthrop, the firm currently realizes gross profits of 80 percent to 90 percent on an assay run on the xMAP and sold by a partner. But Luminex only receives roughly 10 percent of the total revenue of the sale.
Balthrop said that by selling its own assays, Luminex would still realize gross profits of 70 percent, but it also would receive a large majority of the revenue from the sale.
Qiagen’s Schatz also highlighted multiplexing as an important trend to watch in the molecular diagnostics field. A few months ago, the firm acquired Genaco Biomedical, the owner of a PCR-based multiplexing technology and a handful of assays, for $22 million in cash (see BioCommerce Week 11/1/2006).
Meanwhile, Illumina CEO Jay Flatley said the firm had completed beta testing and expects to begin shipping its BeadXpress system by the end of the year. The new platform incorporates bead-based technology that the firm acquired along with CyVera in 2005. Flatley also reiterated earlier expectations that Illumina would start selling the new platform specifically for molecular diagnostic applications beginning in 2008.
He said Illumina would distribute the instruments itself at a cost of $80,000 to $85,000 per instrument. The instrument will compete against other multiplex systems for molecular diagnostics, most notably Luminex’s xMAP instrument.
During Luminex’s breakout session, Balthrop did not appear too concerned about the impending competition from Illumina’s platform.
He cited Luminex’s and Tm’s experience in regulated markets, which he believes is a significant advantage over Illumina, which has yet to sell its products in a regulated environment. He also noted Luminex’s vast market reach, having placed 3,900 xMAP instruments with customers already.