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Life Sciences Tools Companies must Adapt to Rapidly Changing Marketplace

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Demand from customers such as government health agencies and academic research institutions remains under serious pressure because of economic weakness and debt problems in the U.S. and Europe.

How are life science tools executives to respond?  Of course, they can continue to conduct business as usual and tough it out.  Or they can change course and consider different strategies that seem better suited to the changing environment.  We believe that to ensure continuing growth, rigorous analysis of potential value creation opportunities by life science tools executives is particularly useful as a yardstick for judging the various strategic decisions that their companies might take in a marketplace that could see significant changes in the next few years.  Importantly, in this effort, we believe that executives could considerably enhance their strategies from having a clearer view of the extent to which their sequencing products are being sold to clinical laboratories for use in “homebrew” diagnostics.  Greater clarity on product, company and overall industry sales would make it easier to decide whether the clinical space is an attractive opportunity deserving investment dollars for developing products, key marketing and sales messages, and additional and/or specialized clinical sales channels.  This clarity is also important because, if the regulatory situation changes, revenues may be at risk.

Why This Is Particularly Important in the Sequencing World

A comprehensive understanding of these market dynamics is particularly important in regard to sequencing technologies, which could, potentially, transform the diagnostics industry to an extent not evidenced since the advent of PCR.  While next-gen sequencing technologies from life science tools companies such as Roche, Life Technologies, and Illumina are used today primarily in research settings (academic, government and biopharma), lab-based diagnostic developers are increasingly purchasing sequencing products from life science tools companies, paving the way for the increased use of next-gen sequencing for clinical diagnostic applications. One of the driving factors related to this trend is cost reduction.  The all-in cost to sequence a human genome is expected to dip from $1 million in 2006 to under $1,000 by 2013.  Below $5000/genome, next-gen sequencing begins to approach the cost of several high-value diagnostics (e.g., Myriad’s BRAC Analysis and Genomic Health Oncotype Dx) but provides vastly more information.  Therefore, as a result of “Moore’s Law” speed improvements in the cost and technological capabilities, we are seeing greater interest from the clinical community in using sequencing as a potentially transformative diagnostic tool, particularly for applications in oncology.  In particular, the cancer market today faces critical unmet needs around poorly performing drugs and outdated chemistry / immunochemistry diagnostics.  Sequencing offers the opportunity to dramatically improve the field of oncology.

Over the next 5 years, we strongly believe that sequencing technologies could transform the diagnostics industry.

1.    Firstly, we believe that over the next 5 years, continuous innovation and increasing data around the reliability, performance, and clinical utility of sequencing technologies, coupled with an increasingly cost-conscious healthcare system, increasing adoption into clinical practice by oncologists, and novel, more targeted, and more personalized therapies, will likely provide the basis for a strong economic case for reimbursement for novel sequencing-based diagnostics.   That said, general wisdom suggests that payers require at least two peer reviewed publications (e.g., New England Journal of Medicine (NEJM), Journal of the American Medical Association (JAMA)) and a solid economic analysis in order to catalyze a reimbursement discussion.  Hence, we believe that reimbursement, although a strong case due to the amount of data and the low cost, will likely take until at least the middle of this decade (e.g., 2015-2016).

2.    As a result of our discussions with leaders in clinical labs, diagnostic companies, and regulatory agencies, we believe that potential regulatory approvals (as well as current issues being debated today such as the Better Evaluation and Treatment Through Essential Reform For Patient Care Act being developed by the office of Senator Orrin Hatch) may expedite a shift in the landscape away from its roots in LDT diagnostics, while also opening up new opportunities for life science tools companies in clinical diagnostics.

What Should Life Science Tools Companies Do?

Today’s life science tools companies, in order to prosper during these times of significant environmental change, must be committed to adapting appropriately to these changes.  We believe that a number of attractive value creation opportunities exist for life science tools companies and that the strategies to successfully pursue these opportunities can be bolstered by having a superior perspective into segment sales to clinical laboratories for use in “homebrew” diagnostics.  Today’s leading life science tools companies must make fateful choices.  But in uncertainty lies much opportunity. Those companies that can successfully adapt and evolve in the new environment could end up thriving in it.