Competition Heats Up as Growth Cools in Test Services

Competition Heats Up as Growth Cools in Test Services

The test service model, where IVD companies perform tests for customers at their CLIA-certified laboratory, rather than selling a kit to laboratories to perform the test, is a major route for highly sophisticated and specialized tests.  Even though as our recent research finds, it's not the unique play of a decade ago.  A thorough analysis of this area is made in our most recent In Vitro Diagnostic Tests market report.   The most successful company owned test services involve anatomical pathology (histology/cytology) and molecular assays, primarily in situ hybridization (ISH) and PCR analysis of biopsied tissue for cancer analysis. At this time, test services is one of the fastest growing segments of the IVD market, far outpacing any other in the IVD industry, but it is maturing as we will show growth is slowing. The rapid growth of the early adopter phase is now in a fairly steady state, a sign of maturing industry.  The star of this category has always been Genomic Health, and their compound revenue growth rate went from high thirties to six in the last three years.

Still, such a cooling of growth is not going to dissuade entrants because growth is not truly slowing but coming off breakneck levels. From 2008 to 2009 average revenue growth for this segment of the industry, the specialized lab service companies, was 32%. That was probably unsustainable as dollar volume increased. If we look at the 2009 to 2013 period, growth was 13%. In 2012-2016 CAGR for this group of companies decreased to 4% from 2009 to 2013.

The company-owned test service business model is primarily a phenomenon of the U.S. American reference labs were first to launch many groundbreaking tests in the areas of viral load testing, anatomical pathology special analyses and molecular assays. This sensitized the medical community to the value of these test services. The first generation of these tests targeted small markets where the financial investment for FDA market clearance – especially the PMA route that would have been required for these unique tests – would have been difficult to recuperate with a commercial test kit.

Genomic Health is banking future growth on an expanded menu of Oncotype tests and the launch of a first line of liquid biopsy tests Oncotype SEQ, a blood-based mutation panel that uses next-generation sequencing to identify select actionable genomic alterations for the treatment of patients with late-stage lung, breast, colon, melanoma, ovarian or gastrointestinal cancer, in mid-2016. Oncotype SEQ represents the first of several liquid biopsy tests that Genomic Health plans to deliver through the introduction of its Oncotype IQ Genomic Intelligence Platform.

Having lost its patent protection actions for its BRCA cancer gene business, Myriad Genetics’ BRCA business is losing market share to lab-based competition. Myriad is investing for future growth and launched new tests, including myRisk Hereditary Cancer, myPath Melanoma, and myPlan Lung Cancer. Myriad has also entered collaborations, particularly in the area of companion diagnostics and personalized medicine.

On August 3rd, Myriad announced it signed a definitive agreement to acquire Assurex Health, a global leader in genetic testing for psychotropic medicine selection, for $225 million upfront with the potential for $185 million in additional performance-based milestones. Assurex generated revenue of more than $60 million and tested more than 150,000 patients in 2016.  However, some of the smaller lab services including Agendia, Cancer Genetics, MDxHealth and Combimatrix continue to show double digit growth, yet still much slower than in 2009 to 2013 as shown in the accompanying table.

More Information about test services can be found in Kalorama Information's The Worldwide Market for In Vitro Diagnostics, 10th Edition.