Medical Device Link.

Originally Published IVDT September 2002

BUSINESS & MARKETING

Putting the right technology in the right place can open significant growth opportunities for IVD manufacturers.

Steve Halasey and Richard Park

The marketplace for IVD products is among the most complex of all medical device sectors, involving both public and private payers, prescribing caregivers and laboratory specialists, and an increasing variety of clinical and even home-use settings. Making headway in such a market often means that companies must undertake an intense period of research in order to understand their target market. This article looks at the IVD marketplace from two angles, breaking it down geographically as well as by technology, to provide a snapshot of what experts believe are likely to be the key trends and important issues over the next few years.

The IVD World and Its Markets

Total revenues in the global IVD market have been estimated at $22.5 billion in 2000 and are expected to reach $28.6 billion by 2005 (see Table I).¹ North America, Western Europe, and Japan dominated the IVD market with an 85% share of the total market, or $19 billion, in 2000. However, these regions' dominance has been declining, as reflected by the fact that their market share is projected to decrease to 75% by 2005.

At the same time, with rising incomes and living standards igniting a new awareness about health and increasing demands for quality medical care, the IVD markets of developing countries in Eastern Europe, Southeast Asia, and South America will emerge as areas of opportunity and will grow from 8% of the global market in 2000 to 15% by 2005. In particular, China and India will experience phenomenal growth, with annual growth rates of 20% and 27%, respectively.

Each of these markets has its own unique characteristics that will affect the level of growth during the next couple of years. The following is an analysis of recent developments and current trends in the major IVD markets.

United States. The United States is the largest IVD market in the world, with a 43% market share and revenues totaling $9.7 billion in 2000. While the United States is expected to continue being the largest market with projected revenues of $11.2 billion in 2005, its market share is anticipated to decline to 39%. In addition to being the biggest market, the United States is the largest IVD manufacturer, producing nearly 85% of all IVDs used worldwide.

One of the main factors limiting annual growth of the U.S. IVD market to 2–3% is a significant public effort to increase the quality of healthcare services while decreasing costs. Such customer pressure to reduce prices has squeezed profits from U.S. IVD manufacturers in the past, and will continue to do so in the future. Despite these pressures, however, the IVD industry's biggest companies are expected to maintain a healthy growth rate, primarily due to international sales.

Another factor that will hamper growth in the U.S. IVD market is the challenges stemming from reimbursement issues. The U.S. government is pursuing the establishment of universal reimbursement for various routine and esoteric tests. Toward that effort, in November 2001, the Centers for Medicare and Medicaid Services (Baltimore) published a final rule proposing national coverage policies for clinical diagnostic laboratory services that are payable under Medicare with the intent of simplifying administrative requirements for these services. However, if this rule is accepted, industry advocates believe that it will reduce the use of these tests and give healthcare providers another compliance matter to contend with.

Europe. With a 31% market share, Western Europe is the second-largest IVD market, generating revenues worth $6.9 billion in 2000. Even though Europe is expected to have an annual growth rate of only 1–2% and its market share is projected to fall to 27%, Europe will still play a leading role in the IVD sector with revenues reaching $7.7 billion in 2005. Germany, France, and Italy are the three biggest markets in Europe, accounting for 58% of the region's IVD sales. Germany is Europe's largest single market, with a 23% market share.

A highly anticipated regulatory change regarding IVDs has been developing in Europe for the past few years and will go into effect next year. The European Union's IVD Directive will have a tremendous impact on the design, manufacture, and marketing of IVDs in the European Union (EU). By December 7, 2003, an IVD must comply with the directive's requirements in order to gain access to the EU market. According to the directive, if a manufacturer makes medical claims for a diagnostic product, that product must comply with the directive and be CE marked to demonstrate its compliance with the directive.

The IVD Directive primarily addresses the quality and safety of IVDs in their intended uses and does not pertain to the effectiveness of a diagnostic procedure. While the directive's main objective is to protect the consumer, however, industry advocates believe that it will also increase competition and regulatory requirements for manufacturers.

Asia. Asia is considered to be the market with the greatest future potential for IVD products. Despite the major financial collapse that occurred in the region in the late 1990s, improvements in economic conditions in Asia during the past few years have generated capital to invest in healthcare systems. In addition, Asian countries have seen an increasing number of public sector workers and urban professionals who have served as a catalyst for growth in all healthcare services, including IVDs.

Japan is the third-largest IVD market in the world, with an 11% market share and revenues totaling $2.5 billion in 2000. However, with estimated revenues of $2.6 billion in 2005, Japan's market share is anticipated to decline to 9% with an annual growth rate of only 1%.

In spite of this decline, Japan will continue to be the backbone of the Asian IVD market. After 10 years of stagnant growth that saw IVD sales revenues decrease rather than increase, the Japanese economy has been recovering since 2000, which bodes well for the IVD market.

While Japan remains the dominant force in the Asian IVD market, other Asian countries have been showing promising signs of growth, especially two of the region's largest and most populous countries: China and India.

After posting IVD sales totaling $300 million in 2000, China is projected to double that figure to $600 million by 2005, at an annual growth rate of 20%.

Several factors will contribute to this explosive growth. After proving that it is making the necessary regulatory changes, China has recently become a member of the World Trade Organization (WTO). And since China has become a WTO member, foreign IVD companies will now be allowed to form their own distribution channels within China.

In addition, as a condition of its entry into the WTO, China will cut its tariffs on medical equipment from the current average of 6.5% to 3.9% by January 1, 2005. China has also committed to immediately eliminating quotas as well as tendering requirements for nongovernment purchases.

Meanwhile, the IVD market in India is expecting even stronger growth. The Indian market had sales totaling $150 million in 2000 and is projected to generate revenues of $350 million in 2005, at an annual growth rate of 27%.

India has more than 15,000 laboratories that conduct diagnostic tests, but only 20% of the population, primarily in urban areas, has access to healthcare that goes beyond the most basic services. More than 200 million Indians currently make sufficient salaries to pay for private healthcare, but it is estimated that by 2002 the middle class will grow to include 400 million people, thereby fueling demand for high-quality healthcare products and services.

Other Asian countries that have good growth potential for the IVD market include countries in Northeast Asia (e.g., Korea and Taiwan) as well as countries in Southeast Asia (e.g., Thailand, Indonesia, Malaysia, and the Philippines).

The Technology View

Knowing where the world's markets are moving is one thing. Having the right technologies and products to meet the needs of those regional markets is quite another. The following sections examine some of the trends currently affecting key technologies of the IVD marketplace, including those expected to have the highest growth rates over the next three years.

Molecular Technologies. In the years leading up to completion of the Human Genome Project, many experts predicted that the sequencing of the human genome would unleash a torrent of new commercial diagnostics and corresponding therapeutic agents. To judge from the lukewarm interest of investors, however, the field of molecular diagnostics has yet to live up to the expectations created by such predictions.

Although many industry experts agree with the sentiments of investors—at least for the moment—most still feel that the field of molecular diagnostics holds potential that has only begun to be tapped. Some experts even believe the field is already beginning to make good on its promise.

"I'm not sure I agree that the field of molecular diagnostics has not lived up to expectations," says Thomas M. Tsakeris, president of Devices & Diagnostics Consulting Group (Rockville, MD). "Hundreds of thousands of molecular diagnostic tests are performed by reference labs each year, and that number is growing. Most of these tests are home-brew tests, whereby the reagents and test platforms are provided by IVD companies either as analyte-specific reagents (ASRs) or on a contract manufacturing basis."

"The advantage to molecular diagnostics companies is that in both situations no FDA premarket clearance or approval is required," notes Tsakeris. "However, manufacturers that provide molecular diagnostics in this way are severely constrained in terms of the claims they can make for their products and in terms of their promotion and advertising."

"The primary obstacle has been the need to meet FDA requirements," says Susan L. Taylor, marketing manager for hemostasis at bioMérieux Inc. (Durham, NC). "There have not been any predicate devices or methods against which the agency could measure the performance of new molecular tests. Consequently, costly and time-consuming studies have had to be conducted.

"The cost of performing the assays has also been an issue," says Taylor. "The U.S. reimbursement system does not keep up with technological development."

Whatever the obstacles that have hindered the growth of the molecular diagnostics field, experts are generally in agreement about the potential short- and long-term growth areas for the field.

"Genotyping patients for personalized therapy will be the next growth area," says Taylor. "It will be interesting to see how companies in the pharmaceutical industry handle this technology, as it could put a crimp in their business."

"Infectious diseases and pharmacogenomics will continue to be near- and long-term growth opportunities for molecular diagnostics," says Katie M. Smith, senior director for diagnostics clinical research and regulatory affairs at Prometheus Laboratories Inc. (San Diego). "I think growth will continue to be slow until someone develops total automation that is truly reliable and cost-effective, or technology for delivering test results that is less labor-intensive than today's techniques."

For some of the limitations that have slowed the growth of molecular diagnostics, say the experts, technologies now under development will provide an answer.

"One of the major obstacles in molecular diagnostics has been the lack of automated and integrated sample preparation," says Mark Hughes, a senior consultant at Enterprise Analysis Corp. (EAC; Stamford, CT). "Sample preparation is problematic for many types of clinical samples—such as sputum and stool samples—where direct pathogen detection would be clinically valuable. New products are emerging that address automated sample preparation and this should help drive market acceptance of molecular diagnostics."

"Manufacturers are trying to automate molecular diagnostics in order to reduce the amount of hands-on time required to perform these tests as they are configured today, and to eliminate sources of contamination that can interfere with test results," says Smith.

According to the experts, however, the market for molecular diagnostics isn't dependent on such advances for growth (see Table II). "There is still room for vigorous growth in the market," says Hughes. "I expect growth rates to continue at 20% or higher over the next few years, driven by viral-load testing for hepatitis C and other viruses, HIV genotyping tests, and increasing use of molecular diagnostic technology in blood banks. In the longer term, there are promising opportunities for molecular diagnostics in the areas of cancer diagnosis and pharmacogenomics."

Point-of-Care Systems. Over the past few years, the market for professional-use point-of-care (POC) diagnostics has experienced double-digit growth (see Table III). Most experts agree that future growth of this field will continue to be strong—but not everyone expects that double-digit growth can be sustained.

"I do not expect the POC diagnostics market to rise to the levels so often suggested in the media," says Tsakeris. "The reason is that the major market setting for POC diagnostics—the physician's office—is severely constrained by the demand of physicians that new POC diagnostics be designated as CLIA waived. I estimate that more than 95% of newly CLIA-waived POC diagnostics are based on FDA clearances for home-use indications that clearly do not apply to the great majority of newly developed POC devices. I see this as a major constraint that will need to be alleviated through a change in the CLIA waiver requirements—a prospect that will not likely come to fruition anytime soon."

Experts nevertheless envision a variety of potential growth areas for POC diagnostics, including both new tests and new settings for testing.

"Potential future growth areas for POC diagnostics in hospitals are in selected niche areas such as cardiac markers—areas that may show rapid growth off a small base," says Paula Byrdy, a senior consultant at EAC. "Another promising growth area is the market in decentralized healthcare (e.g., physician offices, home care). Advances in miniaturization of devices and in wireless connectivity technology should offer opportunities for patient monitoring and disease management in these domains."

"Potential and necessary growth areas include systems that will perform multiple test panels on a single POC platform," says David G. M. Carville, president of Causeway Scientific (Mishawaka, IN). "There is still a need for user-friendly POC assays that have a rapid turnaround time and a sufficiently high sensitivity and specificity to rule in or rule out disease. For devices that meet these requirements, the level of market growth could be huge."

Keeping the channels of communication open could be a challenge. "As POC devices proliferate in hospitals, they will create an opportunity—and the demand—for the intelligent management of bidirectional data traffic; more specifically, data integration (inbound data from the bedside to the hospital host) and data distribution (outbound data from host to bedside)," says Emery J. Stephans, president of EAC. "This trend will also impose demands on the hospital IT infrastructure to integrate and distribute information from POC devices."

"Connectivity remains an obstacle to adoption of POC systems," agrees Joanne Stephenson, vice president for business development at Response Biomedical Corp. (Burnaby, BC, Canada). "Only 15% of all the quality control and patient data originating from POC systems is actually downloaded to a laboratory information system; 18% is entered manually, and 67% is not entered at all. This means that the information is not being used as well as it could be—and the system is therefore not as cost-effective as it could be."

Connectivity. For many industry watchers, the issue of connectivity is both challenge and opportunity. Continued growth in the field may encounter pitfalls, but experts say the advantages of a fully connected patient data system will make the effort worthwhile.

"The recently approved POC connectivity standard should enable development of new technologies in POC testing," says Byrdy.² "Smaller companies with unique assays and devices can now compete without expending excessive resources on design to connect with a data manager or directly to a hospital information system. The likely future application areas include manual tests that are often erroneous and seldom captured for validation, billing, or research."

"There is an opportunity for wireless connections in a hospital-based setting," says Glen Paul Freiberg, vice president for regulatory, quality, and government affairs at Gen-Probe Inc. (San Diego). "These would not be CLIA-waived devices."

"To ensure that optimal diagnostic evaluation of disease is performed, companies need to address both the POC and central laboratory settings," says Carville. "In some cases, qualitative POC tests may be followed up with additional quantitative testing in the central lab. Such multisite testing creates a need for better data management and connectivity, so that data generated in POC settings can be linked with those from central lab settings."

"The growth of the connectivity area will be very strong," says Tsakeris. "One area of strong growth will be in the patient and consumer market, in which home-use devices such as blood glucose monitors will be made to connect with personal digital assistants and computers, and via the Internet to physician office laboratories."

Automated Laboratory Systems. Throughout the past decade, large IVD manufacturers have touted automated lab systems as the solution to many of their customers' ills, including increased quality control requirements under CLIA, shortages of skilled laboratorians, and price pressures that made throughput and cost-per-result key measures of lab efficiency. According to the experts, however, market growth for such systems may have run its course—at least for the moment.

"This is now a slow-growth area," says Carville. "There is a need for software improvements, data management upgrades, and additional tests for automated panels. However, there is good potential for growth in molecular diagnostics for central analyzers."

"I think there is potential in the area of molecular diagnostics and in the POC area," agrees Smith. "But I don't see a lot of growth for immunoassays or standard lab chemistry tests. At present, the market is pretty saturated with new systems for these types of tests."

New Markers. "Research on new disease markers is extremely broad and diverse, covering many diseases and disorders. It is always difficult to predict which will be successful," says Hughes. "One area that looks particularly promising and would have a substantial market impact is markers for stroke. If sensitive and specific markers can be developed for stroke, it would be a significant clinical benefit in diagnosing stroke in the emergency room."

"In terms of specific opportunities, there is a need for improved methods to monitor thrombosis, cancer, and infectious disease," adds Carville. "There is also potential in the development of technologies that can be used to monitor drug therapies."

"For the foreseeable future, the development of new disease markers will be focused in the area of pharmacogenetics," agrees Tsakeris. "There is growing realization that new therapies—particularly cancer therapies—can be optimized through patient-by-patient testing for specific biomarkers that are predictive of the effectiveness of these therapies. Focused development of biochip devices deploying unique gene and protein arrays will be an area to watch out for in terms of breakthrough discoveries."

"Bringing genomics and proteomics to the clinical laboratory is the wave of the future," says Taylor. "Finding disease earlier and selecting the most effective treatment from the start will save time, money, and lives."

Conclusion

Manufacturers seeking to meet the needs of a rapidly changing marketplace may find comfort in some of the information provided here. At the very least, there is some solace in knowing that most IVD companies are battling the same forces on the way to achieving their goals.

"Even with their lofty financial goals, most IVD companies are driven by noble motivations," says Alan Snitkof, chief technology officer at Behanu Inc. (Yonkers, NY). "That fact is aptly demonstrated by the continuous stream of new and lifesaving technologies coming from companies of all sizes—despite the worst economic environment in the past five years. Companies have figured out that staying competitive in the IVD industry involves listening to their customers (who are, in many cases, patients), nurturing their core competencies, and targeting marketplaces based upon product differentiation."

References

1. The Worldwide Market for In Vitro Diagnostic Tests (New York: Kalorama Information, 2002).

2. Point-of-Care Connectivity, approved standard POCT1-A (Wayne, PA: NCCLS, 2001).

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