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Originally Published IVD Technology September 2005
In Person
A widening sphere of influence
Although some regions have not lived up to their hype, IVD companies see hope in an expanding world market.
Richard Park
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| Julian Baines is managing director of British Biocell International Ltd. (Cardiff, UK). He can be reached at julianbaines@bbigold.com. |
For European IVD companies looking to expand their business into the United States, the world’s largest diagnostics market can be a daunting place. Increased security measures, for one, have created frustrating distribution obstacles. In addition, FDA’s notoriously thorough regulatory policies can place foreign companies at a significant disadvantage: a CE mark, for instance, though adequate for bringing IVDs to market in Europe, is often an inadequate prerequisite for FDA clearance.
Transatlantic perspectives on the global IVD market, however, are not entirely incompatible. Both European and American IVD companies are patiently eyeing changes in China and India as they try to separate hype from reality. In addition, both are positioning themselves to take advantage of the predicted boom in theranostics—the merging of diagnostics and therapeutics—and the lucrative opportunities expected as the pharmaceutical and IVD industries join forces.
To learn more about perceptions of the global diagnostic market, IVD Technology editor Richard Park spoke with Julian Baines, managing director of British Biocell International Ltd. (BBI; Cardiff, UK). In this interview, Baines discusses current IVD trends, both in the United States and abroad, and predicts how and where future opportunities might take shape.
IVD Technology: How would you characterize the current status of the global IVD market?
Julian Baines: From a BBI perspective, the global IVD market is extremely healthy. There are a few companies trying to run before they walk, but the market is still very embryonic. Even from a lateral-flow perspective, there are still few products on the market, which is good news for us because we have plenty in development.
Still, our contract development and manufacturing departments are growing by 80 or 90% annually. As more products are released, the general trend of the big boys will be to outsource to smaller companies like ourselves. For small businesses in Europe and in the United States, I think this is creating a very healthy IVD market.
In addition, pharmaceutical companies have started to take a lot more notice of diagnostic businesses, whereas in the past, diagnostic businesses were seen as the poor relation of pharma. With the difficulties that have arisen from bad drug interactions, pharma has been seeking help from IVD companies to diagnose problems before drugs are administered. So, all around, from industrial applications all the way through pharmaceutical applications, the market is just getting stronger and stronger.
You mentioned greater outsourcing as one contributing factor to the health of the global market. What else has given you the impression that the global IVD market is becoming stronger?
There is significant growth in development opportunities, both in Europe and in the United States. BBI, for example, has experienced a six-fold growth in revenues within the past five years. This gives you an idea of how much, in four years, the diagnostic market has changed.
Also, I think that world health authorities are finally starting to realize that prevention is better than cure. Diagnosing a problem early on is better than acting after the problems have occurred. Consumers, too, are becoming more concerned about diagnostics—in everything from industrial problems to food-borne pathogen problems such as E. coli, to pharmaceutical-level problems.
Do you believe that IVD companies are starting to look beyond the more-established markets of Western Europe, the United States, and Japan?
I think that companies are still extremely aware and concerned that they must have a big presence in the United States to begin with. The United States and Japan, in terms of diagnostics, are still by far the biggest market. For BBI, the United States makes up 70% of our revenues.
However, China is one of the largest emerging markets, and it’s one that shouldn’t be ignored. Because of the regulatory issues and laws there, though, it is hard to penetrate the market unless you are a large company like Abbott or Glaxo. Also, product quality tends not to be as large of an issue there, which makes it very difficult to compete with regard to price. The same is true with India and Africa. Until those markets become regulated and prices are adjusted accordingly, they will remain difficult to penetrate.
Conversely, I think China is making giant strides toward regulatory affairs and FDA equivalence. So, even for a company like BBI, which works mainly in the FDA- and CGMP-regulated markets, where you can maintain price and profit, there are opportunities.
Working with the United States
What are the primary challenges that European IVD companies encounter in trying to do business in the U.S. IVD market?
The biggest issue for us is distribution. Because of all the threats in the world today, we have experienced some difficulty in getting products into the United States.
We’ve opened a U.S. branch, BBI Research Inc., in Madison, WI, in part because Madison has one of the best science universities in the world and because it is central, but also because our U.S. customers have started to demand a BBI presence in the United States. I still feel that U.S. companies prefer to deal with U.S. businesses, and that has been difficult to change. European companies do struggle to compete in the United States, and competition is getting tighter.
Could you elaborate on the distribution challenges you’ve encountered in U.S. IVD markets?
Exporting products from Europe to the United States has been extremely difficult for a long time. One example of this is our gold conjugate. Because of the foot-and-mouth disease problem the UK has had for the last decade, we need to ensure that our products conform with standards of raw materials with U.S. origin. In addition, we have to demonstrate that every antibody we use has been created in the United States. We have chosen to follow the U.S. codes and the rules because we want to do business, but not all European companies have. FDA is a definite barrier to entry with regard to substances in your product.
So these distribution challenges are primarily regulatory related?
Yes, that is mainly it.
You mentioned BBI’s research arm in Madison, WI. Is this a new research and development model, or does it have more to do with distribution?
It’s actually both. It is mainly an outfit to conduct the research and development that major U.S. companies wanted done in the United States. We have a product under development that is going through a special type of FDA approval under which the product must be manufactured within the United States.
But we also decided that we needed to have our own distribution base inside the United States to help overcome the export problems I mentioned earlier. We have a diabetic gel product called Hypostop that has been successful in the UK and which we are looking to distribute in the United States through major pharmaceutical distributors. As a result, we needed a warehouse facility to stock the product.
How has this strategy worked so far? If the Madison outpost proves successful, will BBI continue to expand into the United States?
We have every intention of expanding into the future. The Madison branch is still in its early days, but we already have two contracts that we are starting in the facility. In addition, the reception for our diabetic product has been strong.
We will initially employ six people in Madison, plus somebody who has gone from our UK facility to run it. But we will be looking to expand that to 20 or 30 people over the next 12–18 months. BBI is completely committed to expanding into the U.S. market with a U.S. base.
Switching gears a bit, what are your views on the current status of the IVD market in Europe? What unique opportunities does the IVD market in Europe still offer to IVD companies?
The regulatory scenario within Europe could be strengthened, which would improve the position of European companies when working with IVD companies worldwide.
One major value FDA has over the European IVD Directive is that FDA is a government body and makes the decisions. When FDA says, “You need to do something about this product,” there is no dispute—you cannot take on FDA. This isn’t the case in Europe, and as a result, European companies sometimes struggle to get their products past the higher quality regulations of the United States. This can make it difficult for them to compete in the U.S. and Japanese markets.
I’d argue that the regulatory oversight in Europe is a definite weak point for the IVD market. I think this area should be strengthened heavily in order to benefit European IVD companies.
With IVD regulations in Europe being less stringent than FDA policies, does this create confusion for IVD companies operating there?
I think it does create confusion, yes. I feel that U.S. companies trying to operate in Europe face the same problem. Do they need a CE mark or don’t they? The directive is so unclear that even U.S. companies struggle in Europe to understand it. The norm for the major players and the serious companies in Europe is to follow FDA guidelines and implement them into their businesses, because these policies are very clear and precise.
One rationale for the IVD Directive was to level the playing field and clarify regulations, although you note that questions about the policies still exist. Overall, how have IVD companies fared since the IVD Directive went into effect?
Well, most companies I deal with don’t know whether they have to self-certify or get a regulatory body to certify them. Self-certification is something that I believe is a complete and utter waste of time. There are products that don’t meet pharmaceutical regulatory requirements for which you can simply say, “Yes, I follow these guidelines. Yes, my paperwork is in order. And yes, this isn’t life threatening,” and then stamp your products CE marked. I think this is a tremendously weak system and it makes it very easy to get unregulated products made. We often get asked by American companies: “Can I self-certify this?” Our regulatory affairs department just won’t answer those types of questions. Most serious companies, repeating my earlier point, tend to follow FDA guidelines and not European guidelines.
At the same time, though, you mentioned that Europe is a growing market. What are the future prospects for the European IVD market?
The IVD market it is a very broad market, which is one of the reasons why it is exciting to be a part of it. The major companies in Europe, such as Merck and Pharmacia, tend to be major players both in Europe and in the United States in their particular fields. But the smaller European diagnostic companies struggle to raise funds and compete in the major markets.
For example, we just invested £325,000 ($568,750) into a company called Quotient Diagnostics (Surrey, UK). Its HbA1c diabetes platform is one of the most exciting platforms I have ever seen, yet the company couldn’t raise money in Europe. In the United States, on the other hand, it may have been easier to court investments.
Emerging Global Markets
What are your impressions of other global IVD markets, especially those in less-developed areas such as Eastern Europe?
We don’t have a big presence in Eastern Europe because it has the same problems as China, India, and Africa: price, not quality, is the key to success. Until that attitude changes, the Eastern European market will be extremely difficult to enter and compete in. This is especially true for business-to-business providers. Eastern Europe is an area that we are looking at very carefully, but in the 10 years I have been involved in this industry I haven’t seen any significant change in the region. I have, however, seen significant change in China as more is invested into regulatory affairs and quality products.
Everyone seems to be talking about the enormous potential of China, especially with its massive population. What sorts of opportunities and challenges does the China market present?
I disagree that China will be the biggest market just because of its population. I think it is going to be extremely difficult for the Chinese market to surpass the U.S. market when it comes to IVD products. Even though China is investing billions in its infrastructure, the United States has been ahead in the market for 20 or 30 years now.
I do, however, agree that there have been enormous changes. Over just the past few years, molecular diagnostics businesses, IVD businesses, as well as pharmaceutical companies, have been established there. Even so, major U.S. corporations like Abbott and BD—and not Chinese companies—remain the dominant players in the Chinese market. Although Chinese companies will begin to compete as the country invests in infrastructure, there are still large questions about regulatory affairs that need to be addressed.
From your perspective as a supplier company and OEM, what business opportunities are you looking for in the IVD market?
On one hand, we have to keep our feet on the ground and recognize that lateral flow, which is our core market, is still embryonic and only just starting to grow. However, I would be remiss not to start looking at new markets and new platforms and new areas of interest. There are two such areas where BBI is specifically looking for strategic acquisitions. One is in microfluidics, because we feel that the next generation of major diagnostic products is going to be not with semiquantitative products but the actual quantitative products themselves. We feel that membrane-based products will not be the solution to that problem. Microfluidic devices can give a far more accurate reading, especially for the theranostic market, which is up and coming. So that is the future, the next generation. But in the next 10 years, I still see lateral flow as a growing market.
You said that a company would be remiss not to keep a close eye on China. Larger companies like Abbott and Roche have the available capital to assert some sort of presence there. How can a small company go about beginning to invest in China while not over-committing itself?
One way in which we are approaching this concern is by working with consultants to evaluate the infrastructure in China and figure out how to infiltrate what is an immensely complex market. I think that a number of large companies have forged joint ventures with major Chinese organizations as a result of this.
BBI’s strategy has been to partner with these companies to access the market. I think a company of our size would have a tremendous problem accessing it on our own and I wouldn’t advise that strategy. However, as I said earlier, it would be remiss of people not to investigate how the market works, to find out what complications there are in dealing with the Chinese government and companies within China, and to look at potential partners.
We would never try to go it alone. From the reports I have received, it is almost impossible to do so in China.
What are your thoughts about the IVD market in Africa?
My impression is that the world is ignoring how poor the African continent is and how desperately it needs pharmaceuticals and diagnostics. But again, it comes down to price. Governments and charities are raising millions and millions of dollars for Africa, yet Africans aren’t getting the drugs and diagnostics they need. As a result, companies are getting a bad name because they won’t reduce their prices. But they can’t do that because of their position in worldwide markets.
If more money was provided to the companies, it would enable the industry to keep prices steady and still provide subsidized products to Africa. These companies are just like any other company: they have to protect their patent portfolio and their profits. They have to protect their stake in the United States, Japan, and Europe—the essential regulated markets.
So, yes, the market in Africa is huge, but in my opinion it isn’t being conducted properly. This shouldn’t even be an issue. There are billions of dollars available to make sure that products can be supplied to the continent.
Looking into the Future
What future challenges do you believe IVD companies will encounter in marketing their products globally?
I think one challenge will be the expansion of the market into the pharmaceutical arena—whether theranostics will be able to accurately diagnose problems and diseases so that drugs can be used more effectively.
I also think molecular biology poses a particular challenge at the moment. A number of companies have tried to recreate polymerase chain reaction (PCR), although I haven’t yet seen any high-quality products to compete with it. The market wants a less-expensive and less-complex methodology for using molecular biology in diagnostic products.
The idea of theranostics has been around for a while, although a lot of people are still waiting for it to come to fruition. What sort of hurdles still need to be overcome for theranostics to mature into a viable market?
I think the biggest challenge in theranostics is for pharma to accept that they need diagnostic products, and that diagnostic companies are better at developing these products than pharmaceutical companies are, because we have been doing it for a long time. The merging of the two cultures into one will be a major challenge for companies like us as well as much larger companies. We need to persuade pharmaceutical companies that we aren’t the poor relations and that they have to invest their money in diagnostics as well as their own products.
BBI has spent the last seven years trying to persuade pharmaceutical companies to partner with us to develop theranostics products, and we have only just now signed our first contract for a theranostic product. It has taken seven years to get one company to recognize that it needs our product. By conducting a planned wide-scale screening program, a greater population can be screened—with benefits to both the consumer and the manufacturer.
One thing that perplexes me with regard to forming better relations between pharmaceutical companies and IVD companies is that much of the necessary framework already seems to be in place. Two of the largest IVD companies, Roche and Bayer, are also two of the largest pharmaceutical companies. Why is it that these companies have not been more involved in this area?
I agree, it is perplexing. I think that the diagnostics business is still sometimes perceived as the poor man’s pharmaceutical. It just doesn’t seem as profitable and cutting edge and volumetric as pharmaceutical. But such partnerships are happening, and are happening at a much quicker pace now.
So you think that it’s only a matter of time for the market to mature?
I think pharmaceutical companies are beginning to realize that they invest billions of dollars in drugs that don’t ever materialize to market, but that it only costs tens to hundreds of thousands of dollars to develop a diagnostic. They have to go through a three-phase FDA approval; diagnostics have to go through only a one-phase FDA approval. They are also realizing that developing a diagnostic, which takes just 12–18 months, alongside a drug gives the drug a much greater chance of making it to market. They are slowly beginning to see that diagnostics are a worthwhile investment. But again, it is a long process. It has taken BBI a long time to infiltrate these markets.
Another thing I’ve noticed is that companies have started to inquire about resurrecting products that weren’t selling and had been taken off the market. They want to put these drugs back on the market, but only if they have a diagnostic with it. FDA, too, is now beginning to request that a diagnostic accompany some pharmaceuticals. So there has been a slow change of culture. From a company point of view, I wish it was an awful lot quicker, but even so, we are seeing big changes in attitude.
Copyright ©2005 IVD Technology
