EUROPEAN IVD MARKET
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The EIA kit by Immunodiagnostic Systems Ltd. (Tyne and Wear, England) is one example of the innovative products that are being produced by IVD manufacturers in Europe.
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If Europe's IVD industry were a patient receiving a checkup, it would get a clean bill of health but be told to keep an eye on a few matters that could affect its santé in the future.
The near-term prognosis is good. With $10–11 billion in sales last year, the IVD market is expected to grow at a modest compound annual rate of 5–6% through 2010, according to figures compiled by Harry Glorikian, managing partner of TSG Partners, strategic advisory (Cambridge, MA). With 30% of the global market for IVD products in 2005, the European Union is second only to North America's 44% market share.
"The macro trends driving the European market are similar to the U.S. market, including a generally aging population and increasing pressure on healthcare costs," Glorikian points out. "Market drivers unique to the region include the addition of new European Union countries and the implementation of DRGs (diagnosis-related groups)." Lab consolidation, a focus on efficiency, and growth in the "physician office lab" segment of the market are also ongoing trends.
In essence, there is no unified European market. In a 2006 report on growth potential, Farhana Fiona Rahman, a market research analyst specializing in European clinical diagnostics for Frost & Sullivan (Palo Alto, CA), says European healthcare "is still not likely to become a 'single' market within the next three years, since national governments continue to define healthcare in Europe at various levels." She notes that geographic differences over issues such as reimbursement and infrastructure will persist for the foreseeable future.
IVD product manufacturers in Europe are responding to several major trends. These include automation and standardization, adoption of point-of-care tests, and hospital consolidation, Glorikian says. In addition, manufacturers are responding to the high rates of hospital-acquired infections, particularly in southern European countries, the United Kingdom, and Ireland. Northern European countries report the lowest rates of methicillin-resistant staphylococcus aureus (MRSA) bacteremia, generally below 1%, he says. "The uncompromising 'search-and-destroy' policy in the Netherlands and in Nordic countries appears to be effective in controlling the emergence of MRSA."
Growth sectors are in molecular diagnostics, microbiology, immunoassay cardiac tests, and blood glucose testing, Glorikian says. In contrast, growth in the clinical chemistry sector has been slow because of pricing pressures and laggard implementation of DRGs.
Naturally, local conditions and national concerns dictate how the top five European IVD markets respond to these trends. The five market leaders, Germany, Italy, France, Spain, and the United Kingdom, had approximately 79% of the European Union's IVD sales in 2005.
"In countries such as Germany and France, microbiology testing must be completed within 48 hours in order to be reimbursed, resulting in an increased shift to automation and adoption of POC tests," Glorikian says. "Although France and the U.K. have been slashing hospital laboratory fees, private labs and physician office labs will continue to receive appropriate fees and reimbursement." The primary drivers of the shift toward more automation are pressures from labor unions, a shortage of qualified medical technicians, and the availability of laboratory space, he notes.
Because France, Germany, and the United Kingdom are "slashing debt burden in their respective health systems," the reimbursement amounts by the public health systems to laboratories have declined, Glorikian points out. The overall belt-tightening is the major cause behind the hospital consolidation taking place. France and Germany are in the process of implementing their DRG system, which will eventually reduce the number of hospitals in each country, according to Glorikian.
In order to get a first-hand snapshot of the current state of the IVD markets in Europe, IVD Technology contacted the heads of the manufacturing associations in the top markets. With a few exceptions, the comments echo many of the assessments made by the market analysts and other industry experts.
Germany
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Meyer-Lueerssen
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There are no major pan-European trends, insists Dierk Meyer-Lueerssen, managing director, Verband der Diagnostica-Industrie eV (VDGH; Frankfurt). "We have different markets in Europe—for example, France, Germany, Spain, Italy—with different trends. A trend common to most of them is implementation of DRGs and cost containment." He notes that Europe's IVD manufacturers deal with "about 30 different countries with different healthcare systems."
New health reforms are pending, and DRGs are in place in Germany, where the IVD market stood at approximately 1.9 billion euros in 2005, or approximately $2.4 billion. Meyer-Lueerssen cites two strengths in the German IVD market: an OTC market that is "still growing substantially" and microbiology. The growing number of diabetics and automation are the reasons.
Conversely, Meyer-Lueerssen sees the strong concentration of hospitals and particularly laboratories as a weakness in the market because of extreme price pressure. Immunodiagnostics is a slow IVD sector, although he can't pinpoint the cause. The association executive does not believe that the European IVD market is poised for rapid growth in the near future, as one forecast predicts. "Most European countries are trying to reduce their growing health expenditures," he says.
Asked to characterize business prospects for both Germany and Europe through 2010, he simply replies: "Positive." The addition of new EU countries is having little effect "at the moment" on the IVD market in Germany and Europe in Meyer-Lueerssen's estimation.
How are VDGH member companies handling the language translation requirements of the IVD Directive that took effect in December 2003? "They are translating, if they think they will earn money," Meyer-Lueerssen replies. "If not, they do not, and the country wanting the test has to see how to get the product."
Regarding reports that labs are adopting automation because of a shortage of technicians and growing demand for testing services, the association executive says this scenario is not the case in Germany.
Spain
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Figure 4. (click to enlarge) European IVD market estimates by country and category, 2003. Figures in e million. Source: European Diagnostic Manufacturers Association (Brussels).
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In 2005, the Spanish IVD market was valued at approximately 800 million euros, or $1 billion, according to Carlos Sisternas, secretary general, Federación Españolas de Empresas de Tecnologia Sanitaria (FENIN; Madrid). Sisternas says growth expectations for the IVD market in Spain "are never higher than moderate." He calls the market "mature, with flat to slight growth" expected.
He notes that several European trends "at the end of the day" will drive up manufacturing costs and lower profit margins for IVD test manufacturers. These trends include extended support that sometimes includes accreditation or waste handling, and reagent rental. "Small providers could be excluded" from sales because of the trends, Sisternas believes.
Among the strengths in the Spanish market are consolidated demand and a "tendering system" that "sometimes is good and sometimes means strong pricing pressure." FENIN member companies are dealing with three weaknesses in particular, he says: a lack of adequate financing, late payments, and difficulty introducing "new parameters."
What are the health concerns driving the IVD market in Spain? Sisternas replies that "sustainability is not guaranteed" and that there is "no room for new investments. The first priority is always cost."
Two IVD sectors showing strong growth are cardiac markers, "which came later in Spain," says Sisternas, and diabetes tests because of an "underdiagnosed population." On the other hand, both "classical clinical chemistry" and hematology are facing price pressures. IVD tests remain centralized in laboratories, except tests for diabetes, anticoagulant, and some STAT parameters, Sisternas notes.
United Kingdom
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Williams
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In 2005, the U.K. market for clinical IVDs, excluding OTC sales, stood at approximately £447 million, or $782 million, says Doris-Ann Williams, director general of the British In Vitro Diagnostics Association (BIVDA).
Asked to characterize business prospects for the U.K. IVD market through 2010, Williams replies, "Investment in healthcare expenditures by the government will be much less in the coming years than it has been since 1997, and we are already starting to see further pressure on suppliers to reduce prices still further." This state of affairs will present challenges to IVD companies, she says.
Compared with other health systems in Europe, the United Kingdom spends less per capita on IVDs than most other EU countries, including Germany, France, Italy, Spain, and Switzerland, according to a BIVDA review of National Health Service (NHS) pathology services.
The report notes that the NHS "invariably" sees pathology services "as an overhead expense rather than an integral part of patient care." As a result, pathology services "are forced to operate in a culture of cost constraint and continual underinvestment."
The BIVDA review expresses serious concern about the tendency of the government's healthcare bodies "to use the same procedures that are used to appraise pharmaceuticals, even though these products play a very different role in clinical practice." BIVDA calls for the rapid establishment of "a hierarchy of evidence" that is suitable "for different categories of in vitro diagnostics."
The report notes that NHS has increasingly emphasized the importance of "a robust evidence base to inform both clinical practice and procurement." BIVDA says it welcomes and supports the principles behind new procedures "to assess new medical technology and clinical practice to ensure that they deliver the most, clinically, and cost-effective outcomes for patients."
BIVDA notes, however, that IVD tests are a tool for gathering information to enable analysis and clinical decision-making, and not a form of treatment. "They are also subject to a very different research and development process and regulatory regime, which will again have an impact on the evidence base—whether as tools for prognosis, diagnosis, or treatment monitoring."
The report also points out that the government's payment by results program could address some of the cost and investment issues. However, a national tariff for IVDs has already led some overseas health providers to find ways to reduce the number of tests "in order to meet the tariff price or to undercut it in order to maximize their profit margin," the review says. "This must not be allowed to undermine established clinical guidelines or to put pressure on clinical best practice."
BIVDA insists that the national tariff must provide adequately for new diagnostic tests lest it discourage investment. "This would directly undermine the objectives set out in the pathology modernization program and the wider objectives set out in the NHS improvement plan and related documents," the report says.
The common health problems of cardiovascular disease, diabetes, and infectious diseases, which account for the bulk of the healthcare budget, are driving the IVD market, Williams says. The market for molecular diagnostics "is still small, but is growing the most rapidly of all segments." She adds that POC testing and pharmacogenomics/companion diagnostics are also experiencing slow growth. "The established markets for routine hematology and clinical chemistry are fairly static," Williams notes. "The volume of tests is increasing, but the cost per test is decreasing."
Williams was asked whether a shortage of technicians is behind the automation trend. "I don't believe that a shortage of technicians has driven automation, but rather the cost of staffing versus the cost of automation. In the U.K., the products and supplies account for 20% of the expenditure on IVDs to run the pathology services. The remaining 80% is laboratory overhead costs, primarily wages."
The increasing range of tests becoming available require automation in order to operate, Williams adds. "In the developing countries where labor costs are lower, the manual systems are used more widely. Of course, it is also a vicious circle: the more automation there is, the less the demand for technicians. So it is not such an attractive career option for students to take."
BIVDA's director general does not anticipate rapid growth in the European market. "It would be nice to say this was true, and in theory it should be, but the reality is that the cost of healthcare is getting to be such a high proportion of national spending that there will be limitations on investment. Success for IVDs relies on being able to show cost-effectiveness and how appropriate testing can reduce significant expenditures in other areas. The IVD industry will need to invest in health economics and evidence-based arguments to take advantage of this."
Conclusion
The European IVD market "will grow in the mid-single digits per year, and future growth will highly depend on the implementation of the DRG system in specific countries," Glorikian says.
"The IVD market is not growing fast," agrees Marcel van Kasteel, marketing director diagnostics, Europe, Middle East, and Africa, Beckman Coulter Eurocenter. Several trends of note are the "increasing pressure for the labs to perform more tests with less money," hospital consolidation, and the difficulty of attracting hospital workers, he says.
Lab tests remain primarily in the hospitals, according to van Kasteel, who says that only glucose testing has become decentralized, with coagulation heading in that direction. "Automation and workstation consolidation are the answer in Europe to achieve laboratory goals," the marketing director says.
Labor considerations, however, could hinder the trend toward laboratory consolidation and automation, Glorikian says. "To some degree, we believe that it may make it difficult to justify the economics of automation and capital investment in markets like France where there is a general reluctance to lay off workers. The catalyst to overcome this will be the growing scarcity of qualified laboratory technicians on the market. This has been a factor in driving automation."
In Europe, private labs are reimbursed for routine tests at a much higher rate than their counterparts in the United States, Glorikian points out. "For example, routine clinical chemistry test prices at a private lab are in the range of $2.50 to $3.50. However, a routine clinical chemical test in the United States is about one dollar. However, these payment discrepancies could change if governments slash payment levels to be in line with the United States, and many of these changes will become clear once implementation of the DRG is universally under way."
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John Conroy is a freelance writer in Los Angeles.
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Despite the challenges posed by budgetary restrictions and compulsory CE marking, suppliers and investors in the IVD market can afford to be optimistic about future growth, asserts Rahman of Frost & Sullivan. Molecular biology, coagulation, and hematology rank as the most attractive markets for IVD testing where suppliers are likely to encounter a host of new opportunities, she says.
Improvements in new markers and assay technology in terms of greater sensitivity, higher specificity, and minimized cross-reactivity are likely to result in the increased uptake of IVDs. These include nucleic acid–based amplification tests (NATs) and cardiac marker clinical chemistry tests performed on laboratory-based systems. "The promise of personalized healthcare will continue to drive the IVD market," says the analyst. "Backed by patients taking a more proactive role in treatment, IVD testing is expected to become a mainstay in tomorrow's practice of healthcare."
