TRENDS & PERSPECTIVES
Analysts do not see Siemens Healthcare (Malvern, PA) and Laboratory Corporation of America Holdings (LabCorp; Burlington, NC) agreeing to codevelop clinical diagnostics as a big deal. However, they expect both companies to reap benefits from the nonexclusive agreement.
In early May, Siemens, one of the world’s largest suppliers of medical imaging and diagnostics equipment, and LabCorp, one of the largest clinical testing laboratories in the United States, said in a press release that they would work together to codevelop clinical diagnostic tests.
Their agreement is to encompass the areas of metabolic syndrome, oncology, diabetes, and companion diagnostics that are “designed to identify the suitability between patients and a particular drug therapy.”
No financial terms were announced and neither Siemens nor LabCorp would elaborate on what was in the press release. Lance Longwell, a spokesman for Siemens, said that “some exciting stuff” would be announced “a bit later this summer”. LabCorp did not respond to repeated requests for more information.
Bruce Jackson, a healthcare equity research analyst with RBC Capital Markets (Minneapolis), says the agreement is nothing unusual. In September 2007, Siemens and Celera (Alameda, CA) entered into agreements which included a license conferring rights in the human IVD field to the Applera patents for real-time PCR thermalcycling instruments and reagents. Celera is one of Applera Corp.’s two operating groups.
Siemens “has done this with other smaller companies as well to help commercialize new tests, so this is not out of the ordinary,” Jackson says.
While the companies are clothing the agreement in diagnostics nomenclature, they are likely talking about standard screening tests that are part of new markers, Jackson says. “That’s how I look at it, reading between the lines.”
Still, both companies could benefit, Jackson says. “It’s on the positive side for a company like LabCorp because they need to keep up a reputation of having some innovation attached to their lab and to keep offering new tests to keep their pricing stable. This is the type of thing they need to do.”
The benefit to Siemens, he says, is that when reference laboratories such as LabCorp offer the tests in their early stages, it helps drive market adoption a little faster.
Manfred Scholz, PhD, president of Scholz Consulting Partners (Medford, MA), also sees the agreement, while standard fare between reference labs and IVD manufacturers, helping both players.
The main reason for such collaborations is that reference laboratories are the market pioneers, he explains. “Reference labs offer tests before it makes sense to integrate them into automated lab systems. The life cycle for IVD tests goes roughly from research lab, to reference lab, to central hospital lab, and to decentralized tests.
“How far a test progresses in this life cycle depends on test volume, urgency, and a number of other factors,” Scholz says. “Hence, this collaboration may help facilitate the transition of a test from reference lab to central hospital lab, which would primarily benefit Siemens. In return, it may provide LabCorp with a more cost-effective solution (from Siemens) to do what it has already been doing.”
Because such collaborations have been standard operation from the beginnings of the industry, this one is not indicative of any “change of landscape,” Scholz adds.
Jeff Ellis, head of diagnostics M&A for Crosstree Capital Partners (Tampa, FL), sees LabCorp as the main beneficiary.
Ellis says that LabCorp has significant patient volume and strong bioanalytical research capabilities, which were significantly enhanced through its acquisition in January of Tandem Labs (Burlington, NC.) Tandem Labs is a leading bioanalytical and immunoanalytical contract research organization supporting pharmaceutical and biotechnology companies with their discovery, preclinical, and clinical drug development programs.
“For the larger reference labs like LabCorp, opportunities to add new, novel tests to the menu are of great interest,” Ellis says. “They have the patients and need to continually strive to increase their average price per patient accession through new test additions.”
Ellis believes that “LabCorp’s capabilities and desire to bring new esoteric tests on-line make it a logical partner for Siemens.” However, he says, because he is not sure of the companies’ objectives in entering the agreement, he cannot gauge how successful the agreement might be.
In the Siemens press release, Dave Hickey, senior vice president of strategic planning and business development for Siemens, said the agreement was a strategic relationship that “establishes a framework that gives both companies the opportunity to offer new diagnostic tests to laboratories, physicians, and their patients more quickly and effectively than either could do alone.”
