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TRENDS & PERSPECTIVES

Diagnostics outperformed general healthcare as well as the broader market in 2008, according to a report by Barclays Capital (New York City). Within the report, titled “Diagnostics Outlook & Comprehensive Reference: 2009,” the industry earned a 1-Positive rating from analysts, who characterize diagnostics as a space with “strong growth potential, relatively little political risk, and little exposure to the economic cycle.”

The group of diagnostics stocks under Barclay’s coverage returned –5% in 2008, compared with –38% for the S&P 500. Analysts predict that any attempts at healthcare reform by the Obama administration and Congress will not negatively influence diagnostics, which has tended to be an area that fits with policymakers’ usual message of prevention and cost containment.

Diagnostics as a whole is a $50 billion annual industry that grows steadily every year. In vitro diagnostics, specifically, is a $33-billion market. Within IVD, clinical diagnostics is a concentrated market, with the top five companies holding about 60% of the hospital-based market. Any concern regarding current and future hospital volumes and testing volumes will likely be offset by Medicare’s rate increase for laboratories, which goes into effect this year. All things considered, clinical diagnostics is likely to show growth in 2009.

Molecular diagnostics, a smaller market, is very fast growing with a 16% compound annual growth rate. High-value-added tests made possible by the leap in genetic and biologic knowledge in recent years are just now coming to market and will have a meaningful influence on the emergence of personalized medicine. Diagnosing and better understanding cancer is one of the fastest-growing areas of molecular diagnostics, growing at a projected 27% compound annual growth rate and expected to reach $600 million annually by 2010. Such novel screening techniques as those for human papillomavirus (HPV) are helping fuel this growth. Although the largest single test in infectious-disease testing is HIV viral load testing, the majority of growth is coming from HPV testing. Analysts estimate that the HPV-testing market will grow from about $300 million today to about $900 million by 2015.

Additional information about this report can be accessed via Barclay’s Web site at www.barcap.com.