The drive to reduce healthcare costs and perform Comparative Effectiveness Research can get support from next generation diagnostic tests.
A recent article by Bill Malone in Clinical Laboratory News, February 2010 Vol.36 No.2, presents an optimistic scenario for the In Vitro Diagnostics (IVD) Market. Referencing a report from the Embargo Group of Austin,Tx, a recent survey of executives in the IVD and medical device industries said that 71% of the executives expect overall sales to increase in 2010 and 70% felt positive or somewhat positive about the overall business environment. Despite declining prices due to lower reimbursement for tests and increased competition, IVD companies are betting on strong returns from new products in advanced lab automation and molecular diagnostics. The CLN article also references a report from Enterprise Analysis Corp.(EAC) which forecasts a 2010 growth rate of 6.1% for the industry versus 5.3% in 2009. Another trend in the IVD marketplace articulated by Mark Hughes of EAC is how to demonstrated solid evidence of the diagnostic test value through health economic studies. Hughes is quoted in the article :”The recurring theme we hear is how do you keep pricing from devolving?”
Market trends highlighted in the article point to the following test sectors for growth: molecular diagnostics for example, the need to control and treat viral and bacterial infections; automation and robotics because of the need to be more productive; Point of care testing(POCT), a specialty niche, driving tests closer to the patient and the home; and pharmacogenomics or personalized medicine -advanced molecular testing that will target therapy.
In a October 2008 article in Genetic Engineering News we reviewed the molecular diagnostics sector, its potential for growth and profiled several companies. The confluence of factors such as technology, cost effectiveness and new products convinces us that this is a long term trend. We will present our reasons and the best positioned companies in this Clinical Diagnostic series. Among the larger pharmaceutical companies Roche has the explicit strategy of leveraging Rx with Dx and is a leader in molecular Dx.
New Ideas: well positioned Companies
In Part 1 of this series we presented diagnostic companies already in our model portfolio: GenProbe,Genomic Health, Illumina, Inverness etc. Here are additional companies that have unique strengths in product, technology and market focus. Review technicals and financials in more detail before accumulating large positions.
Qiagen (QGEN) $21.5
Built largely through acquisition (Digene-leader in HPV testing) with a strong R&D base ,diverse product line in tools, molecular diagnostics and automated solutions, Qiagen is still digesting acquisitions. Because of their strong technology base, they are able to partner with drug companies in drug development and companion Dx. At $1B revenue level with profits forecasted at 4.5% in 2010. Forward PE at 23 with P/S at 5.
Sequenom (SQNM) $5.3
An emerging diagnostic and genetic analysis Company focusing on translating genomics into biomedical applications.SQNM is starting to recover from serious clinical regulatory issues involving a Down Syndrome test last April and have launched a fetal sex determination test SensiGene Fetal(XY) performed at its own CLIA certified diagnostic laboratory. Earlier this month SQNM launched a fetal test for RHD genotyping. Total Company revenues are in the $40M range with a loss forecasted at about $1.00/sh. in 2010. Blackrock recently took a 6% stake in the Company.
SeraCare (SRLS) $3.50 Recommend in November at $2.75
SeraCare provides services, diagnostic reagents and controls . New products were launched in January. The Company was built through acquisition and is in a turnaround mode with 2010 revenues forecasted in the $50M range and an EPS of $0.25/sh.2010 PS is 1.5.