Clinical Lab Expo Opens Today
Esoteric Testing Fueling Industry Growth
By Genna Rollins
Oscar Enzing Photography
The 2010 Clinical Lab Expo opening today definitely is living up to its reputation as the largest trade show in the world dedicated solely to the clinical diagnostics industry. Breaking AACC’s previous record, this year’s Expo is the largest ever, with more than 650 exhibitors and 1,900 booths. Much of this annual event’s recent growth has come from companies outside the U.S., a trend that underscores the global nature of the in vitro diagnostics (IVD) field today. Exhibitors from 26 countries and every continent except Antarctica have come to Anaheim this week. In fact, of the more than 115 companies making their debut at the Expo this year, 40% are from outside the U.S. A look at all the exhibitors also demonstrates the diversity of the diagnostics industry, with nearly 250 product categories represented, encompassing the latest lab-related technologies, original equipment manufacturers, societies and associations, publishers, and everything in between.
This robust 2010 AACC Clinical Lab Expo also reflects the resiliency of the $54 billion lab industry in the face of recent world-wide economic challenges. Industry observers see moderate, but steady, 2–4% growth in the next year, with certain sectors—esoteric testing in particular—far out-pacing the pack. “Right now, companies are coming off a period where volumes were weaker due to the economy and changes in consumer behavior. But volumes will come back to normalized levels around two percent,” said Kevin Ellich, vice president and senior research analyst at RBC Capital Markets in Minneapolis. “I want to emphasize that as volumes have come down, pricing growth has been pretty strong. Labs have been doing fewer, lower-priced routine tests, but growth in esoteric testing and anatomical pathology have offset the volume weakness.”
Esoteric Tests on the Upswing
Esoteric testing in all its forms—molecular diagnostics, specialized testing not routinely performed in hospitals, and pharmacogenomic tests—have been the growth engine of the industry during the past year, experts say. These “better, more useful technologies are giving results clinicians want—fluorescence in situ hybridization, immunohistochemistry and molecular tests among them,” said Bruce Carlson, publisher of Kalorama Information’s Clinical Laboratory Services Market report. “They represent tests where specialty knowledge and equipment is needed that generally the hospital doesn’t have—advanced services such as immunohistochemistry, flow cytometry, and molecular genetics technologies—and thus these tests can command a higher price. There is also a large volume of these tests, and so we expect growth to continue.”
The interest in molecular diagnostics is evident in the growth of IVD companies. Some expanded by >80% between 2007 and 2009, according to Carlson. “While these companies have nowhere near the revenue of industry-leading firms, they can affect the growth rate of those companies by competing in the high-growth sector of specialty testing,” he explained.
What’s on the Menu?
In keeping with the upsurge in esoteric testing, the next year could bring a wider variety of platforms and expanded menus, according to Bill Bonello, managing director and senior research analyst in healthcare for RBC Capital Markets. “IVD companies are continuing to develop molecular testing platforms for hospitals, particularly in the moderately complex setting,” he said. “We’re also seeing consolidation on the platforms. All companies are working to expand their menus, so you’ll see increased breadth of menus on any instrument. Presumably that should create increased competition, which I think would be a good thing for the labs in terms of pricing.”
How the economics of expanded testing and menu options will shake out remains to be seen, Bonello cautions. “A lot of this testing doesn’t need to be done in a hospital setting, so the question is, does it make sense for hospitals to be expanding their menus just because they can? I think that will be dependent on what they want to do with their outreach programs,” he said. Continued growth in point-of-care applications will raise similar issues for both physician offices and labs. “They’ll be asking themselves, when does it make clinical and economic sense to implement point-of-care technologies? These things have been talked about for a while but we’re approaching an inflection point with availability and adoption of the tests,” Bonello added.
As IVD companies continue their strong growth, Bonello also sees a migration away from lab-developed tests to more kit-based testing. “From the companion diagnostics perspective, IVD companies haven’t really been a player. These have been predominantly lab-developed tests, but there are a lot of IVD companies with pretty substantial companion diagnostic pipelines,” he noted. “The bottom line is a lot of what’s being done on a lab-developed basis today will be transformed to a kit basis going forward.”
More Outreach for Hospital Labs
As hospitals sort out the mix of testing they plan to offer, many also are looking for other ways to grow revenue. “We’re seeing a fair amount of hospital outreach programs, where hospitals are starting to market to doctors and other labs outside their health systems, because there’s money in it,” observed Mark Terry, editor of Washington G-2 Reports’ Lab Industry Strategic Outlook: Market Trends & Analysis 2009.
Desire to maximize lab revenue is one of several factors behind an emerging trend of hospitals selling their labs and establishing long-term service contracts with the purchasing entities, according to Richard Cooper, a member of the law firm McDonald Hopkins, in Cleveland. “We’re seeing enhanced activity in this area. Hospitals are seeking to monetize an attractive asset in the marketplace that’s commanding good prices,” he said. “Coupled with a long-term services contract, it can stabilize lab costs and give the hospital greater budget control.” To the extent that sales of hospital labs result in certain lab operations being moved off-site, the deals can free-up some on-campus space for other services, he added. Cooper also noted that these transactions can open doors to more outreach activity than a hospital lab might have on its own.
International Buyer Program
Your Opportunity to Find New Foreign Markets
For the 14th consecutive year, the U.S. Commercial Service has selected the AACC Clinical Lab Expo to be a part of its International Buyer Program (IBP), a program that assists small- to medium-sized American businesses in exporting their products and services. Representatives of the U.S. Commerce Department’s Commercial Service are here this week to assist U.S. companies looking to increase their international sales. The agency has recruited official delegations from around the world to attend the Expo, including Russia, Brazil, Philippines, South Africa, Saudi Arabia, Abu Dabi, Kenya, Argentina, Morocco, Spain, and China.
Under the IBP, U.S. Commercial Service overseas staffs located at U.S. embassies and consulates worldwide recruit foreign buyer delegations to the show. These specialists help organize a buyer’s business plans for the show and advertise the show to various media outlets.
“AACC is the world’s premier clinical laboratory event and it offers excellent opportunities for U.S. companies to expand their global presence,” said Gene Quinn, senior international trade specialist at the U.S Commercial Service . “We encourage businesses to visit us at the International Trade Center during the show where buyers can negotiate with sellers, and can take advantage of interpreter and other services.”
The U.S. Commercial Service will also offer a program in the International Trade Center located in Exhibit Hall C of the Anaheim Convention Center, which connects U.S. exhibitors with international commercial specialists through one-on-one meetings.
With a network of offices across the U.S. and nearly 80 countries, the U.S. Commercial Service uses its global reach and international marketing expertise to connect American companies with international buyers. To learn more, visit www.trade.gov/cs.
The Boon of Healthcare Reform
Another generally favorable event during the past year for the lab industry was healthcare reform. “The legislation introduced taxes and fees to other industries but left diagnostics—both kit sellers and service sellers—alone for the most part,” said Carlson. “In general terms, more patients with insurance will mean more doctor visits, which will lead to more testing…We’ll see over the next few years the government’s tolerance for reimbursing all these tests.”
If Carlson generally is bullish on the impact of healthcare reform, he sounded a cautionary note about high-tech, high-cost tests. “With the government as a key payer and with a lot of attention on cost-cutting, there will be pressure to negotiate lower reimbursement on tests. So far, though, CMS has shown a willingness to reimburse a test where it works; the Oncotype DX is an example. Even the high-cost tests can get dollars if they can show they limit more expensive treatment,” he indicated. The industry also will benefit from an aging Baby Boomer population that has up to 11 times more lab tests performed than young adults, according to Terry.
Another aspect of the industry that bears watching in the coming year is workplace drug testing. “That’s been in the big league of negative growth,” said Terry. “Some of it’s related to a drop-off in employment, and some of it’s related to an awful lot of point-of-care drug testing being performed.”
Automation, Technology to the Fore
Terry also is keeping an eye on the seemingly intractable lab workforce shortage. “I’m pessimistic because I don’t see anybody doing anything about it,” he said. He believes the shortage is pushing more labs into automation, both in terms of multiplex platforms and pre-analytical functions such as specimen tracking with radio frequency identification.
The coming year will bring further investment in information technology, not only to enhance lab efficiency but also as a tool for better communication with and service to physicians and patients. “Several clinical labs have developed electronic test result distribution. This is not a novel concept, but it has been an area of focus for companies in the past several years, especially as new electronic technologies and the Internet have become used extensively,” observed Carlson. “Companies have seen that efficiently communicating results with clients is an essential part of the job, and may be just as important as providing leading test menus in cutting-edge areas of lab testing.”
If optimism is the operative word for the diagnostics industry today, analysts see an even rosier picture in the coming years. “More science and clinical evidence, along with increased partnership with the pharmaceutical industry means there’s a pretty heavy pipeline of IVD tests,” said Bonello. “That alone could be a catalyst for growth.” The resiliency of today and promise of tomorrow is evident in this year’s dynamic and diverse Clinical Lab Expo.