As we approach mid-year, many questions raised in the past year surrounding the state of healthcare company growth development have yet to be answered. The diagnostics industry, one of the fastest growing subsectors of healthcare in terms of market opportunity and technological advancement, will face significant issues concerning reimbursement, regulatory, and legislative mandates spawning from healthcare reform acts. Further, M&A activity is evolving, as larger companies in this space are entering the acquisition phase earlier and with more fervency.
Following this movement, investment strategy in the space is changing. Diagnostic platforms remain cost-effective and diverse revenue opportunities, and as the point of care market becomes more intelligent, products are expanding from solely clinical use to a wider-rage of patient care use.
Yet, for all the optimism, the elephant in the room remains the battle against the healthcare complex, and the subsequent regulatory and legislative issues to follow. Some fear these questions will soon become punitive realities, and lead to a stymieing of an industry on the cusp of significant growth.
Vijay Aggarwal, Managing Partner of the Channel Group, is an expert in navigating investment strategy while staring at reimbursement and product development issues. In this exclusive 2-part radio interview, Dr. Aggarwal takes the temperature of the sector, and outlines important trends to watch in 2013.
In part I, Dr. Aggarwal discusses diagnostics company exit strategy, growing market opportunity in infectious disease and oncology, and assesses the important yet ethically complicated paradigm shift away from normative medicine.
Click for Part I of the radio interview, and view the transcript below.
Matt Margolis: OneMedRadio welcomes Vijay Aggarwal, Managing Partner of the Channel Group and a sage in the diagnostics space. Today we’ll be discussing trends in the field of diagnostics and recent legislative, regulatory, and reimbursement developments. So thank you for joining us Vijay.
Vijay Aggarwal: Alright, great to be here, Matt.
MM: Let’s start a little broad, what in your opinion seems to be the exit strategy for diagnostics companies these days?
VA: Well, I think the situation has emerged quite a bit over the last couple of years. I mean, obviously there are still opportunities in selective cases for IPOs, but I think more often now diagnostic companies are looking to new players in addition to the existing consolidators of technology like Quest, Lab Corp and some of the other larger reference laboratories, you’re seeing the entry of new players into the diagnostics space, not just pharma players, but other device manufacturers recognizing the value of diagnostic companies.
That said, I think that the appetite of big pharma for M&A in this space is fairly limited in spite of the growth of companion diagnostics and the increasing use of diagnostic testing to inform and direct clinical development and clinical trials. I think most pharma companies still look at diagnostics as being a service that they like to participate in and work with as opposed to own. There are, however, growing numbers of companies from outside the traditional diagnostic space that look at diagnostic companies as viable acquisition targets. In addition, we’re seeing a lot of diagnostic service businesses being acquired by some of the larger diagnostic equipment and reagent manufacturers. So the trend in the diagnostic space both for investment and M&A continues to look very good and I would say has picked up even since the recession.
MM: Take a look into some market opportunities. Do you agree that the largest molecular diagnostics market is in fact infectious diseases, and how are emerging growth companies tackling this space?
VA: I think that molecular diagnostics is certainly been applied in infectious disease for a couple of reasons. There’s a growing move to try to get testing closer and closer to the patient and some of the new molecular diagnostic technologies are available to allow that to occur, so not to take away from the growth in oncology diagnostics using molecular diagnostics, but certainly over the last several years some of the most rapid growth has been in the infectious disease area. I anticipate that trend line would probably continue again with the ever greater move to [bring] testing closer to the patient, closer to the point of care. I think those activities will continue to increase both in terms of absolute number but also in terms of the types of agents that can actually be tested using molecular diagnostic reagents.
MM: What additional markets are you seeing the most growth and why?
VA: There’s still continued growth in oncology and I think that will always be a hallmark of molecular diagnostic technologies. There is, in addition to the trend lines that we mentioned in infectious disease, a growing set of applications in cardiovascular disease, not just for prediction of events and monitoring of post MI events, but also for improved prediction of who may be at risk for a cardiovascular event.
So that whole area is increasing and in fact I think it’s fair to say that over the last four, five years molecular techniques have been penetrating many of the traditional bastions of diagnostic testing. For example, even now there are molecular diagnostic technologies replacing tissue typing and other types of assays that have been traditionally done by other methodologies. So I see the molecular diagnostics space continuing to expand both in depth within some of the traditional verticals like infectious disease and oncology, but also expanding into virtually every arm of diagnostic laboratory testing.
MM: You’ve touched on oncology diagnostics, so in your opinion why does it remain so important when we’ve seen such advancement in treatment? Does that field remain crowded?
VA: Well, it’s a great question, Matt. I guess rather than crowded I would characterize the oncology space as really becoming a more mature market for molecular diagnostics. We’re now at the point that many of us have predicted for years, which is that it’s becoming increasingly rare for patients to be prescribed some of the especially targeted therapies without a diagnostic test to validate that therapy will be effective for that individual. Not to say that there are not continued off label treatments being done, that there are still many physicians and patients who don’t have advantage of a molecular test prior to chemotherapy or targeted immunotherapy. But that trend line is continuing to increase and as a result of that we’re seeing a lot more players coming into this field.
So now KRAS and BRAF testing are almost routine as opposed to four, five years ago where they were still considered to be a very esoteric test and only applied in the rarest of cases, and in the most advanced medical centers that continues to be a hallmark of oncology management. And the other markers that are being developed over the last several years are also continuing to have an increased place in both clinical development as well as in routine clinical care.
Recently the former commissioner of the FDA went on record as saying that the FDA needs to revamp its view on phase III pivotal trials in oncology because of the opportunity of using biomarkers to risk stratify patients and qualify patients and use diagnostics as inclusion exclusion criteria for clinical trials. I think that kind of a statement is significant because it shows how far we’ve come in the use of diagnostics in oncology, and I think there’s now a recognition both in development of oncology agents but also in a clinical use that there’s a significant place for diagnostic testing.
I think that trend line will continue, it will cause more and more companies to come into this space, it will make the base technologies that we use in oncology more available in the broader marketplace and that will then further facilitate the growth of molecular diagnostics in other areas of clinical medicine.
MM: Generally are we moving away from the concept of normative medicine?
VA: I think so. And not just using molecular diagnostic techniques, but I think the mindset has been to say we need to sub-segment disease and we need to really understand the molecular bases or the individual characteristics of each individual patient that we’re facing. So the one size fits all medicine is disappearing not just with molecular techniques but with others. I think that’s as I said earlier reflected in the way that pharmaceutical companies are facing or looking at clinical development and the way they’re constructing trials, I think it’s also frankly become a more well accepted thought in a majority of patients. I think patients are increasingly sophisticated in these types of measurements that are out there and are increasingly expecting to have advanced testing done prior to initiation of medical treatment.
So I think there’s a significant groundswell in this area which is actually going to be accelerated as we see further penetration of next generation sequencing. We’re at the end of the beginning, I tell people, we’re at the end of the phase where being able to measure and qualify patients for particular therapies is a novelty, and has now moved into the area of being somewhat of an expectation. But I also think that we’re on the threshold of a radical expansion of information about individual patients. Not that this is going to transform the practice of medicine in the next three, four, five years, but in the long run the ready availability of whole genome sequencing will show us another wave of personalized medicine, in another significant movement away from one size fits all.
As a side note, I don’t know that that next generation sequencing is something that I would look at as being a routine clinical practice with a fully blown set of correlates to human disease for many years. But the early trend lines are there, the early indicators of widespread adoption are there, the technology is rapidly catching up. The development of the clinical correlates of all that information may take some time, in fact will take some time. But I think the early warning signs or the early signs of progression in this area are clearly in place. Although we’ve come a long way from normative to personalized medicine I think we have a huge quantum leap ahead of us as well.
Stay tuned for Part II of our OneMedRadio Interview with Vijay Aggarwal, covering trends in reimbursement, achieving diverse revenue arms, and changing investment strategy in early stage ventures.