While the in vitro diagnostics landscape has seen players come and go, Roche Diagnostics has remained at the top. But the Swiss giant, like all its other smaller rivals, is facing a new reality, with increasing pressures to prove medical value, and a more stringent regulatory environment. Medtech Insight spoke to Roche Diagnostics' Jean-Claude Gottraux, head of centralized and point of care solutions, and Jean-Jacques Palombo, lifecycle leader for the company's cardiac, women's health and personalized health care solutions immunoassay portfolio, to gain their perspectives on how the sector has evolved and will continue to evolve. They also spoke about the company's strategy to address these changes and challenges.
Over the last few years, several players competing in the in vitro diagnostics landscape have been swallowed up, bulked up, whittled down or have left the scene altogether. Names like Gen-Probe and Phadia, which had featured among the top 20 IVD companies less than a decade ago have now disappeared, after entering the folds of Thermo Fisher. Beckman Coulter and Cepheid are other top names that have been acquired and helped push Danaher up the ranks. Johnson & Johnson, whose Ortho Clinical Diagnostics business was positioned within the top 10 only five years ago, is now out of the game.
Amidst this shifting scene, Roche Diagnostics has held on stalwartly as the world's number one IVD player. The Swiss group reported a 7% increase in diagnostic sales, at CHF11.5bn (~$11.4bn), for 2016. This was driven by 9% growth in its largest business segment, Centralized and Point of Care Solutions (formerly named Professional Diagnostics), which recorded revenue of CHF6.7bn and accounted for more than half of the diagnostic division sales.
In a recent interview with Medtech Insight, a month before Roche will release its first-quarter results, Jean-Claude Gottraux, head of centralized and point of care (POC) solutions, gave an optimistic forecast for the continued growth potential of this segment and the overall IVD operating climate.
"The good thing about the professional diagnostics (PD) market is that it continues to grow healthily; it's been around a 5% increase a year for more than 10 years and we can see this continuing over the next few years. The main sub-segments – serum work area [SWA], specialty testing, point of care – all contribute in a similar way to the growth of this market," said Gottraux. While he acknowledged that PD's growth has not been as high as other segments, like molecular diagnostics and tissue diagnostics – which he estimates to be expanding at between 6-11% – he said that considering PD makes up around 75% of the total IVD market, "sustaining an average 5% growth rate over such a long period of time is very impressive."
In terms of challenges, Roche's Gottraux forecasts that further constraints will be placed on businesses in Europe, with more cutbacks in health-care budgets. Pricing pressures will also continue in the US, amid uncertainty over health-care reforms by the Trump administration.
Gottraux also predicts that the overall IVD market will double over the next 10 years, driven by an aging population and an increase in non-communicable and chronic diseases in both mature and emerging markets. Indeed, the emerging markets play a significant role in Roche's growth strategy – China surpassed the US as the group's biggest market in November 2016, and Gottraux said this trend will continue.
In terms of challenges, he forecasts that further constraints will be placed on businesses in Europe, with more cutbacks in health-care budgets. Pricing pressures will also continue in the US, amid uncertainty over health-care reforms that the Trump administration is looking to implement. "We expect more reimbursement cuts in the US; I think it has been particularly dramatic in diabetes care for the past two years, wiping out a big part of the market there," he added.
Diabetes care is the second largest diagnostic business segment, after PD, for Roche but it is also a weak spot for the company, with a reported decline in sales for 2016 (-4%, at CHF2.0bn). The group isn't the only one to feel the pinch in this area. Earlier this year, Johnson & Johnson said it was exploring the sale of its diabetes care business. Would Roche also consider cutting its losses and take the same route as J&J, or does it remain committed to this space?
"Yes, we are committed to diabetes care; we've been saying for a long time that we see diabetes as a major disease and it is an interesting market going forward," Gottraux told Medtech Insight. "We need to ensure we adjust our internal structure to adapt to a market that is evolving, particularly in the US where there has already been some adjustment to the organizational structure. We've been in diabetes care for a long time and we are going to be in it in the future as well."
Being at the top has not only given Roche a bird's eye view of the trends that are shaping the industry, but also enables it to adapt to these changes and maintain its leadership position. In the Q&A below, Gottraux discusses in more detail changes that the company is witnessing in the IVD market – including consolidation among its lab customers, market-user trends and the impact of the forthcoming EU IVD Regulation, among other things – and how Roche has been addressing, or plans to address, these issues.
Medtech Insight: There has been a lot of consolidation among the core labs, with the labs getting bigger and offering more services. What impact has this had on Roche's dealings with these customers?
Jean-Claude Gottraux: Yes, there is a big trend towards consolidation, with labs getting larger and lab chains becoming translational and having a global importance. We can see this with the big lab chains in Germany like Sonic Healthcare, for example, which is now active in the US. What's very important here is the workflow and IT solutions, which will enable the core lab to change in the future. Increasingly, we talk about the 'connected' core lab, and growing its offerings beyond just serum work area (clinical chemistry and immunochemistry) and into areas like hematology, lab coagulation and even high-volume molecular testing such as virology and HPV. I think it is the direction that things are going. Workflow and IT is really the glue that holds it all together and we are working heavily on new solutions in this area and new transportation systems to help us own the "lab backbone," as we call it.
How does this shift towards a centralized lab approach work alongside this movement in the opposite direction towards decentralization, as seen in some countries?
Gottraux: While there is a trend towards consolidation of the big central labs, there is also decentralization as many markets are trying to reduce the burden on the hospital segment and give broader health-care access to larger parts of the population. Which is why we are working heavily on the next-generation of POC platforms with a major focus on the US. The US still makes up about 40% of the total POC market and we're working on connectivity to make sure the new POC platform have connectivity to the MRIs and to the overall platform landscape that we have within Roche. We are very bullish within POC – I expect POC to grow slightly faster than the central lab market and we need to revamp our POC offering to address this.
Could you elaborate more on what you mean by revamping your POC portfolio?
Gottraux: Our POC offering includes coagulation monitoring – self-testing in patients on anticoagulation therapy. This is a very good business, a growing business – but it is also one that is under attack to some extent because of the new generation of [anticoagulation] drugs that make this regular monitoring redundant. Another important [POC] business we have is hospital glucose, especially in the US, but it is a market that has a lower growth prospect than others. More recently, we became involved in molecular diagnostics at point of care, with the acquisition of IQuum in 2014, where we gained the lab-in-a-tube (LIAT) technology. At the moment, we offer strep and flu tests on this platform but we are now expanding this menu.
We also want to keep growing our POC offering in other disease areas like cardiac testing and develop more high-performance immunoassays – that is where we see the largest potential for growth in the future.
IVDs are often more vulnerable to low-cost competition compared to other medical devices. How is Roche addressing this challenge?
Gottraux: There is a certain price pressures on many [IVD] parameters which are not unique. If you look at our clinical chemistry portfolio, those products do have a risk of tendency towards commoditization. But the strength of our portfolio goes beyond these parameters with what we offer in immunochemistry, which is the Elecsys electrochemiluminescence (ECL) franchise. There, we still have breadth of portfolio and we are still ahead of competition in terms of innovation and we should be able to continue this business over the next few years and add more to the menu.
In the US, we used to have a disadvantage over our rivals as our menu was incomplete but in the last few years, we have been catching up quickly, with the addition of tests for AMH (anti-mullerian hormone), PCT (procacitonin), high-sensitive troponin T, for example. This year, we will also have HIV in the US, once it is cleared by the FDA, and so we will be able to complete our infectious-disease panel.
I think there is a lot of opportunity for growth in the US and particularly in Asia. This is for our core business, but we also want to grow into what we call adjacencies, such as hematology and coagulation, which are segments where we were partially represented in the past, through partnerships with Sysmex for hematology and Stago for lab coagulation. In hematology, we continue to cooperate with Sysmex, particularly in Latin America, but we acquired three years ago a Boston-based company, CMI, and gained the Bloodhound technology. We CE marked the instrument from this platform just before Christmas 2016 and we are now busy launching it in EMEA, Europe and APAC. We'll be filing our FDA 510(k) application for the US within a month and hope to get clearance by the same time next year.
For lab coagulation, we have terminated our relationship with Stago because we are going to launch our own platform towards the end of this year in EMEA, Latin America and APAC and then later in the US.
So we are not just focusing on our core serum work area business – we are also trying to protect our leadership position by expanding and growing in adjacencies like hematology and lab coagulation. Additionally, we're working on connecting all these different disciplines through the core lab through workflow and IT solutions that we offer.
"There is no doubt these new [EU IVD] regulations will raise the hurdle for commercializing the products in our portfolio in Europe, as it will be for all our competitors," Gottraux says. "But it's raising the bar for all the companies in the field and, as the largest player, Roche will be benefiting in the end from these tighter and more strenuous regulations."
I want to touch on the new EU regulations that are to come. These will create a new environment for Roche and other IVD companies to operate in – how big an impact will the EU IVD Regulation have on Roche, in terms of product development, management of product lifecycle, its commercialization approach?
Gottraux: We have been heavily involved in the development of this new EU IVD Regulation and there is no doubt these new regulations will raise the hurdle for commercializing the products in our portfolio in Europe, as it will be for all our competitors. But I think we are well-positioned to fulfil these increased requirements. Like all other companies, we will need to reregister our entire IVD portfolio under the new regulation by the end of the transition period so this will require additional efforts in terms of personnel and additional costs. But it's raising the bar for all the companies in the field and, as the largest player, Roche will be benefiting in the end from these tighter and more strenuous regulations.
I imagine because of the sheer size of your portfolio, reregistering your portfolio will be quite an undertaking.
Gottraux: Yes, it will be and it will be costly and this has been factored into our plans in the future. We see all this as a positive trend, making it more difficult for new entrants to come in – it's a curse and a blessing at the same time. But we are not going to change our commercialization approach in the short term.
What single development do you think will have the biggest impact on the IVD sector for the next 5-10 years?
Gottraux: We talk a lot about digital transformation and this will certainly have an impact and we are looking deeply into this to see just, to what extent this digital transformation will have an impact on our operating model. The IVD business has operated on a razor/razorblade model and we believe this will continue, but there will be new streams of revenue coming forward, such as clinical-decision support tools. I think this will change the way we work; we need to develop these tools, as well as commercialize them, whereas customers today expect to receive these tools for free as part of what we offer.
It will also be critical to invest heavily in medical value, developing tests that fulfil unmet medical needs in order to justify higher pricing and to avoid the trap of commoditization.
I think there will also be new technologies, or new applications of existing technology, coming up. For example, mass spectrometry will become increasingly part of the core lab and eventually leave the dark corners of the research lab. We are working on this as well and I can see mass spec becoming part of an integrated lab solution.
What The Doctors Ordered
Being able to meet the demands of your customers is critical to stay ahead of the game and beat down potential competitors. For Jean-Jacques Palombo, lifecycle leader for Roche's serum work area portfolio within cardiac, women's health and personalized health-care solutions, this entails having a good understanding of the problems physicians face when trying to diagnose a disease and being able to provide a suitable assay to resolve the problem.
A trained medical doctor himself, Palombo's role involves managing Roche's assay content and the R&D pipeline for his three portfolio areas. He told Medtech Insight that physicians today are facing more difficulties than ever before. One of these is the growing legal responsibility that is placed on the doctor, which changes their acceptance of risk, he said. "Doctors are less likely to take risks now; they feel less at ease with the 'gray zone.' They tend to play safe more – if they have a doubt, they will hospitalize the patients and this, of course, drives health-care costs up. That is the evolution of the doctor's mindset that we see. What we try to do is develop tests that can give doctors the assurance that they are safely diagnosing whether a patient has A or B and they can safely make a decision from that diagnosis."
"Doctors are less likely to take risks now; they feel less at ease with the 'gray zone,'" Palombo says. "They tend to play safe more – if they have a doubt, they will hospitalize the patients and this, of course, drives health-care costs up. That is the evolution of the doctor's mindset that we see."
Palombo gave as an example, Roche's latest-generation high-sensitivity troponin-T test, which was recently cleared by the US FDA. (Also see "US Approvals Analysis: Slow 510(k) Month Includes Major Cardiac Assay Clearance" - Medtech Insight, 9 Feb, 2017.)
When a patient, who has never had a cardiac problem, presents with chest pain, they have an electrocardiogram done to see if it is an acute myocardial infarction (AMI) episode. "But EKGs are negative in half the cases of myocardial infarction, so you want a test that can give the physician a result faster and help save the patient's heart," said Palombo. "It used to take 3-6 hours for the results of standard troponin T tests to come back and allow doctors to rule out whether patients are having an acute myocardial infarction. With our new generation of test and its new algorithm, we will be able to reduce the decision-making process to 1 hour in 78% of patients. So, one in five patients who present with these symptoms will go directly to cath lab, 50% will be discharged and the 'gray zone' will only be limited to 22% of patients. We are diminishing the gray zone, giving certainty to the physician and comfort to the patient."
As a crossover between women's health and companion diagnostics, Palombo pointed to a companion diagnostic for use in in vitro fertilization treatment that Roche has developed in partnership with Ferring. The Elecsys AMH Plus immunoassay is designed to help increase the efficiency of the IVF cycle, while diminishing the adverse effects of hormone treatment on the IVF patient. This can help doctors better tailor the treatment to the patient, as well as reduce complications.
"So we're developing precision medicine based on the own biology of the patient," said Palombo, adding that Roche's personalized-medicine strategy goes beyond the traditional area of oncology and into other spaces, such as infectious diseases, like sepsis, and Alzheimer's. "For Alzheimer's, we are developing a panel of biomarkers with the goal of enabling the doctor to administer the right therapy to the patient – when these therapies are available. There are around 20 different compounds for treating Alzheimer's that are in clinical trials right now.
"It will be the equivalent of a PET scan, which is currently the best method available for diagnosing Alzheimer's but it is a very costly imaging test. Our test will use spinal fluid aspiration and assess several biomarkers. We are expecting to launch it in the next 12-18 months," he told Medtech Insight.
While a company like Roche might have deep pockets, it is still important to spend one's resources wisely. So how does Palombo prioritize which product to the Swiss group should be betting its money on?
"For me, there are two questions which need to be answered: Firstly, am I able to create value for the patient and the payer [with this product] and secondly, am I able to capture value for Roche," he said.
To create value, one would need to be able to solve a burdensome problem that not only has enough patients who suffer from this problem, but also enough payers willing to pay to have this problem solved. "If you take a test for pre-eclampsia as an example, we sell it for, say, €30, but when the test is used it creates an economical value of €400 by reducing unnecessary hospitalizations and giving doctors the confidence to rule out pre-eclampsia; then the payback is very good," said Palombo. "You need to have a disease that is sufficiently prevalent, serving a real need, and you need to prove, through clinical data, that you are able to make the patients better or allow doctors to make better decisions. That's an example of value creation and for me, a technology has to have a check in this box."
As for the value-capture part for the company, the question Palombo would ask is, would he be able to get a high enough market share and pricing power because of this test? "Will I get a good reimbursement? If this is the case and we can own the IP for a particular indication for this test, then this will be a technology that is very interesting to me."
From the editors of Clinica