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Who’s Who in the cancer testing business: The manufacturers who supply the labs

Just 10 companies took in in $1.7b of the $3.5b that was spent by labs with their suppliers in the US in 2013.

Roche Tissue Diagnostics, still known to most as Ventana, has a lot in common with Dako, the histology company Agilent paid $2.2b for in May 2012. These are the #1 and #2 producers of immunohistochemistry (IHC) systems. They both have smaller portfolios in primary staining and ISH/IHC companion diagnostics. They both will be damaged severely by the upcoming 2014 reductions in IHC reimbursement, expected to be in the range of 20-30%. They both can be expected to make more acquisitions in 2014 or thereafter.

Sakura and Thermo’s pathology business unit are similar in that they are both entirely focused on making equipment for 88305 billing, and so they were hit hardest when 88305 rates were cut in half at the beginning of 2013. They are both focused on making tissue processors, primary stainers, and embedding stations.

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Thermo has a strong consumables franchise and a strong sectioning business, neither of which Sakura has. Sakura however sells a lot more tissue processors and H&E stainers than Thermo does. Neither of these two has an IHC business. After Thermo digests Life Technologies in the second quarter of 2014, the combined Thermo-Life cancer testing business will be worth about $205m, which will make Thermo the #4 cancer diagnostic product manufacturer.  Thermo will likely continue to make acquisitions in the pathology industry. Sakura, a closely-held Japanese family business, is unlikely to be involved in any M&A activity.

Leica competes with all four of the companies above.  About half their revenues come from their core histology (88305) products – tissue processors, H&E stainers, cover slippers, cryotomes, microtomes, and embedding stations – which compete with Sakura and Thermo. Their Bond IHC business is just under half of their histology business, and a fast-rising #3 behind Ventana and Dako in IHC markets. They have Danaher’s money behind them and the confidence of Danaher management. Since the last edition of this report Leica bought Aperio and Kreatech; more acquisitions can be expected in 2014 and beyond.

Hologic and Qiagen share the dreary cervical cancer screening markets. In 2007 Hologic bought Cytyc’s Pap testing monopoly and Qiagen bought Digene’s HPV monopoly. The Pap testing market in the US is shrinking, and while HPV volume is growing, HPV margins are falling fast. So both Hologic and Qiagen have been investing their cervical cancer screening cash in new businesses.  Hologic bought the HPV businesses of Third Wave and then Gen-Probe.  Qiagen has invested its Digene cash in developing a broad expertise in companion diagnostics.

Abbott Molecular had enjoyed two near monopolies, their UroVysion bladder cancer screening racket and their newer ALK companion diagnostic business for Pfizer’s Xalcori lung cancer drug, until Kreatech started nibbling away at both in 2013. They also have a HER-2FISH test that competes with the Ventana and Dako molecular assays as well as the Ventana, Dako, and Leica IHC platforms.

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The other two spots on the top ten are the two companies that make most of the instrumentation and consumables used for clinical oncology NGS testing. Illumina has the slight edge with 55-60% of the market at this writing (December 2013). The Life Technology Ion Torrent division has had great momentum with their PGM systems, which cost a lot less to buy and operate. But their founding scientist, the brain that launched the NGS industry, left in June 2013 and is starting a new competitive venture.  This development, and the chaos that always prevails after big mergers, combine to suggest a better future for Illumina than the Rothberg-less Ion Torrent division of ThermoFisher.

Though not quite in the in the top ten at present, honorable mention goes to Roche Molecular, which will do $1.1b worldwide in 2013, but will still fall short of $100m in molecular oncology in the US in 2013. Within a year or two they will probably have all the FDA approvals they need to compete with Qiagen across the board in HPV, KRAS, BRAF, and EGFR markets.  By 2016, nearly all of the homebrew activity will have given way to the kits of Roche and Qiagen and most likely a few others by then. Roche Molecular will break into the top ten in 2014 or 2015, and rise quickly through the ranks thereafter.

Chad McEvoy