IVD Market Trends

Vol. 23 • Issue 12 • Page 12

The global IVD market increased +4% local currency (LC) to $52.9 billion with a currency impact of over $1.0 billion, slightly less than that seen in 2012 (source: Boston Biomedical Consultants, Inc.). The market was defined by steady gains in the laboratory-based and ambulatory-based end-user segments (both +6% LC). The patient self testing (PST)-based segment hampered further market growth with a -2% LC decline in revenue, mirroring an equal decline in the worldwide diabetology test products market.

The U.S. market slowed in 2013 due in large part to the aforementioned poor performance in diabetology, which witnessed a double-digit decline domestically. Additionally, substantial reimbursement cuts to molecular pathology tests adversely affected the U.S. nucleic acid testing (NAT) and histochemistry markets, as laboratories and manufacturers alike dealt with uncertainty surrounding the reimbursement environment. Furthermore, the implementation of the Patient Protection and Affordable Care Act (PPACA) underwent a series of delays with respect to the individual and employer mandates, therefore stunting the large influx of newly insured Americans that was expected.

Struggles in Europe, including a challenged capital environment and laboratory consolidation, continued to weigh down the international market performance. Another strong showing by the emerging markets, most notably China, however, was able to drive international growth, with multinational companies (MNCs) maintaining their interest in the country and local players expanding their presence to other country markets.

Key Industry Developments

Noteworthy industry developments during 2013 included the following:

• After a relatively sluggish M&A environment in 2012, 2013 brought with it a revived spirit of deal making, with several IVD-based transactions taking place. The largest agreement of the year was Thermo Fisher’s $13.6 billion acquisition of Life Technologies, marking Thermo Fisher’s largest purchase since Thermo Electron and Fisher Scientific merged in 2006. Other agreements of interest included Radiometer’s purchase of HemoCue from Quest Diagnostics, Roche’s acquisition of Constitution Medical Investors, Grifols’ purchasing of Novartis’ blood processing business, Leica’s acquisition of Kreatech, and bioMerieux’s purchase of BioFire Diagnostics. Finally, nearly one year to the date of first publicly announcing its intentions to divest its Ortho-Clinical Diagnostics business unit, Johnson & Johnson received a $4.15 billion binding offer from private equity player, The Carlyle Group, in January 2014.

• In 2013, China-made IVD products were sold in >100 countries across the world, although the majority of them remained low- and mid-end products and were sold in emerging markets. A few system manufacturers (e.g., Dirui, SNIBE, and Rayto), which had significant overseas sales (15%-40% of total IVD revenue), continued to increase their export sales. Over the year, China-based companies looked to expand their presence in emerging markets, although they were less successful in North America, Europe, and Russia (due to market barriers and/or economic downturns). To further explore overseas market opportunities and seek distribution partners, these companies increased their participation in international trade shows, often making up the largest delegation next to the host nation. Furthermore, China-made test products won some notable international tenders (e.g., Kehua’s infectious disease reagents under NGO procurement programs), but their impact on the overall company performance was limited.

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Key Market Segment Developments

Noteworthy market developments during 2013 included the following:

• The worldwide IVD diabetology test products market continued to decelerate in 2013, primarily as a result of a significant decline in the U.S. due to the nationwide implementation of Medicare competitive bidding. The U.S. performance coupled with further erosion in Europe was partially offset by a faster performance in the emerging markets, driven by increasing diabetes prevalence and investments in screening initiatives.

• Building on a trend seen over the past several years in the U.S., reimbursement changes for molecular pathology tests affected the market’s performance in 2013, as labs began using a new CPT coding method to bill for molecular diagnostic services. Effective Jan. 1, 2013, these codes were established to replace the “code stacking” method and address payor concerns about the transparency of provider billing. Labs suffered from drastic cuts for certain tests, delayed payments, and lack of codes for some tests leading to no payment.

2018 IVD Market Forecast

Boston Biomedical Consultants projects the IVD market to expand at a +5% CAGR through 2018 to reach $67.2 billion, an increase of $14.3 billion from 2013. Following trends from 2012, market expansion in the emerging geographies through the forecast period will offset weaker growth in the U.S., Europe, and Japan.

Although this expansion in the developing markets will continue, its rate will likely slow from that seen in recent years. Geopolitical instability in Latin American countries, such as Argentina, Venezuela, and Brazil, as well as in the Middle East and select parts of Eastern Europe, will weigh on the overall emerging regions’ growth rate. Furthermore, as the market in China continues to mature and government initiatives favoring domestic players persist, the country’s reputation as a robust growth driver will become increasingly difficult to maintain.

In the U.S., the PPACA will increase the number of uninsured U.S. citizens through the individual and employer mandates as well as the expansion of Medicaid. By the close of the first open enrollment period for coverage through health insurance exchanges and state Medicaid expansion on March 31, 2014, 11 million to 12 million individuals were added to the insured population, a relatively disappointing figure as original projections as part of the justification for the medical device tax were much more optimistic about the influx of newly insured people. Although this increase may lead to growth in the U.S. IVD market, countering forces such as the Protecting Access to Medicare Act (PAMA) and its provision dealing with diagnostic lab tests, enacted in April 2014, may lead to further cuts in reimbursement.

Adding another layer to the impact of PPACA on the IVD industry, U.S. midterm elections were held on Nov. 4, 2014 with the Republican Party gaining the majority of seats in the Senate and expanding its power in the House of Representatives. With control over both the Senate and the House, the Republicans will likely challenge several key PPACA initiatives, such as the medical device tax and employer mandate, and will likely use the appropriations process to limit funding for key components of the law. Prior to the elections, the potential existed for Medicaid expansion in states with incumbent Republicans, but, with most being re-elected, the level of Medicaid expansion may likely only exist in a few states where Democrats displaced Republicans. The expected influx of new patients may be further stunted.

Kerri Weinert, Stephanie DeAlmeida, Amar Kadaba, and Alina Pak are with Boston Biomedical Consultants.

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