A Diagnosis in Flux
Like other sectors, the in-vitro diagnostics space is being impacted by rapid introduction of new technologies and a host of other factors.
Some have held the perception that diagnostics is a somewhat sleepy segment of healthcare that hasn’t been buffeted by the kind of change that often-amazing developments in medical technology have brought to many other disciplines.
Well … no. Let’s call that a misperception.
The fact is that diagnostics in general—and certainly in-vitro diagnostics (IVD) in particular—is awash in change, sparked by an abundance of new technologies, some of which are just starting to reach commercialization stage after years of existing as tantalizing “potentials.” Still other developments are nascent, nearing the reality end of the development scale.
To get an idea of where the IVD sector stands today and what’s on the horizon for that segment, Medical Product Outsourcing talked with officials from various companies and organizations involved with the space, from contract manufacturers of high-throughput analytical systems to providers of some very basic disposable components. Particularly valuable was the input from a diagnostics sector consultant whose work with some of the largest players also brings her in contact with the contract manufacturers and other suppliers whose roles are expanding exponentially as the segment undergoes rapid change.
Needs Change, as do Requirements
Kristin Pothier, a partner at Weston, Mass.-based HealthAdvances LLC, leads the consulting firm’s Diagnostics and Life Sciences Practice. She said she views the big company/contract suppliers relationship from a perspective of what her client companies need from those suppliers as their customer needs change over time.
“When they use an contract manufacturer,” she said, “they are looking for a partner who understands what their customer needs are today, what the platform needs to look like to meet the customer needs of tomorrow, and how that will change over time.”
Pothier said the traditional view, going back 20 years, was “big box, basic core lab,”However, the industry has changed.
“Over the past 10 years the emergence of molecular and other newer technologies have changed the platform complexity and we will be seeing even more of that in the future,” she said. “This means contract suppliers have had to pick up the pace in terms of offering a combination of the highest quality, the needed complexity, and the lowest cost associated with building these components for IVD.”
As for the impetus of change, she said new technology is changing the landscape because of the quality of the assays that need to come out, the speed at which they need to come out and the complexity of the instrumentation.
“We still have basic immunoassay and clinical chemistry, but also have our molecular platforms and our proteomic platforms and our next-generation sequencers, and all of those have a new level of engineering inside to meet these more complex biological measurements,” she noted.
Pothier concurred with MPO’s observation that contract suppliers are doing much more development work today than was the case in the past, in no small part because the larger diagnostics companies prefer to focus their own efforts on assay development and content development while hiring outside suppliers for platform development.
That also reflects a higher degree of trust in those suppliers as they prove their mettle in platform development work. In a sense, it’s a matter of the big guys getting positive answers to the question of “What has such-and-such a supplier done in this space?”
Pothier also touched on her role as one of the co-founders of Diagnostics Insight, a new organization set up to serve as aresource center for the diagnostics industry. “Diagnostics today forms the base of our healthcare system, but there are few stakeholders that really know how to harness the power of diagnostics. We wanted to establish an online, resource-sharing, social networking-focused structure that cuts across all the different aspects of this industry. We envision it as a clearinghouse, a resource center for all these stakeholders.”
Born and Raised in Diagnostics
KMC Systems in Merrimack, N.H., is a longtime contractdesigner and manufacturer of medical devices and instrumentation whose roots are firmly in the diagnostics sector. KMC’s diagnostics-centered business model sprouted from its founding three decades ago to manufacture an advanced clinical chemistry analyzer. Walter Gilde, director of business development for the IVD market at KMC, traced the genesis of thecompany for MPO.
“KMC has been owned since 1996 by a large defense company, Elbit Systems Ltd. Prior to that, we were part of a corporation known as Kollsman Instrument Co., which is in the avionics business. They were approached in the late 1970s by Hoffman-LaRoche, which was looking for a good contract manufacturer for a new technology that they had licensed for clinical chemistry applications. That’s how the contract manufacturing business got birthed, eventually becoming KMC Systems.”
That first contract with Roche, covering the manufacture of the erstwhile COBAS clinical chemistry analyzer, ran for about a dozen years, Gilde said. “That began the contract manufacturing business here, which was more of a general-purpose CM business; we manufactured graphic arts machines, mainframe computers and things like that. About the mid-1980s, newmanagement came in and the business was refocused on medical products, regulated products. The other products were essentially shed and the business was structured to address themedical sector.”
Today, KMC also produces surgical/therapeutic systems, but diagnostics is where the company’s bread clearly is buttered. Its work heavily involves development and manufacture of IVD analyzers, point-of-care diagnostic systems for physicians’ offices and high-volume laboratory automation applications.
“Over our 30-year history, we have manufactured products that touch virtually every segment of the clinical laboratory—clinical chemistry, immunochemistry, immunopathology, hematology, microbiology, molecular diagnostics, coagulation, you name it,” Gilde said.
Which gives Gilde and Ron Jellison, vice president of business development at the company, a broad base from which to discuss what’s happening in the sector.
Jellison scoffs at the “not much is happening” notion that some still seem to have about the diagnostics segment. “In the last decade, you really have seen the coming to fruition of a lot of the molecular research into molecular diagnostics with the advent of new amplification methods,” he said. “There is no question that that technology has changed the landscape of diagnostics in the last decade. It’s where you have seen the biggest compounded growth rate in the sector.”
Noting that throughput “is very important to people in the kind of instruments that we do,” Gilde added, “With new technologies, we focus on specific elements that you want to test and verify before you get into a prototype instrument phase, just to prove feasibility and approach. Our engineers run a complete simulation to verify that we can get the total system throughput that the customer is requiring before we get too far down into the development.”
Asked what KMC is hearing from its customers as to their needs moving forward, he said that for larger OEMs, “what we see is that they have the same capability in the development and manufacture of products as we do, but they’re sometimes not in a position to add the resources needed to achieve rapid product development cycle times, so they are looking more to companies like us that have full comprehensive capability to develop and manufacture products.”
Better Fluid Detection Technology
Steve DiDio, sales and marketing manager for Introtek International, an Edgewood, N.Y.-based maker of ultrasound-based fluid detection products, cited the company’s 30-year history in a variety of medical markets.
“Our core product line is non-invasive ultrasonic sensor technology,” he said, “with about 90 percent of our sensors medical grade, used in patient-critical applications such as infusion pumps, cardiopulmonary systems and dialysis machines that are used in a variety of patient care settings. And many of our sensors are widely used within the biotechnology, life-sciences and pharmaceutical industries.
“Our sensors use ultrasound technology, which has severaladvantages over capacitance and optical technology. Ultrasonic technology is more reliable, accurate and greatly reduces EMI and RFI (electromagnetic interference and radio frequency interference)effects,” DiDio said. “Our air bubble sensors are extremely sensitive in detecting customer-specified-size air bubbles within a variety of media, flowing through patient-critical machines. Once a bubble is detected, the caregiver is signaled to stop the treatment, thereby preventing an embolism from occurring during hemodialysis.”
He said the adoption by the U.S. Food and Drug Administration (FDA) of “certain mandates that require some patient-critical care equipment to employ air bubble detection, greatly improving the safety of our client’s products, increased our business dramatically with existing customers and opened the door to new opportunities with new clients.”
DiDio said companies operating in the IVD space always arelooking for products with increased reliability and sensitivity that use the latest technology.
“Diagnostic companies are always improving their products by encompassing a host of features and diagnostics that may be performed on one machine,” he said. “The big hurdle other than technology in this case is FDA approval, generally a very slow, meticulous process.”
He noted that the latest trend in diagnostics is home care and portable equipment.
“Certain customers are moving toward manufacturing equipment that can be used in the home—portable equipment, battery powered, using a lot less power to operate. Morepatients will be able to receive treatment at home in the future, so we have designed sensors that operate on 3.3 volts and have energy saving features such as sleep mode when not in use.”
Given the growing complexity of diagnostic devices and processes, with both speed and accuracy being essential to their operation, as well as safety of ultimate importance, DiDio sees the company’s ultrasound-based technology as a critical component providing a consistently reliable and precise solution for air bubble detection.
“We provide free evaluations for our customers in order to select the best sensor for their specific application,” he explained. “Our client will send in their tube, and we then evaluate that tube with our sensors to select the sensor that fits their need. And our design technology is always improving to where our sensors are dramatically smaller now, solving the challenges of limited space.”
Scott Herskovitz, vice president, marketing, at Edgewood, N.Y.-based Qosina Corp., sees change such as that experienced by the IVD sector during the past decade as an opportunity for his company, a provider of an array of medical components.
“We have published our catalog of thousands of stockcomponents focused on medical device manufacturing for more than 30 years,” he said. “That continuity is very important for our customers, but any industry changes also are an opportunity for us to change with the times.”
The company’s vast array of medical components goes to a similarly widespread list of customers, but Qosina doesn’tdivide its products by industry segment. “Our philosophy,” said Herskovitz, “is that we never know who may need what, and this leads to sales we may never have envisioned.”
Qosina’s approach to conducting business reflects the speed and accuracy that are essential in the world of in-vitro diagnostics. “Since our products are in stock in our warehouse,” Herskovitz said, “we can deliver as fast as shippers can travel. And we abide by ISO quality standards to ensure quality and consistency.”
With price being a key determinant when it comes to disposable items used in diagnostics, Qosina’s approach is to offer a wide variety of different products, “sometimes the same item but different color or material,” he said. “If you are making a kit that is worth $1,000 at the retail level, price for a disposable component may not be as important as other factors. By offering a choice we enable the customer to find everything they need in one place.”
Regulatory Issues a Concern
Regulatory issues and potential impact of healthcare reform issues on companies such as theirs also drew the attention of some of the officials interviewed for this story.
KMC’s Gilde said, “It is a challenge to stay on top of all the regulatory changes that are going on, especially for our customers who are putting product in Europe vs. China vs. South America, and what those particular regulatory changes might be.”
He said KMC’s quality group works very closely with customers’ regulatory groups.
“Our customers usually have more infrastructure and horsepower within their regulatory group than we would here, but the types of things we’re dealing with today are not only potential changes within the FDA around regulations that might affect our design control processes, but also other requirements that are affecting us in terms of needing to provide our customers so they can comply,” Gilde said.
Gilde said customers are relying on companies like his to get information from their supply base and obtain information on material types as well as component materials.
“If you’re the manufacturer, you have a pretty significant supply chain responsibility now that we really hadn’t seen previously,” he said.
That means the company is investing in tools and people in order to gather the information and maintain the databases needed in order to provide the additional regulatory variables that people need.
“All of these regulatory issues just put more of an onus on us as a manufacturer to bring in the tools and seek the knowledge and get more embedded in our customers’ quality organizations to make sure that we’re all in compliance,” Gilde added.
As for the potential impact of healthcare reform, he said the biggest concern is application of the so-called “device tax,” which is part of the healthcare reform law and is set to take effect in 2013. (See Washington Roundup article for more information.)
“There’s the issue of how that would affect companies such as ourselves as a manufacturer of a product that is then sold by our OEM customer,” Gilde noted. “With someone like us, our margins would not support additional taxes or costs associated with being such a manufacturer.”
On the regulatory question, Introtek’s DiDio said, “Generally many customers are frustrated with the regulatory process and the time involved with gaining the necessary approvals. Some will market overseas where scrutiny and regulatory concerns are less stringent.”
As for healthcare reform, he said diagnostics clearly is taking on a larger role.
“If the newly adopted provisions move forward, more people will have access to care and in turn will utilize diagnostics, increasing their demand,” he explained. “This would bode well for our customers.”
Qosina’s Herskovitz took a practical stance on the regulatory question.
“Regulations are a cost of doing business. It increases costs and decreases competition due to higher barriers to entry, but established players have an easier time navigating thosewaters,” he said.
Regarding healthcare reform and diagnostics, he said, “Without getting into the politics of healthcare reform, if more people have access to healthcare then potentially more tests and procedures are being done and there are more opportunities for suppliers in this market.”
As for the “next big thing” in sight for the diagnostics sector, KMC’s Gilde and Jellison offered plenty of food for thought.
“A lot of the instruments that we have done in the past are instruments that are in the large reference labs, processing high volumes of tests on a daily basis,” Jellison said. “You go to the doctor, you give a sample, you don’t know the results for a number of days until that sample is sent out to a lab to be processed.”
But he sees change in the offing.
“You’re seeing more and more people wanting to see that diagnostic result at the physician’s office level, right there when the patient is in the office. So we’re seeing as lot more concentration on single-testing or result-type systems,” Jellison explained. “We’re seeing a lot of small desktop cartridge-based systems for single diagnostic test processing, and that definitely has technology challenges in it.”
Gilde said there are a couple of key dynamics at work.
“One is the market dynamic and the other is the pathology dynamic,” he said. “From the market dynamic—as Ron was talking about—is it centralized or is it decentralized? Where is the best fit?”
He said that “when you go to conferences, what you see a lot of is emerging companies coming out with technologies that are more point-of-care, near-patient-driven, lower-throughput,single-use cartridges. Not many of them are coming through the funnel yet and being successful in a commercial sense, because they still haven’t addressed the cost-per-test issue, the benefit you have from a more centralized testing environment. Until that gets addressed and answered, especially from a reimbursement standpoint and you have proven outcomes from point-of-care testing, that part is going to struggle as it compares to centralized testing.”
Gilde cited two particular technologies—mass spectroscopy and what he termed “next-generation sequencing”—as having a growing impact on the clinical lab market.
“Mass spectroscopy was a tool pretty much limited to analytical chemists for decades, and you’re now starting to see its rapid adoption into various parts of the clinical laboratory,” he said. “As you’re seeing the cost of use of those technologies becoming more attractive, it’s easier to implement them into the clinical laboratory segment. Another one that you hear a lot about is next-generation sequencing technologies, with their ability to provide a lot of data regarding an individual’s health. You see these technologies becoming simpler, more cost-effective, more reliable, with fewer error rates—that will eventually move into more routine clinical utilization. I still think it’s probably a few years away from that kind of adoption, but when it does happen that will have a big impact on clinical diagnostics five years down the road.”
Adding to the “next big thing” discussion, Pothier cited theincreasing role of information technology (IT) integration.
“Linking the battery of novel and standard diagnostic technologies with IT solutions that bring together family history, all clinical results from all lab tests over time, and links to clinical outcomes in one electronic medical record will result in better, more cohesive care for patients and lower costs overall to the system, both of which are goals for all stakeholders in healthcare today,” she said.
Introtek’s DiDio said, “We’re always looking to segue to new products such as non-invasive pressure sensors and flow sensors—products that would complement our core line and provide our
customers with added value. We believe, for example, that there is a need for non-invasive flow sensors, detecting flow speed of certain media. We are investigating the possibilities there.”
Jim Stommen, retired editor of industry publication Medical Device Daily, is a freelance writer focusing on the medical product sector.