Lessons From a Recent Diagnostics Conference: “Don’t Fear Change, Embrace It!”

Intrepid’s Healthcare team recently attended the Executive War College, a laboratory and diagnostics conference, to connect and meet with industry leaders. Our conference discussions confirmed that several of the most impactful trends that drove interest in our recent sale of Ambry Genetics to Konica Minolta continue to heavily influence the sector’s M&A and investment activity. Here are some highlights that we wanted to share with you from the event.

We Are Still in the Early Innings of Lab and Diagnostics Innovation

With an ever-increasing focus on the design of value-based payment models, direct-to-consumer patient engagements, the shift to lower cost settings and the continued maturation of personalized medicine, the most innovative labs and diagnostics providers are emerging as key actors in the process to help redesign the delivery of tomorrow’s healthcare.

We have all seen the compelling statistic that laboratory services account for less than 3% of total U.S. healthcare spending yet approximately 70% of all treatment decisions are driven by these test results. Labs that can commercialize reliable companion diagnostics and pharmacogenetics may be able to wield significant power to alter pharma spend and outcomes. Investors and acquirers who understand this important convergence and develop testing programs with more direct patient engagement to capitalize on these macro efforts will be in the pole position.

Labs Need to Leverage Their Data

In several panel discussions at the Executive War College, it was evident that data and analytics are becoming critical to every lab’s success going forward. Labs are potentially sitting on treasure troves of data that can be utilized to shape treatment pathways, prevent the progression of certain chronic health conditions, and drive new diagnostic and therapeutic innovations. Easier said than done, but expect those labs that develop strategies to cost-effectively mine their own data, and collaborate with broader data providers to facilitate large-scale analytics, to emerge as highly coveted assets.

We saw this firsthand during the Ambry process, as the company’s proprietary bioinformatics platform was one of its crown jewel assets in the view of acquirers. Going forward, lab data sets could potentially become even more valuable for some companies than their underlying testing capabilities.

Reimbursement Challenges Today Will (Hopefully) Make Us Stronger Tomorrow

PAMA reimbursement cuts have led to considerable revenue declines for several lab businesses.  At the same time, these changes have also pressured the industry more broadly to focus on cost efficiencies. Labs that diversify their service mix away from the affected services and into new molecular and genetic tests might experience a net-positive change in reimbursement. What’s more, companies that truly “lean in” against the PAMA headwinds with aggressive cost management and a renewed focus on quality could be well-positioned to serve as consolidators and capture greater market share. So, while many traditional labs are suffering as a result of PAMA, expect several labs to explore test menu expansion into new higher priced areas and become much more efficient overall.

The Roadmap for Personalizing Diagnostics Is Developing

The promises of personalized medicine are vast and the roster of innovations is rapidly expanding.

  • Can physicians keep up with so many new oncology panels?
  • How broadly will payors require companion diagnostics to determine a “medically necessary” propensity for a positive outcome before authorizing certain prescription drugs?
  • To what extent will patients respond to direct-to-consumer marketing of weight loss and other discretionary prognostic testing?
  • Is it realistic to expect that patients will truly understand the results of their diagnostic reports?

Winners in personalized diagnostics will be able to deliver actionable insights that can be easily digested by both clinicians and patients, all while navigating a fluid reimbursement landscape.  Intrepid is seeing an influx of smaller, highly innovative personalized diagnostics labs that are seeking growth capital (or consolidation opportunities) in this market environment ripe with opportunity.

It seems that today, more than ever, is a time for action and innovation in every sector of healthcare, and the laboratory and diagnostics sector is no exception. Executives can proactively take control of their future by rethinking the old, challenging conventions, and taking calculated risks to capitalize on these exciting trends shaping the industry.