CLMA ThinkLab 2010
Laboratory Industry Outlook 2010-2011
Washington G-2 Reports Advisory Services
Lab Industry Revenue Growth Averaging 6.7% Last 10 Years • Growing 6.7% annually last 10-years • Strong growth in Esoteric, AP, cytology • 4.5% increase in Medicare clinical lab fee 2009 • Aging demographics, higher utilization, personalized medicine • Offset by recession, reduced admissions, increasing DSO, cut back in workplace drug testing
CLMA ThinkLab 2010—Page 2
Lab Industry Represents 2.3% of Total National Health Care Expenditures
•
Continued 6%6%-7% annual growth of health care expenditures and with lab share remaining at 2.3% pushes lab industry revenue to an estimated $98.4 bil. by 2017
CLMA ThinkLab 2010—Page 3
Lab Industry Market Share by Facility
CLMA ThinkLab 2010—Page 4
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Hospital lab market accounts for approx. 60% of lab test revenue
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Independent labs represent 35%
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Hospital and independent labs have higher percentage of high complexity/higher reimbursed tests than POLs
Primary Lab Market Test Segments
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Routine testing accounts for bulk of market, slowest growing
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Esoteric and Anatomic each account for 18% of market, fastest growing segments
CLMA ThinkLab 2010—Page 5
Lab Segment Growth Rates
CLMA ThinkLab 2010—Page 6
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Routine testing expected to continue to at 1% growth rate
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Anatomic pathology growth rate running at 8%
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Esoteric growth rate is expected to slow this year to 12% from 20% last two years
Lab Segment Growth Rates in 2009 •
Workplace drug testing seeing 10% declines continue
•
Esoteric continues to see strong but slower growth with molecular diagnostics making up perhaps 1/3rd of test volume in about ten years
CLMA ThinkLab 2010—Page 7
Actions Labs Are Taking in Response to the Recession
• • • • • •
CLMA ThinkLab 2010—Page 8
54% Reduced travel, training, and other HR costs 53% Reduced or put on hold equipment, reagent and supplies purchases 40% Held the line on salary increases 35% Reduced staffing/headcount 17% Changed our pricing 12 % Changed our test mix
Change in DSO Last Six Months
• • •
25.0% of Labs have seen DSO increase 12.5% Decreased 62.5% No change in DSO
CLMA ThinkLab 2010—Page 9
Hospital Laboratory Market & Trends
Hospital Laboratory Sector
CLMA ThinkLab 2010—Page 10
Hospital Test Volume Share of Market
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Hospital labs represent 55% of the clinical lab test market
CLMA ThinkLab 2010—Page 11
Hospital Lab Market Sees Long Term Steady Growth in the 6%-7% Range
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• • •
CLMA ThinkLab 2010—Page 12
Hospital lab revenues climbed 7.0% in 2008 to $30.4 bil. Steady growth rate of 6.5%6.5%-7% last eight years Growth augmented by outreach testing Face stiff competition from national labs, local independent labs and each other
Hospital Outreach Programs More than Holding Their Own vs. Competition •
Hospital outreach programs are either holding or gaining share relative to Quest, LabCorp, key local labs and other hospitals
•
Salaries, benefits and supplies represent 71% of the budget
CLMA ThinkLab 2010—Page 13
Hospital Laboratory Budget Breakdown
CLMA ThinkLab 2010—Page 14
Fastest Growing Expenses in Budget •
Fastest growing expenses have been salaries and benefits
CLMA ThinkLab 2010—Page 15
Test Revenue Mix at Hospital Labs •
• •
CLMA ThinkLab 2010—Page 16
Largest portion of hospital lab revenue is derived from feefee-forforservice contracts Medicare Part A makes up 22.8% Medicare Part B makes up 21.6%
Greatest Challenges to Growing Hospital Lab Revenues
•
•
# 1 is exclusion from managed care contracts #2 is competition from Quest and LabCorp
CLMA ThinkLab 2010—Page 17
Main Outreach Lab Competitors
CLMA ThinkLab 2010—Page 18
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Quest and LabCorp remain chief competitors
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Other regional hospital outreach programs
Benefits of Outreach Programs •
#1 -- contributes to revenue and/or profitability
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#2 – Contributes to lower costs
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#3 – Improves service to all patients
CLMA ThinkLab 2010—Page 19
Reasons for Not Developing Lab Outreach
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CLMA ThinkLab 2010—Page 20
Most reasons cited either revolve around the need to fix systems (ie., billing and LIS) or the need to better communicate the benefits and value of outreach (ie., to remain competitive and more profitable)
Average Net Revenue Per Test
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Average outreach net revenue per test has increased steadily for past five years
CLMA ThinkLab 2010—Page 21
Nearly 70% of Outreach Labs Measure Profitability
•
•
CLMA ThinkLab 2010—Page 22
However, only 40% have actual net revenue figures Billing is typically performed by the hospital
Independent Lab Market & Trends
Independent Laboratory Sector
CLMA ThinkLab 2010—Page 23
Independent Lab Market Long Term Growth Rate Has Averaged 7% •
•
CLMA ThinkLab 2010—Page 24
Revenue in the independent lab market grew 11.5% to $18.4 bil. in 2008 11 Publicly held labs represent 72% of the independent lab market
Revenue Growth at Publicly Held Labs
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Revenue at publicly held labs grew 11.4% in 2008
CLMA ThinkLab 2010—Page 25
Revenue per FTE at Quest & LabCorp
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CLMA ThinkLab 2010—Page 26
Both Quest and LabCorp continue to see steady growth in key metric of revenue per FTE
Greatest Challenges to Growth for Independent Labs
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#1 is exclusion from managed care contracts (same as for hospital labs)
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#2 is competition from Quest and LabCorp (same as for hospital labs)
CLMA ThinkLab 2010—Page 27
Independent Laboratory Budget Breakdown
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CLMA ThinkLab 2010—Page 28
Salaries and benefits comprise 49.8% of the budget (slightly higher than at hospital labs)
LabCorp Revenue from Managed Care Contracts
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Both LabCorp and Quest have similar competitive advantages – national managed care contracts, superior billing and collection management, lower reagent and supply costs, esoteric capabilities, and investment in webwebbased connectivity solutions
CLMA ThinkLab 2010—Page 29
Quest Revenue from Managed Care Contracts
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CLMA ThinkLab 2010—Page 30
Quest’ Quest’s managed care contracts represent 50% of its revenue and include those with Wellpoint, Aetna, Humana, and Cigna
Quest & LabCorp Managed Care Contracts
CLMA ThinkLab 2010—Page 31
Lab Merger & Acquisition Activity
M&A Activity
CLMA ThinkLab 2010—Page 32
Avg. Multiples Peaked in 2006
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Avg. multiples peaked at 2.8 times revenue in 2006
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Multiples expected to remain in the 11-1.5x revenue range for the next year
CLMA ThinkLab 2010—Page 33
Esoteric Lab Market & Trends
Esoteric Laboratory Sector
CLMA ThinkLab 2010—Page 34
Esoteric Segment Growth Rates
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Routine testing expected to continue to at 1% growth rate
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Anatomic pathology growth rate running at 8%
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Esoteric growth rate is expected to slow this year to 12% from 20% last two years
CLMA ThinkLab 2010—Page 35
The Esoteric Market
CLMA ThinkLab 2010—Page 36
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Esoteric market is approx. $10bil.
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Represents 18.1% of lab test market revenue
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Growth slowing to 12% this year from 20%+ last two years
Top Esoteric Labs by Revenue
CLMA ThinkLab 2010—Page 37
Which Esoteric Reference Labs Offer the Best Value?
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CLMA ThinkLab 2010—Page 38
ARUP continues to be top rated esoteric reference lab on basis of price plus service
Biggest Barriers to Expanding Esoteric Testing Menus •
Attitudes towards expanding esoteric testing menus are changing
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Low test volumes and hiring staff with experience appear to be less of a constraint
CLMA ThinkLab 2010—Page 39
Tests Expected to Be Brought In-house
CLMA ThinkLab 2010—Page 40
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ANA is a relatively low priced test under $10
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Cystic Fibrosis runs over $140 per test
Anatomic Pathology and Cytology Market & Trends
Anatomic Pathology and Cytology Market Sector
CLMA ThinkLab 2010—Page 41
Anatomic Pathology & Cytology Markets
CLMA ThinkLab 2010—Page 42
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AP & Cytology markets together represent approx. $15 bil.
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The AP market is growing at 8% annually
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The cytology market is growing at approx. 4% annually
Quest and LabCorp. Dominant AP Players
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Quest’ Quest’s purchase of AmeriPath in 2007 pushed its AP revenue to $1.5 bil. or 12.7% of the market
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LabCorp’ LabCorp’s $1.0 bil. in AP revenue gives it 8.6% of the market
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AP market remains highly fragmented
CLMA ThinkLab 2010—Page 43
AP Test Market Split Between Hospital and Non-Hospital Labs
CLMA ThinkLab 2010—Page 44
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Hospital inpatient and outpatient tests account for 52% of the AP market
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48% of AP market is nonnonhospital outpatient
Leading Outpatient AP Test Areas
• • • •
Pap Smears Skin tests Gynecological samples Prostate
CLMA ThinkLab 2010—Page 45
The Top 60 AP Procedures
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CLMA ThinkLab 2010—Page 46
Surgical pathology remains highest volume Part B pathology procedure
AP Market Dominated by Solo & Group Practitioners
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CLMA ThinkLab 2010—Page 47
Despite some consolidation, 70% of U.S pathologists work in private practice
A Brief History of MDx
Evolution Driven by Scientific Innovation PCR and sequencing Efficiency-focused innovations ○ High-throughput sequencing ○ Improved amplification methods Now: Work-flow and multiplexing ○
Driven by efficiency, labor concerns, science
MDx Innovation: A Virtuous Circle Research Identifies molecular marker (mutation, etc.) and clinical implications
Test Development With demand comes need to improve test effectiveness and efficiency
Paradigm Shift
IVD Lifecycle Research Laboratory C os t* C o m pl ex i t y
Reference Laboratory
Central Hospital Laboratory
Decentralized Testing
Beyond a “yes” or “no” result… ~
25,000 human genes ~ 150,000 - 200,000 splice variants ? Regulatory RNA species ~ 500,000 - 2,000,000 protein states Post-translational modifications
Molecular Diagnostics Methods
Cytogenetics e.g., diagnosis of chromosomal breakage
syndromes
Fluorescence In Situ Hybridization (FISH) e.g., detection of oncogene amplification
FISH Derivatives Spectral karyotyping imaging, comparative
genomic hybridization, tissue microarray, chromogenic in situ hybridization
Molecular Diagnostics Methods (cont’d)
PCR e.g., detect DNA sequence of interest
PCR Derivatives Nested PCR Real-time PCR ○ e.g., HIV viral load Reverse-transcriptase PCR ○ RNA → cDNA Multiplex PCR ○ E.g., detect CFTR mutations in CF Allele-specific oligonucleotides
Molecular Diagnostics Methods (cont’d) Direct Sequence Analysis Southern Blot Analysis Variable Number Tandem Repeats
e.g., forensic applications, molecular
pathology (microsatellites)
Mutation Scanning e.g., hereditary hemochromatosis Types: DHPLC, SSCP, melting point
analysis
Molecular Diagnostics Methods (cont’d)
Gene Expression Profiling DNA (cDNA) microarray, DNA (oligo) chip
Proteomics Proteins as indicators of gene expression
Loss of Heterozygosity Sporadic and hereditary tumors
Methylation Assays Assess methylation status of region of DNA e.g., tumor suppressor gene silencing in
cancer
Molecular Diagnostics Applications Clinical diagnosis Neonatal screening
PKU, congenital hypothyroidism
Prenatal diagnosis Trisomy 21
Carrier testing Tay-Sachs disease, thalassemia
HLA typing Transplant medicine, autoimmune diseases
associated with specific HLA types
Molecular Diagnostics Industry Trends
Washington G-2 Reports market/growth estimates An estimated 80 million molecular diagnostic tests will be conducted in the U.S. in 2010 Molecular tests are becoming the standard of care… FDA clearance, professional association guidelines,
reimbursement
…But are still offered by only a fraction of clinical laboratories Of 203,939 laboratories covered by CLIA, an estimated
3% could conduct molecular diagnostic testing
A Growing Global Market
The global market for molecular diagnostics is expected to grow to approximately $8 billion by 2012.
Source: Washington G-2 Reports
Global MDx Testing By Region 11% 10%
[graph] 49%
30%
Source: Washington G-2 Reports
MDx: Market Drivers
Hospitals working to streamline care and reduce testing costs Growing number and breadth of available tests Improved reporting of complex results New technologies that allow the necessary quality control and data capture from tests Increasing automation Rise of the MDx-savvy: scientist, clinician, vendor, media, patient
A Technology-Driven Market Molecular Diagnostics: A replacement and enabling technology
PCR Initially labor-intensive, manual process
Automation, ease of use Increased clinical applications Point-of-care testing Multiplex testing Pharmacogenomics Whole-genome scanning?
Global MDx Testing By Segment
[graph]
Source: Washington G-2 Reports
MDx Market Segments
Major League Starting line-up ○ Infectious disease testing Viral: HIV, HCV, HPV Non-viral: STDs, TB, strep ○ Blood screening applications
Second string ○ Cancer diagnostics ○ Solid tumors, hematological cancers ○ Genetic testing
Minor League Pharmacogenomics Predisposition diagnostics
Hot Prospects? Cardiology Psychiatric tests Neurological diseases
Promising Little Leaguers Autoimmune diseases Methylation markers Proteomic-based testing
Molecular Diagnostics Challenges Reimbursement Lack of standardization across platforms Limited quality control practices High expectations for accuracy (once-ina-lifetime genetic tests) Inability to fully interpret test data
Molecular Diagnostics Challenges
Personnel Shortage of laboratory personnel estimated
to reach 100,000 by 2012 (U.S. Bureau of Labor Statistics) Training
Need for technologies that make MDx easier to automate and less expensive
Molecular Diagnostics in the Obama Era
Particular interest in the development of genomic tests Environment ripe for increased regulation? Wellness discounts Emphasis on improving healthcare quality, prevention, chronic disease management
G-2’s Molecular Diagnostics Survey The more than 100 laboratories who participated in the survey predicted that in the next two years, MDx would account for an average of 19.1% of total lab revenue. Top tests: CT/NG, HPV, HCV, HIV Top tests planning to add: HSV, CF, HCV quantitative, CYP450 Economics
Startup budget Costs Revenue and expected revenue growth
G-2’s Molecular Diagnostics Survey
Key test menu decision criteria Send-out data/apparent demand Potential clinical impact Cost data (e.g., cost per reportable result in
house vs. sendout) Medicare/insurance reimbursement rate Time and resources required to develop test FDA approval status of test Whether competitor offers test Research application Whether competitor offers test Prospective payer mix for test Turnaround time for test
Why MDx?
And Why Not?
Clinical impact Effect on patient
management
Sensitivity, specificity, and
speed (better results)
Practice guideline changes and regulatory decisions Potential savings
Expensive Difficult to demonstrate potential savings Reimbursement
Lack of designated CPT
Decreased TAT Decreased hosp. time
Demand Increasingly consumer-
codes
Royalty and licensure fees
Staffing/Training Standardization
Market Education
Quality control standards Clinical utility Applications Availability
driven
Ease of use Lab in a box systems Less invasive sample
procurement
Increased regulatory oversight imminent
Financial Analysis MDx paradigm shift: more than just another test One sample, potential for many tests
Versatile: sample type, size
Examples of cost savings Decrease hospital stay Establish duration of therapy Discontinue ineffective therapy Ability to identify high-risk patients
Financial Analysis (cont’d)
Labs relying on own send-out data as primary input for deciding which tests to develop/bring in-house Time vs. resources
Calculating send-out charges and startup costs What is the cost per reportable result?
What factors determine… Reagent costs Labor costs Equipment costs Supply costs Quality control/assurance costs Standard costs
Pharmacogenomics “Companion Diagnostics”
Market Potential ~25,000 genes x estimated diagnostic significance (5%)
= 1,500 gene-based tests
Can aid in: Drug selection and dosing Drug monitoring Avoiding adverse reactions (cause ~100,000 deaths/yr)
Drug/Device Co-Development
UGT1A1 (Third Wave)
Herceptin, Iressa Used to identify patients who may be at increased risk of
adverse reaction to irinotecan (Pfizer’s Camptosar)
CYP450 AmpliChip (Roche) Detects variations in cytochrome P450 2D6 and 2C19 genes
and provides predictive phenotype for patients
Warfarin sensitivity testing Ideal pharmacogenomic target: widely prescribed, difficult to
dose
Pharmacogenomics: Updated Coumadin Label “It is recommended that COUMADIN therapy be initiated with an initial dose of 2 to 5 mg per day with dose adjustments based on the results of PT/INR determinations. The lower initiation doses should be considered for patients with certain genetic variations in CYP2C9 and VKORC1 as well as for elderly and/or debilitated patients...” United States Food and Drug Administration, August 2007
Patenting Prediction Patent Number
Assignee
Published
WO 2008112283 A method of predicting the responsiveness of a tumor to treatment for anti-androgen therapy for prostate cancer by determining the androgen responsiveness microRNA expression profile of the tumor and correlating it to the therapeutic treatment.
Description
US Department of Health and Human Services
9/18/2008
WO 2008096375 A method for determining a susceptibility to prostate cancer comprising determining the presence or absence of polymorphic markers in a nucleic acid sample obtained from the individual.
Decode Genetics (Reykjavik, Iceland)
8/14/2008
Source: Thomson Scientific Search Service
Pharmacogenomics What’s Next
Medco Health Solutions/FDA partnership (2008-2010) Reports to focus on: physician participation in PGx, clinical utility of PGx, how to quantify prescription information for drugs w/genetic info on label, drug safety Leverage Dx to improve success rate of pharmaceutical development programs Further development of algorithms to make test results most useful to clinicians
Biomarker Explosion Biomarker Publications and FDA-approved serum protein markers per year 3.5 3
8000
2.5 6000
2
4000
1.5 1
2000
Number of approved plasma proteins/Yr
Cancer-related biomarker publications per year
10000
Ludwig and Weinstein, Nature Reviews Cancer, 2007
0.5
0
0 1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Publications
Biomarker Challenge: ROI • Ability to analyze is outpacing ability to design useful tests • Access to clinical samples to help validate potential clinical utility • Expense of clinical trials
Personal Genomics Prediction: Within five years, DNA sequencing technologies will be affordable enough that personal genomics will be integrated into routine care.
Source: Burrill & Company and ChangeWave Research. Personalized Medicine and Wellness Survey, n=550 (May 2008)
Personal Genomics: Stealth Diagnostics? Dietrich Stephan (CSO, Navigenics): “Every human disease has a genetic component. By identifying that component and by delivering actionable information we could alter the history of the disease...” deCODEme: “is not a clinical service to be used as the basis for making medical decisions.” 23andMe: “What we do not and will not do is provide medical advice to our customers.”
Personal Genomics Key Players Company
Test
Method
Price
deCODE Genetics
deCODEme
Illumina Human 1M
$985 complete scan; $200 cancer/cardio
Personal Genome Service
Customized Illumina Hap550 + 30,000 SNPs
$399
(Mountain View, CA)
Navigenics
Health Compass
Affymetrix genomewide 6.0
$2,500 for initial test; then $250 per year
(Reykjavik, Iceland)
23andMe
(Redwood Shores, CA)
SeqWright (Houston, TX)
Knome (Cambridge, MA)
Personal Genome Project (Boston, MA)
Genome Profiling Affymetrix Service genomewide 6.0
$998
Full-genome sequencing
Full-genome sequencing
$99,500 and up
Full-genome sequencing and other measures
Full-genome sequencing
$0
Personal Genomics Challenges
Regulatory oversight at all levels State licensing issues (CA, NY)
Quality assurance in testing Validity of medical correlations with genomic data Janssens, A.C. et al. American Journal of
Human Genetics 82, 593–599 (2008) Predictive value? Clinical utility?
Willingness of medical professionals and insurers to accept such tests Widespread consumer acceptance?
Direct-to-Consumer Testing State Regulations
Source: Genetics and Public Policy Center
Personal Genomics Here to Stay
Science will improve as: Efforts like the Personal Genome Project
amass huge samples Price of sequencing drops Knowledge of gene function and variation grows New sequencing technologies come on-line ○
Allowing detection of rare variants and large structural information (copy-number variants)
Early adopters explore how new information
can best be used to manage health
“Assessing risks from genomic data is not like using a pregnancy-test kit with its bright blue line. It’s more like writing a term paper on a topic with a huge and chaotic research literature. You are whipsawed by contradictory studies with different sample sizes, ages, sexes, ethnicities, selection criteria, and levels of statistical significance.” -Steve Pinker
SNPedia | www.snpedia.com
“This is not diseaseapedia (although I do enjoy saying that).” - Michael Cariaso Co-founder, SNPedia
As of 4/1/10, SNPedia contains 11,059 SNPs: •6,329 of those SNPs are tested by 23andMe •5,408 of those SNPs are tested by deCODEme •3.094 of those SNPs are tested by Navigenics Example: Rs2395029
MDx: What’s Next? Integration with other areas of the laboratory while continuing to play a complementary replacement role Progress in full range of disease testing:
and/or
Diagnostics, screening, therapy response, risk/relapse prediction
Specific diagnostic tests (particular disorders) broader assays (variants) Focus on defining clinical significance of findings
Effects of single gene on common diseases generally small Labs clarify how they will assist physicians with the complex
interpretation of clinical data generated (particularly w/r/t pharmacogenomics) ○ What do genotypes mean? Will pharmacist be involved in final
recommendation to physician?
Moving to a point-of-care orientation Simpler, faster platforms such as Cepheid’s GeneXpert system
Molecular Diagnostics What’s Next Integrate moderate complexity testing into clinical workflow Dynamic information for result interpretation Genetic test reporting standards Integrating lab assay with informatics tools Immunoassays and nucelic acid testing on same platform? Supersensitive detection platform
Molecular Diagnostics This Just In
Gene patents Overview Myriad lawsuit Implications for clinical laboratories What’s next?
