Eyeing the Hospital Market for Infectious Disease Diagnostics

Article preview from Start-Up - June 2008

Hospital-based diagnostics are a tough sell to VCs, partly because big companies dominate the central lab. The area of infectious disease is even more challenging because low-cost culture methods are difficult to displace and novel high-value biomarker content is rare. MRSA screening may be one area where the right factors are coming together to form an opportunity. In some other cases, the same attributes that make rapid tests appealing outside the hospital could help bring them inside. 

Beyond plays in personalized medicine, investors are not exactly clamoring to get into the diagnostics space. That's especially true for infectious disease tests aimed at the hospital environment, where there's MRSA but few other high-value opportunities. 

• Hospital-based diagnostics plays are especially risky for investors because of the dominance of large companies with entrenched platforms in the central lab.
• The area of infectious disease is even more challenging because low-cost culture technology is difficult to displace.
• MRSA screening is one setting where disease, treatment regimen, provider, setting, and economics are coming together.
• But absent an outside force such as legislation or reimbursement handcuffs on hospital-acquired infections, high-value opportunities that would attract VCs appear few and far between.

A 1998 START-UP story on infectious diseases and drug resistance described microbiology as a "poor, rumpled relation in the family of biotechnologies." ("Drug Resistance Start-Ups: Is Resistance Futile?" START-UP, December 1998 [1998900181].) That same label applies a decade later—especially when it comes to the realm of the hospital central laboratory. The same slow, cheap, and easy technologies that pushed a generation of researchers interested in microbiology away from the clinical setting and into molecular biology remain formidable obstacles to innovation in diagnostics development.

Very few VCs invest in diagnostic projects generally, notes Michael Lytton of Oxford Bioscience Partners. Yet while Oxford has made a lot of diagnostics investments, it's been difficult to go out to find co-investors, he says. "It's a relatively small group. People are still scared away by fear of low reimbursement for diagnostics and that the pharma companies are generally uninterested in companion diagnostics. Most people think it's a trend that will take decades to develop."

Although start-ups may offer innovative technology, that's often a secondary consideration. "It's all about the application, the adopter, and reimbursement," Lytton explains.

There's an additional layer of challenges with hospital-based diagnostics, adds Risa Stack, PhD, of Kleiner Perkins Caufield & Byers. Large hospitals run tests out of their central lab or, in the case of certain high-volume tests directed at patients clustered in a particular area of the hospital, in one of several stat labs set up for that specific purpose. Some tests are also analyzed at the point of care (POC), though there are not many POC devices in use in the hospital. The bulk of testing is done through the central labs, where there are entrenched, low-cost players such as Abbott Laboratories Inc. and Dade-Behring (now part of Siemens AG).

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Companies mentioned in this article:
3M Co.
Abbott Laboratories Inc.
Adnavance Technologies Inc.
Affymetrix Inc.
Agilent Technologies Inc.
Alverix Inc.
Atlas Genetics
Beckman Coulter Inc.
Becton Dickinson & Co.
Centers for Disease Control and Prevention
Cepheid
Claros Diagnostics Inc.
Curetis AG
Enigma Diagnostics Ltd.
HandyLab Inc.
Helicos BioSciences Corp.
Illumina Inc.
Innovative Biosensors Inc.
Inverness Medical Innovations Inc.
Biosite Inc.
Isis Pharmaceuticals Inc.
Ibis Biosciences Inc.
Laboratory Corp. of America Holdings
Northwestern University
Feinberg School of Medicine
OpGen Inc.
Quest Diagnostics Inc.
Response Biomedical Corp.
Siemens AG

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