The economic storm clouds may be parting for at least one medical technology sector. Growing momentum driving the development of personalized medicine means the makers of in vitro diagnostics (IVD) have an immediate opportunity to get venture capital (VC) funding, partner and expand as a whole sector.

A new report by PricewaterhouseCoopers (PwC; New York) analyzes the events that are driving this trend and lays out how diagnostics makers are playing a key role.

"Our guidance to IVD makers is to look differently at healthcare than they did in the past," Doug Mowen, medical device industry consulting practice leader at PwC, told Medical Device Daily. "IVD makers have an opportunity to move from a supporting role to a starring role. As a result, their capabilities are in demand by pharmaceutical and biological companies. The link between a test and a productive drug is transparent for venture capitalists. We predict the revenue side of the IVDs market will grow as a result."

He said that will be evident mostly in VC funding, partnerships, mergers and acquisitions (M&A) as personalized medicine continues to grow.

Personalized medicine, which taps into an individual's genetics, proteins as well as environmental factors, is targeting the prevention of disease and more efficient diagnosis and treatments. It's enabled by a deeper understanding of the biology of diseases and treatments at the molecular level. Molecular tools are playing into this trend because they provide more exact information via diagnostic tests.

"In this sense, significant improvements in personalized medicine should be expected in the next few years as molecular diagnostics represent one of the fastest growing segments in the $37 billion IVD market," according to the PwC report: Diagnostics 2009: Moving towards personalized medicine.

The overall market is expected to grow by 5% per year to $50 billion between 2007 and 2012 with sales of molecular diagnostics expected to grow by 14% per year from $2.6 billion to $5 billion.

The report references multiple drivers of this trend, but Mowen clearly believes that the growing call for companion diagnostics paired with medicines is the most significant.

"There is a convergence of factors that are supporting this emerging trend that development of medicines must have companion diagnostics," he said. "Regulatory agencies want to insure efficacy. Payers want lower cost of care and more effective medicines. Pharmaceutical companies know they need this to drive formulary and reimbursement."

IVD markets, as defined by the report, includes all clinical in vitro diagnostics, such as glucose monitoring for diabetes care, but exclude diagnostics for research use.

The PwC report points out that the diagnostics sector is much smaller than the pharmaceutical sector, with the top 10 IVD producers representing 75% of the market. That compares with 45% for the top 10 pharmaceutical companies. Roche (Basel, Switzerland) ranks as the largest player with a 20% market share. After that Beckman Coulter (Fullerton, California) has a 6% market share and Inverness Medical Innovations (Waltham, Massachusetts), dubbed in the report as "the most acquisitive player in recent years," has a 3% market share.

"The IVD technology is there and it's been there for four to five years, but now the regulatory agencies are recognizing the importance of biomarkers and companion diagnostics," Mowen said. "I think we won't see any major drugs going into clinical trials with out a biomarker going forward. The system has lined up behind it. The science has been there but now payers and regulators have aligned to make it imperative."

Other key events that predict the momentum in this field include:

• U.S. and European government funding is committed to research projects in personalized medicine.

• New legislation in the U.S. and Europe aims to protect people from discrimination based on their personal genetic information. In particular, Genentech's (South San Francisco, California) citizen petition started a debate late last year on the diversity of regulatory pathways available for diagnostics. The company asked the FDA to require that "all in vitro diagnostic tests intended for use in drug or biologic therapeutic decision making be held to the same scientific and regulatory standards" (Medical Device Daily, Dec. 31, 2008).

• Technological developments have played a significant role too, such as a new DNA test to assess prostate cancer risk from deCODE genetics (Reykjavik, Iceland), and a large-scale trial to study a gene guided dosing methodology for warfarin as two examples.

• Agendia's (Huntington Beach California) breast cancer test, MammaPrint, was the first IVD test to be cleared by the FDA under its new guidelines for in vitro diagnostic multivariate index assays (IVDMIA). It was also included in the updated 2008 guidelines of The Dutch Institute for Healthcare Improvement (CBO), which now provides endorsement from the clinical community in The Netherlands for the prognostic value of MammaPrint, which aims to identify each patient's risk profile and guide subsequent treatment. Test results help physicians to plan treatment.

Peter Beitsch, MD, director of the Dallas Breast Center, earlier this year spoke at a meeting of the American Society of Breast Surgeons (ASBS; Columbia, Maryland,) about MammaPrint: "Genotype testing has changed the paradigm. We no longer care about the size of the tumor but rather its genotype. We have been treating patients as if they had the worst cancer, which means way too much chemo for many" (MDD, May 5, 2009).

This is the exact line of thought behind the personalized trend that will drive immediate growth in the IVD sector.

Mowen said the tumultuous economy may actually work to benefit the growth of this sector.

"You could speculate that the economy, growth and cost of healthcare would accelerate this trend," he said. "Personalized medicine is a much more cost-effective approach. You would only take the medicine if you have the biomarker. The percentage of prescription medications that aren't effective just won't occur in the future. [Companion diagnostics] means you'd have safer, more effective and more targeted medications. And the pharmaceutical executives all recognize this."

Speaking from anecdotal observations, Mowen said, "In their strategies and business plans, there's a movement by pharmaceutical companies to focus on companion diagnostics. You won't see pharma buying IVDs, but interested in building alliances."

Along with the partnering and M&A activity will come the VC funding.

"VC funding will go toward innovative entrepreneurs who have something specific to align to a therapeutic area," Mowen said. "Some companies will grow larger and there will be increased M&A activity as a result of the proliferation of smaller companies."

Interestingly, the PwC report notes that seven partnerships were reported in 2008 between pharmaceutical and diagnostic companies to develop a companion diagnostic, which is a "significant drop from the 14 collaborations announced in 2007."

Mowen said that downturn in the number of deals is an artifact of disparate events, but not indicative of the overall trend.

In 2008, personalized medicine motivated three of the 10 largest M&A deals and four of the licensing deals by the 10 largest IVD companies, according to the report.

Mowen predicts that 2010 will be the year when a companion diagnostic and drug combination will break into the mainstream, validating these PwC predictions. He declined, however, to go out on a limb and name specific companies or products other than to say there are "several" likely candidates.