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Dx Test Developers Experience Declining Revenue Growth

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The news this week that CMS may reduce rates for some molecular diagnostic tests (by over 70% in a couple of cases) stimulated the idea of taking a quick look at the current market dynamics for diagnostic test developers.

For this week’s post we decided to refresh an analysis that we first conducted back in May of 2014, wherein we broke down the diagnostics industry by company type and focus to compare sales and valuation trends.

For company type we separated companies into two categories: IVD Developers and LDT Developers, the former being focused on developing FDA-cleared and approved products, and the latter being focused on developing lab-developed tests as services.

For company focus we separated companies into two categories: Comprehensive and Specialty, the former being large companies with broad test portfolios, and the latter being smaller companies with a limited portfolio of tests.  We used a select list of publicly-traded companies for the analysis.

In this post we will look just at trends for the IVD companies, and will look at the LDT companies in a follow-up post.

The two data points that we were interested in are the changes in compound annual growth rate (CAGR) since the last analysis, and the change in market capitalization as well.  In the last post CAGR was calculated from 2011 through 2013, and in this analysis it is calculated from 2011 through 2015.  Market capitalization was previously recorded on May 23, 2014, and is currently recorded as of the date of this post.

 

 

It is interesting to note that while none of the Comprehensive IVD Developers experienced an increase in CAGR since the last analysis, all but two of them experienced significant increases in market capitalization.

The story is a bit more grim for the Specialty IVD Developers.  Half of them experienced strong increases in CAGR since the last analysis, but only one had an increase in market cap.

 

 

The revenue of the Comprehensive IVD Developers in this sample grew by 6% from 2014 to 2015, while the Specialty IVD Developers grew revenue by 62% in the same period.  The industry is definitely growing by these measures, but possibly not as rapidly as it might based on comparing the 3- and 5-year trends.  Current regulatory and reimbursement ambiguity can do little to stabilize these trends.