“It’s not quite ‘circle-the-wagons’ time around here, but there definitely isn’t much appetite for trying new things.” This was the assessment shared with me recently by an executive at a leading diagnostics company when asked to describe his company’s general attitude toward innovation.

A fundamental thing we have learned at Amplion over the last 2+ years while finding the early adopters of BiomarkerBase is that you can quite easily segment diagnostics companies into two camps: The Innovators and The Followers. Secondary finding? There are a heck of a lot more of the latter.

This assessment is based on discussions with dozens of experienced R&D directors at leading companies worldwide. These companies include the largest diagnostics companies, contract test providers, and clinical labs, and many smaller entities as well. And the refrain is very consistent: “we are far more reactive than proactive.”

We’ve also got objective data on this, at least for the in vitro diagnostic (“IVD”) test developers. At Amplion we have analyzed the number of novel biomarkers that come to market each year in FDA-cleared/approved IVD tests, and over the last 12 years the average has been just three per year. That’s right, three. Considering the exponential growth in new biomarker “discoveries” that are published each year, this is a paltry sum that is terrifyingly close to zero.

Diagnostics companies, especially the largest ones, are far more focused on “me-too” content for their instrument platforms than they are on taking the risk of developing new biomarker-based tests. Dozens of CRP, HER2, troponin, and CKM/B tests (among lots of other highly-replicated biomarkers) attest to the lack of innovation among the largest IVD companies. There are a few exceptions to be fair, but on the whole proactivity is a rare commodity among IVD developers.

And that’s a shame, because it seems like The Innovators are being rewarded.

Here are a few examples:

– Natera is a developer of novel prenatal screening tests, and the company just announced an IPO with a $100 million goal. Natera’s revenue for Q1 was $47.4 million, up from $27.2 million in Q1 of 2014.

– Foundation Medicine, developers of novel cancer tests, recently received an investment from Roche that valued the company at over $2 billion, which is a multiple of 33 times 2014 gross revenue.

– The more mature test developer Qiagen NV, which has developed numerous novel IVD tests and seems to announce a major companion diagnostic partnership every month, has a P/E ratio of 54.

I certainly appreciate the risks that IVD developers face, and to be fair, two of the three companies I cited above as examples are not truly IVD developers. Natera and Foundation Medicine both offer their tests as services (so called “laboratory-developed tests” or “LDTs”) rather than as kits.

Because the tests are not sold in a boxed form they aren’t (yet) subject to FDA review, and so can be brought to market much more rapidly and efficiently. FDA is trying to assert authority over LDTs, which raises many questions and concerns about the potential for large negative impacts on innovation, but this is the subject for another post (or lots of them).

The bottom line for IVD developers is that FDA review is a process that has become much more time consuming and costly over the last decade, and has become a significant barrier to innovation. Not just because of the additional development costs that FDA review imposes, but also because an LDT developer can relatively quickly copy a new test and release it much more cheaply.

IVD and LDT developers alike also face a very challenging and often unpredictable reimbursement landscape. The processes used by Medicare and private insurers to determine eligibility for reimbursement, and the amounts that will be reimbursed for each test, don’t always result in consistent outcomes or in test developers being paid an amount that acknowledges the true development and manufacturing costs.

With those acknowledgements made I must however state again that it is a shame that innovation is so rare in the industry, especially among the largest IVD developers. As more of the fruits of the Human Genome Project start to ripen I will be curious to see if these companies continue to be content staying on the sidelines while the LDT developers drive innovation, or if market conditions ever become favorable enough for them to become Innovators.

(And by the way, if you work for a company that is doing innovative IVD development I would really love to hear from you.)