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Roche Ups Its Ante in Molecular POC Testing

Mon, 04/21/2014 - 9:59am
Richard Park, Contributing Editor

Last week, Roche Diagnostics (Indianapolis) announced its acquisition of IQuum Inc. (Marlborough, MA), a privately held company that develops point-of-care (POC) test systems for the molecular diagnostics market. Under the terms of the deal, Roche will pay IQuum shareholders $275 million in cash upfront and up to $175 million in contingent product-related milestones. Once the agreement is completed, IQuum will be integrated into Roche Molecular Diagnostics.

Through this acquisition, Roche will gain access to IQuum’s Laboratory-in-a-Tube (Liat) system, which enables healthcare providers to perform rapid molecular diagnostics testing in a POC setting with minimal training. The Liat Analyzer and Liat Influenza A/B Assay, the first test available for use on the system, produce lab-like results and are CE-marked and FDA-approved.

“With IQuum, we further strengthen our molecular diagnostics offerings with cutting-edge technology and products that serve the point-of-care segment. Patients will benefit from on-the-spot and accurate diagnoses, which will allow healthcare professionals to make rapid, informed treatment decisions in flexible settings,” said Roland Diggelmann, Chief Operating Officer of Roche Diagnostics. “We welcome IQuum’s employees, who will continue to focus on the development and manufacturing of the Liat analyzer and assays.”

When I asked Roche officials whether the IQuum acquisition is an attempt to stay competitive with IVD companies that are already active in this area, such as bioMerieux and Cepheid, I received the following response:

“The acquisition fits with the Roche Diagnostics strategy to build capabilities across all segments of the molecular diagnostics market, as well as expanding presence in existing segments. This acquisition significantly strengthens Roche’s presence in the POC and low-throughput segments with lab-quality testing,” said Todd A. Siesky, Senior Director, Communications at Roche Diagnostics. “Our strategy is to partner IQuum products and technology with Roche’s commercial network to address additional molecular diagnostics testing opportunities, such as decentralized testing in physician offices, emergency rooms, urgent care clinics, and pharmacies. Currently, we believe there is an unmet need for molecular diagnostics testing in the POC and low-throughput molecular diagnostics systems.”

When I asked Roche what current market forces and trends in the IVD industry motivated them to make a nearly half-billion dollar deal to acquire IQuum, I received the following response:

“As the POC segment grows, we expect it to expand the overall market for molecular diagnostics testing,” said Siesky. “POC is expected to unlock new opportunities for molecular diagnostics testing, which are complementary to our current lab polymerase chain reaction (PCR) business. We believe that molecular diagnostics testing in laboratories will continue to grow along with POC.”

Some industry analysts I contacted thought Roche has made the right move by acquiring IQuum.

“Roche is continually looking for ways to grow its molecular diagnostics business, and it did not have any in-house developed product offerings serving the low end of the market. The IQuum system seems a perfect market extension for Roche Molecular Diagnostics,” said Emily S. Winn-Deen, PhD, President of Rx Dx Advisors Inc. (San Diego). “Roche can add real value to a small company like IQuum by taking the Liat product and putting it into its worldwide diagnostics distribution system. Roche added significant value this same way when it acquired Ventana Medical Systems.”

“Roche’s acquisition of IQuum provides it with a much needed turnkey molecular platform to execute on the promise of POC/near-patient molecular testing, with the potential to grow both its molecular business and diversify its existing POC/near-patient business,” said Jon Vance, Founder and Managing Director of MedDx Capital Advisors (San Diego). “I think this was a good move by Roche. The market opportunity for infectious disease molecular testing is large. IQuum already has an FDA-approved platform and test for influenza A/B, and is currently developing tests for influenza subtypes, HIV, herpes, and Dengue fever. Roche is clearly aware of the other available acquisition targets, but in my opinion, it decided that they were either too early in development or too expensive. IQuum provides Roche with a relatively de-risked asset at a reasonable price.”

But other industry analysts were not as sanguine about Roche’s acquisition of IQuum.

“Conceptually IQuum is the right system for Roche. However, I have not seen much evidence that the Liat analyzer is dependable enough for Roche’s customer expectations,” said Manfred Scholz, PhD, President of Scholz Consulting Partners LLC (Medford, MA). “There are not enough Liat systems in the market to get dependable customer feedback. Hence, its reliability is an assumption and not a proven fact in my view.”

Scholz also believes that Roche may have overpaid for IQuum.

“The price for IQuum, $275 million plus milestones, is comparable to bioMerieux’s BioFire acquisition, $355 million corrected for acquired debt. IQuum falls short in the existing market when compared with BioFire. Our customer interviews showed satisfaction among BioFire customers but just too few customers for IQuum. Roche has mitigated some of the acquisition risk with $175 million for milestones. However, the base of $275 million for IQuum is a bet with insufficient market data,” said Scholz. “Although there is no reported revenue number for IQuum, I believe the price Roche paid for IQuum is much more than 10-times revenue and possibly as high as 50-times revenue. There are other advanced solutions available, or in late stage development, that could be more valuable.”

Nonetheless, considering the power and size of Roche’s global resources, analysts think the IQuum acquisition will significantly affect other IVD companies and the IVD industry in general.

“With the Roche marketing engine behind it, I expect that sales of the IQuum system will increase rapidly,” said Winn-Deen. “This will come at the expense of sales of other competitive systems. Most likely IQuum/Roche, Quidel, and Alere will be fighting it out for the clinic-based flu testing market.”

“The fact that Roche is now getting more serious about extending its molecular diagnostics franchise to POC/near-patient will certainly be alarming to other IVD companies, particularly those with flu-related molecular testing offerings,” said Vance. “Outside of flu, I think other companies will closely monitor how quickly Roche is able to develop and obtain regulatory approvals for additional tests.”

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