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Why Does Biotech Ignore the Diagnostics Opportunity?

Executive Summary

For the last two decades, diagnostics has been the poor stepsister of pharmaceuticals. But in the era of proteomics, diagnostics will come of age for those companies smart enough to exploit its two major market opportunities: diagnosing diseases which, caught early, can be successfully treated; and selling tests which can identify whether or not a specific drug will work for a particular patient. As their strategic options narrow--platform strategies are now virtually unfinanceable--those biotechs wearing pharmaceutical blinders are ignoring important paths to sustainability.

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Roche Diagnostics' New Marker Mandate

Roche Diagnostics is the best performing asset at Roche. As the troubled Swiss pharma company suffers through its worst pipeline drought in a decade, Roche Diagnostics is delivering a stellar performance. It is strong across all business segments, from laboratory systems to diabetes to molecular testing. Its challenge: to pull far enough ahead in its traditional businesses to maintain a comfortable lead. Its bigger hurdle, however, is to position itself as a leader in adoption of new genomic and proteomic diagnostic technologies, which is where the industry's future growth lies.

Roche and DeCode Turn To Diagnostics

Roche Diagnostics has signed a new five-year-alliance with deCode Genetics, in a move that suggests the preliminary success of an earlier agreement between the companies. While the earlier deal, signed in 1998, revolves around finding pharmaceutical targets, the new agreement aims to identify and validate diagnostics targets based on genes associated with common diseases.

Motorola: Paging Diagnostics

Motorola is developing an expertise in microarray manufacturing to use as the jump-off point for a new life sciences initiative it hopes will turn into a high-margin, high-growth diagnostics business. It has spent $500 million in external investments to support the venture, including the $280 million acquisition of a clinical diagnostics start-up. But with its investors concerned with the recent downturn in demand in its core high-tech manufacturing businesses, the company is understandably reticent about touting the possibility of life sciences being its next big thing. On the other hand, should Motorola gain momentum and demonstrate an ability to tap the clinical diagnostics markets, the biochip initiative could ultimately become a broad-based point-of-care play, with the company drawing on its expertise in wireless communications to produce interactive handheld devices that would capture and transmit data to a remote site for analysis.

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