For most diagnostics companies, the prospect of premium pricing has been an elusive dream. The health care landscape is peppered with expensive novel drugs priced to underscore their clinical impact on patient care. A similar strategy for pricing novel diagnostics with significant clinical impact makes sense, especially since many of them are driving the decisions to deploy novel drugs in the first place. Now, strong system economics arguments are becoming more mainstream and payors are beginning to reward companies with reimbursement of their premium priced tests, based upon rigorous clinical arguments supporting the diagnostics' benefits to clinical decision-making and compelling economic arguments customized to each major payer.

The first quarter of 2008 saw a dearth in financings for both the medical device and in vitro diagnostics segments. In the former, volume fell short of the billion dollar mark while the latter failed to reach the success the previous quarter had witnessed, despite completing an equal number of transactions. M&A in medical devices didn't look any more promising, bringing in $1.6 billion, a huge slide from the impressive $10 billion total of 2007's fourth quarter. However, there was one bright spot: acquisitions within in vitro diagnostics/research reagents substantially increased to $3.1 billion from the $370 million spent in the previous three months, led by Inverness Medical Innovations' $1.1 billion takeover of Matria Healthcare Inc. Also noteworthy: oncology diagnostics alliances grew slowly and steadily thanks to increasing attention from larger companies.

Two recent acquisition bids by Genzyme stand to suddenly amplify the company's presence in oncology. If the bids go through, the acquisition of Ilex Oncology will bring Genzyme a marketed anti-cancer product, a drug candidate gearing up for Phase II trials and some development capacity. Buying Impath out of bankruptcy will bring Genzyme a diagnostic testing laboratory. Genzyme's managers see no near-term synergies from the firms, but clearly hope eventually to intertwine diagnostics and therapeutics.

Corixa's recent deal with Ortho-Clinical Diagnostics brings Ortho exclusive worldwide diagnostics rights to Corixa's breast cancer genes and antigens and helps Ortho gain a foothold in the emerging area of molecular testing. It also illustrates how biotech companies caught up in long-term programs for therapeutics can capture some near-term value. While Corixa's lead drug is delayed at the FDA, the deal gives the company a source of revenues that may be small but is at least real.