Abbott's FDA consent decree could affect it's IVD market position

In Vivo, December 1999, Vol. 17, No. 11, p. 3-7

January 10 is D-Day for Abbott Laboratories Inc. to pull 125 diagnostic tests off the market as part of its consent decree with the FDA (See "Abbott Gets into Hot Water, " IN VIVO November 1999). The decree, which follows the FDA's accusation that Abbott used shoddy manufacturing processes in its main US-based manufacturing plants, is unprecedented— and hurts far more than Abbott alone.

FDA Consent Decree Places a Significant Burden on Clinical Laboratories

Given that Abbott controls 40-50% of the immunoassay market world wide, the decree places a significant burden on customers. According to a survey of 75 hospital laboratory directors conducted by the consulting firm CaseBauer & Associates, test turnaround time, training, use of equipment, and budgets will all be hurt by the consent decree. So to what extent can competitors benefit?

CaseBauer believes, based on the mood of the participants, that the problems could affect Abbott's long term position in the in vitro diagnostics market, where it is a preeminent player. Laboratories have no choice but to shift assays to alternate analyzers or products, either by increasing use of existing non-Abbott instruments, buying or leasing alternative instruments, or sending tests to outside reference labs. Of tests being shifted, the survey found half are going to analyzers already in place, and half are going to newly acquired or borrowed analyzers. Only a small number of labs have been able to stock up on supplies in the hopes of weathering the storm. Forty percent of participants said that changing products will have an impact on the clinical values and critical ranges reported to physicians and will require doctors to be re-educated as to the meaning of tests. Another 30% anticipate they will have to re-program their laboratory information systems. On average, laboratories expect to spend more than $17,500 to work through this situation, with the biggest expense for retraining.

In the short-term, STAT assays— those that require quick turnaround times — will have to be moved to slower back-up analyzers and more tests will be sent to outside reference laboratories. In addition, laboratories will start to use non-Abbott assays as alternatives to IMx and AxSYM assays. Recognizing the need to have a "critical mass" of tests on an analyzer, 17% of IMx / AxSYM users, and 15% of TDx/ TDx Flex users expect to replace other Abbott tests — that is, those not impacted directly by the consent decree — with tests made by an alternate supplier. TestPack rapid tests are also being replaced by alternate products, either from Abbott or competitors, but users are less likely to switch from Abbott for additional assays because alternatives are higher priced.

Bayer and Diagnostic Products Corporation Benefit from Abbott's FDA Problems

Abbott has been very accommodating to its priority accounts, less so to others, CaseBauer points out. Many laboratories say that in the future they will reduce their vulnerability to this kind of setback by not putting all of their eggs in one basket. And laboratories that are being rescued by new suppliers feel an obligation to stay with that supplier and even broaden the test menu. Says one director in the Southeast, "once we bring the Diagnostic Products Corp. (DPC) instrument in, we have to bring on other assays to cost justify it."

More than 71% of the labs surveyed say they are undecided and open to alternative suppliers for long-term products. Twenty-four percent remain committed to Abbott and will switch back when its products become available again. Another 5% are fed up and are unsure of what they will do.

According to CaseBauer, Bayer AG appears to be the largest beneficiary of heterogeneous brand switching, with 42% willing to use a Bayer's ACS:180, Centaur or Bayer Immuno 1 already in place. There is no clear leader for labs planning to acquire new analyzers. More than three-quarters of TestPack uses are planning to buy a new rapid test, although 58% have not decided on a specific alter native. Some are considering substitute products offered by Abbott, such as Signify hCG. Of those looking at new products, 58% report that they have not decided on a specific alternative. If anyone benefits here, it is likely to be tiny Quidel Corp., which offers a competitive product. For Abbott, the diagnostics problems extend far beyond its testing business. As Abbott stock, in part thanks to its diagnostics troubles, has drifted down some 30% in the past eight months, its new management's attempts to transform its business have been slowed dramatically. Two of the biggest examples: the diagnostics problems contributed to the months-long delay in closing the acquisition of femoral artery closure device manufacturer Perclose Inc. and stalled movement on its acquisition of Alza Corp., which eventually fell apart for antitrust reasons.



	D-Day for Abbott

	In Vivo, December 1999, Vol. 17, No. 11, p. 3-7 January 10 is D-Day for Abbott Laboratories Inc. to pull 125 diagnostic tests off the market as part of its consent decree with the FDA (See "Abbott Gets into Hot Water, " IN VIVO November 1999). The decree, which follows the FDA's accusation that Abbott used shoddy manufacturing processes in its main US-based manufacturing plants, is unprecedented— and hurts far more than Abbott alone. FDA Consent Decree Places a Significant Burden on Clinical Laboratories Given that Abbott controls 40-50% of the immunoassay market world wide, the decree places a significant burden on customers. According to a survey of 75 hospital laboratory directors conducted by the consulting firm CaseBauer & Associates, test turnaround time, training, use of equipment, and budgets will all be hurt by the consent decree. So to what extent can competitors benefit? CaseBauer believes, based on the mood of the participants, that the problems could affect Abbott's long term position in the in vitro diagnostics market, where it is a preeminent player. Laboratories have no choice but to shift assays to alternate analyzers or products, either by increasing use of existing non-Abbott instruments, buying or leasing alternative instruments, or sending tests to outside reference labs. Of tests being shifted, the survey found half are going to analyzers already in place, and half are going to newly acquired or borrowed analyzers. Only a small number of labs have been able to stock up on supplies in the hopes of weathering the storm. Forty percent of participants said that changing products will have an impact on the clinical values and critical ranges reported to physicians and will require doctors to be re-educated as to the meaning of tests. Another 30% anticipate they will have to re-program their laboratory information systems. On average, laboratories expect to spend more than $17,500 to work through this situation, with the biggest expense for retraining. In the short-term, STAT assays— those that require quick turnaround times — will have to be moved to slower back-up analyzers and more tests will be sent to outside reference laboratories. In addition, laboratories will start to use non-Abbott assays as alternatives to IMx and AxSYM assays. Recognizing the need to have a "critical mass" of tests on an analyzer, 17% of IMx / AxSYM users, and 15% of TDx/ TDx Flex users expect to replace other Abbott tests — that is, those not impacted directly by the consent decree — with tests made by an alternate supplier. TestPack rapid tests are also being replaced by alternate products, either from Abbott or competitors, but users are less likely to switch from Abbott for additional assays because alternatives are higher priced. Bayer and Diagnostic Products Corporation Benefit from Abbott's FDA Problems Abbott has been very accommodating to its priority accounts, less so to others, CaseBauer points out. Many laboratories say that in the future they will reduce their vulnerability to this kind of setback by not putting all of their eggs in one basket. And laboratories that are being rescued by new suppliers feel an obligation to stay with that supplier and even broaden the test menu. Says one director in the Southeast, "once we bring the Diagnostic Products Corp. (DPC) instrument in, we have to bring on other assays to cost justify it." More than 71% of the labs surveyed say they are undecided and open to alternative suppliers for long-term products. Twenty-four percent remain committed to Abbott and will switch back when its products become available again. Another 5% are fed up and are unsure of what they will do. According to CaseBauer, Bayer AG appears to be the largest beneficiary of heterogeneous brand switching, with 42% willing to use a Bayer's ACS:180, Centaur or Bayer Immuno 1 already in place. There is no clear leader for labs planning to acquire new analyzers. More than three-quarters of TestPack uses are planning to buy a new rapid test, although 58% have not decided on a specific alter native. Some are considering substitute products offered by Abbott, such as Signify hCG. Of those looking at new products, 58% report that they have not decided on a specific alternative. If anyone benefits here, it is likely to be tiny Quidel Corp., which offers a competitive product. For Abbott, the diagnostics problems extend far beyond its testing business. As Abbott stock, in part thanks to its diagnostics troubles, has drifted down some 30% in the past eight months, its new management's attempts to transform its business have been slowed dramatically. Two of the biggest examples: the diagnostics problems contributed to the months-long delay in closing the acquisition of femoral artery closure device manufacturer Perclose Inc. and stalled movement on its acquisition of Alza Corp., which eventually fell apart for antitrust reasons.

	CaseBauer has 5 practices: Market Modeling, Strategy / Business Development, Benchmarking, Market Research and Business Services.