Already one of the industry sectors top-heavy with a handful of giants, the diagnostics arena continued this trend with two large deals in February, one company attempting to achieve the big-dollar critical mass of the major players, another adding to the critical mass it already enjoys. These deals follow the late January entry of General Electric into the lab diagnostics sector with its $8.13 billion purchase of those business assets from Abbott (Abbott Park, Illinois) (see BB&T, February 2007).

The two big February deals:

• Cytyc (Marlborough, Massachusetts) continued its drive to become a major player focused on women, acquiring Adeza Biomedical (Sunnyvale, California) which makes products for women’s health. And Quest Diagnostics (Lyndhurst, New Jersey) — though known primarily for its critical mass in laboratory testing — extended its reach into the point-of-care segment with the purchase of HemoCue (Angelhom, Sweden), which uses the term “near testing” to characterize its POC offerings.

Cytyc acquired Adeza for $452 million, to be paid out of Cytyc’s existing cash, the cash on Adeza’s balance sheet and Cytyc’s existing credit facility. The deal values Adeza at 185 times its estimated 2006 earnings compared with a sector average of 39 times, Cytyc said.

Adeza’s primary product, FullTerm, a fetal fibronectin test, is used by OB/GYN’s to identify women at risk for preterm birth. The tests are processed by hospital and reference laboratories. The market opportunity for FullTerm is estimated at more than $500 million worldwide, and Adeza says that its current revenue for this product is roughly $50 million annually.

“The FullTerm fetal fibronectin test offers an excellent complement to our diagnostic products portfolio and will allow us to leverage our formidable sales force which is already calling on obstetricians and gynecologists, as well as commercial labs, in the U.S. and abroad,” said Patrick Sullivan, Cytyc’s president/CEO and chairma during a conference call. “This technology offers clear clinical and cost benefits for maternal-fetal care and we believe our infrastructure, experience, and expertise in this sector will accelerate adoption of this product worldwide.”

FullTerm is a single-use disposable cassette run on the TLiIQ system, Adeza’s instrument which assesses the level of the fetal fibronectin protein in vaginal secretions. Fetal fibronectin is correlated with preterm birth and is important for enabling physicians to triage pregnant women more effectively by determining the necessity for hospitalization, since the product has a negative predictive value of more than 99%. The presence of Fetal fibronectin also may serve as a signal for therapeutic intervention, which can increase the health of the baby.

Quest acquired HemoCue from the private equity firm EQT II, for about $420 million in cash. Quest — adopting HemoCue’s coinage — said the acquisition will allow it to enter the growing “near patient” testing market and leverage HemoCue’s international presence to reach new markets worldwide. The company said it plans to link HemoCue’s handheld systems with its Care360 portal, which gives doctors access to lab and medication records, patient medical history and remote ordering of lab testing or prescriptions.

HemoCue has annual revenues of about $90 million and claims a growing share in professional glucose and micro-albumin testing.

The company’s handheld systems are used in physicians’ offices, blood banks, hospitals, diabetes clinics, and public health clinics. In developing countries these systems are used as the primary means to screen for anemia. The measurement of hemoglobin is important for patients being treated by transfusion, or undergoing dialysis or chemotherapy, where instant test results can lead to immediate treatment decisions.

Quest said that HemoCue has a strong product pipeline, based on the use of its patented microfluidic systems, and that it is currently developing new tests, including a near patient test to determine white blood cell counts. It is designed to help determine the presence of an infection and the need for antibiotic treatment, potentially reducing the overuse of antibiotics.

“Linking near patient testing devices to our proprietary Care360 patient-centric physician portal can provide longitudinal test reporting on a patient regardless of how or where a test was performed. This will help doctors improve the way they diagnose, monitor and treat disease,” said Surya Mohapatra, PhD, CEO and chairman of Quest.


BioEnterprise: MidwestStartup financing sets record in ‘06

Medical device firms, by a slim margin, were the leaders in healthcare startup funding in the Midwest during 2006, according to the latest report from BioEnterprise (Cleveland, Ohio). And the funding for these healthcare startups in 2006 set the record over previous years.

Device firm startups raised $356 million in 2006, or 45% of a total of $792 million, recorded by the BioEnterprise report. Biopharmaceutical companies were only slightly behind, with $349 million raised, 44% of the total. And healthcare software and services startup firms raised $349 million, 11% of the total.

The $792 million raised in 2006 was a 25% increase over 2005, according to BioEnterprise’s “Midwest Health Care Venture Investment Report,” which called this “a significant jump that outpaces national industry growth.”

Baiju Shah, president of BioEnterprise, called 2006 “the breakout year for the Midwest as a whole: a record amount of financing across 135 separate companies, a number of successful public offerings, and several significant exits through acquisitions.” He added: “Venture capitalists are increasingly finding rewarding investment opportunities in the Midwest, and we expect the momentum built in 2006 will continue into 2007 and beyond.”

According to the BioEnterprise report, Minnesota, the Midwest’s traditional leader in healthcare ventures, led all states with 22 startups, attracting $233.9 million in investments in 2006. A number of Minnesota medical device companies raised more than $20 million each last year, including Anulex (Minneapolis), Atritech (Plymouth) Cardiovascular Systems (St. Paul), CVRx (Maple Grove), Disc Dynamics, (Eden Prairie) and Enteromedics (St. Paul).

Following Minnesota was Michigan with $135.5 million raised by 11 companies. Several Michigan biotechnology startups attracted significant investment, including NanoBio (Ann Arbor) and Cerenis Therapeutics (Ann Arbor).

Ohio finished third in the Midwest with $113.9 million raised by 39 companies, including many seed and early-stage financings.

The report aggregates venture investment in 10 Midwest states and Western Pennsylvania.

Following these leaders were Illinois ($101.6 million), Western Pennsylvania ($54.4 million), Kentucky ($51.4 million), Missouri ($39.2 million), Indiana ($37.2 million), and Wisconsin ($25.2 million).

States with no reported financings included Iowa, Kansas, and West Virginia.

The report also reports financings in terms of Midwest cities.

Minneapolis-St. Paul and Chicago were the leaders, followed by Detroit-Ann Arbor, Cleveland, and Pittsburgh. (See table, this page, for complete listing.)

“The region is reaping the benefits of a number of programs that have been put in place to stimulate healthcare venture activity,” said Shah. “The region has always been rich in research and industry assets. That rich base is now translating into a growing stream of high quality health care start-ups due to progressive policies and programs such as state investments in research institutions, creation of new capital sources, and professional technology development groups.”

BioEnterprise is a business formation, recruitment and acceleration effort designed to support the growth of bioscience companies, providing management counsel and support services to healthcare companies.


Mammography clinics get three years between accreditations

Thanks in part to a recommendation by the Institute of Medicine (IOM; Washington), mammography clinics will soon be able to wait for three years to reapply for accreditation instead of reapplying annually. However, clinics that are using computed radiography (CR) equipment with their film systems may find their accreditation efforts stuck in a peculiar wedge as the agency tries to get accrediting bodies up to speed on standards for this marriage of technologies.

The FDA guidance reminds the reader that up to now, regulations required that mammography clinics submit the results of their equipment check-ups to their accreditation bodies annually. These check-ups, known as physics surveys, include a range of operational aspects of mammography equipment, and the recent surge in new technology in this area has forced the agency to review its approach to the standards of the Mammography Quality Standards Act (MQSA). Some of the standards are specific to film systems, including the so-called phantom quality control review. This approach to image quality control examines whether any distortion of film images, called phantoms, occurs at any point in the image capture and development process. Film systems are also subject to quality control standards for darkrooms.

In the late 1990s and in the early part of this decade, the agency handed out warning letters fairly routinely to mammography clinics over violations of this and other parts of the regulatory apparatus. The volume of warning letters for deviations from MQSA standards has dropped in parallel with warning letters to other industries over the past three years.

How much of this is due to the FDA’s reduction in the overall volume of warning letters and how much due to general improvements in compliance is difficult to assess, but the guidance document indicates that IOM backs the idea of requiring physics surveys every three years rather than annually. However, routine inspections of clinics will still take place each year.

The agency’s announcement states that it will enforce the annual survey requirement until July 1 and that a clinic must conduct the survey any time it makes “significant changes” to its equipment base regardless of when it last applied for accreditation.

The addition of full-field digital mammography (FFDM) systems to the picture pushed a lot of changes to MQSA requirements.

The FDA document states that FFDM systems were initially approved only for final interpretations of hardcopy of images, but that on-screen image review, known as softcopy, crept into the picture. The agency believes that “the majority of facilities now use only softcopy for final interpretation,” thus forcing a tweak of regulations.

As matters currently stand, regulations require that clinics “be able to produce final-interpretation quality hard copy images” when a patient’s records are shipped to another provider and that provider requests hardcopy. The national mammography quality assurance advisory committee decided in a meeting on Sept. 29 that facilities should perform quality control testing on laser printers to ensure that hardcopies are of final interpretation quality. Failure to perform such a quality control check could earn the violating clinic a citation on the inspection form and, potentially, a warning letter. However, it should be noted that the FDA has very rarely issued a warning letter for an inspection that disclosed only one regulatory violation.


Physician-owned specialty hospitals in Congress’scrosshairs

Physician-owned specialty hospitals are on Congress’s radar screen yet again after the Jan. 23 death of a patient at West Texas Hospital (Abilene), bringing a fresh round of scrutiny to a business model already in deep water with elected officials.

Steve Spivey, a 44-year old truck driver from Gorman, Texas, went into respiratory arrest after elective spinal surgery, and West Texas, lacking an emergency department, called 911. Spivey subsequently died at a hospital in the same town, Abilene Regional Medical Center.

The incident has provoked a fresh round of outrage on Capitol Hill, in part because West Texas has garnered substantial reimbursement from the Centers for Medicare & Medicaid Services, despite a moratorium Congress slapped on Medicare payments to physician-owned specialty hospitals as part of the Medicare Prescription Drug Improvement and Modernization Act of 2003. That moratorium expired in 2005, but Congress extended it to August 2006 as part of 2005’s Deficit Reduction Act.

Three legislators sent a letter to CMS administrator Leslie Norwalk, asking how West Texas managed to snare payments from CMS during the moratorium. Senators Baucus (D-Montana), Chuck Grassley (R-Iowa) and Rep. Pete Stark (D-California) want a response by Feb. 21.

CMS, the letter noted, had reimbursed the Texas hospital more than $4 million while the moratorium was in effect.

Grassley authored and Baucus co-sponsored a bill in 2005, the Hospital Fair Competition Act, to deal with the practice of cherry-picking on the parts of physician-owned specialty hospitals. Stark is now the chair of the House Ways & Means health subcommittee and has staked out some fairly controversial positions on a number of issues.

“I am deeply saddened and completely outraged” by Spivey’s death, Baucus said in a statement, hinting at Congressional action. He called the incident “a strong reminder that doctors’ financial stakes in a hospital can cloud judgment and blur priorities, and we can’t let that happen.”

And Grassley said that “doctors shouldn’t be allowed to refer patients to hospitals where those same doctors have an ownership interest.”

The Congressional letter makes note of a similar situation that took place in Oregon in July 2005, when a woman, age 88, went into cardiac arrest after receiving an injection of an opioid analgesic following elective back surgery. The hospital, a specialty orthopedic facility, had no ED, and the patient died four days later, despite the efforts of the staff at a nearby hospital.

The three legislators said they “are even more troubled today after learning of this same scenario playing out again at another physician-owned specialty hospital.”


F&S: new electrophesistechnology expands market

While protein electrophoresis is a well-established method in the field of protein expression analysis, the development of new techniques extending the principles of this technology has renewed interest in this experimental methodology. An analysis from Frost & Sullivan (F&S; Palo Alto, California), “U.S. Protein Electrophoresis Markets,” reveals that the market earned revenues of $179.2 million in 2006 and estimates this to reach $235.6 million in 2013.

Protein electrophoresis is an efficient, relatively inexpensive method of analyzing the expression of proteins from biological samples, according to F&S, and the applications for the technology have created opportunities for market participants providing tools and products to life science researchers.

The ubiquitous application of protein electrophoresis in research laboratories has driven market participants, both established and new, to focus on consistently improving the quality of tools provided to researchers.

Although 2D protein electrophoresis approaches may appear as simple extensions of 1-D techniques, the 2-D method is capable of providing information about global proteomic expression not available through many other methods, F&S said.

The separation of proteins along a second dimension provides greater resolution of cellular content, thereby aiding in the identification of proteins that may be identified as a biomarker that signals the presence of a diseased state. Additionally, the development of new non-chemiluminescent imaging modalities has not only helped drastically reduce the costs of 1-D experiments, but also provided high-throughput capabilities that researchers can use to study a greater number of targets.


FCC to question media’srole in childhoodobesity

In the early 1980s, the Federal Communications Commission pursued an effort to regulate the TV advertising of highly sugared products — primarily candies and cereals — directed at children, saying that such advertising led to significant increases in tooth decay and other childhood ills.

Dubbed “kidvid,” that effort failed to block such advertising but tended to have the more general effort of moving television programming into specific time slots.

Now, the FCC is taking on a broader and bulkier issue, the media’s role in childhood obesity.

The FCC has established a 30-member task force that will target the subject and reportedly will hold a meeting on the topic next month, zeroing in on the methods food manufacturers pitch their products to children and perhaps adding to the problem of childhood obesity.

Those supporting the approach say that, at the very least, discussion of the topic at the federal level may encourage the food industry to make voluntary changes in their approaches in order to avoid government regulation.