Tuesday, August 8, 2017

Concentric Circles of Innovation in Advanced Laboratories

The Sky Is Falling
In the lab industry, there is much concern that commodization and reimbursement pressures (from PAMA to laboratory benefit managers or LBMs) are killing profitability and innovation, and could eventually reduce customer service.

Digital Genomics
At the same time, new horizons are being explored, such as digital genomics.  See, for example, my discussion of DarwinHealth, here, and a protype overview of the "digital genomics industry," here.  But more evidence of "digital genomics" is everywhere.  For example, in one day I saw that the Boston academic spin-out lab Claritas Genomics emphasizes its alliance with digital genomics firm WuXiNextCode, itself a spinout from the famous legacy firm DeCode.  And the former CEO of Claritas Patrice Milos is now CEO of a digital genomics firm Medley Genomics, with several co-founders from the computer science departments of Princeton and Brown.  In the last couple weeks, more news from Genepeeks which uses genetics combined with software called "Virtual Progeny" - a heavy bioinformatics play in the preconception space (see patent).   Veritas Genetics acquires artificial intelligence firm Curoverse.   Genome analytics firm Genoox raises $6M.  The list goes on.

But in addition to just improving a service (like more sophisticated interpretation of sequence data or better integration with EHRs),. Digitization is also allowing firms to change the nature of their offerings and their scope-and-scale in creative ways.   I'll discuss this with reference to two works, the classic Nobel prize winning work of Coase in the 1930s, and a new 2017 book on "complementary innovation" by Robertson.

Is "The Nature of the Firm Lab" Changing?
"The Nature of the Firm" is a 1937 economics paper (which won the Nobel in 1991) on how firms develop and thrive best as independent units or as conglomerates, what is insourced, what is outsourced - i.e., the boundaries of the firm. (The answer has to do with "transaction efficiencies," specialization, and other factors; only part of the answer is economics of scale.)  

This sounds esoteric relative to the nitty gritty business of getting in blood and tissue samples in the door and issuing a report back to the physician.   But the business school perspective helps in understanding, categorizing and predicting real-world changes in the genomics industry.  [more after the break.]


Another perspective that helps is captured in a new book "The Power of Little Ideas: Low-Risk, High-Reward Approach to Innovation," by Wharton professor David Robertson.  The title can be misleading (risk/reward is only one aspect), but here is the main idea.   Some companies succeed by creating a family of complementary innovations around a service, an approach that is neither "incremental innovation" of the starting product nor is it a standalone "radical innovation."  We are seeing more and more creative efforts at "complementary innovation" in the genomics industry.

What Do GoPro and Navican Have In Common?
For example, David Robertson writes that Sony product engineers developed a better camera than GoPro on every dimension, but that GoPro innovated all around its product, for example, with mounts for surfboards, bikes, dogs, and hula hoops.   Robertson argues that new teams, goals, and skills are needed to "innovate around a product" rather than innovate the product, the thing itself.  (Robertson adds that even when Sony saw it was losing badly, it continued to innovate the camera product alone - memory, focus - rather than realizing GoPro was winning because of its customer ecosystem.)

I'd argue that spinout labs like Navican (originating from Intermountain) are innovating all around the product - providing virtual tumor boards, genetic counselors through telemedicine [**], guiding patients proactively to clinical trials, and even assisting with drug reimbursement (branded as TheraMap, here).

They're emphatically not just a "spinout lab," or even "Lab 2.0" (one that is more proactively integrated with clinical care, like via EHRs and test recommendations).  It's Lab 3.0, which is really a lot more than a lab, it becomes a new digital health/telemedicine oncology multi-modal services package built around a core product of genomic testing.

Arguably, labs are forced to migrate in this direction to differentiate away from genetic sequencing alone as the that becomes more widely available and commoditized.   (Click to enlarge).


The points is, as you migrate from "traditional reference lab" version 1.0 to what Navican - or others - are trying to do, you are shifting "the nature of the firm" and "the boundaries of the firm" in a way that business school professors who study GoPro will recognize.  Generally, the changes are heavily dependent on new industry realities that are rapidly being enabled by digital health and telemedicine and typically, a few players will be on the cutting edge (or bleeding edge) of new approaches to innovation and integration.

Labs are Also Moving Laterally This Month!  Invitae; Color Genomics

In an equally important and interesting trend, molecular labs are moving laterally.   In some cases, this is by direct acquisition.   This month, Invitae (which has focused on germline genetics in adults) acquired a major playing in the genomic chip space, CombiMatrix, and one of the largest preconception testing laboratories, Good Start Genetics (here; here).

But other combinational approaches are possible.  A particularly interesting example is the alliance between Color Genomics and GenomeDx and between Color  and Cynvenio (subscription article at Genomeweb, here).    Color Genomics provides hereditary cancer tests in the gene panel format, while Cynvenio is in the cancer somatic mutation liquid biopsy space and GenomeDx has a leading test in the prostate cancer prognostic space, Decipher.[***]   The alliances will allow efficiencies in reaching physicians and other advantages.  

Labs are also moving into broader offerings without acquisitions or alliances.  For example, Color Genomics moves from breast cancer testing into hypercholesterolemia (here) and Natera moves from NIPT toward ctDNA (liquid biopsy oncology; here).

And Back to Coase and Robertson
The drivers and forces that led Invitae to proceed by "aquisition" and why Color and its partners proceed by "alliances" are exactly the type of dynamics studied by Coase back in 1931 and by generations of economists since then.

The creative circle of different and diverse allied services is exactly what Robertson discusses with model companies like GoPro.

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[*]  This article emphasizes that the "lab spinouts" so called offer much more than just labs, e.g. virtual tumor boards or genetic counseling.  If they're labs, it's "Lab 3.0" or something like that.  Another spinout, M2Gen from Moffitt Cancer Center, raised $75M and does not even have a lab but is a "healthcare informatics business" such as for genetic information and clinical trials.  Here.
[**]  In genetic counseling, see also spinout Genome Medical from Invitae recently raised Series A and startups Genematters and Clear Genetics have had $1-2M startup investments.
[***]  GenomeDx also has a very interesting innovation in the digital genomics space in its DecipherGrid research program.

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The 2017 book by Lewis & McKone, "Edge Strategy," is complementary to the book on complementary innovation by Robertson discussed here.