Leica Biosystems Acquires Kreatech Diagnostics and a Brazilian Distributor Aotec Within a 3-month Period

by Winny Tan 17 Jul 2013
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Source: Leica Biosystems News Release; July 9, 2013 and News Release; April 24, 2013

Anatomic pathology player, Leica Biosystems, a division of Leica Microsystems, makes 2 strategic acquisitions within 3 months: fluorescent in situ hybridization (FISH) probe supplier Kreatech Diagnostics based in the UK and Aotec, Leica’s histopathology and microscopy distributor in Sao Paulo, Brazil. Kreatech’s products include the branded REPEAT-FREETM DNA-FISH probes and Universal Linkage SystemTM labeling reagents for microarray applications. Aotec has had a distributor partnership with Leica for over 25 years.

Leica Biosystems (Leica) is the second ranked competitor in the global tissue diagnostics market and as a competitor; Leica has really given the market leader Roche Tissue Diagnostics (Roche) a run for their money. To illustrate, just looking at the United States market alone, Leica gained 4% in market share from 2009 to 2012 resulting in 17% of the U.S. tissue diagnostics market. Roche on the other hand only managed to sustain its 34% market share in the U.S. and did not gain in market share. Leica’s growth is significant, but Roche will be hard to displace at least in the U.S.

Leica’s recent acquisitions demonstrate very strategic choices. The Kreatech acquisition is rounding out Leica’s advanced stains portfolio of high quality Novocastra  immunochemistry reagents for use on the Leica BOND automated IHC/ISH stainers. Leica’s advanced stains portfolio had been missing proprietary ISH probes prior to the Kreatech acquisition.  This is a smart investment for Leica because advanced stains are still the fastest growing and high-margin segment in the tissue diagnostics market and the reason that Roche is the market leader today. As a side note, Leica will likely focus on the ex-U.S. markets for selling the in vitro diagnostic (IVD) FISH probes since Abbott Molecular’s diagnostic FISH kits are patent protected and Abbott has a near monopoly in the U.S. ISH market.

Leica’s acquisition of its Brazilian distributor sharpens its focus on ex-U.S. markets. Brazil is indeed an important emerging market for tissue diagnostics because of the growing demand for pathology automation. As the Brazilian government is pumping funds into public health and upgrading hospitals, Brazil has been a target for all tissue diagnostics players with automation platforms for at least the last 4 years. This year, the developed countries U.S. and Western Europe, produced little to no growth. Pathology laboratories in these countries faced severe reimbursement cuts with further cuts expected in the future and with this uncertainty, laboratory funds have been unavailable for pathology upgrades. A dismal 2012 and beyond for the tissue diagnostics automation manufacturers like Roche, Leica, Dako, and Sakura, could have convinced Leica to pull the trigger on the Aotec acquisition and fully commit to the Brazil market this year. The ex-U.S. markets are also at early stage and dominant players like Roche are less established allowing Leica a fighting chance to possibly achieve market leadership in other regions.

To summarize, Leica’s competitive strategy centers around building a comprehensive product portfolio so that it can be a sole provider for all pathology needs from tissue biopsy sample preparation all the way to advanced staining and even slide digitization. This strategy works because there are many processes using a lot of products and a single and high quality provider like Leica is convenient. In addition, Leica has strategically chosen markets that are not in direct competition with strong competitors.

Should Roche Tissue Diagnostics be worried? Probably not, since its competitive strategy is to focus on companion diagnostics and their development on the Roche Tissue Diagnostics platforms. While the tissue diagnostics business is profitable and important to Roche, it symbolizes something more important as a companion diagnostic development platform. In this way, Roche’s primary business is really pharmaceuticals, namely highly targeted oncology compounds and the Ventana Medical acquisition that became Roche Tissue Diagnostics, is less about entering the tissue diagnostics market and more about the long-term vision of bringing highly effective targeted treatments to market much faster with appropriate companion diagnostics developed in-house.

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Comments (1)

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19 Apr 2014 01:52
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