Test Cases: Marketers Dabble in Diagnostics

P&G Gets in the Game; EarlyDetect Eyes an IPO

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People who doubted a child's paternity once had seemingly limited options: Get the folks involved to a doctor's office, laboratory or "The Jerry Springer Show" for testing -- or forever wonder.
What's wrong with you? EarlyDetect is planning a $16 million push for its at-home diagnostics products for everything from colorectal cancer to menopause.
What's wrong with you? EarlyDetect is planning a $16 million push for its at-home diagnostics products for everything from colorectal cancer to menopause.

Now it can all be done at home for less than $20 using the EarlyDetect DNA Paternity Home Collection Test Kit, which is billed as painless and noninvasive and uses swabs to collect saliva samples from the parties in question.

EarlyDetect is one of dozens of players crowding into a suddenly hot at-home-diagnostics market that's really more about convenience and cost than shame or the Anna Nicole Smith estate.

P&G wants in
And while EarlyDetect is looking to an initial public offering to back a planned $16 million ad campaign behind its lineup -- a dozen or so at-home tests for everything from colorectal cancer to menopause -- the biggest and best-heeled marketer of all, Procter & Gamble Co., is also betting substantially on the space.

P&G in May entered a joint venture with Inverness Medical Innovations, paying $325 million for a 50% stake in a business with $172 million in revenue last year. That amounts to a fairly heady 3.8 times sales for a business Inverness bought only six years ago for $100 million, incidentally from P&G rival Unilever.

But as health-care costs rise and skepticism and regulation of prescription drugs grow, it's starting to look more profitable to tell people what's wrong with them than to try to fix it.

P&G last year ended its research into new drugs as some of its existing prescription drugs, such as osteoporosis treatment Actonel and gastrointestinal drug Asacol, face growing competition, and its Intrinsa female sex-drive patch has so far failed to get approval from the Food and Drug Administration.

Lag time
Far bigger players in the pharmaceutical space, including Johnson & Johnson, Pfizer and Merck & Co., all have struggled in recent years as major drugs near patent expirations faster than their new-drug pipelines can produce new blockbusters.

Meanwhile, the consumer-diagnostics business is booming. Sales of at-home tests grew from $2.9 billion in 1999 to $6 billion last year, EarlyDetect notes in its recent IPO filing.

And that's for a business dominated mainly by pregnancy, ovulation and diabetes-related monitoring, along with a fast-emerging niche in home drug and alcohol testing. The Irvine, Calif.-based marketer also has come out with tests to screen for prostate cancer, cholesterol and urinary-tract infections.

Speculation around P&G's venture with Inverness is that it will branch beyond pregnancy and ovulation (including the ClearBlue Easy and ClearPlan Easy brands jettisoned by Unilever) into promising new markets.

Strep, ear infection tests
Among products believed to be in the pipeline are tests for strep throat and children's ear infections, said Greg Simpson, analyst with Stifel Nicolaus & Co.

A P&G spokesman declined to comment on pending tests but said, "Clearly the reason we got into at-home diagnostics was because we saw a lot of opportunity with what was in the pipeline. We didn't go there just because of what's currently on the market."

What Inverness bought from Unilever six years ago was losing share and battered by lawsuits over alleged false tests results, said Inverness Chairman-CEO Ron Zwanziger at an investor conference last month. Inverness fixed the manufacturing, settled the lawsuits and has started growing market share, he said, but the big potential is in plans to launch at least one new consumer diagnostic product a year.

Home testing dovetails with efforts by such chains as Wal-Mart, Walgreens and CVS to set up clinics in their stores, Mr. Simpson said.

Aisle 13: home-diagnostics
Indeed, EarlyDetect's goal is to get retailers to establish home-diagnostics sections rather than having the products scattered, as they usually are now, said Mario Adame, VP-marketing.

One risk is that a rapid influx of entrepreneurial brands could undermine the credibility of the business by giving it a Wild West feel, Mr. Simpson said.

"I don't think this area will get as ridiculous as vitamins and nutritional supplements," he said. For one thing, unlike nutritional supplements, home-diagnostics kits are regulated by the FDA -- at least for disease testing, not for paternity testing.
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