The bone marrow testing aspect of the hematological malignancy diagnostic market is valued at nearly $1.1 billion, with the San Diego-based Genoptix capturing a 5 percent to 6 percent share of this highly fragmented market. However, this specialty lab will need to focus on driving volume growth through expanding both the sales and pathology staff to avoid growth slowdown from increased competition and resource constraints, according to a recent research report by William Blair & Company (WB&C, Chicago) analysts Amanda Murphy and John Kreger. WB&C initiated coverage of the company with a "market perform" stock rating.
Genoptix’s business model is focused on office-based hematologists/oncologists (hem/oncs), and who represent 70 percent of the 11,000 practicing hem/oncs in the United States, according the American Medical Association. Genoptix’s rapid growth—revenues are expected to grow 93 percent this year over 2007’s figures—and the attractiveness of this market have grabbed the attention of competing labs who are already focusing on increasing their esoteric testing menus. "Based on our understanding PLUS Diagnostics, Clarient, PhenoPath, CBL Path, and Caris have all entered or indicated their intention to enter the hematopathology market," wrote Murphy and Kreger. "Therefore, we expect Genoptix to face increasingly aggressive competition over time, which could represent a risk to the company’s ability to sustain the level of volume growth it has achieved historically."
Expand With Care
To counter competition, the key to driving volume growth is salesforce expansion, followed by an expansion of the hematopathology staff to maintain a reasonable workload per pathologist—approximately six to eight cases per day, recommend the WB&C analysts. While the salesforce needs to expand into new geographic areas and further penetrate existing geographies—each rep should manage no more than an average of 20 to 25 ordering physicians at one time. "Any more than this and reps are not able to provide adequate hem/onc face time to ward off competitors," write Murphy and Kreger.
The growth of the hematopathology staff also needs to be handled with care—as one of Genoptix’s value offerings is a personalized, comprehensive approach to testing. To support this high-quality model, there is not much opportunity to increase the pathologists’ throughput beyond the six to eight total blood and bone marrow cases (or four to five bone marrow cases). Therefore, the staff or base needs to be expanded.
But this will likely be a significant challenge for Genoptix because there are a relatively few hematopathologists in the United States. Currently, only 1,500 are practicing in the United States, with about 75 becoming board certified every year. Nevertheless, the WB&C analysts are calling on Genoptix to ramp-up its hematopathology staff over the next two years—from the current total of 25 to 44 by the end of 2010. "While this number appears small . . . a number of hempath[ologist]s practice out of the realm of independent labs—that is, in academia or community-based practices that service hospitals," said Murphy and Kreger. In our view, the ability to attract and grow its hematopathologist base could become a limiting factor for the company."
January 2009 - Table of Contents
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