Roche

2014 med tech R&D budget: $1.134 billion (Roche diagnostics only)
Change from 2013 budget ($1.098 billion): -0.3%
Percent of 2014 segment sales ($10.8 billion): 9.6%

Big Pharma company Roche ($RHHBY) is doubling down on diagnostics, with a plethora of recent acquisitions designed to obtain new technology like Ariosa Diagnostics' Harmony test, a prenatal screening tool that can identify genetic abnormalities such as Down syndrome.

Pharmaceuticals account for 70% of Roche's company-wide revenue, and it's important to understand that Roche's diagnostic innovations and R&D also benefit that larger division. For example, after purchasing a majority stake in Foundation Medicine ($FMI) for $1.2 billion the Swiss company said it will use the FoundationOne assay in Phase III trials of its main cancer immunotherapy drug candidate. Roche and Foundation Medicine will also work on developing RNA signatures to create a specific immunotherapy panel that can predict patient benefit.

Roche Diagnostics launched three new laboratory instruments, two additional diabetes devices, 5 oncology tests, two microbiology tests and two women's health tests in 2014, according to the company's annual report.

Most notable was the launch of the next-generation cobas 6800/8800 polymerase chain reaction systems for genetic sequencing. Two blood screening and virology tests were launched for the new sequencer.

But the new cobas did not launch in the U.S. In fact out of all of those new products, only two debuted in the U.S., the report shows. That arguably reflects Roche's European roots, but it surely demonstrates the strictness of the FDA, which is planning to play an even bigger role in the regulation of diagnostics going forward.

"Regulatory requirements are becoming more fragmented, with many countries expanding their guidelines," the annual report says. "At the same time, regulations in China, the EU and the US are becoming increasingly stringent. Whilst these dynamics create headwinds for the overall market, they tend to favor companies such as Roche with extensive regulatory expertise and experience." This global trend portends increased expenditure on development in the future.

Although cancer diagnostics hog the headlines, another area of emphasis is infectious diseases. "The re-emergence of infectious disease-causing micro-organisms (e.g., bacteria, viruses or fungi), including tuberculosis and multi-drug-resistant strains of these microorganisms, is increasing the need for fast and reliable testing," the annual report says. -- Varun Saxena (email | Twitter)

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