Part Three – Increasing Cost of Innovation
The third driver that is triggering the growth of the foundry model in Molecular Diagnostics is the ever Increasing Cost of Innovation. The similarity between molecular diagnostics and the 1980’s chip fabrication is the cost of constructing the capability to support the innovators from pilot lots through full-scale volume manufacturing and supply chain support. Rock’s Law (also known as Moore’s second law) is that chip R&D, manufacturing, and test costs expand exponentially over time, even as the cost to the consumer falls. By this law, the cost of a new semi-conductor chip manufacturing plant doubles every four years.
In today’s environment, the cost to construct and support a competitive, state of the art semiconductor facility exceeds $14 billion dollars. This poses a significant financial challenge and limits the number of companies who can justify this investment to just a handful, most of which are foundries and not product companies.
On the surface, comparing the disparate entry costs of facilities between Molecular Diagnostics and semiconductor fabrication are not fair. On a relative impact basis, however, the cost of compliance and skyrocketing cost of research and development is absolutely a reason for concern. These realities are leaving CEO’s and COO’s with empty budgets for clean room manufacturing facilities equipped with advanced equipment, all managed under the control of a world-class quality system in a complex and changing regulatory environment. The costs to participate in these markets at economies of scale are rising rapidly.
Final thoughts on our 3-Part Series:
Some may consider the leap from the foundry model of the semiconductor industry to the molecular diagnostics industry a stretch. However, after 30 years of focusing on the complexities of various supply chains in three different high technology industries including biotech, to me the homologies are unsettling. The pace of innovation, the leverage of commonality and the pressures of increasing costs of innovation are the drivers of the molecular diagnostics industry. These indicators provide an amazingly consistent correlation to the pattern of semiconductor fabrication in the 1980’s. To quote Mark Twain, “History doesn’t repeat itself, but it does rhyme….”
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Click to read Part 1, Keeping Pace in Innovation and Part 2, Leveraging Commonality.