Strategic Complements: Rethinking Substitution in Diagnostics

A question I often get from product, commercial, or lifecycle leaders, investors, and founders centers on substitution, displacement, and cannibalization.

Understandably so.

If you’re leading a product team or P&L or allocating capital, it makes sense to be concerned about risks surrounding your business lines — How much core lab troponin volume will migrate to POC? How do you see LC-MS displacing immunoassay? Will blood-based Alzheimer’s markers become ‘liquid PET’? Will diagnostic/therapeutic agents replace primary care physicians?

However, more often than not, in the medium-term, markets evolve in non-obvious, counterintuitive ways, where “competitive” products act as complements, not substitutes.

In his book Better, Simpler Strategy, Felix Oberholzer-Gee notes that we tend to overestimate the threat of substitution due to their natural loss aversion bias, which causes us to 1) mistake complements for substitutes, 2) expect substitutes to arrive earlier than they actually do, and 3) miss second-order effects of new products and market shifts. “When you are asked to predict the influence of a new technology or a novel business model, don’t trust your intuition too much… Carefully thinking through the timing of the likely consequences and considering second-order effects can help you to get it right… never forget that you are more inclined to see substitution than complementarity.”

Complements — not just razors and blades, instruments and reagents, meters and strips — often turn up in unexpected ways. For example, ATMs increased the number of bank teller positions between 1980 and 2010. Computers doubled paper consumption from 1980 to 2000. Radio in the mid-20th century increased record sales. The list goes on — e-books and printed books, food delivery apps and restaurants, bottled water and tap water, YouTube and concerts, wifi and coffee shops, wearables and fitness apparel.

Diagnostics draws parallels.

Rather than being a substitute, POC hsTnI options (e.g., Abbott, QuidelOrtho, Siemens) will likely increase lab troponin reagent demand in the medium-term due to increased confirmatory testing and elevated awareness around troponin testing.

Roche’s more automated cobas i 601 core lab LC-MS will likely increase overall LC-MS steroid, Vitamin D, and TDM test demand, including among players outside of the core lab, and, in freeing up lab techs from running routine tests, increase development of LDTs.

The growing slate of Alzheimer’s RUO and clinically approved plasma markers (e.g., Fujirebio) will likely increase PET demand in the medium-term.

Clinical agents and agentic CDS will likely increase physician productivity and specialist demand.

The list goes on — PCR and culture, liquid and tissue biopsy, CGM and lab HbA1c.

Identifying and exploiting complements by understanding customer journeys and workflows, competitive and partner ecosystems, non-core product attributes, and co-marketing/bundling/licensing opportunities, can help expand TAMs and unlock outsized value.