Canon Inc. eyes LI for genetic testing research facility

Canon Inc. wants to open a research center on Long Island to support its entry into genetic testing for the diagnosis and treatment of disease.

The local laboratory would be part of Canon BioMedical Inc., a Melville-based subsidiary formed 15 months ago by the Japanese manufacturer. So far, the division’s employees here are involved in sales, planning and other nonresearch tasks.

Canon BioMedical’s products provide an opportunity to add a new revenue stream, said Seymour Liebman, chief administrative officer of Canon U.S.A. Inc.

The move comes at a time when the parent company’s sales of digital cameras, printers and copiers have slowed in many parts of the world. In the first quarter, Canon’s net sales and net income fell 7 percent and 17.5 percent, respectively, from the year-earlier quarter.

Liebman said the proposed research and development facility could work with local biotechnology businesses and research institutions such as Stony Brook University and Cold Spring Harbor Laboratory.

“We are looking to have some type of R&D here,” said Liebman, who is also an executive vice president at the company.

“We have the authorization [from local governments] to add another 200,000 square feet to this building,” he said. While employees from other Canon units would also occupy any new space, “in terms of expansion, a lot will be based on the growth of Canon BioMedical,” he said.

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The company’s foray into genetic testing products is an example of making a strategic move into a growing market while confronting slow sales elsewhere.

Canon already has experience in health care through its medical imaging equipment for X-rays and eye scans, among other uses.

LI push for biotech

The company’s desire to do research on Long Island dovetails with the region’s effort to become a home for biotechnology and health care businesses.

Three years ago, Canon moved its Americas headquarters from Nassau County to Suffolk County. The $500 million office complex, featuring an open-air courtyard, walking trails and a product showroom, is located just south of the Long Island Expressway in Melville.

The 696,000-square-foot building is home to 1,570 jobs, 170 added since the move from Lake Success.

Significantly, Canon BioMedical is the first business division to be headquartered outside Japan in Canon’s 78-year corporate history.

Liebman and others said Canon’s effort to tap the $6.5 billion market for genetic testing began more than a decade ago.

In 2002, Canon U.S. Life Sciences Inc., a research unit based in Rockville, Maryland, was created to develop products for that growing market. Canon BioMedical manufactures and sells them.

The Tokyo-based parent company, with global sales of $31 billion last year, is among an increasing number of corporate giants that view health care as a new source of revenue.

Canon officials said genetic testing products offer growth because populations are aging, people are adopting healthier lifestyles, and governments are demanding lower costs and better treatment outcomes.

“The health care business has huge growth potential,” Joe Adachi, CEO of Canon U.S.A., said in an email in response to questions.

The first products are tests used to determine variations in DNA. Those variations can provide information about whether an individual has a disease or may be at risk for one and the likely effectiveness of a proposed treatment.

The tests are called assays, and come in small tubes.

The tests have chemical compounds or mixtures that are added to cause a reaction. The chemicals, which Canon also sells, are called reagents.

The company offers close to 300 assays and hopes to develop 200 more by early next year.

The products are being used in genetic research aimed at individualized treatment, and hopefully, cures for cancer, heart disease and other deadly ailments, executives said.

“This isn’t just about expanding our business, it is about helping doctors and scientists all over the world to assist in improving human health and in advancing science,” Adachi said.

Finding a market niche

Still, the market for genetic testing products differs from those for photography and office machines, where Canon has long dominated.

Bruce Carlson, publisher of Kalorama Information, a health care market research firm in Manhattan, said the diagnostics market is “heavily regulated and products take a long time to develop and to gain acceptance.”

Canon assays and reagents have only been used in laboratory research, so far. They cannot be employed by physicians to diagnose disease or prescribe treatment for patients without first being authorized by the federal Food and Drug Administration — an approval the company eventually will seek.

The products are only available in the United States, but there are plans to introduce them to Europe.

Carlson estimated sales of assays, reagents and other diagnostic items are increasing 7 percent to 10 percent per year, depending on the type of product.

He also said Canon isn’t the only non-health care company entering the field. The Japanese conglomerates Hitachi, Sony and Panasonic as well as home-goods giant Procter & Gamble are all participants, he said.

But Canon’s traditional rivals, Nikon and Olympus, have chosen not to compete in this area.

Olympus, which moved its Americas headquarters from Long Island to Pennsylvania in 2006, sold its diagnostics unit in 2009 and closed a biotech operation two years ago, according to a company spokesman.

Nikon’s first venture into the medical field was a $400 million purchase last year of an optical-imaging products company. Nikon’s U.S. operations are based in Melville.

The genetic testing leader is Swiss manufacturer F. Hoffmann-La Roche AG. “You can’t get away from Roche in this market,” Carlson said.

While competing head-to-head with Roche is daunting, he suggested that Canon BioMedical and other small players could find success in targeting market niches.

“There’s a lot that has yet to be discovered, and if you develop something that another company doesn’t have, you will have an advantage,” he said.

That’s the strategy that Canon is pursuing.

Akiko Tanaka, CEO of Canon BioMedical and Canon U.S. Life Sciences, said in an interview, “Some of the same components of our in-house technology can be used to study DNA.”

She said the same heating and cooling process needed for inkjet printing is used to create assays and reagents. Sensors are employed to detect DNA.

Expanding into ventures

Besides developing products on its own, Canon wants to buy other diagnostics companies or enter into research partnerships.

“We are actively looking for partners, for acquisition targets,” Tanaka said.

Last year, Canon invested an undisclosed amount in Spartan Bioscience Inc., a Canadian startup. The Canon funds will help Spartan develop tests that determine whether a particular drug will be effective in an individual patient.

Genetic differences between individuals can show which people are most likely to benefit from specific treatments.

For instance, a test for individuals’ responsiveness to Plavix, which is prescribed to prevent blood clots after a heart attack or stroke, was introduced by Spartan in 2010.

Canon also is developing a rapid test for Lyme disease in partnership with T2 Biosystems Inc., a diagnostic company based in Lexington, Massachusetts. Canon will provide $8.5 million toward the project and receive royalty payments on sales of the test, T2 officials said when the partnership was announced in February 2015.

Canon has cash to invest in such ventures: $6 billion as of December 2015, according to Moody’s Investors Service.

Allen Cheng, a stock analyst with the investment research firm Morningstar Inc., said Canon has “plenty of flexibility to reinvest” in both genetic tests and its traditional products of cameras and office machines, which are facing increased competition.

Forced to adapt to change

Cheng said higher sales of printers and cameras will be difficult, in part because of the rise of computer tablets, smartphones and other digital media. Despite these competitive pressures, Canon maintains enviable positions in its mainstay markets, he said in an April report.

Familiarity with a Canon camera or printer has led some customers to take a hard look at the new assays and reagents.

“All I knew about Canon for years and years was their cameras,” said Dr. Heping H. Han, director of Tarleton State University’s molecular diagnostics laboratory in Fort Worth, Texas.

“But then last year I met several Canon representatives at a meeting, and they helped me to solve a [diagnostics] problem that had stressed me out a lot,” she said.

Han bought the company’s assays and reagents to teach her students, many of whom will go on to work as medical laboratory scientists at universities, hospitals and pharmaceutical firms.

In interviews, Canon’s leaders said they are mindful of the history of another camera giant, Kodak.

The Rochester-based company declined rapidly after failing to embrace digital cameras, even though it pioneered them. Kodak executives feared the new product would undercut the company’s lucrative film sales.

“Look at what happened to Kodak,” said Liebman, the Canon U.S.A. executive vice president. “We’re constantly changing, because we know if you don’t change, you are dead.”