WHY DO DIAGNOSTICS COMPANIES FAIL€¦ · them or have decided not to invest in them any longer at all; ... VP at Becton Dickinson, ... q Does the company’s team have a thorough

Copyright 2015 Halteres Associates LLC

HIV Counseling and Testing Center – Busia, Kenya

WHY DO DIAGNOSTICSCOMPANIES FAIL?

Completed by Halteres Associates for the Bill & Melinda Gates Foundation

October 29, 2015

Mike Richey, Kristi Whitfield, Martha Townsend, Mickey Urdea


Some General Observations from this Study: The Diagnostics Industry Is a Difficult Space in Which to Succeed

q The industry typically addresses smaller markets than most investors seekq Many investors see even some of the most well regarded diagnostics companies as

failures when compared to other healthcare companiesq Increasingly, development, regulatory, and clinical study requirements are becoming

more complex, costly, and uncertainq In contrast to common perceptions, diagnostic technology and product development

are often far more complex and risky than Pharma since they involve wet ware, software, hardware, and systems integration

q In the US, the availability of new diagnostics tests must be proven to improve care and alter the practice of medicine (clinical utility) – a high hurdle; however, this doesn’t guarantee payment

q Development, design for manufacturing, and commercialization risks are far more significant than initial proof of concept and research risks and must be conducted by experienced personnel and organizations

q Many investors have been stung by the lack of predictability of diagnostics companies (established and new) and either have become much more selective in investing in them or have decided not to invest in them any longer at all; LMIC-related diagnostics are considered very difficult

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Interviews Were Conducted with Diagnostics Industry Experts

Eli Casdin Casdin Capital: very sophisticated investor in biotech including diagnostics; for instance, Foundation Medicine

Mara Aspinall Former President at Genzyme, CEO at On-Q-ity, President at Ventana Medical Systems, Faculty at University of Arizona (Instructor of Masters Level Course on Diagnostics)

Phyllis Whitely Partner at Mohr Davidow Ventures, Board Member and Executive at companies including RainDance, Verinata Health (Interim CEO), Perlegen, Roche

Peter Thompson Private Equity Partner at Orbimed Advisors, Founder and CEO of a number of healthcare companies including Trubion Pharmaceuticals, Corvus, VP at Becton Dickinson, Chiron Diagnostics

Larry Mimms CSO at Prometheus Labs, former VP R&D at Quidel, EVP at GenProbe, and Advisor at Human Longevity

Deither Rechtenwald Partner at Desatoya LLC (leads identification and evaluation of new technology), VP Advanced Technology and VP R&D Immuno Cytometry Systems at Becton Dickinson

Michael Stocum CEO Inivata Ltd (a cancer clinical genomics company), Founder at Personalized Medicine Partners (leads relationships between drug discovery and Dx companies), Interim CEO at On-Q-ity

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Expert Interview Findings: What are the Keys to Success?

q Most important success factor is an experienced leadership teaml Have they done it before?l Have they done it in diagnostics - not tools, not pharma, not biotech?

q Quality systems must be in place early l Don’t take shortcuts, it will ultimately cost you time and may cost you the business

q Companies must have the ability and desire to partner with others with requisite expertise

q There must be realistic projection for time to market following feasibilityl 5-7 years for successful new biomarkers or new platformsl 3-5 years for successful test menu additions to existing platforms

q Companies must have a very deep understanding of the customerl Who will use it?l How will they use it?l What alternatives exist?l What does the entire ecosystem look like?l What are the pain points that must be dealt with in addition to introducing the new product?

q Products must be designed for manufacturing (scale, COGS, quality)q There must be attractive ROIs for all parties

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Diagnostic Company Capability Assessment

q We evaluated 28 diagnostic companies (and others not shown)q Companies were assessed/scored by how well each did or is doingq The results were organized by phase of product development in

accordance with the definitions of the diagnostics teamq We defined three types of companies:

l Successes based upon reaching and maintaining sustainability l Zombies were identified based on their continued struggle to become

sustainable; in our collective opinion they are likely to ultimately faill Failures that are out of business or sold off for little

q For Failures and Zombies, we identified specific events in the phases of development that we believe triggered the eventual or probable failures

q We confirmed assessments with input from the industry expert interviews to ensure objectivity, some of whom had direct inside knowledge

q We produced the following summary analysis

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Copyright 2015 Halteres Associates LLCSlide 6

DiagnosticsCompanyGrowthPhases:0to4

Phase0

DesignPhaseConcept

Clearly defined Intended Use for actionable intervention

decision and has market size large enough to support

investment

Performance (Sensitivity/Specificity/

Reproducibility)specifications fill an

unmet need

Customer needs are understood

(voice of the customer)

Phase1

FeasibilityandPlanning

Experienced leadership/employee team

capable of addressing business/technical challenges

All inventions have been completed to achieve final

product/scale/COGs targets

Menu strength (one product vs.

multiple). Company has back up plan in event of

failure

Phase2

DesignandDevelopment

Disciplined development processes (Design Control,

Quality System)

Supply chain process, COGs targets, capital

needs; product designed for manufacturability

Robust IP, freedom to operate

Phase3

ValidationandLaunchReadiness

Established manufacturing and design control processes

Clinical studies supporting regulatory approval AND

commercial/reimbursement strategy

Market entry strategy in place, specific initial customers identified

Phase4

CommercializationComplete plans for

commercial positioning and targeted launch

Reimbursement and/or payment strategy with clear objectives, budget and timelines; partners

identified

Operations robust and stable enough to transfer to sustaining operations;

have sufficient cash planned to profitability or

liquidation

Copyright 2015 Halteres Associates LLCPage 7


Where Do Diagnostics Companies Fail or Become Zombies?

SustainableBusiness

~70%

~10%

~10%

~5%

~5%

Failures

~40%

~60%

Zombies

Phase 0

Phase 1

Phase 2

Phase 3

Phase 4


Where the Failure Companies Failed

~70%

~10%

~10%

~5%

~5%

Product specification and/or technology doesn’t meet

customer needs

Product prototype doesn’t work in real samples

Product wasn’t designed properly for manufacturing at scale

Clinical trials with the manufactured product didn’t

meet the necessary performance minimum

The regulatory approval, market adoption, and/or sufficient

payment not achieved

Phase 0

Phase 1

Phase 2

Phase 3

Phase 4

SustainableBusiness

Failures Example

At any point, failurecan be due to wrongmanagement team


Questions To Address When Evaluating Companies: General

q Does the company’s team have a thorough understanding of the customer(s), stakeholders, and the unmet need the product/technology will satisfy?

q If so, how do they know someone will buy it and at what price? What alternatives exist, and how competitive are they now and in the foreseeable future?

q In a startup, there is precious little time for on the job training. Does the team have successful diagnostic company experience (not tools, not pharma, not biotech)? If not, what is the plan to develop a team with the requisite skills in key roles of responsibility?

q Does the team have plans to implement design control, and do they have direct experience in developing products under this system? If not, do they plan to bring in this expertise or partner with others who are expert?

q Does the team have the required experience or intentions to partner with others for skills or competencies that are needed for success? Does the company have a strong program management function with management responsibilities?

q Does the product development plan include processes to design for manufacturing?q Does the team have a realistic and detailed assessment of the timeline to feasibility, product

development, manufacturing, and commercial launch?q Does the company understand the full ecosystem into which they will introduce the product and all the

pain points for the users that must be overcome?q What is the projected return on investment for each type of investor? Is this sufficient to attract the

required investment to commercialize the product? If not, what provisions need to be made to ensure all stakeholders have attractive returns to offset the development/commercialization risks?

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Questions To Address When Evaluating Companies: Phases

q Phase 0l Is the intended use statement clear?l Is there a clear intervention action informed by the use of the test?l Has the voice of the customer been incorporated as part of the initial feasibility

assessment?l Is there a clear unmet need that could be addressed by the invention?

q Phase 1l Will all inventions required to initiate product development under design control be

finalized at the end of this stage?l Does the company have back up plans in the event of failure with this product design?l Does the initial feasibility data continue to support the intended use in a demonstrable

way?

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Questions To Address When Evaluating Companies: Phases

q Phase 2l Does the company have a robust development and quality plan in place?l Is the product designed for manufacturing at the scale required in the business plan?l Are cost of good targets likely to be met?l Have all elements of the supply chain been identified, and are plans in place to secure

all critical rare reagents and other key materials?l Has all intellectual property (IP) been filed?l Is there freedom to operate?

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Questions To Address When Evaluating Companies

q Phase 3l Have all manufacturing and design control processes been finalized?l Has manufacturing at scale been achieved?l Is the company using the final manufactured product in its clinical validation

studies (NOT PROTOTYPES!)?l Is an actionable clinical study plan in place that addresses regulatory and

reimbursement requirements?l Have marketing/pre-clinical studies been developed with involvement of

representative intended users?q Phase 4

l Is the commercial launch plan complete and achievable?l Is the reimbursement plan complete and achievable?l Are the company operations robust and reliable?l Can the market bear the initial COGS while the company increases manufacturing

volumes and market shares or do sufficient market interventions exist to off-set any gaps?

l Does the company have sufficient cash or plans to acquire it to fund ongoing operations until self-sustainability (or a liquidation event) is achieved?

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Risk and Mitigation Plan: Approach

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Risk and Mitigation Plan: Examples

Risk Mitigation Risk level

Management team has sufficient Dxexperience.

Ensure CEO, VP R&D, and head of commercial have 5+ years of successful product development experience in related diagnostics field. Replace members who don’t.

High

Essential quality systems are in place or properly planned for.

Ensure experienced product development head has expertisein design control. Low

The team has experience to know when to partner/how to partner with experts (development/regulatory/ manufacturing, etc.) to introduce appropriate products to market.

Put in place a plan to bring in appropriate advisors well in advance of needing their help (e.g., OEM, clinical trial design, regulatory affairs). Ensure that the company does not hire too many expensive people that are only needed part time at the current stage.

Medium

Development and regulatory timelines are realistic.

Require detailed development, clinical, and commercial plans well in advance of funding each stage; check with experts. High

Detailed analysis of customer and key stakeholder needs are in place and there is a full understanding of what they will buy and who will pay.

Require thorough market research that provides factual input as to who the customer is and what they will buy. Ensure clear path to reimbursement (e.g., tech assessment, coding) or other forms of payment (e.g., self pay) is understood.

Medium

The product has been designed for quality and scalable manufacturing.

Prepare detailed plans to get to prototype, first products, andscale including investments, skills needed, and timing Low

There is a return on investment for each stakeholder sufficient to justify the risk.

Develop agreements to ensure each party will be able to access funding, achieve ongoing operations scale, partnerships, cash flow, and sustainability

High

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Assessing the Value and Monitoring of Grantees (1 of 3)

q A substantial issue with monitoring grantees is to be very clear about what success looks likel Improved LOD, TAT, sensitivity, robustness, cost, etc.?

q We suggest that all grants for diagnostics be aligned with a specific product concept as determined from a six-stage process:l Clearly define the unmet need and document it in a use casel Create a storyboard-based use scenariol Develop a target product profile (TPP)l Evaluate existing technologies against the TPPl Determine the TPP specs that cannot be met with existing products or

technologiesl Develop grants based upon the specific unmet requirements

q We propose that the TPP evaluation of products and technologies be periodically updated

q Grantees must present progress based upon the TPP assessment

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q When specific assays are required, provide grantees with development reagentsl Assay development samples (e.g., non-infectious Ebola-VSV virus, TB in sputum,

problem negative samples)l This is a very common stumbling block for technology developers

q Create a set of samples to qualify new technologies or product prototypes and provide them as blinded panels when grantees think they are readyl Test LOD, LOQ, specificity, sensitivity, interfering substances, etc.

q Establish processes to monitor all grantee projects based upon their phase statusl The new technology fulfills one or more specs that are needed for a TPP

– New biomarkers, sample prep method, low cost chip, fast TAT, etc.l A prototype needing no new inventions to initiate formal product development has

been demonstrated l A product has been developed with acceptable specs and is manufacturable

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q There will be an acceptable timeline and budget for the technology or product development that needs to be articulatedl After some point, there is either a loss in confidence of completion or other

methods have been successfully introduced by othersq There needs to be an overall plan that anticipates how success translates into the

next steps for product development, e.g. l Partners that can take on formal product developmentl Off-site manufacturingl Clinical trials for regulatory submissionsl Commercial operationsl Forms of paymentl Distribution

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How Do We Not Miss The Next Big Thing?

q It’s only possible to understand the Next Big Thing when you know what it will look like

q This means understanding the use cases, use scenarios, and TPPs for what is needed

q This will create a “search image” for watching for breakthroughsl Most of us couldn’t find a dinosaur bone in the field unless it was labeled, but we

can be trained to find them – Lick the “bone”, if your tongue sticks, it’s a fossil

l Comparing new technologies to the unmet requirements of TPPs will simplify the analysis of options

l You will eliminate many technologies that have no chance of helping solve the TPP issues

q RFPs can be aligned with the unmet requirements of TPPs and monitored accordingly

q However, there is always the “Rocket to Mars Dilemma”

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How Do We Not Miss The Next Big Thing?

q There is a “Rocket to Mars Dilemma.”q A rocket takes off for Mars with a full crew and

after a 5-year journey descends upon the planet.

q As they land, they are greeted by a party that left just a month ago using a new technology.

q When do you launch and when do you waitfor the Next Big Thing?

q Launch when the TPP is achieved!

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Documents

WHY DO DIAGNOSTICS COMPANIES FAIL€¦ · them or have decided not to invest in them any longer at all; ... VP at Becton Dickinson, ... q Does the company’s team have a thorough