An acute need for an appendicitis test attracted an IVD industry veteran to a Colorado firm with promising blood-based technology.
|Stephen Lundy of Venaxis Inc. (formerly AspenBio Pharma)|
Any parent who has rushed to Urgent Care with a toddler shrieking in abdominal pain will appreciate the big opportunity Stephen Lundy saw when he became head of Venaxis Inc. (formerly AspenBio Pharma). A 25-year veteran of the IVD industry, Lundy says the market potential of the appendicitis blood test that the company was developing lured him from his CEO post at MicroPhage to Venaxis’s Colorado headquarters.
When Lundy arrived there in March 2010, he faced a business emergency of his own. Problems with a clinical trial required the new CEO to find the root cause and decide whether to retool the test. Venaxis determined it was a logistical problem and decided to proceed. “What I wanted to do was try to improve the test if we could,” Lundy says. “We went back into R&D mode and looked at other biomarkers. Ultimately, we developed the product that we ended up successfully putting through a 503-patient study.”
The decision to proceed was spurred in part by Lundy’s experience as vice president of sales and marketing from 2003 to 2008 at GeneOhm Sciences, where he helped launch the first MRSA molecular assay. He sees the same “first-mover advantage” with the company’s blood-based appendicitis test, which is designed to help medical staff rule out appendicitis in young patients and lessen the need for potentially damaging exposure to CT scans. Lundy says that improvements in the test’s “negative predictive” capability have been borne out in the latest 503-patient study.
Venaxis is grooming its blood-based appendicitis test for FDA approval and CE-mark filing. To support those efforts, Lundy recently hired Don Hurd, a former MicroPhage executive, as chief commercial officer; and Lyndal Hesterberg, a cofounder of Thermo BioStar, which was one of the first device companies to commercialize lateral-flow technology, Lundy says. Under Lundy’s guidance, Venaxis also has licensed its animal health assets in order to focus on its IVD business, has kept investors on board to the tune of more than $12 million, and is ramping up a new clinical trial.
In this interview, Lundy discusses his first big decision as Venaxis’s CEO, clinical study concerns, how pricing factors affect test development, whether experience as a military officer can help in the private sector, and other topics.
Stephen Lundy: My background is 25 years in IVD, primarily in launching new tests or services. I immediately saw an opportunity at Venaxis with a very large clinical need to have a blood test in the appendicitis area and have a first-mover advantage very similar to what we did at GeneOhm Sciences.
I was excited to come on board. In 2010, the company was in the process of completing a pivotal trial of what we call the
|Blood-based appendicitis test by Venaxis Inc.|
ELISA, a more complex version of the product that will be taken to market. At the time, the company had a laboratory version of the test. The lateral-flow version of the test had not been completed, but the strategy was to get the ELISA version of the product through FDA. It was in the process of completing a clinical trial. Shortly after I came on board, we received the results of that blind study. They were not what we had expected. The test had very high sensitivity and low specificity.
Ultimately, those data were not submitted to FDA. What I had to do as CEO very quickly was to figure out, “Okay, where do we go from here?” We had to analyze the problem and determine whether it was with the test or with something else. We determined it was logistics. To make a long story short, there were issues about the way the study was run from a logistical standpoint [that involved] transporting specimens across the country. When we made that determination, I decided it was worth going forward [because] there was still a lot of value in the technology we had with the biomarker MRP 8/14.
What I wanted to do was try to improve the test if we could. We went back into R&D mode and looked at other biomarkers. Ultimately, we developed a multi-marker product that we took successfully through a 500-patient study.
The first determination was, “Do we go forward?” and the second was, “How?” And we really spent the last couple of years getting the product to where it is today.
Yes. I said that for a couple of reasons. We completed development of the three-biomarker panel and the algorithm. But more importantly, we validated in a very well-run, 500-plus patient study across 11 hospitals in the United States that the new test had significantly better performance than we’d seen in the past. We had 97% negative predictive value as opposed to 90 to 91% with a single biomarker. That was important.
The other piece was that we completed the development of the lateral-flow rapid platform, and now we’re ramping up getting ready to go into manufacturing. We’ve turned corners both from a validation standpoint and from a
The test uses a blood sample from the patient [and] is actually run from plasma. Centrifugation [is required] to separate plasma from whole blood. During the previous trial, the technique for pipetting and spinning down the sample at the hospital was not of the quality needed for a sample that should be shipped, given the nature of the markers being evaluated. We learned over the course of time and during transportation for remaining cells that, when those mix, it produces a reaction that actually creates an elevation of the biomarker, falsely.
We learned, first of all, that the sample needs to be processed very well, particularly if the sample won’t be run for more than 24 hours. With the trial that we’re going to embark upon soon, we’re actually going to be running the test at the hospital site. So we’re doing a very high-quality sample—spinning the sample, pipetting plasma—but in addition, the test will be done immediately, reducing any problem of transportation or cell lysis. Of course, we’re being very careful just to pipette plasma, but the whole transportation piece is no longer an issue.
One of the things we decided when we hired Don Hurd to be chief commercial officer [is] that he really needed to look at Europe. We had a really good understanding of the U.S. market, I believe. We had to figure out if there’s an opportunity [in Europe], and, indeed, there is quite an opportunity. The value proposition is a little bit different. They don’t do as many CT scans in Europe [as they do in the United States]. What they tend to do with patients who have abdominal pain is admit them to the hospital, so the savings in terms of length of stay is significant.
The path to bring your product into Europe, where you don’t have to go through an FDA trial, is a bit more streamlined than in the United States. When the product is ready by virtue of the fact that you can manufacture, via GMP, lots of material, and you have enough data to support the claims on the product, which we have from the 2011 study, you can self-certify with a CE mark and launch.
The investors that came in this time clearly wanted to talk about, “If Venaxis raises this round of funding, where does that get us to? Does that take us to enough value-creation milestones that we have a good chance of getting a nice return on the investment in the short term and then setting up the company for the long term?”
The key was convincing investors that we are ready to execute this plan, that the FDA process has a good chance of going well, that we have a good plan for accomplishing the clinical trial, that obtaining a CE mark in Europe is achievable, and so forth. At the end of the day they want to see that we can achieve some meaningful milestones. That was really what the discussion was about during the recent roadshow.
To be honest with you, I don’t know that it’s the preferred path. I would much rather launch in the United States at the same time. The value proposition here is clean [and] straightforward. We have relationships with a number of key opinion leaders and hospitals—20-plus hospitals are lined up for upcoming clinical trials. Although Europe represents a sizeable market, I wouldn’t say it’s the preferred path, because it involves a number of countries and languages, but clearly it is a way to validate that there’s a need for the product, that we can produce the product, [and] that customers will buy it.
The fact is that we’re ready to go there, we have a good understanding of the market, we know the distributors we want to work with, and we have a person on the ground who is helping us. It’s actually someone I worked with at GeneOhm about five or six years ago, so I’ve got a lot of confidence that we have a good understanding of what we need to do there, and it makes sense to do that in parallel with running the clinical trial over here.
As I mentioned, you can CE-mark a product in Europe, meaning you can ship it into Europe, at the time that you’re ready to start a clinical trial. Everything the FDA expects you to do before you start a pivotal trial in the United States, those are the things that are part of the CE marking process. You must have data that support the intended use of the product, you need ISO certification of your facility, and you need to be able to produce lots of materials.
That’s exactly what we needed for the clinical trial, and when we accomplish those things we CE-mark. You can start selling there at the time you start the pivotal trial here, which means you probably have a year’s head start, if you will.
It was very important because we want to have our focus on human diagnostics. We made that determination months ago, and we felt very strongly that we wanted to have a partner who could take these animal-health assets and really make something of them. We think we have a great partner in Ceva [Santé Animale]: they’re very committed to this, and we have some nice financial upside if they are successful—both in the short term and in the long term.
It’s hard to say. If I could predict stock price I’d be a very rich man. There are just a couple of things. One, we recently closed the round at $2 a share. That was the price when we closed the offering. I think we’ve accomplished a lot in the last couple of years. Much of that work has been fairly quiet—getting a new product ready, going through a pre-FDA study. For us, those are very important milestones. Maybe they didn’t get as much visibility with investors as we would have liked.
We’ve got some very significant milestones ahead. We have a plan to systematically communicate how we’re doing in terms of meeting our milestones. As we check off these milestones, I fully believe that investors will gain more confidence in the company [and] gain more confidence in the management team, and ultimately that will result in a higher stock price. That’s going to happen over time. We’re not focused so much on the short-term price; we’re focused on achieving these milestones, and that will lead to return for our shareholders.
Absolutely. And I’ll tell you, when you’re talking to investors, there’s not a lot of skepticism over the need for the product. All along, whether it’s investors or clinicians, the need for a blood-based diagnostic in this appendicitis space is acute. The question centers on, “What can you accomplish with the capital that you have, and can you do it in the time frame?” The consensus is that when we get this product to market, we’ve got a very good plan for executing on the business side.
It was excellent. I was in the room. Dave Huckins, who’s an M.D. from Partners Healthcare at Newton-Wellesley Hospital, presented. The room was packed, there were a lot of very good questions, and after the meeting I personally spoke to a number of clinicians who were in the room. They reiterated what I said: “I hope you guys can get this test to market; we really need it.” A number of them are actually part of our clinical trial. It’s very positive. We’re really looking forward to the reaction when we get this product out there.
The main question clinicians have is what the performance looks like in terms of negative predictive value [and] in terms of specificity—that type of thing. Of course, they want to know [whether] your clinical trial is going to have the same results as the last study. It’s hard for us to answer that. But the consensus was clearly, “If you guys can reproduce these numbers, I’m going to use your test.”
The test would help to rule out appendicitis, so one of the benefits is reduction in treatment costs, and if it works, it reduces CT scans as well as the radiation danger. Those would be issues in addition to the cost savings.
If you look at the data from the 503-patient study, we could have theoretically reduced about 30% of the CTs that were done on those patients. There were a number of patients in that study—primarily at larger hospitals where ultrasound was used. Theoretically, the [ultrasound procedures] could have been eliminated, so that also impacts the economic value of the test.
Yes, we definitely do. As I looked at this, there are analyses that have been done by healthcare analysts employed by the company that show that this test, from an economic standpoint, probably justifies a price upwards of $300 per test. Given my experience in the in vitro diagnostics world, I know that price would [make it] tough to get rapid adoption. If we can bring it to the market for under $100, that would be a very attractive price point, I believe. And if you look at the technology we’re using with lateral flow, our cost-of-goods on this is probably going to be in the $10 range out the door. The margins are significant, and we want to price this to where laboratories will adopt it, without appreciably slowing down the process.
One of the nice things about this product is that the capital component is relatively insignificant. We have a device with a retail price point probably in the $3000 to $4000 range, which doesn’t really hit the radar in terms of the capital committee. In fact, in many cases we’ll probably bundle the instrument along with the actual consumables. We don’t believe there are a lot of barriers to entry with this product.
The first thing is that the more market development you can do in terms of understanding the sales process, the better. When we started out selling the GeneOhm assay, we made some mistakes in terms of where we targeted and how we targeted that took us a few months to correct because we had not done enough market development work before the product introduction. We had acquired a company that had the technology, and we immediately commercialized it, so we didn’t really have the time to do the market development. The good news here is that with Don [Hurd] on board, we’re going to have a very good understanding of what the customer buying process is before we get FDA clearance. Our goal is to have as many hospitals as possible committed to understanding the benefits of our product before we actually have FDA clearance.
Sometimes when you’re out there and you’re asking for a commitment, you learn things that you really didn’t understand before you actually put your feet on the street. I think that was a good learning experience for me. For example, for GeneOhm we learned that in selling a MRSA screening test you really needed a couple of things to happen in a territory before you got significant traction. One was having key opinion leaders on board, so having significant hospitals in a geographic region use the test was helpful. Second, in the case of MRSA, [it was important] to actually have legislators demanding it, because with MRSA it was all about the fact that hospital infections were killing patients, and those [deaths] were preventable. The more PR we had in a region around that, the less of a problem we had getting it adopted.
It’s an interesting question. I’m not sure. In terms of my background, the first company I went to work for was Dianon Systems, which ended up being a very successful company that ultimately was sold to LabCorp for about $700 million. A very big part of the recruiting strategy of that company was to hire junior military officers. I think the reason was that you had people who were relatively bright, disciplined, and trainable. They didn’t have preexisting ideas about how things should be done. They worked hard and were very team-oriented. That strategy really came out of Abbott Diagnostics, which was very big on hiring junior military officers. They built a very successful diagnostics business, partially due to that.
I believe in building a strong culture, and the culture was really based on a lot of these military guys who were goal-oriented, team-oriented, and willing to focus on the mission as opposed to their individual wants and needs. This approach built a very healthy culture, and I think that kind of thing is transferrable to any company.
Stephen T. Lundy is president and CEO of Venaxis Inc. (formerly AspenBio Pharma; Castle Rock, CO). In addition to holding executive positions at MicroPhage, Lundy served as senior vice president of sales and marketing for Vermillion from 2007 to 2008. He’s also the former vice president of marketing for Esoterix and marketing director for molecular diagnostics and critical care testing at Bayer Diagnostics. Lundy is a bachelor of science graduate of the United States Air Force Academy and served as an Air Force officer from 1983 to 1988.