November 12, 2012 Issue
The Most Powerful Name In Corporate News and Information
Having Completed Development and now focused on Commercialization of their Test for Hospital Acquired Staphylococcus Infections, while in Development for a Test for Valley Fever, Molecular Diagnostics Company, PathoGene LLC is well positioned for Growth in these Large Markets with Unmet Needs
PathoGene in-licenses high value basic intellectual property around which it designs, develops and validates unique, highly differentiated, high value commercially viable diagnostic tests which impact clinical decision making in the prevention and treatment of infectious diseases. PathoGene non-exclusively out-licenses these novel assays to major diagnostic companies for implementation and commercialization on their diagnostic instruments worldwide.
Flagstaff. AZ 86001
Interview conducted by: Lynn Fosse, Senior Editor, CEOCFO Magazine, Published – November 12, 2012
Mr. Snowden: Pathogene is a diagnostic development company. We focus on improving patient outcomes and healthcare quality while lowering healthcare cost by developing diagnostic tests for infectious diseases, particularly those that are highly resistant to antibiotics and are associated with hospital infections or diseases where currently there are no good diagnostics available.
What are some of the diseases or tests on which you are working, and why
have you chosen those particular areas?
CEOCFO: Is there a common thread between the two different targets?
Mr. Snowden: The fundamental correlation between these tests and others that we are looking at developing is that they have the potential to improve patient outcomes and healthcare quality while at the same time lowering healthcare costs. Hospital-acquired infections are an interesting area right now because Medicare has largely stopped reimbursement for the treatment of hospital-acquired infections, so these infection costs, which are very high because these are multi-drug resistant bacteria in many cases, are now borne by the hospital. This provides a huge incentive to prevent these infections from occurring and that is the primary use for our staphylococcus test: screening hospital admissions so that appropriate action can be taken to prevent them from self infecting or preventing the bacteria that they are carrying into the hospital from being transferred to other patients and potentially causing an outbreak. We are focused on areas where we can significantly impact both patient outcomes and lower healthcare costs.
CEOCFO: What is the unique concept at PathoGene?
Mr. Snowden: There are a few areas where the PathoGene staphylococcus test is novel. It is built on ubiquitous technology PCR, which exists in just about all hospital laboratories at this point in time. However, we use different targets and a different methodology for identifying what staphylococcus type a patient is carrying or is infected with and the antibiotic resistance status of that bacteria. We have a patented methodology and patented targets that we use to make this work, but ultimately it is based on technology that is available in most hospital laboratories. We have also taken a somewhat different perspective on what diagnostics should do. Diagnostics in infectious disease has for many years been focused on identifying things, is this patient carrying a particular bacteria. We have taken the perspective of what is it that the physician wants to know when they are at the patient’s bedside in order to best treat this patient or to be best able to prevent this patient from acquiring a hospital-acquired infection. We are designing tests from a different perspective, not about identifying this bacteria or that bacteria, but what is the true clinical question, what is it that the doctor needs to know in order to best care for this patient.
CEOCFO: How does your test actually work?
Mr. Snowden: All of our tests are molecular diagnostics, so we are looking at the DNA of the bacteria or the fungus or whatever the pathogen. We are looking for pieces of the DNA of the bacteria that identify what it is and looking for sections of the DNA, which tell us what the antibiotic resistance issues are with this particular bacteria. They are all DNA based diagnostics and we are looking directly at pathogens DNA to determine the disease and its antibiotic resistant characteristics.
CEOCFO: About how many people has Valley Fever infected?
Mr. Snowden: Most people are not aware of the disease because it is a regional disease and part of the reason that there are no good diagnostics is because regional diseases garner no interest from big diagnostic companies because it is difficult or impossible for them to a commercially viable test. There is a about 150 thousand to 200 thousand people, and growing quite rapidly at the moment, who are infected with the fungus that causes valley fever each year. While the majority will exhibit minimal or no symptoms, for those that do develop symptoms it can be highly debilitating. The fungus is inhaled into the lungs and the first symptoms are of a respiratory infection. Given the symptoms are similar to pneumonia it is often, up to 30% of the time, diagnosed initially as pneumonia. These patients are then treated with antibiotics because physicians assume that they have pneumonia. However, antibiotics are not effective against fungi, so the patient does not respond. The physician changes the antibiotic and gives them another one and they do not respond. Finally, after this period of about five months, they figure out that it is valley fever, and in the meantime, this person in many cases has not been able to work, they may spend up to twenty-two hours a day in bed because they just do not have any energy. The disease can move into the rest of the body causing lesions in the bone and other organs, so there are significant consequences to the disease partially due to poor diagnostics.
CEOCFO: Where are you in the development and commercialization process?
Mr. Snowden: For the staphylococcus assay, we currently are in negotiations with multiple companies to license the test to them. PathoGene in-licenses basic intellectual property and then around that intellectual property, we design, develop and validate commercially viable tests that we then look to out-license to the global diagnostic instrument manufacturers, companies such as Abbott, Roche and others. They will then implement the tests on their instrument platform. MRSA and staphylococcus is an interesting test to these companies as it represents the third highest volume molecular test in the market and companies want a version of a test that can identify MRSA on their instrument platform because it is important to the hospital laboratory. We are currently in discussions with multiple diagnostics manufacturers regarding licensing this test for implementation on their platform.
CEOCFO: There are a number companies working on a test for MRSA; why is yours better?
Mr. Snowden: MRSA is a very small part of the hospital-acquired infections caused by staphylococcus of which MRSA is but one type. They have a very limited scope in terms of what they can tell you, so when you look at the broader picture of staphylococcus infections, what you really need to be able to do is identify all of the Staphylococcus types, especially the other ones that are multidrug resistant like MRSA so that you can both impact preventing these infections and diagnose them as well regardless of the type of staphylococcus. That is one of the big differences. We have much broader clinical utility so that we can have a bigger impact both on patient outcomes and healthcare costs. In addition, all of the existing tests that are available are based on essentially a single piece of intellectual property, which has been found to be flawed because the targets they are looking at on the bacterial DNA have continued to evolve. Consequently, increasing levels of false positives and false negatives are being reported in the scientific literature in the range of fifteen to thirty percent, which is obviously highly problematic. Our assay is specifically designed to avoid areas of the bacteria’s DNA that are continuing to evolve and or mutate. We are looking at areas of the bacterial genome that are highly stable and ancient avoiding this issue.
CEOCFO: Development is usually expensive; is PathoGene funded to go through the next steps?
Mr. Snowden: Actually the development is not necessarily all that expensive. We raised $875 thousand about two years ago. Using that money, we have funded the in-licensing, design, development and validation of this staphylococcus assay. We are currently raising money to push forward the commercialization and the continuing development of our valley fever test. We are looking to raise another $750 thousand, which will take us through being cash flow positive in mid 2013.
CEOCFO: Have you formulated a marketing plan?
Mr. Snowden: This is part of the beauty of our in-licensing/out-licensing model. We are leveraging the commercial power, the sales and marketing power of these huge global diagnostic manufacturers by licensing the test to them. This generates both milestone payments to us from the time that we licensed the test through certain other commercialization milestones, plus an ongoing revenue stream from them based on royalties. The sales and marketing strategy into the hospital laboratory will be something that the licensees will do in selling the test for use on their instrument platforms. Our sales and marketing effort is focused around more of a business development type strategy where we are actually selling into the executive level of these diagnostic manufacturers to license our assays to put on their platforms.
CEOCFO: Why should the business and investment community pay attention to PathoGene?
We have a highly capital efficient business model which is somewhat unusual
in the medical space, in diagnostics, medical devices or pharma. Most of
these businesses are highly capital intensive and we have done things the
opposite way. While we are projecting revenues for example, in 2016 of
around $16 million, we are also projecting $9 million of EBITDA. Our
business model is very capital efficient. Secondly, we look to leverage
novel intellectual property that is very early-stage, and which the big
diagnostic companies would never notice or be interested in, and then
leverage this intellectual property to develop proprietary patented tests
that have freedom to operate. On the commercial end e thens leverage the
power of the global diagnostic manufacturers. Given we will out license on a
non-exclusive basis we have the potential for many different licensees all
generating royalties into the company. Given the increasing incidence of
drug resistant bacteria, there are an increasing number of opportunities to
develop additional tests. Given what large diagnostic companies have paid to
acquire intellectual property or tests that involve MRSA have been very
large multiples of revenue, up to 45 times revenue, the opportunity from an
investment point of view to realize a significant return on an investment in
PathoGene is also very high.
“PathoGene improves patient outcomes and healthcare quality while lowering healthcare costs through the development and worldwide commercialization of novel, patented, molecular diagnostic tests for infectious diseases, particularly those that are: highly resistant to antibiotics; associated with hospital acquired infections (HAI); or where effective diagnostics do not exist.” - Todd Snowden
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