CanScan

The CanScan team had the pleasure of interviewing Dr. Nicholas Conti of Quest Diagnostics.  As a VP of Business development, his key activities include the evaluation of novel technologies, negotiation and structuring of licensing and strategic alliance agreements.  With over 8 billion dollars in revenue, Quest Diagnostics is the world’s largest laboratory services company, and a potential key partner and customer of CanScan’s core technology.

We wanted to understand  their licensing and strategic alliance models with respect to adopting and incorporating new diagnostic technologies into their vast portfolio.

Key reasons why a diagnostics start-up like CanScan would partner with Quest:

1.Access to vast network of physicians and hospitals

2.Strategic alliances in the form of revenue sharing agreements provide investments toward technology validation and development

Key reasons why CanScan would not partner with Quest (at least initially):

1. All testing of patient samples will be conducted and retained within Quest laboratories, a crucial element for future IP generation and growth.
2. Limited revenue opportunities, strict licensing agreements, and potential cannibalization of technology

Key quote: “Quest does not rent out our distribution network”

~ special exceptions seem to exist, eg. OncoType DX

Key points: You can license the technology to Quest, form a strategic alliance, or become a direct competitor…

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Interview Transcripts/Summary
Q: Can you tell us some of the reasons why a startup would enter into a licensing or strategic alliance with Quest Diagnostics?
A: The primary reason is access to our vast distribution network. Currently we process over 150 million patients samples each year, with service agreements with over 160,000 physicians across the US .  We have over 30 regional labs that provide core diagnostic services, with 2 additional centers for esoteric services (low yield, experimental) located in each coast.This type of volume is supported through a transportation network of over 2000 vehicles and 21 commercial airplanes.  We provide daily pickup of patients samples at most hospitals, with turnaround time occurring in little as 24 hours.  In addition, we have over 2000 patient service centers, where patients with requisitions from their doctors can drop-in, have their blood drawn for testing.

A secondary reason is our asssistance with preclinical validation and assay development. Most start-ups in the diagnostics field face many challenges to entering into market – Including the costs associated with validating and certifying  the technology, and the marketing required to promote the technology.  Additional obstacles include navigating the complex payment structure of hospitals, insurance companies, and medicaid/cms – this requires a significant amount of resources that many smaller companies simply don’t have.  Strategic alliances with Quest will provide academic institutions and companies access to over 900 MD’s and PhDs dedicated to research and development of such technology, with funding available for initial preclinical validation all the way through FDA clinical trials.

Q:What is required before Quest will consider adopting a new technology?

A: Generally, the three things will need to happen. 1. Strong patent around the technology (for licensing). 2. Clear validation of the technology, through publications, and acceptance of the technology within the scientific community. 3. Quest will have to reproduce the published results within their own labs.  Preclinical validation to demonstrate utility (200 to 400 patients), and comparison with competing technologies.  General buzz and interest from Physicians is also crucial (buzz at an ASCO conference).

Q: Does Quest currently provide CTC testing?

A: Yes, we offer Veridex’s CellSearch system.  Currently, this is a low volume or esoteric serivce that we offer. The main customers seem to be Research institutes, with clinical physicians mainly ordering the service for research purposes and further validation studies. I don’t feel they have clearly demonstrated a value for enumerating CTCs, there needs to be more research in terms of clearly defining a value for the patient and physician.

CanScan Class 5 business canvas - added Pharma as a potential customer (revenue while waiting for CPT codes), updated Channels based on lecture and textbook.  More changes likely to come before class on Feb 27.

As I learn more about operating in the healthcare space, I see all kinds of barriers for new companies.  Massive regulation, powerful payors that make it difficult to get any new product or service re-imbursed (the life-and-death battle for a CPT code) and ceilings to what you can charge for your services.  The most successful new company doing something similar to us is Genomic Health with their Oncotype DX test platform, and they have grossed over $700M in revenue over the last 5 years and are just now turning their first profit.

I look at these issues and wonder if there is a “blue ocean” in there somewhere; a new operating model in which we can deliver brand new value to our customers but somehow avoid many of the largest problems or costs associated with the healthcare industry.

The key might lie in finding a way around two hurdles that we will eventually face:

1) You can go broke while waiting to get a CPT code approved and waiting for medical insurers to approve your service for reimbursement.

2) You have a logistical problem in getting the fresh specimens to your lab for timely processing.

Could solving one or both of those problems be key to creating an ultra-competitive business model?

Maybe there is a new model wherein the patient is the direct payor, in which case we would have to really increase the value we provide to the patient.  MyCancerManager app?

Now that our eyes have been opened to the fact that a large portion of the diagnostics market we are trying to enter is dominated by outsourced laboratory services,  we set about learning  a little bit more about the rules and regulations that govern these organizations.  These entities are generically known as Clinic Research Organizations or CROs – Quest Diagnostics being an example of one.

We started the search by simply calling a local CRO, but weren’t met with a very warm reception.  We were told that they were not able to share even basic information about their business model with us.  They were, however able to tell us a little bit about the validation required by a new diagnostic service before it can be considered for adoption into a CRO’s catalog of test offerings that is shared with health care practitioners across the nation.

After conducting our own testing and validating CanScan’s process and procedures, we would need to submit it for testing at a Clinical Laboratory Improvement Amendments (CLIA) licensed lab.  This lab would be charged with reproducing and validating our findings.  CLIA is the government’s quality assurance for diagnostic testing on human samples, and there are a range of CLIA certified lab types – some are run in Physician Office Laboratories (POLs) and some at free standing labs.

The CLIA testing process is fairly complex and extensive.  But, if our process and protocols work, they should be fairly straightforward to reproduce.  If we are able to have our results validated, this would open the door to any number of CRO’s that might be interested in partnering with us.

Our business model is based on having a new procedure for testing for/measuring cancer in the bloodstream.  It’s a useful new procedure developed by James, and it provides all kinds of benefits over current tests.  One major problem with the test though: we haven’t performed it on human blood.  It works for mice, and we’re pretty confident it will work on people, but as part of the prototyping phase we need to prove that it works on humans.

So just grab some human blood and try it right?  Easy enough to get blood that we are confident should NOT have metastatic cancer in it; just use our own.  So have you ever tried to get a fair bit of blood out of yourself in a safe and clean way?  Turns out professional clinics are happy to take out your blood, but they won’t hand it over to you.  It’s yours, but they can’t give it to you.  Same with professional mobile phlebotomists.  So now you have to find a professional who knows you and trusts you to draw blood and hand it over.  Or you have to let James stick you with a needle and try to forget that he has never actually done it on a person before and tell yourself that drug addicts use needles all the time so it can’t be that hard…

So if anyone out there uses needles professionally and doesn’t mind drawing some blood and giving it back to me, please drop me a line at dale_fedun@mba.berkeley.edu

Now assume that we get the blood out of us and run our test and happily find no cancer in our blood.  It’s time to run the test on blood that we feel very certain DOES contain cancer.  But you can’t pick that up at Safeway.  Where can we get it?

-We’ve got some calls out to various Human Specimen providers (like ProMedDx) to see if they have the specific blood we need and how much it will be to buy.  No luck yet but likely to be prohibitively expensive.  Could be an option though.

-Find a volunteer to provide it.  We need to find someone that knows they have metastatic cancer to volunteer to provide us with a blood sample.  They have to be located relatively close by so we can drive there.  And we need to figure out how to get the blood out of them, so we need a doctor or nurse or EMT or someone qualified to come with us.  So we need two very specific volunteers.  If you or someone you know might be interested in helping us, and you live in Northern California, email me at dale_fedun@mba.berkeley.edu.  We’ll happily pay you.

Just joined the CanScan team, replacing the previous “tech” partner.  I’m a cancer survivor, so I know what cancer patients go through and some of their needs, and I’m thrilled at the prospect of creating something that will help fight cancer.  My professional background is in managing large, complex technology projects.

I expect that right now my main contribution to the team will be helping to focus our idea, contributing to a plan to get us to prototype and potential customers, providing ideas/strategies/insights for our business model generation, and just plain horsepower to get us more customer feedback.  Eventually I’ll be responsible for providing the IT part of our prototype.

I’m excited about my team members: Brian is smart, resourceful and driven; Nelson has interesting ideas, and James’ enthusiasm, passion, and vision will carry us to where we need to go.

Our interview with Dawn England, the Director of Quality Control and Patient Safety at Children’s Hospital of Los Angeles, has helped us identify an important customer segment, Laboratory Services Providers (eg. Quest Diagnostics).   We will be evaluating this customer segment further, by conducting interviews with respect to their technology adoption and licensing strategies.

The CanScan team spent most of superbowl weekend coming up with an effective work plan for the coming weeks. Having conducted numerous interviews, we realized that Laboratory services providers (alternatively, clinical research organizations, CROs) may not only be a key partner, but also a major customer segment. We’ll be conducting interviews with representatives of CROs to better understand their purchasing decisions.

-Brian standing in front of the Alta Bates Medical Center in Berkeley, CA

The CanScan team has been visiting various Cancer centers in the Bay Area, with the goal of understanding what medical professionals are looking for with respect to adopting new technology.  So far we have not been very successful, but the visits will continue… On deck are: Children’s hospital in Oakland, and UCSF medical center.