HCV portable diagnostic device

Ajith JinjilDaniele QuerciaLauren AresRichard Dias Azedo

Outline

Customer pain and our proposal HCV in the world and in the UK In-vitro and molecular diagnostics Value chain and business model GP practices & barriers to adoption Team analysis Summary and conclusions

Customer pain that our venture proposes to resolve:

Medical practitioners cannot screen all patients for HCV as they have to send away blood samples to laboratories for testing

This results in few patients being screened for HCV because of:

the large number of samples required, the associated cost, and the time required for taking samples, carrying out

the tests and obtaining the results

Our proposed offering:A portable HCV testing device

Our venture will enable medical practitioners to:

Administer a diagnostic test at point-of-care Provide almost instantaneous results Enable doctors to screen all patients Make timely decisions on medical treatment and

further tests Operation requires little training Help to reduce cost for diagnosis, therapy and

healthcare in the middle-term

Daniele Quercia

Value curve

-4

-3

-2

-1

0

1

2

3

4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Dimension

Dim

ensi

on

Val

ue

1. Testing time2. Testing costs3. Portability4. Effectiveness5. Number people screened6. Information provided 7. Testing flexibility8. Chances of error9. Invasiveness of procedure10.Ease of use11.Expertise required12.Fit with current practices13.Responsibility of results14.Doctor Time15.Timeliness of treatment

The following graph shows the dimension values for the portable diagnostic device vs the traditional lab offering (constant dimension value equal to 0):

HCV in the world and the UK

•170 million people across the world (3% of world population) are infected with chronic hepatitis C

•Wildly varying prevalence rates across countries

• In England 200,000 people are chronically infected (0.4% of UK population)

•Five out of every six people with chronic hepatitis C are unaware of their infection

•To diagnose all infected cases, the whole population should ideally be screened ( UK population 2001: 58,789,194)

•Anti-viral therapy costs £10,000; Liver transplant costs £68,000.

•Estimated savings from therapy instead of liver transplant: 1,044,000,000 over twenty years

(2)(1)

Year 2002 2003 2004 2005 2006 2007 2008 2009 2010

Number of new infections 3800 3358 2968 2623 2318 2048 1810 1600 1414

= 31037 new patients since 2000(3)

(4)

UK new HCV patient trends

Global market for HCV testing

Estimate of UK market:

2.596 billion * 6%

= 156 million (2005)

= 376 million (2008)

Trends

HCV receiving more attention by health authorities around the world Focus on preventive care and therapy

Increasing government spending on healthcare in the UK

Healthcare reform - trend toward cost containment

Macro-market assessment: Attractive

In-vitro diagnostics industry

IVD is a mature market More than 20 billion blood tests are performed

annually worldwide. Traditional IVD is dominated by a few large

players Patents and licenses for nearly all existing

applications are claimed Competition is intense at the market level and

is focused on cost in diagnostics

Total world market for IVD in 2003 –

28 billion USD 7% annual growth Projection for 2008 –

39 billion USD UK share ~ 6%

IVD includes Hospital-based Over-the-counter Point-of-care

Estimated industry

size of P-O-C

segment in UK:

= 67 million (2003)

= 94 million (2008)

IVD industry segments

Molecular diagnostics (NAT)

Definition: Diagnostic tests of fluid samples using biochips

Numerous small players emerging More than 400 companies are involved in molecular diagnostics

Lots of competing technologies Convergence of semi-conductor industry and bioscience

Smaller companies have to: Establish distribution and sales collaborations Obtain right to use patents and licenses Get regulatory approval through clinical trials

Technology problems Cost, integration and live applications

Molecular diagnostics (NAT)

Molecular diagnostics is the fastest-growing subset of the IVD industry with 15% annual growth

Molecular diagnostics (NAT)

1. Threat of entry: Medium (On-going R&D, Patents, Regulation);

2. Existing rivalry: High (mail-in test, labs at hospitals, many large and small competitors in the IVD industry);

3. Substitutes: None;

4. Buyer power: Low-Medium (fragmented, switching costs);

5. Supplier power: Medium-High (suppliers with patents).

Five-forces assessment

Macro-industry assessment: Unattractive

Where we are:

Customer pain and our proposal HCV in the world and in the UK In-vitro and molecular diagnostics Value chain and business model GP practices & barriers to adoption Team analysis Summary and conclusions

Value chain in IVD-NAT

Business modelConcept and Design Device design completed internally

Two components: Instrument and cartridge

Raw materials License non-proprietary technologies such as bio-sensor and

reagents

Manufacturing Outsource the assembly and manufacturing

Clinical trials Enter into partnership agreement for clinical trials

Marketing, sales and distribution Enter into partnership agreement for sales and distribution

Sales and GM forecastYear 1 Year 2 Year 3London Medium England

Devices Revenues from device sales 160,700 201,250 375,911

Cost of goods sold 72,379 90,003 166,623 Gross margin on devices 88,321 111,246 209,289

Gross margin % on devices 55% 55% 56%

Cartridges Revenues from cartridge sales 6,131,610 11,080,648 35,017,325

Cost of goods sold 5,747,362 8,023,972 19,351,112 Gross margin on cartridges 384,248 3,056,676 15,666,212

Gross margin % on cartridges 6% 28% 45%

Net operating margin forecast

Year 1 Year 2 Year 3London Medium England

Total revenues 6,292,310 11,281,898 35,393,236 Total COGS 5,819,742 8,113,976 19,517,735 Gross margin 472,568 3,167,922 15,875,501

Operating costsResearch and development 2,456,005 3,497,388 7,786,512 Selling, gen & admin 3,838,309 4,964,035 7,432,580 Licensing fees - UCL 564,616 814,095 1,250,000 Licensing fees - Biosensor 562,923 612,819 853,932 Total operating costs 7,421,853 9,888,337 17,323,024

Net operating margin 6,949,284- 6,720,415- 1,447,523-

Cash requirements analysisStage 1 - Feasibility

Basic research & feasibility studies 50,000- Stage 2 - Prototype

Prototype development 100,000- Stage 3 - Sourcing & distribution

License fees 750,000- Contracts, patents, incorporation 150,000- Regulatory clearance & trials 500,000-

Stage 4 - CommercializationShortfall funding year 1 6,949,284-

Total cash requirements year 1 8,499,284-

Shortfall funding year 2 6,720,415- Total cash requirements year 2 6,720,415-

Shortfall funding year 3 1,447,523- Total cash requirements year 3 1,447,523-

Business model assessmentFavorable Recurring nature of

cartridge sales High margins on

instruments and cartridges

Low capital requirements

Unfavorable Unfavorable cash

cycle High cost of

cartridges High R&D costs High SG&A costs

Overall micro-industry and business model assessment:

Moderately attractive

GP practices in the UK

There are 10,683 GP practices in EnglandExpected to decline slightly in future

Declining number of patients per GP A decrease of 12.5% per year

Low and declining rate of incidence of HCV in the UK

Barriers to adoption Practice issues Low rate of incidence Condition doesn’t require immediate diagnosis Doctors are very protective of time Changing behavior from laboratory testing

Structural issues Patient counseling Information management Sufficiency of infrastructure Ethical and legal issues

Overall micro-market assessment:Unattractive

Team analysis Mission, aspirations and propensity for risk

Empowerment of doctors Improving disease diagnosis Medium propensity for risk

Ability to execute on the CSFs R&D Sales and distribution Partnerships

Connectedness up, down and across Limited connections with R&D institutions

Summary and conclusions

Feasible Macro market

Growth and large infected population

Micro industry Viable but may not be

sustainable

Infeasible Micro market

Barriers to adoption

Macro industry Structure

Team Inability to execute on

CSF

Overall: Infeasible

Alternatives

Develop device for acute infectious conditionsMeningitis

Other target segmentsHospital emergency rooms and ICUs

Other geographic markets License the technology

Any questions?

Research questions and results

Would the possibility of having instantaneous results on HCV be something that medical practitioners and health organizations would be prepared to pay for?

Would other diseases be better targets? Would other markets be more attractive than the UK? Is there a true need for instantaneous medical

diagnostics? Would competition arrive so rapidly from so many fronts

as to preclude the ability to generate significant returns? Are there so many patents and regulation as to make

development unfeasible?