Osmetech said last week that it has terminated a six-month-old US distribution agreement with a unit of Thermo Fisher Scientific in favor of building its own direct-sales force in the US.
The company said in a statement that it and the unit, Fisher HealthCare, "mutually agreed" to end the five-year distribution agreement for Osmetech's eSensor XT-8 microarray-based molecular diagnostics system. The firms signed that agreement in March (see BAN 4/7/2009).
At the time, then-CEO James White told BioArray News that the company entered into the agreement because its US sales force was too small to address the demand for its tests.
The Fisher HealthCare deal "gives us good coverage across the US [and enables us to] deal with pent-up demand we were struggling to get to and also reach new hospitals as they decide that they want to get into warfarin or [cystic fibrosis] testing," he said at the time.
But recent top-level management changes and improvements in instrument placements have caused Osmetech to reconsider the distribution deal.
In July, White stepped down as CEO and resigned as a director. Osmetech appointed as co-CEOs Chris Gleeson, non-executive chairman, and Faiz Kayyem, non-executive vice chairman. In September, Kayyem became the firm’s sole CEO, while Gleeson was made chairman.
Kayyem told BioArray News via e-mail this week that the company’s new management believes that while Fisher had a broad reach into the market, "a smaller, very focused direct sales force is likely to be more effective [and] more productive."
The company, based in Pasadena, Calif., "now better understand[s] that placing the XT-8 instrument" on its own in the US may help it better nurture customer relationships, which could in turn increase sales of its FDA-cleared tests, and improve its profit margins, he added.
Two tests for use on the eSensor XT-8 have been cleared by the US Food and Drug Administration to date: a warfarin-sensitivity test, which was cleared in July 2008, and a cystic fibrosis genotyping test, which was cleared in July 2009. Osmetech also offers a research-use-only test for 2C9 drug metabolism.
Kayyem said that Osmetech currently employs five sales representatives in the US and plans to hire two more by the end of the year. This number is expected to increase over the next three years to between 12 and 15, he said. The company also plans to expand its internal and external marketing efforts.
Foremost is a plan to target "key molecular diagnostic testing laboratories as well as clinics that have been established to dose and monitor the administration of certain therapeutic drugs," Kayyem said.
Kayyem said Osmetech plans to focus on the "less than 1,000" labs that perform molecular tests.
"We think these labs are not only most likely to become Osmetech customers and to be high-volume users of our tests, but also to be a valuable source of market information as we decide which new tests to develop for our XT-8 platform," he said.
More Tests, More Placements
The change in sales strategy comes as placements of the eSensor XT-8 platform have increased in recent months. Earlier this month, the firm, which trades on the London Stock Exchange's Alternative Investment Market, reported that revenues for the six months ended June 30 rose 131 percent to £295,560 ($470,924). It attributed the rise to sales of its eSensor Cystic Fibrosis Carrier Detection Test and Warfarin Sensitivity Test.
Total mid-year product sales increased 140 percent to £277,793 while license revenues increased 42 percent to £17,767.
As of June 30, Osmetech’s installed base of eSensor 4800 and XT-8 instruments stood at 16 and 43, respectively compared with 16 and 18, respectively, for the six months ended Dec. 31, 2008.
Going forward, the company will not report on the number of eSensor 4800 placements and will only report on the newer eSensor XT-8 instruments under contract, it said
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Describing the company’s existing assays, Kayyem said that Osmetech has so far focused its sales efforts on transitioning existing CF customers from the eSensor 4800 to the new XT-8 instrument. That transition is nearly complete, he said, "so now we can expand our efforts to drive CF test sales with existing customers and new prospective customers as well."
In a statement reporting the company's mid-year earnings, Gleeson said that the firm is "principally targeting those reference laboratories and hospitals that already possess molecular testing skills but currently do not have a solution for our particular tests."
These potential customers "will typically be sending their testing out to larger institutions, but would prefer to retain testing in-house in order to provide faster results for the patient and to improve the cost effectiveness of their laboratories," he said.
Gleeson added that Osmetech's business model is to provide customers with an instrument "via outright sale or under a reagent-rental agreement earning Osmetech revenues from the ongoing annuity sale of tests." Under the reagent rental plan, "the customer incurs no upfront capital expenditure, has minimal labor costs, and dedicates only a small amount of laboratory space for running the test."
He added that the company expects this business model to give the firm "a high-quality revenue stream of repeat consumable business with growth from an increase in both the number of customers and the number of tests per instrument through the expansion of our test menu."
Osmetech also plans to develop an expanded version of its warfarin-sensitivity test that will include several additional markers, including the CYP450-4F2 biomarker that the company licensed from the Marshfield Clinic last year.
Osmetech said that it has withdrawn its FDA 510(k) application for this test and plans to re-submit "an expanded application for clearance, following the anticipated near-term publication of an external prospective study addressing the clinical utility of these additional markers."
The company is also developing a respiratory viral pathogen test that is intended to detect and identify "major respiratory viruses," and plans to adapt Qiagen's QIAplex-based respiratory viral test for use on the eSensor XT-8 system.
Osmetech said that it plans to submit this test for FDA 510(k) clearance following clinical trials that are "expected to begin this year and to be completed in the first half of 2010."
Earlier this year, the company had submitted an Emergency Use Authorization request with the FDA for the use of the test as a screen for the H1N1 virus, but the agency has declined the request, Osmetech disclosed in its financial statement.
Also under development is a venous thrombosis tests that detects Factor II, Factor V, and MTHFR mutations, which are associated with increased risk of blood clots. Clinical trials for these indications are "planned," Osmetech said, and the company expects to file an application for 510(k) clearance "later in 2009."
While he declined to comment on regulatory status of these tests, Kayyem said the company expects to have them all on the market in 2010. He added that all three tests "have performed well and will meet or exceed market expectations once launched."
Elsewhere in its earnings report for the first half of the year, Osmetech said net loss declined 17 percent to £6.6 million from £5.5 million.
Research and development costs dropped 46 percent to £588,319 from £1.1 million in the first half of 2008. The company said that the decrease "reflects the successful completion of the eSensor XT-8 System product development program in the first half of 2008, with the focus now on the development of new tests."
As of June 30, Osmetech held £5.4 million in cash and cash equivalents. This includes net proceeds from a share placement that raised £5.1 million in late June.
Gleeson noted that in spite of its recent fund raising, "financial markets remain challenging and consequently we continue to examine all strategic options for Osmetech to ensure that we have adequate funds for our future requirements."
Kayyem said this week that company will need additional financing over the next three years, "and we are confident this can be achieved given our existing and new investor base and the prospects for the Osmetech business."