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Divergent Views on Future Biz Strategy Behind Recent CEO Switch at Guava

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Guava Technologies announced unexpectedly last week that Rajen Dalal, the company’s president and CEO for the last three years, has resigned.

Taking over for Dalal on an interim basis is John Walker, the chairman of Guava’s board of directors.

Last week, Dalal told Inside Bioassays that his decision to resign was primarily due to a disagreement about which markets Guava should commit the bulk of its money to over the coming year: drug-discovery tools or clinical diagnostics.

“The decision to [resign] was to be able to give the board — that is, mostly the investors — the flexibility to drive the company in the direction that they want,” Dalal said. “I’ve been with the company for nearly three years, and we’ve grown. We’ve quadrupled sales ... and taken the company closer to the transition from a supplier of R&D solutions, to a patient-monitoring and clinical diagnostics company.

“My vision is to take the company further in this direction — more product development and further expansion in the diagnostics market,” Dalal added. “Based upon our structure and financial strategy, the company’s desire is to focus on certain [near-term] markets, and I think that’s where we’ve had different views. It’s mostly just a question of timing as to where you put the company’s resources.”

Although Guava didn’t provide a reason for Dalal’s sudden departure, last week Louise Saufley, Guava’s marketing communications manager, told Inside Bioassays that the move was a result of some broad “changes” the company would be making in the future.

“In a general sense, at the beginning of a fiscal year there are sometimes a lot of changes made as far as organizational direction,” Saufley said. “Sometimes the board of directors is very involved with steering the direction of the company, and apparently they felt that a change from the top was necessary to implement these new changes that are coming down the line.”

Calls to several of Guava’s board members seeking comment on the reason for Dalal’s departure were not returned in time for this publication.

In May of last year, Guava made its debut in the medical diagnostics market with the official commercial launch of its Easy CD4 system — based on Guava’s flagship Personal Cell Analysis (PCA) platform — for CD4 and CD8 T-cell enumeration in blood samples of HIV-infected patients in underserved areas of the world, such as Africa.

The company rolled out the microfluidics-based platform with claims that it had the potential to reduce the cost of T-cell enumeration tests 20-fold, and that it would be a more accessible testing platform because of its small size and ease of use. The move introduced Guava as a player in a market firmly dominated by flow cytometry giants Beckman Coulter and Becton Dickinson, each of which already had larger flow cytometry platforms entrenched in core labs throughout underserved countries. (See Inside Bioassays, 5/11/2004)

At that time, Jeff Harvey, Guava’s vice president of customer service, told Inside Bioassays that the company had put the platform on the market in Africa as quickly as possible after having “set up several very rigorously controlled multi-site evaluations … compared to those more conventional approaches, and using those results to establish to government officials [in Africa] that our system works as well as theirs.”

Harvey added that Guava would eventually seek FDA approval for the Easy CD4 system as a clinical diagnostic product, although he did not specify a timeline for such an endeavor. It is unclear at this time whether Guava still hopes to seek FDA approval for the platform. Calls to Guava officials regarding its intentions in this area were not returned in time for this publication.

However, since the Hayward, Calif.-based company was founded in 1998, Guava has primarily been a drug-discovery tools provider. Its strategy in that market space has also been to develop more compact, affordable, and easy-to-use technology, and it has seen some success. Guava has marketed the PCA and PCA-96 platforms as small-scale drug-screening instruments. Although the platforms are by Guava’s admission not suitable for primary drug screening, they are capable of performing many of the basic cell-based screens — such as cell cycle, apoptosis, and viability — that are often performed on more expensive image-based systems.

Guava has enjoyed five-fold revenue growth over the past three years to $10 million, and garnered clients at the top 20 pharma companies, the top 10 biotechs, and the National Institutes of Health.

Dalal, however, sees the spending spree slowing down, and with it a much more difficult challenge for companies such as Guava to generate revenue from drug-discovery tool sales.

“When the 2004 revenue and earnings begin to roll out on a company-by-company basis, I think that we’ll see that for most companies, 2004 was a really challenging year,” Dalal told Inside Bioassays last week. “And the environment, I believe in the coming year, is still going to be challenging for companies like ours to grow.

“NIH spending is growing in the low single-digits, unlike how it was growing in the late 1990’s — [which was] much faster,” he added. “And there’s a lot of pressure on the pharmaceutical companies to conserve cash, and control their budgets, so there are fewer and fewer ways for investors in smaller companies to see a return.”

Dalal said he sees much greater long-term growth potential in clinical diagnostics, particularly for HIV monitoring, citing the continued slow trickle of resources to Africa and other underserved nations for HIV treatment. In particular, he noted that the World Health Organization’s plan to have three million patients off of HIV treatment by 2005 is behind schedule.

“Here we are now in February of 2005, and I think the expectation is that it’ll be a real challenge to meet that target,” Dalal said. “Maybe the rate of treating new patients will accelerate, but my expectation is that the entire roll-out will take a lot longer.

“The funding for HIV treatment and resources … hasn’t been made available as quickly as some would have hoped, to countries in Africa and so on,” he added. “So in some respects, the growth of the CD4 testing for patient monitoring will grow as the funding for the drugs grows.”

Nevertheless, Dalal doesn’t foresee Guava scrapping the CD4 testing platform.

“It’s just a matter of priorities,” he said. “The CD4 product is out there, it’s in the market. There are lots of clinical studies, and there is a lot of interest on a global basis.

“I think that the Guava platform is ideally suited to decentralize clinical testing, and I’m quite confident that in the long run that the Guava platform, and other platforms and systems, will serve those market segments.”

— BB

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