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With
independent documentation showing that oral fluid is as good as and sometimes better than
urine drug testing Avitar is at the right place at the right time
Healthcare
Medical Equipment and supplies
(AVR-AMEX)
Avitar, Inc.
65 Dan Road
Canton, MA 02021
Phone: 781-821-2440
Peter Phildius
Chairman and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
January 13, 2005
BIO:
Peter P. Phildius, Chairman and Chief Executive Officer: Mr. Phildius has been a
senior general manager of medical product companies. He has served as Group Vice President
and President of the Parenteral, the Artificial Organs and the Fenwal Divisions of Baxter
Laboratories, the predecessor of Baxter Healthcare Corp. Subsequently, he was President
and Chief Operating Officer of National Medical Care as well as a general partner of
Phildius, Kenyon, & Scott (PK&S).
Company Profile:
Avitar, Inc. develops, manufactures and markets innovative and proprietary products for
the oral fluid diagnostic market as well as medical grade polyurethane foam. Oral fluid
diagnostics includes the estimated $1.5 billion drugs-of-abuse testing market. Avitar's
products include ORALscreen® the world's first non-invasive, rapid, on-site oral fluid
test for drugs-of-abuse. Additionally, Avitar manufactures and markets HYDRASORB® an
absorbent topical dressing for the wound care.
In the estimated larger $25 billion in vitro diagnostics market, Avitar is investigating
oral-fluid based diagnostic strategies for disease and clinical testing, such as tests for
influenza, diabetes and pregnancy.
Avitar continues to build and serve an impressive client list of corporations and
institutions, which currently include the following world-class organizations; Ablest,
ADM, C.R. Bard, Bashas, DelMonte, Johnson & Johnson, Kendall Company, Kimberly Clark,
Marcus, NASA, Parsons, SaveMart, Six Flags, Target, and TJX.
CEOCFOinterviews: Mr. Phildius, will you tell us about your
background with Avitar?
Mr. Phildius: “We started about twelve years ago as a
medical device company, serving companies with a range of products from Smith and Nephew
to Merck. About four years ago we introduced a new technology that we developed for
instant oral fluid testing, which is helping to change the paradigm in the way
drug-of-abuse and other in-vitro testing is done today.”
CEOCFOinterviews: How does the oral test compare to the other
forms as far as accuracy and what can it test for?
Mr. Phildius: “The accuracy of the test performs with a
95 to 98 level of correlation, both for sensitivity and specificity to traditional
lab-based urine testing. We currently test for over 99% of the illicit drugs that
are found in the workplace today, including marijuana, cocaine, heroin, methamphetamine,
ecstasy and oxicontin.”
CEOCFOinterviews: How does Avitar’s test become the test
of choice?
Mr. Phildius: “I think it is happening but, it takes a
while to find the innovators and then move to the early adopters. There is always the
inertia to new technology. Besides that, we have the whole laboratory urine testing market
pushing back against the new technology. However now, with the government is saying oral
fluids are good and should be used, and the fact that we have a lot of large Fortune 100
companies using our products, and because capital is being allocated to develop
competitive products to ours, we are starting to see the tipping point in the
marketplace.”
CEOCFOinterviews: Your
website mentions patent pending; how can your protect what you have developed?
Mr. Phildius: “We can and we can’t. There will
never be an opportunity in this area to totally be preemptive with our proprietary aspect.
Although we have several patents protecting us from people trying to copy our innovative
devices like the one we just introduced recently, a one-step process and a one-of-a-kind.
I think when the final answer to competing in this marketplace is how well you execute
your sales marketing strategy and how well you resource out the right people to call on in
management to explain the problem to the people that care about an ROI value proposition.
We don’t fear competition; we welcome it actually. The primary market now is in
laboratory urine tests and the more oral fluid competitors we have, the more we can
jointly accelerate the conversion from urine, to oral fluid. Avitar will be the
benefactor. We only need to have ten percent of the current drug testing market to be a
$150 million revenue company, which is quite a bit of growth.”
CEOCFOinterviews: How do
you market properly and attract the right people?
Mr. Phildius: “The attraction of the right people starts
with attracting the right management assuming you have the right technology, which we do.
We went into the marketplace and hired Peter N. Cholakis for our VP of marketing, and
David A. Greaves for our VP of sales, both out of the high-tech area. They have fifty
years of collective experience in selling and marketing to the C-level in corporations on
and enterprise basis. We have already recruited three new sales people from that arena
that have the ability to sell on a consultative basis at very high levels within a
corporation. It is a selection process that we work hard at. We are doing a good job. In
about a year-and-a-half we will have fully complimented sales force of ten or fifteen top
sales people, both on a national and geographical level.”
CEOCFOinterviews: Are
you selling product now?
Mr. Phildius: “We have anywhere from Fortune 100
companies to midsized and small businesses, including Archer Daniels Midland Company
(NYSE:ADM), SECURITAS, which is a major international security firm including Pinkerton
and Burns, SaveMart, Target, Parsons Corporation, an engineering group, Huntington Bank
and Quest Diagnostics Incorporated (NYSE: DGX). The issue is to start to sell a different
concept vs. pre-employment screening. Right now, 95% of the drug tests are done for
pre-employment screening, trying to keep drug users out of the workplace. That
doesn’t really work; anyone that wants to beat a test; can beat a test. We need to
solve the 110 billion dollar loss to a corporation due to drug users on the payroll. That
number usually equates to about 10% of an company’s work force. We have some
interesting examples of large companies that have used our technology, which is an
enabling technology because it is so convenient to use on the premises. Two processing
companies had a drug usage rate on their workforce of 8 to 10 % and dropped it to 0.7%
over a 2 to 3 year period by using random testing. The reason why that worked so well is
if you have a random testing policy where you work and you are a drug user, you are
probably going to stop using, for fear of losing your job. Random testing is a terrific
deterrent; much more effective than pre-employment testing.”
CEOCFOinterviews: Is
people’s right to privacy as factor in random drug testing?
Mr. Phildius: “There is some resistance, however drug
testing is becoming relatively common in the workplace. When we talk about the issue, one
must realize that usually 90% of the workforce does not use drugs and they do not want to
have drug users working along side them for fear of the many different problems that are
typically encountered, such as accidents, theft and workplace violence, absenteeism, etc.
If 90% of the workforce does not want drug users on the payroll, there is not going to be
an overall resistance to drug testing, especially if you can simplify the process and make
it more dignified. Our oral fluid test is as easy as having your temperature
taken. It’s nothing like the not-so-nice method of providing a urine sample.
Resistance goes away in most cases, especially where health and safety are involved.
CEOCFOinterviews: What
is it that you are actually selling an employer and how are you making money?
Mr. Phildius: “We have several variations and different
methods of using instant oral fluid drug tests. One is a manual drug test and like that
works just like a thermometer. Another version works in conjunction with hand-held
instruments that can record the data and transmit the information to a central location
real-time. In the area of drug testing, those are our primary products. What’s neat
about our approach is our products are very simple, easily accepted, and low cost, as
opposed to the very complex system with urine where you need to send somebody away to a
collection site to provide an observed urine specimen. After the urine specimen is
collected it then needs to be couriered to a laboratory. The test needs to be performed
and the results need to be transmitted to the party that need the information; it is very
complex, labor intensive process, with a lot of paperwork, and its very very undignified
for the employees.”
CEOCFOinterviews: Do you
have other applications for your technology and other testing in the works?
Mr. Phildius: “Yes. We have developed an oral test for
Lyme disease test using our technology platform. In the future, we will be developing
multiple on-site disease tests using our technology. It could be a range of products from
prostate cancer to hemoglobin A1C for diabetes testing. This area of testing represents a
25 billion-dollar market. About 25% of that market has already converted to some form of
instant testing and we think that our platform of oral instant testing will make it even
more efficient.”
CEOCFOinterviews: You
have launched a new website recently; will you tell us more about that?
Mr. Phildius: “Our new site not only provides on our
product but information about the drug testing industry. We have tried to educate our
markets and provide a resource of drug testing information. We also do a product training
over the internet in an interactive way where we provide certification for drug test
administrators. Many times, you will have a corporation in multiple facilities across the
country that need to be tested. Electronically we have a very efficient way of training
these people for the corporation.”
CEOCFOinterviews: What
does the ORALscreen DRUGOMETER® do that you didn’t do before and are there other
variations of the drug testing that works for you?
Mr. Phildius: “Our original product that we brought up
four-and-a-half years ago was a simple to use product. It was a two-piece product where we
had testing icon and an oral fluid collection device. The oral fluid collection device
would collect the oral fluid from the burner and then we would put four drops into a well
on the test icon and the results would be achieved. We decided to make it even more
user-friendly by having a one-piece that needed no manual transfer of the oral fluid. It
works just like a thermometer where put it in your mouth for two minutes, collect the oral
fluid, take it out and within five minutes you can read the results of the test. It is
very user-friendly and would be extremely efficient when we get to disease testing down
the road.”
CEOCFOinterviews: Will
you tell us about the financial position of Avitar?Mr. Phildius:
“We recently announced that we raised a million-and-a-half dollars. We are in the
process as of our public filing, getting close to completing a negotiation for a
ten-million-dollar facility.”
CEOCFOinterviews: Does
the investment marketplace recognize what you have?
Mr. Phildius: “Not really; up until recently we were not
in a position to go out an tell our story. Now the fundamentals suggest that we should and
we recently hired an IR firm and a PR firm to get our story out not only to the general
public, but to the investment community. We started a series of presentations to the
investment community beginning in Boston and New York. We plan to continue that
program.”
CEOCFOinterviews: It
seems that this is a simple process to understand and I would think that people would be
receptive!
Mr. Phildius: “You are right! Whenever I get a chance to
tell the Avitar story about this technology, they wonder why everyone isn’t using
this. That means that it is easy to understand and it serves a real purpose. I have to say
that there is a lot of inertia and with a new product, and of course nobody knew at that
time who Avitar was in the diagnostic arena. People would say who else is using your
product, and we had very few references. Now all of that is behind us. Multiple blue-chip
corporation are using our products, big companies and little companies, across many
different industries. Recognition of Avitar is growing. Furthermore, the government is in
the process of establishing standards for oral fluid. Lastly there is a lot of independent
documentation that collaborates that oral fluid is a superior, effective test medium, and
sometimes even better than urine. I think we are right at the tipping point.”
CEOCFOinterviews: In
closing, what should investors know that perhaps they don’t realize when they first
look at the company?
Mr. Phildius: “I think it is important to know that we
are addressing the workplace market, which is the biggest sector in the $1.5 market. We
are the leader so therefore we will do well in this area. However, there are other sectors
in the market that are equally attractive. One is the school system that is an easy-to-use
drug test. Avitar’s test is not invasive and it provides dignity for the students and
faculty. That is about a six million-dollar test market, which is very sizeable.
There is the criminal justice market; they have a great need for an oral fluid product as
opposed to urine. Many of the parole officers are women and many of the parolees are men;
there is a gender issue in collecting urine from parolees, which oral fluid testing would
eliminate. The international market is growing for us, which is exciting because we have
invested very little at this point. The internet system has brought a lot of business, so
it is apparent to us that it is a big demand in the rest of the world as well. Right now,
ten percent of our business is done outside of the U.S. and is growing at a rate that will
probably increase. All in all, I think it is a very attractive market, which we can expand
to several billion via various product and market development strategies. Besides being
the first mover in this business, we are focusing in drugs of abuse testing and we are
constantly trying to upgrade our product as indicated by the recent introduction of the
ORALscreen DRUGOMETER®.”
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