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Bioanalytical
Systems Inc. –finding out what substances will work for Pharmaceutical Companies
Biotechnology & Drugs
Healthcare
(NASD: BASSI)
Bioanalytical Systems Inc.
2701 Kent Avenue West
Lafayette, In 47906
Phone: 765-463-5801
Peter Kissinger
Chairman and
Chief Executive Officer
Interview conducted by:
Diane Reynolds, Co Publisher
CEOCFOinterviews.com
March 2003
Bio of CEO:
Peter T. Kissinger, Ph.D. is Chairman, President and CEO of Bioanalytical Systems, Inc. in
West Lafayette, Indiana and remains on the faculty of Purdue University as part-time
Professor of Chemistry.
Dr. Kissinger received a B.S. in Chemistry (1966) from Union College in Schenectady, New
York and a Ph.D. in Analytical Chemistry (1970) from the University of North Carolina in
Chapel Hill. Prior to joining the faculty at Purdue in 1975, Dr. Kissinger was a Research
Associate at the University of Kansas (1970-1972) and an Assistant Professor at Michigan
State University (1972-1975). Dr. Kissinger’s academic research has involved the
study of modern liquid chromatography techniques and in vivo methodology for drug
metabolism and the neurosciences. He founded BAS in 1974.
Dr. Kissinger has published over 220 scientific papers and has given more than 400 invited
lectures. The Indiana Health Industry Forum honored him for his outstanding contributions
to the Health Care Industry with their 1999 World of Difference Award. He was elected a
Fellow of the American Association of Pharmaceutical Scientists (1998) and the American
Association for the Advancement of Science (2001).
Company Profile:
Incorporated in the State of Indiana in 1975,
Bioanalytical Systems, Inc. is a drug development firm providing contract research
services and unique products for the pharmaceutical, biotechnology and medical device
industries. It is a leading manufacturer of specialized instrumentation and accessories
for liquid chromatography, in vivo sampling, veterinary medicine and electrochemistry. It
was the first to introduce commercial electrochemical detector for liquid chromatography
and continues to innovate in this and other trace analysis methodologies.
Its laboratories are in the USA and UK and a partner
laboratory in France with Biotec Centre.
The major products/services include:
-
Electroanalytical Chemistry
-
Liquid Chromatography
-
In Vitro Diagnostic Products
-
In Vivo Sampling Products (Whole
Blood and Membrane Sampling)
-
Veterinary Physiological Monitors
CEOCFOinterviews: Mr.
Kissinger, please tell us about Bioanalytical Systems?
Mr. Kissinger: “Our business is one that is focused in a
bridging area in drug development and that is between what we call discovery. Many people
have read about genetics and chromeonics, and bioinfermatics and some of these obscure
terms that are related to life science revolution in terms of looking at the way we
discover new drugs that are potentially helpful for human disease. What we are involved in
is evaluating the output from that science in terms of where it will produce drugs that
are safe and effective in human use. We start in evaluating safety and effectiveness in
laboratory animals and we carry up to clinical trials in humans. For example, we may take
a potential new drug and do a mammalian species with that and try to understand where that
new chemical goes, what it does, how fast it does it and whether there are any adverse
side effects for the animal or human involved in the study. Therefore, this involves a
great deal of a laboratory work, so we are very laboratory intense company. We are
“white coats” people so to speak.
We make measurements that are ultimately used by the pharmaceutical companies when they
file with the FDA (Food & Drug Administration) to get drugs approved. Much of what we
do is finding out which substances are not going to work and to do that as quickly as
possible. This is a business in which you select very few from large numbers so we have to
throw out a lot of potential new drug substances for various reasons, before we find a few
that will be worthy in human use. In a way, companies pay us to tell them that many
of their potential new drugs are no good and are not going to work so that they can focus
on their resources on the ones that will.
We are also unique in that we do this work both on a contract research basis to all major
pharmaceutical companies and we manufacture products that we sell to such companies that
they use in their own laboratories to get the same type of data that we get in order to
file with the FDA. Of course, the end of the game is to try to find drugs that fight
diseases like cancer, diabetes, cardio vascular disease and HIV. Those are a few that we
have specialized in, which will have a big impact on human healthcare.”
CEOCFOinterviews: How
are your revenues generated and what are the percentages generated for each area of your
business?
Mr. Kissinger: “Pharmaceutical companies have two things
they can buy from us, they can buy our experience and our talent in the same way they
would use lawyers or accountants or anyone they would outsource work to or they can buy
our products and have their own people work inside. Sometimes we work collaboratively
where we are both on the project at the same time. The revenue stream at BAS in the last
fiscal year is about 60% in contract research and 40% in products we’ve sold to
pharmaceutical companies. In the upcoming year, that ratio will change to something like
75% or 80% contract research and 20% products, because we are bolting on several
acquisitions in the contract research area.”
CEOCFOinterviews: Some
pharmaceutical companies do feel that it is beneficial for them financially to outsource
this part of their business and this is where your company comes in.
Mr. Kissinger: “We were smaller and less bureaucratic
and we serve a number of different clients so when you are working with 25 different
pharmaceutical companies your talent builds up, your experience level is based part on
what you do with all of the others and that makes you more efficient than working with any
one client. We’re like a law firm, the more cases lawyers work on the better they
get. The more drug substances we work with for diabetes, cancer or cardiovascular disease,
the more we know the rules and can operate more efficiently when the new one comes in.
Further, our people are more trained and well focused and can deliver a data in a quality
manner that is consistent with what the FDA expects.”
CEOCFOinterviews: Are
you working with different chemicals and molecules each time?
Mr. Kissinger: “In general, we are working on a totally
different chemical substances. Molecule we may see from Lilly, Merck, Abbott Laboratories,
Bristol Myers or SmithKline would all be totally different from each other even if they
were oriented in the same disease area.”
CEOCFOinterviews: You
are also in the veterinary area as well.
Mr. Kissinger: “When we evaluate a new drug we are going
to test them on animals and we do this not only for human medicines but for medicines that
will be used for animals and veterinary purposes. We do this for companion animals like
dogs and cats but also for horses, cows, pigs and all sorts of farm animals, which also an
important part of the pharmaceutical business as well. Therefore, for a number of reasons
we are involved in veterinary medicine. We also manufacture instruments that are used by
veterinarians to take electrocardiograms of dogs and cats to diagnose potential
cardiovascular problems. In fact, one of the reasons we are in that business is that it is
a measure that we have to factor when we evaluate a new drug substance as well. It is not
only the chemistry that we measure but it is also the physiological parameters like blood
pressure and hematology and electrocardiograms that help us determine what the influence
and impact of the potential new drug is on a given mammal.”
CEOCFOinterviews: Where
is all of your research done?
Mr. Kissinger: “We actually are spread out
geographically, with our BASI Northwest labs in Oregon and our Central Headquarters of BAS
headquarters and lab in Indiana. We have a drug safety testing facility in Evansville,
Indiana, which we are dramatically expanding right now as we speak. We are closing on an
acquisition in Baltimore, which is another Bioanalytical and clinical trials site in
downtown Baltimore and then we have two locations in the United Kingdom, one south of
Manchester and another one southeast of Birmingham. We are spread out over the US and the
UK because the pharmaceutical research environment in Europe is very strong, very
important and the global companies that we work with range from California all the way
across Europe and Japan, which is another area. There is not much of this type of work
going on in areas like South America or Africa or Australia, there is some in India,
however, it is focused primarily on North America, Japan and Europe.”
CEOCFOinterviews: The
Company was first incorporated in 1975, since then what do you feel has been the major
hurdles that this company has overcome?
Mr. Kissinger: “It doesn’t seem that far back to
me, actually it feels like a very short time. We’ve changed directions a couple of
times, starting out as an instrument business strictly making products for use in academic
research. Then we determined that in order to grow we needed to reach commercial
customers, so in the late 80’s we became very heavily engaged in the contract
research end of the business which was an opportunity that had come up.
Pharmaceutical companies had decided that they didn’t need to be as vertically
integrated as they once were and there would be advantages in outsourcing R&D, which
is something they never even heard of back in 1980. Now this is growing at a very rapid
pace where they are outsourcing more and more just like telecommunications and automobile
companies.
One consistent phenomenon over the last ten, fifteen years is the rise of companies that
are moving away from vertical integration toward outsourcing. That set the bandwagon that
comes up and one of the struggles you have in business is that you don’t get stuck in
a rut and when opportunities come up you try to grab them and run with them and they
change the business model. Therefore, what you were doing five years ago is no longer
valid in what you are doing today. Things change quickly so companies that stagnate tend
to disappear. It’s frustrating from time to time but we enjoy doing new things and
moving in a new direction if we see that is where we can make money.”
CEOCFOinterviews: With
all that you have on your plate, can you integrate your acquisitions successfully and do
you have the cash and or credit to do all of this?
Mr. Kissinger: “Those are excellent questions. I’m
a strong believer in investing when things are down. For example, right now is an
excellent time to do acquisitions, because the prices are lower and alternatives such as
the IPO market, is virtually shut for very small businesses. Many people can’t raise
equity; they have to work with debt capital in order to grow their businesses. This is all
very nice for us. Because we have a reasonable balance sheet, we haven’t been highly
leveraged. There are many small companies in our space looking to join into something
bigger. We have a lot of international experience, which helps us. While it is unfortunate
that the equity markets are largely closed not just to other companies but to us as well,
we have enough assets, we have receivables and buildings that we own. Therefore, we are
able to use those to finance acquisitions at this time.
What we are counting of course is the gamblers game. We are counting on the fact that the
area that we are in is one that is very much needed, with outsourcing growing very
dramatically, big pharmacy are going to have to do more of it and so we are trying to
build capacity. I think Andy S. Grove (Chairman.)from Intel Corporation (INTC) said not
too long ago that the capacity is strategy and we agree with that. When things turn and
come back uphill, we want to have the capacity to grab more business. We don’t want
to wait until the upturn happens, because it takes us about 18 months to put facilities in
practice to meet FDA requirements and 6 months or so to integrate acquired companies.
We try to integrate globally, all of our IT infrastructure, our sales and marketing, our
purchasing and try to look for economy scale across the board in HR and every other area
including medical insurance. Getting all of that done does take time but it puts us in a
nice position when we see the large number of drug substances coming out of the discovery
company that needs to be evaluated for safety and effectiveness before they move on to big
Pharma licensing agreements. It’s filling that gap, which is what we are really
focused on and there is really a lot of business for that. Actually, in the last quarter,
business has picked up quite nicely for us. It’s not a cakewalk at this time for any
company, but as I frequently say, ‘I’m sure glad we’re not an
airline’.”
CEOCFOinterviews: Why
should an investor consider this company over any other company in this sector?
Mr. Kissinger: “We’re small but we think we can
grow at a much faster rate than some of our larger competitors. Our market cap is very low
so we think right now that we are pretty well near the bottom. Basically we have assets
that are much greater than the value of our market cap which is interesting, but that is
certainly true with other companies as well. It is a matter of when you call the turn. If
you think things are going to turn back then we are very well positioned to grow. In the
future, we have to bolt on more acquisitions, but we have a very clean regulatory on
affairs, no problems in our history with the FDA and we think this just a very compelling
business from a healthcare point of view.
What really drives us at the end of the day is the aging population of baby boomers
combined with the new drug discovery methodology. Big Pharma is replacing big blockbuster
drugs with new novel technology that is safer, more effective and brings them good value,
but they are all in a hurry to get work done. We have major clients in the pharmacy in
Pfizer Inc. (NYSE : PFE),Eli Lilly & Co. (NYSE: LLY), GlaxoSmithKline plc (ADR) (NYSE:
GSK) and going forward, we think our client list is high pedigree and that speaks highly
for the quality of work that we do or we wouldn’t be talking to companies of that
quality.
Both our product and contract research mix is unique to relatively few companies that do
both. We win on the product side or if they want, they can contract with us to do research
here. We like products when the gross margins are good and we like services because they
justify very talented base of people who can help us become recognized and branded in the
industry and help us develop our own products. In a way, the pharmaceutical industry helps
us cover the expense in R&D for our products. By making our own products and using
them to do contract research, the cost basis is much lower than some of our competitors
who have to buy these products from us. That is the way it is. In the contract service
business, we are a medium sized company. There are billion dollar companies in this
business and they’re a large number of $5million dollar type companies. We are in the
middle.”
CEOCFOinterviews: You
seem to like geographic diversity.
Mr. Kissinger: “One thing we like is geographic
diversity. We focus on the Biotechs on the west coast, we are very much involved in east
coast, North Carolina the research triangle in Boston, and we have people up and down that
whole corridor. We have two facilitates out there. In UK, we are the strong pharmaceutical
R&D and we have liaison partners that help us in places like Japan and France which
helps supplement our base business. We are aggressive about things even though we are
currently small. I think as things turn we will be able to turn nicely.”
CEOCFOinterviews: Is
there any one client you rely on more than the others are?
Mr. Kissinger: “That is an excellent question. I would
say no. We have a fair amount of business with Pfizer Inc. (NYSE:PFE) and Pharmacia
Corporation (NYSE:PHA). Those two are now in the process of combining into one. You
would think that would be a great threat to us, but between those two companies we work
with them at about 20 different R&D sites around the world and probably on excess of
30 different projects. The business concentration is not there and what we do on all of
these different projects is quite different. They are in different therapeutic areas and
are managed from different locations like California, France, the UK and New York. I think
the last time we looked, last year if they had been combined it would have been something
like 30% of our revenue that will actually drop substantially in the coming year because
of the acquisitions, because we bolted on. We don’t work on any one project that is
every more than 5% of our business. There are many different substances and potential new
drugs that we work on with smaller projects. Therefore, when projects are cancelled it
isn’t as bad with us as it is with other companies that have a much greater
concentration.”
CEOCFOinterviews: Did
you start this company?
Mr. Kissinger: “I started it and I’ve been stuck
here basically. I’ve never had a promotion. I started it and printed up a
business card and said I was the president and I’ve been waiting for a promotion ever
since.”
CEOCFOinterviews: At one
point there was a lot of education being put towards the technology industries with a
shift away from healthcare, how did that impact you?
Mr. Kissinger: “I think that is true. I’d say three
years ago with all of the discussions with telecommunications and dot coms, many young
talented people were directed towards telecommunications and software and so called high
technology, which needs semi-conductors and PDA’s and that sort of thing. However, we
are in pharmaceutical technology, we’re high technology too. It’s just in life
sciences instead of semi-conductors. Obviously, what has happened over the last three or
four years has balanced things out a little bit. The life sciences have come back and look
a little more attractive right now, although, everyone is slow right now there is no doubt
about that. However, I think the recognition is clear, the Internet and all of that are
extremely important and it is extremely important to our business because we use that
technology all of the time. We are a dot com in a lot of ways. A lot of what we’ve
done is due to telecommunications and Internet technology both for products and services.
However, everyone recognizes that technology is not the magic bullet everyone thought it
was back in 1996 and 1997. It’s going to take a little bit longer. I think with
the sobering of the whole process things have swung back into balance.”
CEOCFOinterviews: So you
feel that everything is in order for you to grow your business.
Mr. Kissinger: “Many companies are a little bit down
currently, so now is the time to pounce. Most people grow their business when they hear
everything is going great and by the time they have everything in place to do great
themselves then everything turns and goes sour. We would rather do it the other way and
catch the wave just right.”
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