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Spectral Diagnostics is
establishing a distribution network in Europe with companies who have focused in the area
of sepsis and blood purification and are capable of properly representing their diagnostic
products to clinicians
Healthcare
Disease Management
(SDI-TSX)
Spectral Diagnostics Inc.
135 The West Mall
Toronto ON Canada M9C 1C2
Phone: 416-626-3233
Paul M. Walker, M.D., Ph.D., F.R.C.S.C
Director, President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published - April 12, 2007
BIO:
Paul Walker, M.D., Ph.D., F.R.C.S.C
Director, President & Chief Executive Officer
Dr. Walker left the position of COO of the Toronto General Hospital to join Spectral
Diagnostics Inc. as President and CEO in April 2001.
Previously, Dr. Walker was Surgeon in Chief and Vice President of the Surgical Directorate
of the University Hospital Network. Dr. Walker was an active Vascular Surgeon and the
Director of the Intensive Care Program, and Professor of Medicine and Laboratory Medicine
at the University of Toronto.
Dr. Walker received his M.D. from the University of Western Ontario, his Ph.D from the
Salgrenska University of Göteborg Sweden, and is the author of over 100 scientific
publications. Dr. Walker is a graduate of the Advanced Management Program from Harvard
School of Business.
Company Profile:
Spectral Diagnostics Inc. has designed, manufactured and is distributing novel diagnostics
products that enable clinicians to institute appropriate treatment in a manner of minutes
not the usual days or hours. Our Sepsis assay the EAA™ is the first FDA approved
assay for the early diagnosis of sepsis, one of the major health care challenges
worldwide. Our FDA approved rapid assay for West Nile Infection, will identify exposure to
the West Nile Virus in patients rapidly and direct proper care.
CEOCFO: Dr. Walker, what was your vision
when you joined Spectral Diagnostics and where are you today?
Dr. Walker: “Spectral Diagnostics was
formed in 1991 and was focused at that time particularly on the area of rapid cardiac
diagnostics. I joined the company in April of 2001, and in addition to the rapid cardiac
diagnostics, my focus was to bring forward products in the area of rapid diagnostics for
other disease processes particularly in the area of sepsis and other forms of
infection.”
CEOCFO:
Why the focus on sepsis?
Dr. Walker: “Part of my history has
been as a critical-care physician for approximately 20 years. In that position I felt that
the lack of rapid diagnostics in the area of critical care was an unmet need and would
particularly benefit patients if we could produce something that was useful.”
CEOCFO: You have the first FDA approved
diagnostic tool for sepsis; will you tell us about it?
Dr. Walker: “This is a test for
endotoxin or LPS (Lipopolysaccharide). Endotoxin is a component of the external wall
of Gram-negative bacteria, and can enter the blood stream in three different ways; first
is, if for example, with a lung infection with a Gram-negative organism, rapidly
reproducing organisms will shed endotoxin into the bloodstream. Secondly, inhalation of
endotoxin definitely occurs in situations where there is endotoxin in the environment,
which is not uncommon in animal care workers. Perhaps the largest source of endotoxin that
any of us is exposed to is in our gastrointestinal tract. We have about 1012
microorganisms in our body, which is interestingly about the same number of cells. We have
about 25 grams of endotoxin in our gastrointestinal tract, which is necessary for our
digestive processes, but in fact is a very lethal compound if it gets out of the GI tract
and into the bloodstream. This translocation can be caused by several different events.
For example, any form of infection, which affects the permeability between the GI tract
and the bloodstream allows the escape of the Endotoxin into the bloodstream. Shock or a
drop in blood pressure, or other causes such as trauma, burns, and transplantation can
disrupt this delicate balance and allow Endotoxin to be translocated.”
CEOCFO:
Where are you in the development and rolling-out process of your test?
Dr. Walker: “We have FDA approval of
this test. We have conducted approximately 20 studies now in the post-marketing period,
introducing the assay and gaining greater clinical experience with it. We have significant
involvement in Europe and Japan now particularly related to anti-endotoxin therapies,
which are in fact approved in Japan and Europe and are paired very nicely with our
endotoxin assay. The advantage of this endotoxin assay is it takes about 30 minutes to get
a definitive result and this is very good for directing therapy.”
CEOCFO:
How do you get attention?
Dr. Walker: “We are developing a
knowledge leader base in the United States, which is becoming quite extensive. Our assay
is being used in major centers, coast to coast, California to New York, under a number of
different circumstances, but predominantly to identify patients at risk for endotoxemia
and sepsis. We expect that we will be rolling this out in a much more commercial basis
over the next 12 months in the United States. We are further along in Europe, essentially
because they take up technology such as this quicker than the United States in general,
and the therapeutics for which it is matched are approved there and not yet in the United
States.”
CEOCFO:
Tell us about the assay system; will people be buying a device and disposables?
Dr. Walker: “The assay system includes
a small Chemiluminometer, which does the automated reading for us. There are beaded
reagents in glass tubes, to which whole blood is added and the assay then is read. It is
not necessarily a point-of-care test but it is a near patient test. It is being used
currently in emergency departments in Europe and Japan for instance, where testing tends
to be more distributed within the hospitals. The business model is related to the reagents
and not to the instrumentation. The instrumentation is relatively straightforward and not
proprietary although we have adapted a Chemiluminometer, specifically for our assay.”
CEOCFO:
Do you expect to see your test as the standard as time goes on?
Dr. Walker: “We are bringing to market
the only FDA approved assay for endotoxin, in addition to being a proven biomarker for
sepsis. In addition, we see it being the industry standard for measurement of endotoxin
and we see it being the prime biomarker for a number of different disease processes. The
concept of Endotoxemia as being associated with several diseases has been around for a
long time; it is just that there has never been a way to measure it clinically reliably.
It is a very complex molecule. Interestingly, it has been with us for many years and
generations of our development and we have become accustomed to it; it has its own carrier
proteins. Perhaps what is most interesting is that in the recent years, it has been
identified as being the key initiator of the Innate Immune Response. Therefore, it is a
very important component of a number of different disease processes and endotoxin, no
matter what the source, in the bloodstream is capable of initiating this response.”
CEOCFO:
What about your rapid assay for the West Nile virus?
Dr. Walker: “. Rapid strip assays,
which are particularly useful for clinicians to make a rapid yes/no diagnosis, are best in
such conditions as pregnancy or infection. We chose to develop a novel assay and that was
for West Nile infection. We have been working closely with the Center for Disease Control
in Atlanta to develop this and in December of this past year (2006), we received FDA
approval for our rapid assay. This test provides information on whether you have been
infected with the West Nile virus, within approximately 10 days of exposure. Therefore,
this opens up the opportunity to identify patients early who have been exposed to West
Nile virus. Those patients can then be treated early in the course of the disease rather
than when they present with the late stages of West Nile infection, which may be
meningoencephalitis (an inflammation of the spinal cord and brain), and which tends to be
a very debilitating or even fatal.”
CEOCFO: Development is expensive; tell us
about the financial picture of Spectral Diagnostics?
Dr. Walker: “We have made a tremendous
investment in the development of each of these products. We actually have a third product
line, our proprietary reagents and recombinant proteins, which are used by major companies
for some of their large instrument calibration. The good news for us is that we have put a
great deal of money in development , but now all of our products are approved and have a
customer base, so we are in a good position now. About 18 months ago, we began the process
and completed in February of 2006, an asset transaction with Nanogen Inc. (NASDAQ: NGEN),
where we sold them the cardiac status product line as well as the capabilities that we
have developed for the manufacturing of these products. Therefore, Spectral currently sits
with virtually no debt, with approximately six million dollars in the bank and with
essentially break-even, go-forward at our current level of sales of products and we expect
this to grow tremendously. We are in a very good position and we have a very good gross
margin on each of our products, giving us the opportunity to become profitable in the very
near future.”
CEOCFO:
How are you marketing your products?
Dr. Walker: “Our reagents that are
marketed through general distributors. We have specific contracts and relationships with
companies like Beckman Coulter Inc. and Abbott Laboratories (NYSE: ABT). With respect to
our Endotoxin Activity Assay the EAA™, we have a joint arrangement with Toray Medical
Products a division of Toray Industries, Inc. in Japan. We are establishing a distribution
network within Europe. We have concluded agreements in Italy and Spain and we are looking
to conclude distribution agreements for the rest of Europe in the very near future. These
distribution companies have been carefully chosen and are focused in the area of sepsis,
blood purification etc., and are capable of distributing our product properly and
representing it properly to the clinicians who will be in the position of ordering this. A
lot of our marketing takes place with the presentation of our clinical data, which we have
gathered over the past couple of years from clinical trials. We have been doing this
around the world at a number of different centers. We have 7 or 8 in the United States,
several more in Europe etc.; we are quite global in our opinion leader support.”
CEOCFO:
Why is this a good time for investors to be looking at Spectral Diagnostics?
Dr. Walker: “I think that the
advantages we have are that we have not diluted ourselves to get to where we are in
development. We have just over 24 million shares outstanding. We are well funded for all
of our activities. We are not looking for further dilution unless it was for a specific
M&A activity. I would look at the milestones being related initially to the
development of distribution agreements with top-flight distributors around the world and
secondly, with the rising revenues that we get from this distribution network with
instruments in place. Instruments are not a major source of revenue, but the reagents are
the renewable and consistent source of revenue. It takes time for a hospital to build up
as we have seen to what we consider the appropriate usage. There is a bit of a time factor
there but the milestones will be quite clear.”
CEOCFO:
In closing, what differentiates Spectral from other small bioteches?
Dr. Walker: “I think that what
differentiates us is that we have mature products. We are not putting money into the
bottomless pits of R&D. We do not have regulatory challenges at this moment that would
be limiting to us and we are not dependent upon going back to the market for further
dilution to cover our operational expenses. I think that distinguishes us from most of the
smaller biotech’s out there.”
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