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StatSure Diagnostic
Systems is in the right place at the right time as other companies have paved the way for
the worldwide acceptance of rapid testing for HIV
Healthcare
IVD (in-vitro diagnostics), Medical Devices
(SSUR-OTC: BB)
StatSure Diagnostic Systems, Inc.
1 Clarks Hill Road
Framingham, MA 01702
Phone: 508-872-2625
Steve Peltzman
Chairman and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published - December 7, 2006
BIO:
Steve M. Peltzman
Chairman of the Board of Directors and Chief Executive Officer
Mr. Peltzman has more than thirty years of business experience in technology-based,
health-care companies. In 1984, he helped start and served as President and CEO of Applied
biotechnology, Inc. whose cancer business was sold to OSI Pharmaceuticals, Inc. in 1991,
when he became Chief Operating Officer of the consolidated entity; from 1994 through 1997
he served as President and COO of OSIP and remained on its Board of Directors through
1999. From 1980 to 1984, Mr. Peltzman held senior executive positions with Millipore and
for ten years preceding that was with Corning Glass Works’ Medical diagnostic and
device businesses. During the past several years he has been active in several small
health care and technology start-ups as their interim CEO or COO or in an advisory
capacity to their Boards of Directors.
Company Profile:
StatSure Diagnostic Systems, Inc. (OTC Bulletin Board: SSUR) is engaged in the
development, manufacture and marketing of rapid immunoassay tests for the detection of
sexually transmitted and other infectious diseases; in addition, the Company has developed
and is marketing a product line of patented, oral- fluid collection devices. The Company's
proprietary platforms provide significant customer benefits and competitive advantages as
compared to similar products that are currently available. Improved accuracy, operator
convenience, and reduced risk of infection from collecting and handling specimens, have
been engineered into SDS products. All of the company's diagnostic tests are based on the
same easy-to-use technology platform, thus facilitating the development of future
products. Certain of these products are sold in the United States as well as
internationally to various distributors for use in clinical laboratories, hospitals,
clinics, community-based organizations and other public health organizations. Please visit
our website at http://www.StatSure.com
CEOCFO: Mr. Peltzman, you have a long history in
technology based healthcare, what attracted you to StatSure?
Mr. Peltzman: “StatSure is a restart.
Our technology for point-of-care or self-testing that was developed more than 10 years ago
was ahead of its time, too early to be accepted by the market or to be of real commercial
value in most developed nations. It is a rapid testing format for sexually transmitted
diseases such as AIDS. The market, 10 to 20 years ago, viewed these type of tests as
inaccurate, unreliable and felt that HIV testing performed by medical technicians and in a
conventional laboratory was the only way to go; all other approaches were deemed, at that
time, highly suspect. There was concern that quality control processes were insufficient
and could result in providing incorrect results to patients. Well, that has greatly
changed in the past 5 years, and, in the fact, there are many endorsements of both the
need for, and the results by, point-of-care testing technologies. These
“testimonials” are from some of the gatekeepers of the world’s public
health, including the WHO (World Health Organization) and the CDC (Centers for Disease
Control), as well as editorials in prestigious journals such as the New England Journal of
Medicine. This missionary work was facilitated by our competition who also benefited from
the change in acceptance by the entire medical community.
This change opened up the door for what was then Saliva Diagnostics Systems, which we
renamed to StatSure Diagnostic Systems. I saw that paradigm shift, and saw that the
“baggage” and hurdles had been, for the most part, removed. Our technology
should potentially thrive in this new environment. We are essentially a virtual company,
able to move quickly and take advantage of the opening. I felt this is a very interesting
opportunity at a very interesting time because the market is wide open and growing.”
CEOCFO:
How does your test work?
Mr. Peltzman: “It is not unlike a lot
of the other tests. What makes our technology for sexually transmitted and other
infectious diseases compelling to me, and very marketable for our distributors, is the
fact that it works so simply, quickly, and, especially when dealing with highly infectious
diseases, safely. It tests for antibodies to the HIV virus and it uses a similar
antibody-antigen reaction that many other assays use. The barrel system is a single-use
testing device that collects, processes and analyzes a minimum amount, a tiny drop, of
whole blood or plasma. The “barrel system” technology eliminates the need to
separately handle or collect the patient’s blood. The test strip resides inside the
barrel. The tip of the barrel draws (capillary action) the sample directly from the
fingertip. Because the blood is tested inside the barrel, the possibility of exposure to
infectious materials is virtually eliminated. A buffer vial sits atop the barrel forming a
full kit with no other items needed. The test comes with an internal control to confirm
that the test has been done correctly. In about 10 or 15 minutes there is a simple result,
either one line that says test works and is negative, or two lines, meaning the test is
positive and the patient needs to be followed up.”
CEOCFO:
How accurate is your process?
Mr. Peltzman: “It is as accurate as an
in-house laboratory; 99.7%, 99.9% sensitivity and specificity respectively. The reason
these type of products received the endorsement of the CDC and other similar organizations
was due to the fact one is not really sacrificing quality, accuracy, or reliability when
utilizing point of care testing products to screen for antibodies to HIV, when compared
with typical lab tests against the same antibodies.”
CEOCFO:
Where are you in the process of marketing the test?
Mr. Peltzman: “We are pleased to tell
you that we expect our technology to be available very early next year, January or
February of 2007. The reason I am excited and have the opportunity to discuss this with
you is that as of the end of September we signed a three-way agreement with Inverness
Medical Innovations (AMEX: IMA), who we consider to be an extraordinarily competent and
aggressive marketer and distributor of these types of products throughout the world, and
with Chembio Diagnostics Inc. (OTC: BB-CEMI). It is a three-way deal, which, in and of
itself, is unusual. Years ago, Chembio and StatSure Diagnostic Systems had been in a
relationship to commercialize and manufacture the HIV Barrel Product. That relationship
broke apart several years ago and ended in divorce and litigation. Chembio went forward
with a similar product and was successful in obtaining a PMA with the FDA. Inverness
Medical Innovations said that our barrel technology to screen for HIV, is something they
would like to sell throughout the world, particularly in the United States. On September
29th, we announced several deals that established Inverness as the worldwide, exclusive
distributor of a new, rapid HIV product that will be exclusively manufactured by Chembio,
with whom StatSure has settled its long term patent litigation. StatSure and Chembio will
split all margin dollars, once the cost of manufacturing has been deducted. Inverness
wanted to take advantage of our Intellectual Property and Chembio’s recent FDA
approval of the HIV barrel test. To do so, we put a 3-way deal together where everybody
wins, so it made sense for us to end our litigation. That sounds simpler than it was; it
took months of hard work to put this 3-way deal together. We think this is a terrific deal
and feel that it demonstrates the potential this rapid testing format has in terms
of convenience, ease of use, performance and marketability for HIV now, and ultimately,
for a menu of new product opportunities.”
CEOCFO:
What is the significance of the barrel design and are there competing designs?
Mr. Peltzman: “The advantages of our
barrel are basically two-fold: The first is safety--the product was engineered to be a
closed-system—a critical safety feature. The second is simplicity: including its
integrated sample collection, long shelf-life and overall ease of use. When properly
positioned it should allow IMA to build a leadership position and ultimately enter
emerging consumer markets. Hence, not only is it really simple and safe, but it
doesn’t require refrigeration or manipulation, can be read easily and we think it is
as easy to perform as a pregnancy test. Do we think it is going to ultimately end up in
the drugstore so consumers can test themselves in the privacy of their dormitory rooms or
homes? Yes. I feel that it should be very successful in the consumer markets once they
become real.”
CEOCFO:
Who are your first potential customers?
Mr. Peltzman: “The professional market
has two tiers: for on-site testing by laboratory professionals including federal, state,
or local public health labs, the military, and in-hospital satellite locations such as the
emergency room or other hospital areas where a rapid test is desired. The larger tier,
however, is represented by tens of thousands of places, such as doctors’ offices,
mobile health vans, community outreach programs, insurance companies or many other places
where one does not necessarily have trained professional laboratory technologists per se and internal quality control systems. If the
test is deemed by the FDA to meet the ease-of-use and related requirements to receive a
CLIA (Clinical Laboratory Improvement Act) waiver, it will allow the product to be
marketed in the US to an additional potential market of approximately 189,000 laboratory
entities across the United States.”
CEOCFO:
Will that start in the United States?
Mr. Peltzman: “My assumption is that
the product launch will roll out in all those geographic territories for which it has met
the appropriate regulatory approvals—on a more or less simultaneous basis. There are
however, a number of geographical territories where it has not yet either received or
applied for such regulatory approval.”
CEOCFO:
Do you anticipate resistance from the lab community to a product that eliminates their
role?
Mr. Peltzman: “No. Not at this stage in
the maturity of the market and recognition of the vital role these point-of-care products
play. The resistance issue was a big problem 10 and 20 years ago, but OraSure Technologies
Inc. (NASDAQ: OSUR) and other companies came out in the last three to five years and have
paved the way and created market value for their investors and have built a market
presence for HIV rapid testing in the US. Outside of the US, there are many nations where
these tests are not only well accepted, they are the first-line standard-of-care and the
only way one is going to screen millions of the populace in a pragmatic and fundamentally
rational manner. I will not preach to you the AIDS crisis: 40 million infected, epidemic
that is likely to become the world’s third most common cause of death, but this is a
big deal and effective screening is a very important part of the “solution”. The
resistance we expect to encounter will likely be heard in the discussions and debate about
opening the market to allow these products to be sold to consumers. In the US, the process
has begun—we think the OTC (over the counter) market will be open in the next couple
of years. The need is real, the products work, and the opportunity to play a role in
slowing the number of new aids cases or in speeding up getting those HIV positive patients
into meaningful therapy, will ultimately drive the market. We believe our technology is
very well suited for this market and that our distributor, IMA, is the ideal partner to
drive this opportunity. The CDC recommendation that just came out this September (2006)
was that those between the ages of 13 and 64 be tested annually in the US. We are getting
aggressive about testing, because it makes a difference not just in knowing but also in
preventing.”
CEOCFO:
Will you tell us about the financial picture of Statsure today?
Mr. Peltzman: “When I said we had a
virtual company, I meant it. We have three or four people involved in the company on a
full time basis because we outsource almost every thing we do. We outsource manufacturing
and our distribution. We have a small internal development effort and augment it with
“strategic partnering”, another synonym for outsourcing. We are a company whose
revenues should, for the most part, drop to the bottom. We are a public company. We have
raised a few million dollars in the past and we may go through one more, relatively small
round just to keep ourselves whole as we want to spark some development work to further
exploit the barrel technology. Other than that, as soon as we start receiving revenue
dollars from the Inverness Medical deal, we think we will be able to demonstrate an
investor-attractive level of cash flow. It might take a 2 or 3 quarters to get rolling to
offset the cost of being in business and being a public company, but we do not have much
of a cost base. The capital structure of our company is relatively simple; there are
approximately 36 to 37 million shares of common stock out there and a small preferred
round we did of about $2 million that will ultimately convert into about 4 million more
shares. We have probably, if you converted it all, about 40 million shares of stock and
perhaps 2-3 million shares of options and warrants. We are trying to meet all the new
rules and regs of the SOX- based SEC and that is not an easy job to do for any company,
but particularly for small ones. Despite many earnest attempts to be transparent and easy
to understand, these rules make it quite difficult for most small companies. Hopefully,
this too will become routine and accomplish the original intention of the Sarbanes-Oxley
legislation. We are in the midst of restating –primarily non-cash issues—but we
will all be delighted when this has been accomplished and blessed by the higher
authorities.”
CEOCFO:
You are in the position to reap the benefits of the technology!
Mr. Peltzman: “Yes! Either we can be
passive and not spend anything, but take advantage of what others do with the technology,
or we can be semi-aggressive, and sponsor some of our own R&D programs. We feel we can
be ‘prudently proactive’ and define certain product programs that have
extraordinary returns, low risks and fit into our distribution network. We have made it
known that various forms of hepatitis, bird-flu and others are on our list; however, we
will perform the necessary diligence and planning before announcing the actual
game-plan.”
CEOCFO:
Is the investment community starting to pay attention?
Mr. Peltzman: “I have been involved in
public companies before, and during the past year that question has been asked of me too
many times to count, often by experts in Investor Relations, who then go on to state:
‘No one knows about you and we think it is a shame because we think it is a very
interesting story.’ I usually respond by agreeing, it is an interesting story
but we would like to keep our heads below the radar.’ At that point I get a very
strange look until I explain that we were really not ready for ‘prime time’, we
did not have a sustainable story, we were trying to put our deal together and trying to
put the pieces to a commercial picture in place so that it would make sense to an
investor. We think we have just done that in the past couple of months and now we are
ready for prime time. Hence, we are just beginning to go out to tell our story.”
CEOCFO:
Why should investors be interested and what should they know that might not jump of the
page when one first looks?
Mr. Peltzman: “I think there are
several things that can and should give the company real value: first is that the Company
has established a high quality deal with the right distributor: Inverness Medical. For
those who follow the rapid testing industry, IMA is well known and recognized as a
terrific company that knows how to penetrate markets around the world. They have done an
outstanding job in consumer products such as their pregnancy tests as well as in
professional rapid diagnostic kits. We think they protect their IP as well as any company
in the healthcare industry and have built a very competent management team. Secondly, we
have hinted to the market in previous press releases that Inverness and StatSure
Diagnostics will probably do at least another deal as it relates to one or more tests and
we think that could be added value to the menu. Thirdly, the market for HIV testing is
large, growing and the OTC segment will likely become a reality and substantially increase
the overall size and profitability of this industry. Fourth, our cost base is very modest,
so most of the revenues that come into the company should drop to the bottom line; and we
do not see ourselves desperate and ending up wasting resources on programs that are
long-term or high risk. We think there are enough products and opportunities out there,
and we should be able to leverage the technology into near-term returns. Finally, we also
have an historic business in saliva collection devices that is right now doing under $1
million, but with very attractive gross margins. If we are able to put a little time and
attention into that business, we think that we can increase its value substantially and
that is just more cash dropping to the bottom line. I think it is a nice story; it should
be a cash story in the long run and the technology is timely.”
CEOCFO:
Do you have any final thoughts for our readers?
Mr. Peltzman: “We were just written up
by Scimitar Equity Research, Inc. (Scimitar); it is an analyst report and is available on
their website that goes into most of what I just said, only with more detail. I am getting
very interested in going out and meeting the investment community and telling the StatSure
Story, I think it has a great ending. Thanks for letting me share it with you today.”
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