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VirtualScopics offers the
pharmaceutical and medical device companies an advanced medical image analysis service
that can save them hundreds of millions of dollars as they bring their drugs or therapy
from the research phase to the pharmacist shelf
Healthcare
Specialized Health Services
(VSCP-OTC: BB)
VirtualScopics, Inc.
350 Linden Oaks
Rochester, NY 14625
Phone: 585-249-6231
Robert Klimasewski
Chief Executive Officer
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
April 20, 2006
Lesion
BIO:
Robert Klimasewski - Interim Chief Executive Officer
Robert Klimasewski served as president and CEO of Transmation from 1994-98. Afterward, he
relinquished those titles and assumed the role of Transmation's chairman, only to step
down as chairman and again take the reins as president and CEO, until this year when he
retired. Klimasewski remains on Transmation's board of directors. He also was a co-founder
of Burleigh Instruments Inc. which was sold in December of 2000. He served for 18 years on
the board of Laser Power Corporation, a public company, until its sale in 2000. He is a
member of the University of Rochester's Visiting Committee for the School of Engineering
and Applied Science. Klimasewski holds B.S. and M.S. degrees in optical engineering from
the University of Rochester.
Company Profile:
VirtualScopics, Inc. is a provider of advanced medical image analysis services. The
company evolved from research first carried out at the University of Rochester Medical
Center and School of Engineering. VirtualScopics has created a suite of image
analysis tools used in detecting and analyzing specific structures in volumetric medical
images, as well as characterizing minute changes in structures over time, providing vital
information to support clinical trials and diagnostic applications. The firm’s
proprietary software algorithms can assemble hundreds of separate medical images taken
during an MRI session into a single, three-dimensional model, bringing a new and
previously unobtainable source of data to clinical researchers. For more information
about VirtualScopics, visit www.virtualscopics.com
CEOCFO: Mr. Klimasewski, will you tell us about your
background with the company?
Mr. Klimasewski: VirtualScopics research started in 1990 at
the University of Rochester and was spun off in 2000, into VirtualScopics. At that point,
I was asked to be a member of the board of directors and then subsequently became an
investor.”
CEOCFO: How long have you been CEO?
Mr. Klimasewski: “I was on the board of directors from
inception and was asked to become the CEO in June of 2005.”
CEOCFO: Did that
coincide with the company becoming public?
Mr. Klimasewski: “No it coincided with a change in
management and when I took the reigns, we began to look for sources of capital because
VirtualScopics is a phenomenal story. We decided to do a reverse merger coupled with a
private placement and became a public company. We began trading on November 7th
of 2005.”
CEOCFO: You certainly
had a very good year; what was your vision when you took over the reins, and where are you
today
Mr. Klimasewski: “The first issue was to conserve cash
and put the company into a position where it could reach break-even within a relatively
short period –of time. The plan called for break-even in ten months. Because we have
such a phenomenal workforce and group of employees, we were able to break-even in three
months. Going forward, we are expecting to use the capital we raised last year to
participate in the growth of the healthcare industry principally in being able to save
pharmaceutical and medical device companies money and time in their development
efforts.”
CEOCFO: Will you tell us
more how you plan to do that?
Mr. Klimasewski: “We do not sell software, we provide a
service to the pharmaceutical and healthcare industry. We analyze images, principally
magnetic resonance, CAT and PET scans, to look at changes in biomarkers in response to a
drug. Some examples are in the therapeutic area of oncology, we are able to look at the
change in tumor volume in certain oncology studies. Tumors would be a biomarker for cancer
for example. In osteoarthritis studies, we can look at changes in cartilage thickness, and
roughness to name a few. Those are potential biomarkers for looking at changes in
osteoarthritis.”
CEOCFO: What do you see
that they are not seeing now, in these incidences?
Mr. Klimasewski: “The conventional techniques that are
used to analyze medical images are not very accurate and not very reproducible. There is a
lot of human interaction in the analysis of certain kinds of images that are being used
today. What that means to drug companies is a larger number of patients that are going to
be required in a drug trial, to basically get the most out of the information. It also
means a lot more expense because it costs about $30,000 per participant for a drug trial.
Since we use proprietary algorithm software methods to analyze images, we can analyze
those images more accurately; that means significant savings in not only dollars but in
time for the pharmaceutical and healthcare companies.”
CEOCFO: Whom have you
been working with in terms of pharmaceutical companies and how do you continue to grow?
Mr. Klimasewski: “After the company was spun off from
the University of Rochester into VirtualScopics in 2000, there were some early investors.
In 2002, Pfizer Inc. (NYSE: PFE) invested $2.5 million and that would be in early 2002,
and later in 2002, GE Medical Systems (a General Electric Company doing business as GE
Healthcare –NYSE: GE) also invested $2.5 million. That says quite a bit about the
value proposition that we offer. If we were in the computer business I would draw the
analogy that it is a lot like having Microsoft Corporation (NASDAQ: MSFT) and Intel
Corporation (INTC) as your partner. It is important to leverage the investment of Pfizer
and GE Medical Systems and others as well as the public offering dollars to grow the
company. That we did significantly in 2005; we added 14 new customers, 10 of them being
top pharmaceutical companies in the world. The fact that we have demonstrated that kind of
customer traction, I think speaks volumes for our value proposition.”
CEOCFO: Do you envision
a time when it would be standard to use VirtualScopics?
Mr. Klimasewski: “I think as these image-based
biomarkers become more and more accepted, then these biomarkers will become the gold
standard for assessing the affect of the drug and the progression. Ultimately, if we are
as successful as I think we can be, these same biomarkers could ultimately be used in
diagnostics and that is an extremely large market. We can envision that in five years some
of these biomarkers will be used to diagnose and see the results of giving drugs to a
patient. For example, in certain oncology studies, our technology can see whether a drug
is going to be effective within 48 hours. Today, the conventional technique means that it
takes 12 weeks to see the affect of the drug and often times, the patient could be
terminal or so ravaged with chemotherapy that you cannot undertake a new drug. Once people
begin to realize that we can provide that kind of information much more quickly, they are
going to realize the significance of a value proposition.”
CEOCFO: How do you get
people to pay more attention and what is your capacity if everyone wakes up and comes to
VirtualScopics?
Mr. Klimasewski: “We encourage new business with a
variety of methods; first, by getting additional contracts from people we do business
with. We expect from the 27 companies that are now our client base, that we would get more
and more contracts from them as they see the results of our work and that is in fact
happening. We also publish peer-reviewed articles and once the pharmaceutical scientists
see the peer review papers, they become very interested in our technology because peer
review papers establish the validity of what we are doing. As an example, Dr. Edward
Ashton, Ph.D., who is our chief scientific officer, along with others, published an
article last fall in JCO (The Journal of Clinical Oncology), in that article, we presented
evidence that our anti- angiogenic profusion work resulted in significant savings in terms
of being able to assess whether a drug is working. Immediately after that article
appeared, we had many phone calls from pharmaceutical companies, which resulted in
significant contracts. In the same issue, the FDA made mention of this particular work,
which is unusual. So that is another way we get business. The third way to get business is
to have a heavy direct marketing activity to introduce our technology to the balance of
the pharmaceutical companies that may be of the smaller, more innovative type biotechs.
The capacity will not be an issue. We are located in Rochester, N.Y., which is the optics
and imaging capital of the world, and as a result, there are significant numbers of people
available for us to be able to hire. We have hired about 10 people since we did the
capital raise in November of 2005, and it took our staff up to 48. We have plenty of
people that are interested in coming to work at VirtualScopics and work in Rochester. N.Y.
The only other items we need are run-of-the-mill P.C.s to do the data analysis. Except for
space issues, which are pretty easy to solve in Rochester, we are not going to have any
significant capacity issue.”
CEOCFO: Will you tell us
about the financial picture of the company?
Mr. Klimasewski: “We are pretty proud of the fact that
in 2005, we booked over $5 million of business, and that was the highest in the
corporation’s history. That sets the stage for achieving our plan for 2006 and going
forward. We are also having conversations with significant numbers of people on
significant numbers of contracts, so if those all come to fruition, it is going to bode
well going forward. We have cash in the bank of nearly $6 million dollars; that should be
sufficient to take us a long way down the road because we think we are going to be able to
improve our gross margins significantly and become profitable in the future, maybe out one
or two years. It will depend on some of the opportunities that may present themselves,
which may require an investment; if that is the case, then our break-even point may not be
where we expect it to be.”
CEOCFO: What do you see
as the biggest challenges as you go forward and how are you ready?
Mr. Klimasewski: “I think the biggest challenge is to
get the message out to the pharmaceutical and medical device companies, that we have a
powerful image-based biomarker analysis service that can save them hundreds of millions of
dollars; it costs a billion dollars to get a drug from research phase to the pharmacist
shelf. Many times these companies go way down the road until they find out the drug is
ineffective. We can tell them that their drug is going to be effective much earlier and we
can allow them to save time by improving the accuracy by which we can assess the
effectiveness of the drug. That is the message we have to get out. I think as we go to
trade shows, participate in conferences, get papers published in peer reviewed journals,
and as people begin to see results that will be published from our work in various
therapeutic areas, then they are going to understand the value proposition.”
CEOCFO: Is reaching the
investment community a focus for you?
Mr. Klimasewski: “We have retained a PR firm in California
and an IR firm out of New York. They have put us in contact with many potential investors.
We have been talking to people and have had meetings in New York, Boston, Zurich, London,
to name a few and we have had over 75 meetings with funds and individual high net worth
investors. We have a pretty aggressive program to get our message out to the people as to
where we think this company can be in five years.”
CEOCFO: Why should
potential investors be interested and what doesn’t jump off the page when people look
at the company?
Mr. Klimasewski: “What is difficult to understand is the
concept of biomarkers and what that means; it is difficult to explain to lay-people We try
to stay away from that word and use more of an example of what biomarkers are; for
example, tumors being a biomarker for cancer, cartilage thickness and roughness and volume
are potential biomarkers for arthritis. We try to describe it more in terms of examples.
It is not very clear to the public how the process works in the drug development and
medical device areas and what role the FDA plays in that. Thirdly, we need to do a good
job, and I think we did that yesterday in our conference call to investors, of what our
revenue model really is and how we make money.”
CEOCFO: Do you have any
final thoughts?
Mr. Klimasewski: “What is important is the quality of
the employees. VirtualScopics is a company that in my experience has extremely highly
capable and qualified individuals who are dedicated to making this technology work, to
help mankind by significantly improving drug development and medical device development
process. I want to give accolades to them; they have done an outstanding job as the
results show over the last six to twelve months.”
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