Dear Shareholder,
As the holiday season fast approaches, we have much to reflect upon and celebrate as management, employees and/or shareholders of Response Biomedical.
The Company is positioned for both near and long term commercial success having achieved numerous significant milestones over the past 12 months:
Feb. - General Dynamics partnership for global biodefense market
May - US FDA clearances of Troponin I and CK-MB tests for diagnosing heart attacks
June - Publication of Troponin I paper evidencing RAMP's lab-quality performance
Oct. - Shionogi collaboration for BNP test for congestive heart failure in Japan
Nov. - Dr. Michael Groves, formerly VP, International Sales for Abbott POC and i-STAT, appointed VP, Sales and Marketing
Nov. - US Dept of Homeland Security study confirms only RAMP Anthrax Test meets new standards
Nov. - 3M agreement for clinical infectious disease testing
After many months of due diligence and careful negotiations with potential marketing, distribution and new product development partners, the Company was able to ratify several strategic alliances with leading international companies, including 3M Health Care, Shionogi & Co., and General Dynamics. These collaborations are initial examples of the high-valued strategic opportunities we continue to pursue for our RAMP platform, and substantive late-stage negotiations aimed at several additional collaborations appear promising. As a result, the Company anticipates formalizing additional partnerships in the near future and throughout next year, with a keen focus on marketing and distribution agreements for the RAMP clin ical products.
Having achieved significant revenue growth compared with the Company's first full year of sales in 2003, the Company is well positioned to continue to increase sales at a higher rate through 2005, while expanding the RAMP portfolio with large market applications which will substantially increase the revenue growth in 2006 and beyond.
To that end, I would like to focus this update on recent developments on three key initiatives and provide context for how they fit our business strategy of penetrating tremendous emerging market opportunities, specifically:
I. Cardiac Sales - Hybrid Direct Sales and Distribution Strategy
II. BNP For Congestive Heart Failure - Japan and ROW
III. Clinical Infectious Disease Opportunities
In the past few months we made the strategic decision to move to a hybrid sales approach in the United States - a combination of direct sales into the high volume hospital segment supplemented by distribution into the large number of lower volume centers. The benefits are three fold: a) reduces the risk of relying solely on distribution for our sales success, b) allows us to retain a much more significant portion of the value chain and c) allows us to benefit from our growth strategy of adding new, high value tests such as congestive heart failure to the pipeline. This has resulted in lower than originally forecast cardiac sales over the past few months, but will undoubtedly contribute to a larger volume of high margin sales producing more significant returns in the mid and long term.
Importantly, our confidence in successfully executing this hybrid sales approach in the US has been greatly bolstered by our recent ability to attract an initial group of high caliber US based senior sales associates working under the direction of Dr. Michael Groves, appointed in November as the Vice President, Sales and Marketing having left Abbott POC as VP, International Sales. This initial group of top performers, strategically located in major regions throughout the US, brings extensive POC sales experience from previous employment with diagnostic companies including Abbott Point-of-Care, i-STAT Corp., Biosite Inc., and Spectral Diagnostics. This group is now in place, selling directly to high volume customers and preparing to train and support distributors to help drive early market adoption in the US.
Congestive heart failure (CHF) is a serious cardiovascular condition that often goes undetected because conventional diagnostics are inconclusive. Early detection is critical to patient outcomes.
BNP, the definitive cardiovascular marker for CHF, is projected to become the single largest test in clinical diagnostics. Several leading international diagnostics companies have introduced BNP tests on lab-based analyzers including Abbott, Bayer and Beckman Coulter. Currently, there is only one commercially available point-of-care BNP assay, the Triage®BNP Test manufactured by Biosite Inc. (Nasdaq: BSTE). Biosite generated $100 million in BNP test sales during 2003, with sales approaching $140 million in 2004. Having demonstrated RAMP's superior performance in diagnosing heart attacks, we anticipate commercializing a test with similar competitive advantages in the growing global CHF market.
Response is well positioned to quickly become a leader in this critical market, initially through its collaboration with Shionogi & Co. aimed at commercializing the test for congestive heart failure in Japan. Shionogi will fund the development and then purchase RAMP BNP Tests from Response with a commercial launch targeted for late 2005, pending Japanese regulatory clearance. As there is no point-of-care BNP test currently available in Japan due to licensing restrictions, we expect Japanese sales alone of the RAMP BNP Test will evolve into a potential annual revenue stream of $10 million while enhancing sales of the three RAMP Cardiac Marker Tests in the same territory.
The relationship with Shionogi has also facilitated several third-party expressions of interest in RAMP applications in the CHF market for the rest of the world. Response has received interest from three companies exploring opportunities to commercialize their CHF markers on our RAMP System for the POC market. The Company is encouraged by the progress to date in these discussions and is determined to solidify the necessary relationships to make Response a leader in the global congestive heart failure testing market.
While adding such a blockbuster test to our cardiovascular product line would significantly increase our revenue expectations, it is important to note, this would also have positive impact on the Company's current cardiac sales and distribution opportunities.
The Company's recent collaboration with 3M (NYSE: MMM) for clinical infectious disease prevention and testing is a landmark deal for the Company that is intended to produce a new clinical RAMP product line for 3M Health Care to market in the multi-billion dollar global opportunity.
Some may be surprised to learn that 3M Health Care is the largest of 3M's business units, providing 23%, or US$4.5 billion of 3M's total annual revenue of $18 billion. It is also a high margin business unit providing around 30% of the operating income of the business, making it a focus for new business opportunities. Already being a leader in infection prevention, 3M Health Care intends to add a detection/screening component to enhance patient outcomes and improve productivity for physicians and health care providers, as evidenced by the following excerpt from their web site:
Promise
ADD 3M. SUBTRACT RISK.
A SIMPLE, POWERFUL EQUATION.
The 3M(tm) Infection Prevention Program offers a innovative and systematic approach for helping reduce the risk of surgical site infections by utilizing a five-step infection prevention process: Sterilization Assurance, Skin Prep, Sterile Field & Surface, Wound Management and Environmental Cleaning. The 3M Infection Prevention Program ... combining new sciences with the best practices of skilled healthcare professionals to achieve positive patient outcomes, now and into the future.
Clinical infectious disease prevention and detection includes new product candidates in a broad array of priority areas such as sexually transmitted diseases, Streptococci (Strep), Methicillin Resistant Staph Aureus (MRSA), Staphylococcus Aureas (Staph), Respiratory Synctial Virus (RSV), Influenza (Flu) and related bacterial and viral infections. One of the major issues with clinical infection disease testing is patient compliance. Having a rapid, on-site testing capability would enable the quick differentiation between bacterial and viral infection, and enable informed medical treatment. Rapid testing at the POC also reduces the inappropriate use of antibiotics on viral infections, and the potentially lethal incidence of hospital-acquired infections.
Following a 16-month evaluation funded by the US Department of Homeland Security (DHS), it was rewarding to learn the Company's RAMP Anthrax Test is now the only rapid biological detection system approved for use by AOAC INTERNATIONAL. The Company's principal competitor in the marketplace failed to meet the new standard for reliable anthrax detection. Since DHS is recommending first responders only purchase approved technologies, there are significant implications for the appropriate use of government grant money and potential issues for those who may chose to purchase or continue using non-approved tests.
The Company has received an unprecedented level of interest in the biological detection applications subsequent to the announcement, which is expected to positively impact future biodefense sales. We look forward to the results of planned field-testing, primarily relating to end-user capability and not system performance. We know from experience with more than 150 systems in field-use, first responders are very capable of properly using the RAMP System. We are also pleased that the US Military has recently initiated an evaluation of the RAMP System, with considerable potential sales implications.
As we prepare to close a $1.5 million brokered private placement with Haywood Securities to enhance working capital, we are also pursuing opportunities to secure independent third-party analyst coverage to raise profile and investor interest. Although the Company is sensitive to shareholder concerns about dilution, additional proceeds have been periodically required for capital investment to automate and scale-up manufacturing capability, while strengthening the Company's balance sheet as we finalize partnership agreements. As a growth oriented company, these are necessary expenditures to meet near term demand and ensure significant long term commercial success.
I would like to welcome Mr. Sidney Braginsky, past President of Olympus America Inc., to the Company's Board of Directors. With 30 years of experience in the imaging and diagnostics space, his insights and guidance will prove invaluable going forward. In addition to Dr. Michael Groves as new Vice President, Sales and Marketing, I would also like to welcome Mr. Rob Pilz back to the Company's Management team in the role of Chief Financial Officer and new Vice President, Finance. Mr. Pilz has been a long time supporter of the Company with a strong understanding of business accounting, capital markets, and brings a conservative forecasting and fiscal management approach.
We have much to look forward to throughout the coming year as we continue solidifying relationships and building the foundation for strong sales in 2005, and extraordinary revenue growth expected in 2006.
Commercialize BNP in Japan and establish BNP partnerships for ROW
Advance 3M infectious disease test into clinical trials
Complete world distribution network for cardiac while expanding US direct sales group
Secure U.S. listing
On behalf of the entire team at Response Biomedical, I would like to thank you for your continued support and wish you a very Happy Holiday and prosperous New Year.
Best regards,
Bill Radvak
President & Chief Executive Officer
December 13, 2004 |
