Shareholder Letter August 4, 2005 - The potential for the future keeps getting better and I really think the day is getting closer when RBM will be an important name in diagnostics. It is taking a long time to bear fruit but this market is a lot more complicated to enter than I first thought when I first invested in what is now years ago. This company will eventually break loose and move.
Dick
Dear Shareholder,
I´d like to take this opportunity to underscore the value and potential impact of the recent joint-announcement with Roche, the world´s largest medical diagnostics company, for a blockbuster test for Congestive Heart Failure. Without a doubt, I believe this will be considered one of the most important transactions in the history of Response. Simply put, with its unmatched combination of accuracy and reliability, Response´s RAMP System now has the clear opportunity to be the rapid testing solution to aid in the detection and diagnosis of heart attacks and congestive heart failure in more than 50% of hospitals worldwide. Additionally, Roche granted Response an option to develop a point-of-care test for Troponin T - something Roche has never done before.
RAMP has received numerous validations in the past year as a premier rapid testing platform: collaborations with 3M for infectious disease marker testing, General Dynamics for biodefense monitoring, Shionogi for congestive heart failure marker testing, certification by the US Department of Homeland Security through AOAC as the only approved rapid anthrax test and now a relationship with Roche. The answer to the ever critical commercial question, how can Response grow its revenue past the $100MM mark? We now can, as a leading provider of tests for markers of heart attack and congestive heart failure, a market rapidly growing toward $1 billion. This unprecedented market growth is driven by economics. The US $24 billion spent each year treating congestive heart failure has been singled out by hospital administrators as a key area where testing can dramatically impact costs by reducing admissions and total treatment time.
Our RAMP tests for heart attack markers (Troponin I, CK-MB and Myoglobin) are sold into the $200MM annual market. While the 17 million patients worldwide, including 5 million in the US, suffering from congestive heart failure are clinically distinct from those suffering from a heart attack, both groups show up at the same emergency departments and hospitals requiring diagnosis, triaging, treatment and monitoring. As the patient population with congestive heart failure is much larger than that tested for heart attacks, this market is growing towards $1 billion per year at the rate of approximately 25% per year. Part of this growth is a result of driving congestive heart failure testing towards monitoring in the clinic and physicians office - towards the patients that live on average five years with the condition. As well, the reimbursement rate for congestive heart failure marker tests is between $40 and $50, roughly twice that of the tests for heart attack markers.
Before congestive heart failure marker tests were introduced five years ago, physicians had a less than 50% success rate at diagnosing the 550,000 new patients each year in the US. A diagnostic tool that can deliver lab quality results in minutes, such as RAMP, has an extraordinarily strong selling proposition to these physicians. For this reason, Roche will be adding important value by participating in the development, clinical and marketing program.
There are two markers for congestive heart failure that are similar from a clinical perspective, BNP and NT-proBNP. It is important to understand that Roche positioned NT-proBNP to capture greater than 50% of the congestive heart failure market by licensing it to a select group of major lab testing companies (Dade, Diagnostic Products) in addition to launching the test itself. For consistency, hospitals with NT-proBNP on their lab system will generally prefer to use the same test at the point-of-care, which Response can provide. With a worldwide launch of the RAMP point-of-care test for NT-proBNP targeted for 2006, Response is expected to be the highest performance point-of-care system available. With guidelines expected to be published this year that require congestive heart failure test results to be obtained in less than 60 minutes, RAMP is poised to be the key rapid diagnostic solution in hospitals that run NT-proBNP.
The stage is being set for a showdown in the rapid testing segment between Biosite with its Triage BNP Test and Response with our RAMP NT-proBNP Test. Biosite, (BSTE:NASDAQ), our main competitor in the heart attack marker testing arena, was the first to launch a CHF marker test resulting in US$162 million in revenue in 2004 with a 2005 sales forecast of US$174 million. With RAMP having a clear performance edge and the NT-proBNP advantages, we are eager to engage in this challenge.
With our ability to now offer a complete cardiovascular test menu, the near term benefit of our agreement with Roche is to stimulate sales of our current heart attack marker tests while in the long term, we have a goal of being the rapid testing solution in over half the hospitals around the world. The immediate reaction, from customers and distributors, to the announcement of the Roche/Response relationship at the annual meeting of the American Association of Clinical Chemistry (AACC) last week in Orlando, Florida, has been swift and strong. This gives us further confidence that we will be able to greatly strengthen our sales and marketing network with strong players in the US, Europe and the rest of the world.
About Troponin T
An element of the license worth highlighting is the option Roche granted for Response to commercialize a test for Troponin T in addition to our FDA cleared RAMP Troponin I test. While Troponin I and Troponin T are very similar from a clinical perspective, their relative use differs by territory - approximately 10% of US hospitals, greater than 50% of European hospitals and greater than 60% of Japanese hospitals use the Roche Troponin T as opposed to Troponin I. Response is now in the enviable position of being the only company able to offer customers both tests in a rapid format. To be clear, Roche is eager for Response to commercialize the Troponin T POC market, primarily to make an impact in the US market. With Roche´s support, we will be actively evaluating the business opportunity surrounding Troponin T.
About CHF in Japan with Shionogi
In October 2004, Response entered into a development agreement with Shionogi, one of the original companies with patents in congestive heart failure marker testing. Shionogi, a Japanese pharmaceutical company with annual sales of US$2.4 billion, has exclusive rights to BNP in Japan, so Biosite and all other rapid congestive heart failure tests have been blocked from launch. As we have committed to develop a BNP test in Japan with Shionogi, we will not be pursuing the commercialization of NT-proBNP in that territory at this time. We are positioned to have the only rapid diagnostic product with a congestive heart failure marker test. We are working with Shionogi to select a strong distribution partner in Japan for both our heart attack marker tests and the congestive heart failure marker test in anticipation of a Japanese of all four tests in the first half of 2006.
We believe that by matching RAMP´s unmatched combination of performance and reliability with blockbuster test markers such as NT-ProBNP, and aligning ourselves with market leading partners such as Roche, 3M, General Dynamics and Shionogi, we are well underway to achieving our goal of making Response the market leader in point-of-care testing.
We thank you for your support and, as always, welcome any comments or questions you may have.
Sincerely,
Bill Radvak
President & CEO |
