Biosite Incorporated



11030 Roselle Street
San Diego, California 92121
U.S.A.
Telephone: (858) 455-4808
Fax: (858) 455-4815
Web site: http://www.biosite.com

Public Company
Incorporated:
1988 as Biosite Diagnostics Incorporated
Employees: 905
Sales: $240.6 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: BSTE
NAIC: 325413 In-Vitro Diagnostic Substance Manufacturing; 339112 Surgical and Medical Instrument Manufacturing; 334516 Analytical Laboratory Instrument Manufacturing

Biosite Incorporated develops diagnostic products that use human biomarkers of disease to determine what is afflicting a patient. Biosite's devices provide rapid diagnoses at the point of care, eliminating the use of laboratory-based analyzers, which take longer and cost more to provide test results. The company offers diagnostic products for drug screening, heart attack, congestive heart failure, acute coronary syndromes, and for the evaluation of shortness of breath and certain bacterial and parasitic infections. Biosite's products are developed through an internal research program named Biosite Discovery. The company's products are sold in the United States and in Europe.

Origins

Biosite sprang from discontent, created by a trio of executives and scientists as a way of improving their professional lives. During the early 1980s, Kim Blickenstaff, Kenneth Buechler, and Gunars Valkirs enjoyed the success of developing an innovative product that became the financial backbone for their employer, Hybritech Incorporated, one of the first biotechnology companies based in San Diego. Of the three, Blickenstaff was the business executive, a certified public accountant with a master's degree in business from Loyola University who was versed in finance, marketing management, sales, and strategic planning. Buechler and Valkirs were scientists, holding doctorate degrees in biochemistry and physics, respectively.

At Hybritech, within the company's diagnostics research and development group, the trio's pioneering work took shape. In a project headed by Blickenstaff, experimental work began on the development of a color-change-membrane pregnancy test, a test capable of determining pregnancy in the doctor's office, which eliminated the need to wait for results from a lab. Valkirs, who was credited as the inventor, developed the ICON hcG test, the first rapid, visual pregnancy test that was the precursor to over-the-counter pregnancy kits used by women in their homes. The test proved to be a market winner, becoming the primary source of revenue for Hybritech, generating $30 million in sales within three years. For Blickenstaff, Buechler, and Valkirs, the joy of bringing a revolutionary product to market and watching its success did not last long. In a way, their success became their own undoing, sowing the seeds of discontent that gave birth to Biosite.

The point-of-care, visual pregnancy test drew national attention to the small, biotechnology company based in San Diego. Eli Lilly and Company, the giant pharmaceutical company based in Indianapolis, took more than a casual interest in Hybritech, paying $300 million in 1986 to gain control of ICON hcG and the rest of Hybritech. The pleasure of being part of a successful start-up soon faded, as Blickenstaff later explained in an August 27, 2001 interview with the San Diego Business Journal . "After the company was acquired by Eli Lilly," he said, "we were really disenchanted with the change in culture from a stand-alone start-up environment to something that was much more structured and drug-company oriented." Blickenstaff, Buechler, and Valkirs were not the only Hybritech employees to chaff at the change in ownership: an exodus of talent began, including the trio's superiors, Timothy Wollaeger and Howard Greene, Jr., who left to start their own venture capital firm, Biovest Partners.

Biosite's founders decided to start their own company and return to the happier days of working for a start-up. In 1988, Blickenstaff wrote a business plan based on what he referred to as his "cute little product" in his interview with the San Diego Business Journal . The initial idea was to develop another colorchange diagnostic kit, one that could test for illicit drug use and aid doctors in emergency rooms trying to identify which drug a patient had overdosed. For the money to start the company, Blickenstaff approached his former bosses, Wollaeger and Greene, who agreed to give Blickenstaff $600,000 to start his company, which was incorporated as Biosite Diagnostics Incorporated in March 1988. The seed money gave Blickenstaff, joined by Buechler and Valkirs, enough money to begin development work on the company's first diagnostic kit, work that was performed in Biosite's first headquarters, a 400-square-foot office. Each of the founders applied their particular skills to Biosite's first project, enjoying the freedom of working within a small company. "Gunars believed what I told him about marketing," Blickenstaff said of Valkirs in an October 23, 2003 interview with Forbes , "and I believed what he told me about the technology."

The freedom of running their own company soon gave way to a less attractive aspect of operating a start-up: finding the capital to keep the company alive. Within a year of starting out, the Blickenstaff-led company was in desperate need of cash, having quickly exhausted the $600,000 obtained from Biovest Partners. Blickenstaff, in his realm as the business executive among scientists, devoted his efforts to finding the financial support to keep the company's research and development efforts moving forward. He arranged meetings with more than 40 venture capitalists, pitching the prospects of a point-of-care drug-abuse diagnostic device, but his efforts were undermined when one of the venture capitalists he met with began spreading the word that there was no market need for a faster, cheaper test for illicit drug use. Blickenstaff was running out of time and options, prompting him to make a last-ditch appeal to Frederick Dotzler, a partner at Medicus Venture Partners. Dotzler was not convinced by the skeptical venture capitalist, but neither was he convinced by Blickenstaff's enthusiasm. With nowhere else to turn, Blickenstaff paid for a market research study, using the company's last $35,000 and borrowing another $35,000 to pay for evidence that could refute the assessment of the company's vocal critic and build confidence in Biosite's cause. "If we were wrong," Blickenstaff said in an October 23, 2003 interview with Forbes , referring to the market research, "the company was dead."

According to Forbes , the venture capitalist who had derided Biosite had based his marketability assessment on conversations with toxicologists, rather than emergency-room (ER) doctors—the people who would use Biosite's proposed device. When ER doctors and pathologists were asked in the market-research study if they would probably or definitely purchase the test, 75 percent responded in the affirmative, providing enough evidence for Dotzler to throw himself behind Biosite's cause. He raised $3.5 million from a group of investors to fund research and development work on the drug abuse device, enabling Biosite, which used the research data to aid in pricing and marketing the device, to introduce the Triage Drugs of Abuse Panel into the U.S. market in February 1992. The credit-card-sized device, using a urine sample, was able to determine which of seven drugs a patient had misused within ten minutes for $25 a test. Technology at the time relied on large analyzers the size of a mainframe computer that were kept in the central laboratories of hospitals and designed to conduct hundreds of blood tests at a time, requiring considerable time for hospital personnel to log and to load the blood samples. Biosite's device delivered the same results for a fraction of the cost in a fraction of the time. Within 18 months of the release of its testing device, Biosite celebrated its first profit, encouraging Blickenstaff, Buechler, and Valkirs to develop additional point-of-care products.

A Focus on Heart Disease in the Mid-1990s

Biosite altered its strategic focus in the wake of its initial success, but the basis of the company's technology already was established with the Triage console. In the future, the company's products would use the same basic Triage device, which sold for between $3,000 and $4,500, but they would use different, disposable cartridges to identify human biomarkers of disease, identifying certain concentrations of what were called analytes—proteins, peptides, enzymes, hormones, and other blood-borne molecules found in normal and diseased physiology. The change in strategy, begun as the company entered the mid-1990s, was the focus on diagnosing heart disease, a choice made because of the changing dynamics in the healthcare industry. "Rapid diagnosis wasn't important 20 years ago," Blickenstaff said in his August 27, 2001 interview with the San Diego Business Journal , "but with insurers and providers draining costs out of the systems, everybody is interested in diagnosing quicker."

Company Perspectives:

"Novel" is a term we apply to the proprietary protein markers that form the basis of our unique diagnostic products. It's a description that can also be applied to the breadth and depth of scientific expertise that resides within Biosite Discovery, one of Biosite's research and development arms. Our team of multi-talented scientists provides us with the knowledge base to accelerate advancements in these varied disciplines. The overarching goal is to create a productive pipeline of cost-effective, easy-to-use diagnostic technologies that deliver accurate, reliable results with unusual speed.

The focus on a new market put Biosite in the red again. Research and development investments were made in designing a blood test for diagnosing a heart attack, chewing through the profits generated by the company's drug-abuse test. As work was underway on a product to detect a heart attack from a blocked coronary, the company turned to Wall Street for aid in funding its research and development efforts. Biosite completed its initial public offering of stock in February 1997, when the company's stock debuted at $12 per share on the NASDAQ National Market, raising $30 million. Roughly eight months after its conversion to public ownership, Biosite received U.S. Food and Drug Administration (FDA) approval to market its Triage Cardiac System for diagnosing heart attack, but Blickenstaff and his team barely had the opportunity to celebrate the achievement. Biosite was beset by manufacturing problems with its newest device: Half of all the disposable test devices were rejected on the assembly line, severely delaying the introduction of the Triage Cardiac System into the market. While Blickenstaff revamped the company's manufacturing operations, Biosite received FDA approval in 1998 to market two diagnostic kits, the Triage C. difficile Panel and the Triage Parasite Panel, developed to identify bacteria and intestinal parasitic disease, respectively. The new devices did little to offset the damage caused by problems with manufacturing the Triage Cardiac System, however. Biosite fell short of its earnings and revenues projections twice, a failure that whittled its share price down to $4.50 by October 1998.

The waiting was over in February 1999, when the Triage Cardiac System was released in the United States. The $3,000 system, which consisted of a main console and a one-time $25 cartridge, enabled doctors to monitor three heart proteins that were released into the bloodstream at higher levels during a heart attack. The system, introduced in Europe in November 1999, was the first of several products developed to diagnose heart disease, followed by the Triage BNP Test, which received FDA clearance in November 2000. Development of the device, which measured levels of B-type natriuretic peptide (BNP), was begun five years earlier at a time when there was no clear association between heart failure and BNP, and its novelty proved to be a hindrance to its market success. Biosite was unable to convince the medical community that Triage BNP worked, leading to a period of frustration that did not end until the March 2002 meeting of the American College of Cardiology. At the meeting, results of a clinical study were released, revealing that measuring levels of BNP represented the single most accurate indicator of congestive heart failure. Soon afterward, the company's 15-minute, $20 blood test was adopted for use in 1,000 hospitals. By the end of 2002, Biosite had sold $38 million worth of the kits.

By the time the Triage BNP began to stir excitement within the medical community, Biosite had a decade of new product introductions under its belt. The revenue growth between 1992 and 2002 described a company fast on the rise, with each of its innovative, cost-effective devices delivering surges of financial growth. Biosite was a $2.2 million company in 1992, a $28.2 million company in 1995, and a $51.6 million company in 2000 before eclipsing the $100 million mark in 2002. During the ensuing two years, the company's annual revenue total would more than double as sales of its existing devices matured and new devices were introduced. Biosite, which had struggled for years after its founding, entered the mid-2000s as a company planning to be a $1 billion-in-sales diagnostics company. Such confidence was drawn from its rapid growth, the pace of which surprised even Biosite's most ardent supporters. "Our growth is shocking to us," Blickenstaff said in a May 18, 2005 interview with Investor's Business Daily . During the previous five years, Biosite had recorded annual revenue growth of 46 percent, far outpacing the 6 percent annual revenue growth of the diagnostics industry.

As Biosite planned for its future, there was every expectation that the years ahead would witness the continued rise of the company. The establishment of overseas operations promised to boost foreign sales, deepening Biosite's presence in large medical markets. In mid-2003, the company organized Biosite France SAS to manage direct sales and distribution in France, tasks that also were assigned to a new German subsidiary, Biosite GmbH, formed in November 2003. Further European expansion followed in January 2004, when offices were opened in the United Kingdom and Belgium. On the new product front, high expectations were pinned on the company's kit for diagnosing stroke. Development of the Triage Stroke Panel began in 2001 when the company's stroke marker discovery program yielded an initial panel of markers capable of detecting stroke. In early 2005, the pre-market approval application for the Triage Stroke Panel was under review by the FDA.

Principal Subsidiaries

Biosite GmbH (Germany); Biosite France S.A.S.; Biosite Ltd. (U.K.); Biosite BVBA (Belgium); Biosite S.r.l. (Italy).

Principal Competitors

Avitar, Inc.; Dade Behring Holdings Inc.; Roche Holding Ltd.

Key Dates:

1988:
Biosite is incorporated.
1992:
Biosite's first product, the Triage Drugs of Abuse Panel, is introduced.
1997:
Biosite completes its initial public offering of stock.
1999:
The Triage Cardiac System is introduced.
2000:
The Triage BNP Test is launched.
2003:
Sales and distribution subsidiaries are established in France and Germany.
2005:
Biosite files for pre-market approval from the U.S. Food and Drug Administration for its Triage Stroke Panel.

Further Reading

"Biosite Announces FDA Clearance to Market Triage TOX Drug Screens," Asia Africa Intelligence Wire , March 2, 2005, p. 32.

"Biosite Inc.," San Diego Business Journal , April 4, 2005, p. 39.

Dolan, Kerry A., "Good Genes," Forbes , May 16, 2005, p. 106.

Kroll, Luisa, "Vital Signs," Forbes , October 27, 2003, p. 150.

Lau, Gloria, "From One Idea, Years of Success," Investor's Businessaily , August 30, 2004, p. A12.

Reeves, Amy, "Biosite Inc. San Diego, California; Shift in Thinking Gives Test Maker a Boost," Investor's Business Daily , September 30, 2002, p. A10.

Somers, Terri, "Biosite Heart Attack Meter Puts Lifesaving Speed in ER," San Diego Union-Tribune , February 11, 2005, p. B2.

—Jeffrey L. Covell



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