Could you talk about I guess the words duration? Healthcare companies, there is an open window for biotech now, shorter time, the market is the great hope I think amongst therapeutic and instrument developers, diagnostic developers. Do you see these early stage firms actually having a chance to getting the market quicker or getting products quicker as you look at the changes over the last couple, three, four years?
You and I were talking a little bit about this earlier. It may be accelerating to some degree. I’m not sure if it’s gone from five to two years. It could have gone from five to four or four to three. I think that there is some of that that’s going on. I think the one thing we need to be very careful of, is not to get swept up into the hype of what’s going on in the market. I think what we’re still focused on is making sure that companies are developing the underpinnings of their business very soundly so that when they do take that step up and grow, they are going to be doing it with the foundation that will allow them to continue to grow at those steady paces.
I think you will hear that with Crescendo today, you will hear that with GoodStart Genetics, you will hear that embedded within a number of the other companies that are presenting with Putney and with MediaMath. All of those companies are really focused about wanting to take advantage of the opportunity that lies in the marketplace but making sure that they have got the right underpinnings to do it. So is the time to market with the biotechs’ shrinking to some degree? Potentially, I think if you look at Crescendo and GoodStart you are going to see that they accelerate it with their revenue growth that’s a good thing. But I also think that you will hear through their CEOs this morning that they have been also focused on making sure that they are not doing it on the hype of the market, but they are doing it with a real understanding of what it takes to build a company for longevity.
The buyers out there are really smart. They are going to look beyond a lot of the stuff that’s just a facade and we actually believe that. We believe that the companies that are being developed today at least in the Safeguard family are developing themselves in a holistic fashion so that when the value creation time comes we think we’re going to be able to maximize value.
In the past you have often talked about exits on two strategics, but sometimes the IPO market is also pretty odd. Could you talk about how you advice your companies as it relates to new building to be sold for a strategic or potentially going to IPO or what the process is within Safeguard?
So there is always an active dialog occurring and one of the things that we want to make sure is that all sides of that equation or that argument can be put forth and evaluated properly. We have a point of view, our management teams have a point of view, their advisors have a point of view. And the reality is we have looked back, I will still be steadfast in my statement that when we can find a strategic exit, we generally get a better and a quicker path to liquidity and monetization. That having been said, we’re not opposed to a company exploring or even pursuing the IPO path but we also need to recognize that in that process the timeline for Safeguard to actually achieve its monetization goals could get extended and there is other elements that come into play when that occurs.
So it’s a good thing because it would immediately give credibility to value expectations and on the other side it could create some challenges — not challenges but some longer period of time until the actual cash monetization occurs. Now having said that again we’re focused on what’s ever best for the company and there is an active dialog that occurs in each of those cases, and we’re generally not the final say in those cases.
On the slides where you have the actual 2013 guidance, could you just remind us, several of those are, you just raised the revenue guidance, but the capital deployment and the follow on funding, where are those today relative to your…
We are right within the heart of the range on both of those. So actually on follow on we’re probably at the lower end of the range and with regard to new capital deployed, when we get through the end of the fourth quarter I think we’ll be right squarely in the middle of the range.
And then you were just talking about the exits. Obviously there was no formal guidance on exit but what were your expectations for exits for 2013?
I am on record of saying that our goal was to get two exits done in 2013 and obviously we’re working really hard to see if we can make that a reality. But the game isn’t over. We’re in the fourth quarter and we’re working really hard to see if we can get to that objective. It doesn’t mean that value isn’t being created but if we don’t have those exits in ’13 and again we’re working hard to make sure that we have a shot, ’14 does present some really interesting opportunities for us. So there are some things that are occurring. Any other questions? Well great we’ll continue with program.
Good morning everybody. It’s a pleasure to be here. Thank you to everyone at Safeguard for the opportunity. It’s an honor to follow Steve and in particular to follow Steve without putting up any financials. Putney is a pharmaceutical company. We are privately held and we are a generic pharmaceutical company. In the pet arena generics offer a lot of opportunity, there are a lot of winners with generics, principally pet owners, their pets and veterinarians. Actually more pets get treated when lower cost products are made available. The veterinary distributors also win with generics where they can earn higher margins.
However there are also losers and the big pharma animal health companies have had a long ride with increasing prices every year even on products without patent protection. So there are losers when Putney succeeds and we are particularly sensitive about releasing financial projections and timing of product introductions due to the sensitivity of the competition.
I will however anchor expectations by saying that we did $19.2 million in revenues in 2012. In 2013 I do expect Safeguard will reclassify us as to our stage in Safeguard’s universe. We will be a high traction company, with over $30 million in revenues and I will anchor you at the outer end of our current projection where we expect to be generating over a $90 million in revenues in 2018 with over $40 million in EBITDA.
So it’s a big market. Currently $7 billion is spent annually in the U.S. on pet medication. We love our pets. They’ve come in from the barnyard, they’re in our houses, they’re in our chairs, and in our beds and therefore we do not want them covered with sores, oozing wounds or fleas and ticks. A lot of people are spending a lot of money on their pet family members and in fact there are more pets in America today than children.
The pet pharmaceutical market, generic opportunity that I saw in founding Putney is nearly the opposite of the human pharmaceutical market that most of you as investors are very familiar with. In the human market nearly 100% of products have very strong and aggressive generic competition, as soon as patents expire or can be invalidate through court challenges.
In the vet generics market, the pet generics market, in contrast there is classically no generic competition. 91% of the drugs, not by revenue but by approvals, by FDA standard for veterinary medicine, 91% of the drugs approved by CVM for dogs and cats do not have an equivalent generic. Pet owners pay out of pocket, third party payers are sub 3% in terms of the pets covered and impact. So it’s a very price sensitive market and pet owners are increasingly looking for cost savings, and in some cases not bringing their pet family members to the vet as much, once they start shopping online. Price matters to pet owners and there is a tremendous opportunity and need to bring generic drugs to pet owners and to veterinarians.
A majority of vet clinics are very-very responsive to generics and in particular welcome the opportunity to have a more positive dialogue with their pet owners, rather than sticking them with drugs which can be very much more expensive than the pet owners are used to paying for their human family members.
To use one example, enrofloxacin the generic of Bayer animal health, Baytril which Putney introduced this year as a first to market generic, a very difficult product to get to market and the first product ever approved by FDA Center for Vet Medicine that demonstrated bioequivalence in the cat; that product for the branded Bayer drug cost on average about a $125 for a Labrador Retriever with a urinary tract infection. In contrast a similar but not the same drug that is used for UTIs in humans will run you for $10 whatever the plan is at Wal-Mart, CVS or Walgreens.
So the pet owners really have sticker shock and there has been a huge amount of substitution for that drug, of the less efficacious human drug in order to help the pet owners pay for the medication. With Putney’s first to market generic, vets no longer have to compromise, and they can treat the pet with the right FDA approved drug first time and every time.
So for pet generics there is very high need and limited access. The lack of generic competition allows prices to continue to increase by the big pharma animal health companies because they have no competition even after patents expire. This is a market with the classic rate of a higher profitability niche pharmaceutical market, a market I know well from my prior success founding and building Newport Strategies. There are very high tactical barriers to entry. A lot of these products are difficult to manufacture. It is difficult to do the bio equivalence testing in dogs and really difficult to test drugs in cats. Cats are very uncooperative patients as you can imagine.
And the market is fragmented and very different to reach than a human generic or a human pharma market. It requires dedicated sales and marketing and understanding of the market to reach the veterinarian. But all of these barriers to entry create an opportunity for Putney and we are investing in building the R&D and commercial capability to overcome those barriers to entry.
We target vet product with limited competition, high need, veterinarian receptivity to a generic product, and especially we look for product where our generic can actually grow the pie and we have demonstrated with our commercial launches to-date that we can do that, that we can actually help veterinarians to treat more pets with a better drug by offering that drug as a Putney generic.
We do not reinvent the wheel or invest in manufacturing capacity. There is a lot of access capacity around the world for pharmaceutical products. We partner primarily with generic drug manufacturers and CMOs, contract manufacturers, who have experienced and successful FDA track records, developing and taking drugs through the generic approval process on the human side of FDA. We focus our strategic regulatory expertise on understanding the intimacies of FDA Center of Vet Medicine Generic Drug Process and trying to ensure that we get our product through with the least regulatory risk and the fastest review time.
We reach the fragmented veterinary market through our dedicated sales and marketing capability. We are a commercial stage company. We have a number of products in the market that we have launched this year. For the first time we launched the first product from our own pipeline, very significant milestone for Putney. The first one was our veterinary cytotoxin Praxiteles. That was followed by the enrofloxacin. And by the end of the year we expect to launch the first of our dermatological product mupirocin ointment. We also have through prior launches carprofen and cademene on the market and we have a very large pipeline of drugs in development by our R&D team or already undergoing FDA approval.
We are building a very high caliber team. Since the Safeguard investment as part of our C round in 2011, we have gone from 12 to 57 members of the team. With our outsourced business model, these are mostly R&D and scientific people as well as strong commercial people to help us succeed and then the finance and operational infrastructure underpinning our growth as a company.
We are growing very fast. This year we were listed for the second time on the Inc. 5000 as one of the fastest growing companies in America. We were also honored as the 10th best place to work across America in the small and medium companies’ category which was a particularly big honor for our team. Very strong management team; I have built a group combining the skill sets in human generic drug development and regulatory with those in animal health including veterinarians on the team to provide technical support and answer questions and educate our veterinarian customers.
We’ve invested very heavily and very efficiently in R&D building a world class team. We have currently four approved ANADAs and ANADA is the veterinary generic drug application, the veterinary equivalent of an ANADA. We’ve achieved approvals in three dosage forms, oral solid tablets, barrels and ointment amongst our ANADAs, re-launches already successfully in 2013. We’ve passed bioequivalent, which has been one of the key barriers to entry from multiple products including two different molecules in cats and we are on plan to have 19 of our own ANADAs filed by the end of 2014.
The CVM, Center for Veterinary Medicine metrics attest to our world class generic R&D team that is really building a new kind of company with a new portfolio and pipeline of veterinary generic drugs to meet that high need. We are also building out our commercial infrastructure. In 2012 we dramatically expanded that infrastructure, order-to-cash system, CRM systems, hired the beginnings of our inside sales force. That sales and marketing team will total 30 people in 2014. We are calling directly on veterinarians across the country as well as working with certain of the veterinary distributors, the regional distributors who are not blocked by the big pharma animal health agreement.
We ensure that we have the customer service and the veterinary tech support to make us easy to do business with and supportive of the veterinary profession and we use our marketing and communications to communicate with vets and ultimately we will expand that further to pet owners about our product and the advantages of Putney brand generics. We sell everything under the Putney brand and are building the value of that brand to both the veterinarian and the pet owner. We have many educational and scientific medical communications that go out through the profession. This is one example.
So to close we have strong commercial growth. Our growth in 2014 will come both from strong organic growth as well as new product introductions. We have a very deep pipeline for future growth and a very strong team to continue to run hard at and execute on our plans.
I remind everyone that these are forward-looking statements and thank you very much. Do you have a question? Sure.
[Indiscernible] Could you talk about who is the competition for bringing other generic drugs to the market? Are there other generic players or is it brand name Big Pharma that could bring out generics? What do you view is the biggest competition to your business?
Question concerned to who the biggest competition is, the biggest competition is Big Pharma Animal Health, Zoetis and all of the other big pharma companies or in that case a spin out and they are competitors because our products takes share from them. There are also some veterinary generic companies, though they tend to be weaker and we are less worried about them. The Big Pharma Animal Health companies are in some cases talking about bringing out generics. We see some of them perhaps doing authorized generics but because there have been so few generic approvals, there is nowhere to go in the U.S. to simply acquire or put together a group of generics to compete with in this market. Different situation overseas. The overseas markets are much more heavily genericized.
The product that you had mentioned, that was about $100 or so branded and human equivalent order of 10, what would your generic product…?
The question concerns pricing of generics vis-à-vis the brand and let me point out in that example, it is confusing because there is a human product that’s substituted but it is not as efficacious. It is a slightly different molecule and our generics are generally priced at about 20%-25% discount to the brand. There is some variability on that for older products that we have licensed in and we are not first to market. There is more competition. The discounting may go down a little bit further.
It seems like you’re making a play in that area. [Indiscernible] that variant, [indiscernible] it is a tremendous market [indiscernible] if only a [indiscernible] the [indiscernible].
It is a good question and the question concerns are we going to sell online to 1-800-PetMeds and some of those other companies, it is an interesting and complicated question. I will try to be brief. The online companies to date are actually tiny in terms of their sales of prescription drugs. So they sell a lot flea and tick that doesn’t require prescription but their market share of prescription drugs is small and their business models are complicated. No one has really gained traction on-line, either in partnership with vets or not with drugs that require veterinarian’s prescription. We hope someone does and certainly Wag.com affiliated with Amazon, some of the online retailers’ show more promise than PetMed has been able to deliver. We are certainly very interested in that channel if it becomes meaningful.
Yes. Jean, you have indicated the non-generic is 91%. Could you put some dollars on it? Could you talk how that has been increasing, how the generic is increasing and what’s the total dollar generic is now and your sales, you have indicated should grow tremendously over the next 2018. Could you put some specific numbers, dollar numbers on them?
Question concerns generic market share and what that represents in dollars. I don’t have a good number for the total dollars represented by generic. I think that we are a pretty big piece of that. It’s also hard to quantify in terms of substitution of human generics versus true veterinary generics. But I would say with no generic equivalent for most of the big selling veterinary drugs, the generic dollar penetration is relatively small. I will comment on a market share basis, to give you an example Pfizer is large selling Rimadyl which is an NSAID, it’s an arthritis drug. The drug is called Carprofen. It rhymes with ibuprofen, similar compound dog-only. There is no generic yet for the largest portion of that franchise which is a palatable chew. On the caplet which represents a much smaller share of the market, generics now have roughly 75% of the market and Putney and Pfizer have the two largest shares, were neck and neck with each about 26% market share on the caplet only.
And I guess just a piggyback off of this, 91% in the overall market, what’s the key focus to the 9%? Is it, as you mentioned arthritic medicine, UTIs, that 9% generic, is it primarily in one category or is it 10 different categories in that 9%?
The question concerns the 9% that is generic and that number is always very confusing to financial people. And the reason is that is by product approval. So of the products approved, one of the reasons those generics got approved, most of them are for bio-wavered products. So they did not have to undergo bioequivalent studies. That means they are mostly sterile, injectable products and mostly represent smaller products. So prior to Putney, one of the reasons this is such a great opportunity is that prior to Putney no one had really cracked the code on bioequivalence and no one has been bringing the large selling orals to market.
And just a follow up. Going forward, what opportunity do you see is like the biggest growth driver for the animal generic market, is there is some segment that you guys think is a great opportunity that nobody has touched into, not to allude to what you guys are doing but just an opportunity you think is intriguing?
Question is about where we see the opportunities that are most intriguing and right now we are still in the stage of attacking the lowest hanging fruit. Once we get the lowest hanging fruit into our commercial product list, we will be attacking many of the more niche products. We do have some of those in our portfolio. We filed a couple of particularly tricky applications with the FDA amongst our group this year, where we feel like we will probably never have generic competition for the product and some of these products are so difficult to develop, the API the active ingredient has to be custom synthesized, tremendous amount of science involved brining the product to the FDA. So there is a very interesting niche opportunities that are smaller but where we don’t expect really to have competition. So there is a lot on our horizon.
Two questions. First: is there is a generic if you will metric for the cost of getting one of your products through FDA approval? I’m assuming it’s, I would think it less than human trial or process and second, once the product is out there, is there zero product liability or is there—how do you view product liability? Have there been significant lawsuits in the animal pharmaceutical world where products that damage the patents?
It’s a great question. So the first question regarding the cost to bring a generic to market and how it compares to human drug, of course there is a wide range depending on the complexity of the product and how it is developed. Generally as a guideline, our product costs somewhere between $1 million to $2.5 million to bring to market. Those costs may be less if you use a profit share deal structure where we contribute less to the development cost, the formulation development upfront, but give part of the margin on the back end. So general range.
Regarding product liability, as you surmised, it’s very much less than with a human. I think there has been; I am not a lawyer but I think there have been one or two cases where someone alleged pain and suffering around the loss of their pet, but I don’t think that was sustained. So yes, the product liability considerations and requirement for insurance and expenses is very much less.
Jean, I’m not sure I understand the incentive for the vet to use a generic. When you bring your pet to the doctor, he prescribes the medicine, he is the pharmacist, he is making a profit on the sale of the drug. What incentive does he have to lower the price?
That’s a good question. You could sell for the brand side because that’s their argument. So veterinarians, first psychologically they are not people who chose to get MBAs and work on Wall Street. They are people who love animals. And so they usually have big hearts there, the nicest set of customers you will ever find. And they are scripting out a lot of drugs now which is economically less advantageous to them in order to help the pet owners, scripting out to human pharmacies where the pet owner contain much less, even if it’s for an inferior drug. Sometimes that’s the difference in being able to afford something for the pet, sometimes using less efficacious drugs overall.
Veterinarians also recognize that pet owners are shopping online. They are looking for convenience. Consumers now, overall having variety of shopping experiences and that many scripts are, and flea and tick medicine is flowing into different channels. So one, the economy is offering a lot of alternatives to the pet owner and the veterinarians are challenged to keep revenue in the pharmacy. They are feeling and seeing and the numbers are showing it slip away.
So generics offer then an opportunity to offer the discount to the pet owner, and the veterinarian can choose how much of our discount do they keep and add to their margin and how much do they offer to the pet owners. They can use generics to keep revenue in the pharmacy. That would be lost and we have data that shows with the availability of a generic alternative, they can treat more pets and have a better refill rate by the pet owners at the veterinarian for a chronic drug.
We have one last question Jean, it’s from the webcast, and the question is, can you talk a little bit about distribution and are you blocked from using any distributors because of big pharma agreements?
That’s a knowledgeable question. So Zoetis in particular has market blocking agreements for a certain set of products, a small set of products for companion animals with the three national and a couple of the stronger regional distributors. So yes, on those products we are blocked by those markets limiting distribution agreements. Obviously we need to ensure that we succeed, and we so far have been doing so and were building out our direct sales capability as well as working with the regional distributor. So it’s an important competitive factor for us to continue to work hard to overcome. And that’s some of the reality in this competitive marketplace.
Good morning. I am David Lang. I am President and CEO of AdvantEdge Healthcare Solutions. For those of you that aren’t familiar with AdvantEdge; AdvantEdge is a physician billing, coding and practice management company. We use our own proprietary technology to deliver revenue cycle management and business management services on an outsourced basis, primarily for large hospital physician practices and large specialty physician groups.
These services help our clients maximize their financial performance through better collections and cash recoveries, minimize compliance risk, dramatically improve their decision making, and that’s through our web based business intelligence tools and analytics and streamline their operations. We were recognized as the top ten provider of these services nationwide. We have got about 650 employees that operate out of eight locations in the United States and one location in Bangalore, India and today, we’re collecting about 1.25 billion for our physician clients. So a big chunk of money, that’s being funded through our company.
Our clients typically have problems that make them attractive targets to us that we’re able to solve and tend to have certain characteristics in common. Among those are high administrative costs, limited or zero patient interaction, which makes it very attractive first to service hospital based physicians as opposed to visit based physicians, operating highly complex regulatory environments and/or facing pending or anticipate pending technology investments that can often be significant. So we’ll talk about a little later.
While the company was founded in 1991, through our acquisitions our legacy dates back to 1966 and we’re privileged to provide services to some of the nation’s most prestigious medical institutions. The company has grown quite a bit over the last several years. We have completed nine acquisitions and changed the revenue profile and profitability profile of the Company pretty dramatically.
In 2007, when I joined the company, we had just completed our first acquisition, had about $7 million in revenues but to Safeguard’s credit they recognized the opportunity in the company and invested when the business was about $4 million in revenue and funded that initial acquisition.
We have expanded our geographic footprint through these acquisitions and deliberately entered new specialty markets that had attractive characteristics and amongst those are emergency medicine and transport and behavioral health, both which we entered in a meaningful way through acquisitions in 2012.
We don’t think there is a lot of magic in the way we run the Company. We want to build an industry leader and are proud in the progress that we have made and we focused on five important points. The first is growth. We believe that an industry leader has to be growing. Otherwise you’re the only person that thinks you’re leading and we do that through organic and acquisitive means. We focus quite a bit on profitability and margin expansion, recognizing that a growing company isn’t going to be growing for long if it isn’t profitable. We provide a service to the marketplace and therefore need to be making decisions each and every day through the lens of the client and deliver client first service philosophy and it’s not an accident that that’s central in the slide because it is central to our theme.
We leverage our technology, not just to do things better, smarter, faster internally but also from a market facing standpoint to make sure that we can use our technology to create a competitive advantage and differentiation in the marketplace. And lastly, we have a relentless focus on integration as we’re an acquisition vehicle and consolidation vehicle, making sure that one plus one equals three is very, very important to us and the focus on creating common brand, common company, common vision, common platform, and a common culture, of course the enterpriser important to us.
The results of these efforts have produced pretty good top and bottom line growth through 2012 and we expect similar growth in 2013, albeit we’ve got, this chart represents the pro forma inclusion of some pending acquisitions that we have got on the slate that we expect to finish in the fourth quarter of this year.
We are a lot different than many of our competitors, aside from just our size and scale, which is a huge competitive advantage; it allows us to run the business professionally and it affords us the opportunity to make the necessary investments in people, in technology and in tools necessary to meet the ever changing demands of our clients and of the marketplace, but there are other advantages aside from size that we bring to the table.
The first is our geographic footprint. While we’ve got significant penetration in the Midwest, Northeast, and New England states, we have got clients scattered about throughout the United States and it creates a wonderful opportunity and platform for us to build our organic growth and to attract acquisition targets.
Our specialty distribution is also very, very attractive. Few years ago, investors thought that there was a wonderful opportunity to be niche specialty provider in our space. But today providing services across multiple specialties give us a tremendous advantage to meet the needs of more integrated healthcare providers and as many of you or may not know, healthcare continues to integrate and providers continue and particularly institutions continue to try to provide services across multiple disciplines as opposed single disciplines and we are much better positioned than our single specialty competitors to meet the needs of the provider community in an integrated healthcare environment such as ACOs.
Another competitive advantage we have is our Bangalore operation. There is tremendous pressure on healthcare reimbursement. The country can’t continue rolling towards spending 20% of the GDP on healthcare. So there’s downward pressure on healthcare reimbursement, which means this downward pressure on our revenue. We can overcome that by creating efficiencies through our technology and other means. Our competitors also have to look at ways to overcome that.
One of the ways that many of our competitors have looked to overcome that is by outsourcing to third party offshore providers to reduce their labor costs. We to believe that finding rational labor under whatever rock it’s hiding makes a lot of sense, but we also believe that when we invest in our labor, when we’re investing in human capital to the extent practical we want every dollar spent on human capital to be able to be used as a competitive advantage, though instead of outsourcing, off-shoring as it’s called, we look at ourselves as a global employer and we’ve got our own operation in Bangalore, India people that are wearing the advantage shirts, the hats and attending the management meetings.
Another competitive advantage that I’ll talk about today, meaningful is our technology. Having our own proprietary technology allows us to deploy resources and modify that technology to meet not just the needs of the marketplace or regulatory requirements but also to better marry our technology to our work flow so that we have a seamless and very efficient way to deliver service and create positive outcomes for our clients.
Many of our competitors use words like bolt-ons, workarounds and things of that sort. To us a bolt-on or a workaround is nothing other than code where the technology doesn’t do exactly what it’s supposed to, so we need to fix it in some way, shape or form and create a band-aid. We don’t use bolt-ons or workarounds. We modify our technology to meet the needs of the marketplace and our operations. And a great current example of that is ICD 10. As some of you may know we currently have two kinds of codes that are indicated to get paid for any physicians’ clinical event and those codes are CPT codes which are procedural codes and diagnosis codes which is why you are doing the procedure, what was the diagnosis.
Up to this point in the United States we view something called ICD 9. So it’s the 9th version of the diagnostic coding system. In the rest of the world they use something called ICD 10, the 10th version of the diagnostic coding protocol and in October 2014 the entire industry in United States is going to have a dead stop requirement that they operate within the ICD 10 environment. Because we control our own technology, we have been able to respond to that very aggressively, not just in being absolutely prepared for ICD 10 but many insurance companies have raised their hands and said, we’re not sure we’re going to be ready. In fact we know we’re not going to be ready October 2014. We are not going to be ready to accept claims in ICD 10 format. We’re only going to be able to accept an ICD 9 format or on paper, obviously creating tremendous bottlenecks in cash flow to the provider community.
What our system is now capable of doing is concurrently billing in ICD 10 and ICD 9 formats based specifically on the payers readiness to accept ICD 10. And as we move further along towards October 2014, we believe that there is going to be a tremendous acceleration of competitors and prospects in the marketplace that realize that they are not going to be able to meet the ICD 10 requirement, that they are going to be ill prepared to operate in the payer environment where there is various stages of readiness from a payer standpoint and we think the organic growth, acquisition growth opportunity is going to accelerate even further than it’s already been. So very, very excited about that opportunity. And I laid that out, I am sure that there are some questions that would have come and happy to answer any further questions that are relevant to ICD 10.
Another competitive advantage that I will talk about today and its core to who we are, is that integration bullet that I talked about earlier. The consolidation opportunity in the marketplace isn’t invisible. It’s visible to many of our large competitors as it is to us. But most of them that have gone out and tried to consolidate have created 1 plus 1 equals 1.5 strategies by telling the seller community just keep on doing what you’re doing, we love you, that’s why we’re buying it.
We have a very different philosophy. When we talk to the seller community we tell them that the day they do a transaction with us, everything is going to be different. And it’s going to be different because we think that them being a part of us makes us a better company and us bringing what we do to them makes them a better company. And the only way to achieve those betterments on both sides and those advantages are by creating a common company, common brand et cetera and making a 1 plus 1 equals 3 environment and we think that we’ve demonstrated the ability to do that much better than most of our competitors out there.
The problems that we solved in the marketplace are front page news, front and center. There is tremendous downward pressure on physician reimbursement. There is an increasing need to spend money on technology. No matter how efficient the process gets, the need to invest in technology infrastructure outpaces that. It’s very difficult for a provider to attract and retain and train high quality people to handle their administrative functions by the very nature of a limited career path. There is no person in a physician billing office that becomes CEO of a physician practice. So we provide a very different career path there. And no matter how simple the government is tries to or how much simplicity the government tries to bring to the healthcare community, every time it opens its doors it adds complexity and regulatory complications to the process.
When a practice partners with AdvantEdge, we become responsible for their cash and speed of cash flow using our proven techniques. The shift in burden of compliance moves quickly from the practice to AdvantEdge. So it’s our investment and compliance and our processes that the practice then relies on.
We become responsible for the entire technology infrastructure and investment and we deliver to the practices much better information and analytics through web based business intelligence tools so they have true control as opposed to perceived controls over their business, and again as positive customer experience as we can deliver through client versus service philosophy.
The market for these services is huge and growing. We always looked at them, so it’s estimated at $5 billion $10 billion and we always said $4.2 billion of that $10 billion is in our sweet spot, the hospital based physician practices where our value proposition is at its height. But as the office based markets have become larger in scale, more integrated and it’s a requirement that they operate within more standard business practices. That market too is now really aligned itself well with our service offerings, but we now look at a $6.5 billion of that to $10 billion market as AdvantEdge’s sweet spot.
The beautiful thing about this market is $6.5 billion pretty big, but the largest competitor in the market has under 10% share and we estimate that 60% of the market opportunity, 60% is owned by businesses that have under $10 million in revenue. And those businesses with under $10 million in revenue are going to have a very difficult time investing in and meeting the more sophisticated and changing requirements of the market and their physician customers. So we think that the opportunity to consolidate within that 60% and to organically take the clients within that 60% continues to be enormous for us.
I talked a little about our integration strategy and synergies we create. Very specifically those synergies come from the efficiencies of our platform. They come from eliminating redundant corporate overhead, they come from leveraging our Bangalore operation. They come from just our size and negotiating better vendor contracts, but the byproduct of those, the one plus one equals three strategy, isn’t just about performance for our client, it’s about profitability for the business and in a typical example, we buy a, call it a $10 million physician billing company, just a $10 million competitor, and that competitor probably has about 150 people. We know this because the industry average revenue per FTE is $67,000.
The company probably produces about a $1 million or 10% in EBITDA or contribution margin is probably the way they look at it in a less corporate environment. When we acquire that company, the efficiencies that we bring to the table are going to allow us to process that $10 million worth of revenue with 125 people. We know this because our revenue per FTE exceeds $90,000 per employee per year. So using just an $80,000 number and taking a conservative look at this, we would use about a 125 of those 150 people to process and produce the same amount of revenue.
Now we could keep those 25 people and use it as additional capacity for consolidation or organic growth and make that $10 million business bigger with those 150 people, but for purposes of this example let’s assume that we take that 25 person excess capacity, we attrite those people, that the very nature of that attrition is going to take that $10 million business with 150 people and $1 million in profit or 10% and turn it into a $10 million business with 125 people, another $1 million in profit, above the $1 million, so $2 million in profit through attriting those 25 employees, and 20% margins, and we think, there is a tremendous opportunity for us to continue doing that with large and small competitors alike.
So as proud as we are of the results that we’ve accomplished through 2012 and our projections for 2013, we actually believe that our best days are ahead of us and that the greatest opportunities for the Company to really accelerate its growth are not what we’ve done in the five six years since I’ve joined the company, but the several years ahead of us with the conditions in the marketplace, Obamacare, ICD 10 and many of the other momentum that’s going on in healthcare today.
So we’re very proud that like Gene we’ve been recognized by Inc. Magazine and lots of other organizations for our growth over the past few years. But as proud as we are of all of those accomplishments, there’s a management team. What juices us is tomorrow and where we’ve yet to go. So very excited about that.
And that path doesn’t suggest that we limit our service offerings just to those that we provide today. In fact we think that as we become bigger and more prevalent and predominant within the provider community we’ve got a wonderful opportunity to expand our service offerings to contemplate a broader range of the continuum of requirements between the onset of a clinical encounter and the financial resolution of that clinical encounter. So very excited about that as well. John I think we’ve got a few minutes if there’s some for questions.
On the internet can you talk about organic growth versus inorganic growth?
I can. Organic growth, because of the preponderance of companies and the parochial behavior of healthcare has been much more elusive, not just for us but for many of our competitors. We’re proud of what we’ve achieved over the years in organic growth. I think in 2013 we expect, about 25% of our 2013 revenue comes from companies that or comes from clients that were sold organically as opposed to acquired.
So now that shouldn’t be confused with 25% organic growth. It’s really the cumulative effect of that growth that leads to 25% of today’s revenue, being companies that were sold through that organic model over the last three four years. Last year we had a very big organic growth year. I think we sold about $5 million in new business. it’s slower this year but the year is not out. So we’re still counting.
There’s a second question from the webcast and the question is, David do you view revenue cycle management companies like Accretive Health and MedAssets as competitors and if not who do you view as your competitors?
Great question. So the question was from a competitive environment how do we look at MedAssets and Accretive Health as competitors. So Accretive Health and MedAssets both focus their deliverable, not on the physician billing component but on the hospital billing component. So Accretive Health in particular is, their model is taking a hospital’s business office which is really about the hospital billing and outsourcing that or facility managing a hospital business office. Our billing is almost entirely physician, provider based billing, professional component billing. Accretive’s health billing is what would be referred to as global or institutional billing
So we have got many hospital clients that do their own billing but we do their physician billing. We probably have some clients, who are accretive or MedAssets is doing the hospital billing but we are doing the physician billing. The average hospital claim I think these days is $5,700. The average physician claim is in the several hundred dollars. So it requires different systems, much more significant throughput, much more deployment of technology than a hospital bill where you play with the $5,700 balance. That is not to say that tomorrow they won’t be competitors because we may encroach on their business or they on ours. Yes?
So the future acquisition growth that you guys are thinking about, how do you expect to fund that? Are you able to fund that with internally generated cash flow, more investors, IPO, strategic, how do you want to fund your growth?
So the question is how do we expect to fund our future acquisitions, whether it is an IPO, our existing equity partners, senior debt, existing cash flow. It depends on the size and scope of the acquisition. We have got good relationship with our senior lender now who has funded our last several acquisitions. I don’t think we have taken in any equity capital since 2009 if I am not mistaken. I think that number is right. So we have continued to grow primarily through senior debt. As we look at our balance sheet today and target some companies that are our size or bigger for acquisition, obviously there will be some other creative methods we will need to employ. So Safeguard has been a tremendous, tremendous ally in helping us look at our balance sheet and how to prepare the business to do some of those future acquisitions. Does that answer the question?
What impact has happened that the practices are being required by hospitals? What impact does that have because it appears, based on Obamacare that’s the way everything is going?
So the question is what impact does hospitals acquiring physician practices have on our business, particularly since with Obamacare there seems to be a lot of momentum in that regard. So that pendulum swings back and forth over and over. In the 90s there was a big acceleration of hospitals buying practices all for defensive purposes. And then in the 2000s, early 2000 they were spitting off and divesting those physician practices but we love that. We love hospitals buying physician practices because we love dealing with institutions and providing services across multiple practices.
So even though our focus is on the physician billing, our clients can be independent physician practices, in large groups; independent physician practices that contract with one or more hospitals. So radiology pathology, anesthesiology emergency medicine. Hospitals that have us do their physician billing for them and that is big part of our business or commercial providers of healthcare the staffing companies that drop anesthesiologists in multiple hospitals or emergency medicine physicians in multiple hospitals on a regional or national basis.
Has this increased sales and profitability or what impact?
So the question was has that momentum increased our sales and profitability? I will answer it in two ways. It is a shift from a physician centric decision maker who has different buying protocol to a hospital centric decision maker that makes their buying decisions different. We like the hospital centric decision maker because since in the hospital the money we collect doesn’t go right into their pocket, they have got the luxury of making a better business and a more rational business and a higher integrity business decision, than a physician who knows that every penny they can squeeze out of our margin is the penny that goes in their pocket. So we really like dealing with the hospital decision maker.
We also like dealing with a hospital decision maker because we can have one point of contact or multiple specialty areas multiple clients. So it is very efficient for us as well so has an increased sales? I can tell you that there has been a direct correlation to that shift in any up or downward move in sales I can tell you that we have got more than one example where a hospital has acquired a practice brought that practice in-house on to their physician billing platform and has then called us up and said help and given us not just the practice that they bought but all of their similar practices. So in fact Brigman Women’s up in Boston is a great example of that. They bought a radiology group that we did business with, with a hospital and then employed the radiology group that we did business with, brought the billing in-house, called us up said the cash has dropped significantly, can you take back that billing and by the way we would like you to do the rest of our radiology billing as well. So that’s a great story. Are there questions? Yes?
That’s a great question. There are notes in the presentation materials because in my notes and you just reminded me, I skipped that part which is when I talk about our clients we do generally sign multi-year exclusive, always exclusive agreements with our clients unless they are commercial providers, if they are commercial providers we are exclusive to different locations that they provide service but generally our contracts are 3, 4, or 5 year contracts with our clients on an exclusive basis that either ever green or a terminable for clause and things of that sort. And our revenue recognition policy is generally a percentage of the cash that we collect on behalf of those practices.
Yes exactly. Yes, thank you.
We are going to take one more question from the webcast and David the question is Athenahealth cloud based approach competitive to your solution?
So this is about Athenahealth as a competitor and their cloud-based services. Athenahealth is a different company than AdvantEdge. They have targeted different market and that market is much more the independent physician practice with five doctors or less I don’t know the exact numbers but propensity of the Athenahealth revenue comes from practices that have under five doctors. They also provide a different suite of services that we do so they drop a desktop at a physician office. It’s generally a cloud-based deliverable and the physician does all the patient registration, all the clinical indications and Athena on the backend generate that bill and submit that bill. That’s generally where Athenahealth deliverable ends the physician billing requirements and that’s usually in the practice that has built-in administrative infrastructure and has the stay up in resources to do all of the work around that billing components including the follow up with the patient and the follow up with the insurance company. Our services are much more designed for a larger practices where we are capturing clinical and demographic information of institutional systems. And we are doing all of the billing and all of the follow up when patients are making payments, they are making those payments to us when they are going to portals, web portals to make payments or look at the balances at all web portals that they are going to, so it’s a service offering much more geared to an organization that wants to mitigate and minimize its administrative infrastructure where Athenahealth model is about leveraging the administrative infrastructure that has to exist in a visit based physician environment because they have got that physical plan, they have got a front desk, they have got receptionist and other administrative people running around beside those doctors.
David, thank you very much. We appreciate your [indiscernible].
Thank you, John. Thank you everybody.
And next up we have Sundeep of Medivo.
This is actually the most convenient commute I ever had; I walked across the street this morning, a great venue and thanks for inviting me to speak up here.
My name is Sundeep Bhan, I am a HealthTech Entrepreneur. This is actually my third company and last one was a company called Medsite that we sold WebMD here in New York and started Medivo about three and half years ago.
So what is Medivo? We are a lab analytic platform. We use lab data to improve health of course we are providers and payers to help them track and improve outcomes. We work with patients to help them monitor their condition better and our clients are primarily Life Sciences Company.
A little background on ours, we started like I said three and half years ago, our key investors are Global Health 00:04:50 [Audio Gap] 00:05:26
So we raised about 22 [indiscernible] that we raised in June of this year. We have doubled pretty much year over year and growth over the last three years, our HIPAA compliant and private cloud analytics platforms. Our key clients are Life Sciences Companies and Health plans and our key partners are providers and clinical laboratory.
I think we are does one of the best teams in the industry in addition to myself, I have talked about my background, the other two cofounders are both physicians, Destry was part of the management team at Medscape and Jason practicing physician seven years [indiscernible] Clinovation their healthcare technology firm before the three of us got together to start medical.
Some of the other people I’ve highlight Ann Bentley who’s our Chief Marketing Officer will head us marketing for WebMD for 7 years. Mark Degatano who just joined us about five days ago to head up our analytic team, he’s basically got 20 plus years of experience, he was at Symphony and before that at Merck. And some of our advisors, they are the who’s who in healthcare technology and data analytic they have really helped us build and grow our business today.
Why lab data? First of all it’s highly relevant and if you look at from the clinical perspective, 70% of all decisions are still made and based on a lab test. There is a growing role in companion diagnostics in selections of therapy. From the patient side we’re seeing consumer empowerment and getting access to data and how about drive decision making in the future. And the other thing I want to highlight is that 50% to 60% of the testing is underutilized today. So, as an example a diabetic that supposed to get tested every three to four months to get their hemoglobin [indiscernible] are really complied less 50% of the time.
The market is extremely fragmented so the data is fitting scattered all across in all these different companies, 50% of the lab market is hospital based which is extremely fragmented and in the independent clinical lab market you’ve got two big [indiscernible] that together have about 25% of the market the rest is pretty scattered across thousands of lab.
So, there is an opportunity for someone to go out and collect all this data and for our clients we can provide them great measure of quality, lab data is a great measure of outcomes in healthcare and we’re seeing a big conversions of diagnostics and therapeutics which is a growing sector and we really building our company at that interest action.
So, the overall market opportunity for us is huge the two main segments that I want to highlight, one is the Pharma marketing the highly targeted pharmaceutical marketing segment which is about 14 billion and growing and the other is the healthcare data analytics market which is growing at about 23%-24% a year and its projected to grow to about $10 billion in five years.
Let me talk to you little bit about at the core of what we do and how we get the data, how we build this data base. The core of it we have what we call the medical lab value exchange. It all starts with a physician signing up on our server, once a physician signs up on our server they essentially give us permission to go on their behalf and go and pull in lab data for all their patients in the labs where we’re connected but today that’s over a 100 labs.
We pull the data in we aggregate it, we harmonize it and then we make it available to our [indiscernible] which are the physicians themselves, the patients and through data analytics to our client and I’ll talk about that in more detail.
To earn this lab value exchange the three main things that we have built on top of that one is the data aggregation and harmonization, we’ve quickly become the experts in all things lab data in the sector. As you can imagine as the lab data comes in from all of these different lab they use – they’re supposed to use HL7 format but it comes in all different forms and varieties and so we normalize all of that and we also tied our back to a single patient so we can track the data regardless of what lab you’ve gone through or what physician you’ve gone to done at end of this patient level.
Second is the search utility that’s it’s on top of that that’s really like a Google search appliance for all lab results and then using our proprietary algorithm that are condition based we can then look at generating clinical alerter and messaging based on the data that’s there.
So, starting with the physicians what’s the value for the physicians? Why did they sign-up for our service? It really make it very easy for them to go to one location and just typing the patients name and to be able to pull up all their lab results again regardless of what lab or what other physicians they may have gone to. And I think as consumers we’ve all experienced that at some point or another in our life who have gone to physician, gone some testing done and gone to another physician and either they test you again or they wait for the initial physician to fax all those results.
So with our solution they’ll be able to actually look it up and pull it up right there. Providers they’re very satisfied with our service from serving them, we’ve seen that over 75% recommend our services to colleagues, they highly value our service and they believe that it helps improve patient care and that shows in the numbers we’ve seen great growth, if you look at over the last less than two years, two years ago we had basically less than 500 providers and quarter-over-quarter we’ve seen this growth and today we’re about 15,000.
The other thing is today we’re really focused more on the smaller practices if you look at our mix about 80% are in practices of less than 10 providers and going forward that focus will shift, we’re also now going after mid type practices and large provider groups going into next year and beyond and that basically drive the growth on the data side. So, that also we’ve seen grow very quickly, we’ve now reached close to about 3 million patients in our data base and we expect that number to grow to about 15 million to 20 million patients in the next 3 to 5 years.
And for the patients what we do is couple of things, one we provide them access to their results and also help them track their condition through our mobile platform. Our apps today have been now downloaded over 1.5 million times in the last three plus years and for the patients we really provide the meaningful data reminders and education around their conditions.
So that all that I talked about on the physician and the patient sides are services that we provide for free really helps us build our data base and the revenue side, let me talk a little bit about what we offer to our clients. For our clients primarily life sciences companies we’re providing targeting measurement and messaging and I’ll give you a quick example of that.
So, let’s say I’m a pharmaceutical brand that just launched a new hepatitis C drug. So, I am interested in reaching physicians that have the largest population of hepatitis patients. So how do you find those physicians today? We are able to do that looking at the aggregate data at the identified basis we can help them target physicians that have the largest numbers they don’t want to look for 30 plus patients so we can help with the targeting. We can also measure outcomes for a [indiscernible] physician and their patients and things like diabetes we can look at which way outcomes going, are the patients getting better or they getting worst, is the physician treating enough and then there is an opportunity to also message over our platform to basically drive a change in behavior.
So revenue model is both subscription based and transaction based, we typically sign multiyear MSAs with our clients and then we have either annual statements and work or some are subscription based that are multiyear and here is a list of some of our select clients that we’ve been able to sign over the last couple of years.
Looking at the financials as I said before we really doubled in growth year-over-year over the last two three years, we expect to continue to grow at a fast pace over the next three to five years, we are in the growth phase and still investing in our growth and losing money and we expect to be cash flow breakeven in about 15 month and the last one to financing that we did should get us through that and beyond.
Looking at our expansion strategies we’ve primarily been focused on lab connectivity and we’re working with two large national labs today and a handful of regional labs and we’ll aggressively grow that for us to really grow it starts with the physicians so as I said we have about 15,000 our goal is to get to 100,000 plus and then connecting to hundreds of labs which will allow us to build the data base and then normalize harmonize that data and then commercialize that data.
So today the focus is really on the life science commercial, we can also easily grow into the life sciences clinical researches and payers, ACOs providers these are all attractive markets for us. Honestly our key challenge today it’s really been, we’ve proven that we can commercialize it, we’ve proven value to our clients at this point we really need to focus on building the backend and growing the data base that’s really been limiting factor for our growth at this point.
We’ve seen some great comps in the markets, these are companies that have either – these are connectivity players in healthcare or data analytics play companies like Medicity that [indiscernible] like two years ago for about 500 million doing revenues of less than 50 to most recently Humedica that was acquired by United Health Care optum for about 150 million to 200 million and they were doing $7 million to $10 million in revenues.
So in conclusion we have a proven leadership team with lots of experience in healthcare and technology 15 to 20 years plus transaction experience. We’ve proven out our business model as I said we have clients that are paid, paying clients, revenues that are growing and a great opportunity to build value, I think [indiscernible] opportunity that set as 15 billion plus so even if we are only get a couple of percent in the market we can build a company in hundreds of million dollars in revenues.
That’s it. Thank you.
What’s your apps – what’s the access to your apps and the names for your apps?
So the question is what are the names of our apps or what’s the access to that? So, the apps are available through both android and Google play as well as the iTunes store and there are all condition based so people normally look for apps based on conditions the diabetes monitor, CMR monitor those are HAE monitors, those are some of the names and you can go to our website medivo.com and look at all links to all of that
So, it looks like your – all your revenue is coming from marketing opportunities from Pharma or you’re going to go do anything clinical side like illness plays, talk more directly on that?
The question was that are all our revenues today coming from marketing opportunities or are we also going to consider a clinical play?
Today opportunities are all, and our revenues are tied to marketing, but as I said in the strategy side there are opportunities to grow beyond that. We feel that there is a lot of opportunity in the current market, we want to continue to build and grow that first before we focus on others.
Just in personal experience, New York Hospital in [indiscernible], they have a pretty robust patient web access that all your labs come up and doctors’ reports all its information. Is your reluctance, or is there a competition and reluctance from large providers like a hospital network for releasing that data to you because everything they would want to keep it for themselves and keep the customers, the patients within their own system, I mean a system [indiscernible] as it seem to make it so that a patient might go to [indiscernible] something, that may [indiscernible] where it seems like the consumer base data systems try to keep them there for convenience.
So the question was, is there reluctance from large provider groups in working with us, because they want to keep the data within their walls, or what is the value to them for our service?
That’s a great question. I think from our perspective, what we do for them, the reality is that patients do go in and out of the system. So you can go to a physician that’s in the system. As soon as you go outside of the system, you’re blind to that system. So what we do is actually we help them, look at what’s happening in and outside of the system. So by joining our lab value exchange, they basically get visibility into what’s happening with the patients once they are outside of their wall. So that’s really outpitched to them, and plus the other thing is that lot of them have their own labs. So we’ve also shown that we’ve increased compliance and testing in case studies anywhere from like 30% to 50%, so there is also a lot to be gained for them with – working with us and joining our talks forum basically. And there is a network effect all this. As we sign on more and more partners [indiscernible] the value of joining this exchange continues to grow because then you’re going to have access to more and more data.
What are your thoughts about privacy and legal issues, seemed to me to be very [indiscernible]?
Yes, they absolutely are. So the question is around privacy and HIPAA issues basically.
We are HIPAA compliant. We get audited every year. SSAE level 16 audit which audits are – independent auditors come in and look at our systems, our processes to make sure that we follow HIPAA, and then same thing on the privacy side as well. So we’ve taken all the necessary steps to make sure that – beyond that, I would say we’ve really sort of set the gold standard in the industry to follow those.
Sundeep, thank you very much. Our next company is Quantia, and Mike is the newest addition to Safeguard’s roster partner company. So let’s give him a warm welcome.
I am happy to be here. I am the CEO of Quantia. Quantia is in the business of transforming physician relationships. So it really means we address an age old challenge in healthcare, particularly as it relates to pharma and health systems. How do you get the attention of physicians? How do you get them to consume information? How do you get them to engage on the information? How do you influence you behavior as a result of that? Exactly what we do, we use social media to engage with physicians, get them to deeply engage with our content, and we drive influential and beneficial relationships between pharma health systems and physicians. It’s an important issue in healthcare and it is getting really more important for this reason.
[Indiscernible] 3 trillion is a mountain. We look to be spending in healthcare here. What you probably don’t know is that 80% of the decisions around that spend are either directly or indirectly influenced by physicians. Physicians decide who they see, how much time they spend with them, who get referred, who goes to a hospital, who gets the lab test that Sundeep talked about. So lot of spend controlled by physicians and naturally there is a bunch of groups who either want a part of that spend or are financially motivated to control that spent and in some ways they are actually the same party, who want to get directly to the physicians and specifically they want them to do certain things.
In the case of pharma, they would like to influence prescription writing. Also in today’s era of shrinking sales forces, they want to be able to make the sales team more effective. In the case of health systems, they are looking to influence physician behavior. And they are looking influenced behavior around quality measures as it relates to reimbursement. Now the way they are doing it now is either never been effective or it’s kind of effective becoming increasingly less effective. So there is this standup-meeting in pharma. There is a whole notion of the broad sales force covering every physician’s office in the United States, becoming less and less effective because of the restrictions on rep and because of the financial challenges of maintaining such a large sales force.
In the case of the health system, you literally have health systems faxing and mailing physicians to depth. They’re sending reams and reams of paper every year, millions and millions of papers, hoping the physicians will consume it and pay attention to it and do something different as a result and what you have is physician literally drowning in information. In 2013, you have physicians getting some munch information they’re not paying attention and the tragedy of disguise is the information is good, physicians actually don’t mind the information, they’re just busy, they have a hard time spending time with their patients [indiscernible] consuming information that they want you to consume. They’re possessive about the content more about how you deliver that information, how do you put it together in a way that physicians will consume it, get engage with it and do something different as result of it.
And that’s where we delivered the quantity, we have the ability to call, we say to speak physician, so we understand how to put content together in a way the physicians will consume information. And the reason we know this is because we worked with a lot of physicians and I got to tell you about how we do that, the physicians really think about things kind of a very specific ways, they look to make money, save time, and be better doctor. If the content that you’re delivering to physicians hits those marks they’re going to be interested, but the thing you’ve got to think about how you deliver it to them and it’s a concise, not going to waste my time, is it relevant, is it up-to-date clinical information, is it credible, is it presented by one of my peers versus someone in a healthcare organization and is it delivered to mean way that I consume all my other information over the web and mobile and tired of your practice.
Now, the reason we speak physician, the reason we understand physicians so well as we operate a website call QuantiaMD which is the largest social collaboration platform, social learning and collaboration platform versus physicians United states. It is free for physicians to join and we have 200,000 fully named, verified physicians and it’s important. We have grown substantively over the last year. We have added 30% to our growth rate. We continue to growth at even faster. We have got over 30% physicians United States who have visited our site and engaged with the content on our site. More importantly, they really engaged with it so average users spent 45 minutes a week with the content on our site, it’s about 7 times more than they spent with an average time with an average patient in a week just by way of example.
Now, what they consume on our site is concise multimedia presentation, so think of it the simple analogy is they talk for healthcare. We developed this content through a couple of ways. First we developed it with our content partners itself. Prestigious organizations across the United States who have content that they would like physicians to consume, but haven’t found the right channel or can’t get them to consume that information. Examples are the Centers for Medicare and Medicaid services, the Centers for Disease Control, the NIH, Mayo Clinic also its organizations have all such a great content but just cannot get the physicians to engage, but our platform servers as a great means and mechanical to do that.
We also developed content with our faculty partners who represent experts in various clinical areas across the U.S. and they come from prestigious organizations as well such as the Cleveland Clinic and the Anderson, Kaiser etc. Our physicians also engaged in the social medical and components of our platform, this is actually an area where we seen a ton of growth of late and this where physicians are literally can engage with one another, communicate and collaborate, seek one another out for digital curbside, ask questions about clinical topic, ask questions about the business of medicine.
We are seeing a lot of traffic and this is what really keeps the physician engaged and interacting with one another on a platform. We also have gamification on our platform because physicians are smart people, you don’t become doctor by accident, so they like to quiz one other, they like the contest, they like the challenges, they like to see how they compare against their peers. And all of this is delivered the way they get everything else through the web and mobile. What we do on QuantiaMD with our commercial partners? We reach the physicians that matters to them. We drive deep engagement on their content. As result physicians get the information they need to want, and we establish an influential relationship with physicians that’s important influential relationship.
So that’s mean not only that I reach you not only that I get you to do to pay attention my information, which you’re going to behave differently as a result, you’re going to order different lab tests, you are going to think about referrals patterns, you’re going to think about whether you should test — you’re thinking about whether you should quote something differently because it relates to a quality measure. Now, the way our clients interact with our platform is QuantiaMD servers the information hub, they can deliver their contents through our platform, delivered in our modality so we work with our client to distill it down into out modality. They can also license content from us and mention all the contents that with million minutes of engagement. On top [indiscernible] important to help us and then pharma and they would like physicians to engage with.
Pharma can also use our platform to connect their rest of the physicians so rather than sending a resp to the darkest corners of the last to engage with physician, they can actually use our platform to interact with the physicians to serve the physicians when physicians have particular questions, whey physicians would like to do order sample etc., very unique and very interesting way to drive engagement. Now, we have been at this for about five years. Our core business is in pharma and we started in pharma. We worked with 9 out of the 10 largest manufacturers out of that client list 43 of those are pharma. We did about 8.5 million of revenue last year and based on our growth in pharma and also our new client segment which is the health systems which the other two clients on that list we expect to do north of 10 million so we see a lot of opportunity in terms of where we are and where we’re going. We worked with over 120 brands in pharma and we’ve done over 148 programs, nearly 150 programs within the context of working with pharma.
So great progress in pharma but we’re not even scratching surface yet and here is why. $16 billion is roughly spent on annual basis marketing to physician so if you count the number of physicians it’s somewhere around 650,000 we’re literally talking about $26,000 spent on each individual physician in United States from a marketing perspective. So you’ve got all that spend going on and then you have some interesting trends happening which are only 14% of physicians have unlimited access to reps so put it another way. The majority of physicians have some restriction on their ability to access reps either because they chose not to allow reps to visit them in the office or they work for an institution. And more often [they not] institutions restrict reps from coming into that institution and as many of you know more and more physicians are increasingly being employed by physician.
We also know that physicians like to get information in a digital format a recent survey that just came out recent study just came out. So the majority of physicians like to get pharma information in a digital format and what does that mean when you’re talking about digital format. Well, 80% of physicians are using mobile devices for professional activity. 45% of the users on the Quantia platform are accessing everything we do from a mobile basis so it plays exactly into what’s happening there. So from our perspective we see at least $1 billion addressable market opportunity in pharma alone.
On the health system side we’re really excited about the opportunity there as well. So the notion of engaging with physicians with something that used to be a nice to have to something that’s become utterly essentially, particularly post Accountable Care Act. So we’ve seen significant growth in Accountable Care Organization for those of you don’t know those are it’s a basically a payment mechanism that ties for provide reimbursement to the achievement of certain quality measurements we’ll put another way providers and physicians need to partner together and get paid more or get paid less depending on how well they collaborate work with one and other. We’ve seen massive growth in Accountable Care Organization from less than 40 in 2010 to over 500 in 2013.
So significant opportunity there because they’re growing and what has happened is physician engagement and we’re talking particularly around buying around quality and safety initiatives has become a top priority in the hospital. And if you remember the way I talked about it before the way they would deliver that information to the physicians were the faxes and emails, PDFs, they never pay attention to that. So there is a need to develop new solutions around that and it’s not just tied to Accountable Care as well so just one example in the Medicare Advantage space there are $3 billion to $4 billion of bonus opportunity tied to Medicare five-star improvement. Five-star is particularly a rating of the Medicare Advantage health plan performance as it relates to certain quality measures. The only way you’re going to move quality measures is by getting physicians to do things differently at the point of care.
So the opportunity to engage with physicians to help drive a more unique relationship is very significant from our perspective and we see a 2 billion plus market opportunity for Quantia in the health systems base.
Now in terms of the competitive landscape and when we think of competitive landscape we’re thinking about who does the good job of getting physicians to do something different and pay attention to information. We think there is two things that matter one is the reach. How many physicians can get to in the United States and there is roughly about 800,000 physicians in United States how many can you get to and then engagement. Of those physicians that you actually can reach how engaged are they, do you touch them briefly do you not spend any time with them at all and you just connect to their office or do you actually get them to consumer information.
And the interesting thing in this space is there is lot of companies with reach there is some companies with some degree of engagement but you don’t see a lot of both within the market and we think that’s a significant opportunity for us. On the reach side you’ll get larger administrative functions and on the engagement side they are simply not getting the reach or the deep engagement that we see on the Quantia platform. The modality that we’ve developed the way that we get first consumer information is substantively higher than anyone else has been able to demonstrate space.
Now our growth strategies are fairly simple it’s really about staying focused for us. The first is audience growth we have 200,000 physicians. We grow anywhere between 12,000 to 15,000 physician a quarter based on current rates. We’re looking to continue to increase that and we’ve got much better at building that over 35% of our physicians now come from referrals so we’re starting to use really exciting network offset on our platform we see lot of opportunity in there. We also love to go broader in life sciences. So I talked a lot about pharma and I talked about how there was the need to extend the reps in the pharma space certainly within the context of medical device, diagnostic et cetera. There is also a need to improve the reps’ ability to engage with the physicians so believe there is a nice opportunity there.
And then on the health systems side we also see significant opportunity I mentioned we have two clients in the health system space we’ve been on it for about six months one in aberration, two to suggestion of a pattern. I would say that every health system we talk to uniformly is interested in what we do, because the whole concept around engagements with physicians becomes huge in the state particularly with the accountable care organizations.
In terms of thinking about future we want to go broader within the context to help this and as we have talked about account of a care organization there is also hospitals, health plans all of who are looking to engage with physicians to improve their relationship with physicians and get the consumer information. We also see significant opportunity in patient engagement, patient engagement is a hot topic particularly in the area of accountable care, we think the approach in many ways is [indiscernible].
Most of the solution designed to improve patient engagement bypass the physicians. They go from the pair to the patient to self-insure employers to the patients. The disease management vendor to the patient, they don’t bring the physician into the equation. And the reality is patients pay a lot more attention to their physicians than they pay attention to anyone else. And we think by virtue of our ability to get physicians attracted, to get physicians engaged, to get physicians paying attention and participating in the process that are opportunities to developing unique suite of patient engagement solutions is significant.
The last growth strategy or less growth opportunities in the international market, well certainly pharma has an interest well beyond United States large markets like Japan and Europe for instance are also of interesting opportunity for us. We do have a number of international physicians that I did not list in the 200,000, we got upwards of 300,000 which is factoring in physicians from the rest of the world, so we see a significant opportunity there. And certainly there are large national health systems in Europe and beyond that have a significant need to engage with physicians as well. To get them the consumer information and using differently, because at the end of the day healthcare globally is migrating towards measurements and cost improvements, and that’s all tied to changing physician behavior at the point of care.
So that’s what we do, we’re in business in the gauging and getting physicians to really participate and process and partner up with the major commercial participants in developing unique and beneficial influential relationship.
So interesting enough our average age of our physicians, so the question was, do we see, what is the geographic mix — demographic mix of our physicians? We see the average age of our physician is 45, which is basically the average of our physician. And so we have a pretty significant spread across the resident all the way up to the older physicians who went in for a while.
So the question is how do we get paid? Our clients pay us a couple of ways, much like we have a transactional component of our business which is historically the pharma business, which is we’re paid for the engagement, we have x amount of dollars or y amount of engagements over a particular time period. We have migrated or expanded perhaps a better term of the business model, we now license access to our platform which gives pharma a much broader capability to engage in a deeper basis. So out of those 43 clients we now have half a dozen of licensing assets to platforms, can give us a lot more revenue visibility going forward. On the health system side there are customs paying for multi-year licenses, so they are all three year license agreements as the subscription agreement to the platform based on how much content they wish to access and what they want to promote to their physicians initially.
Unidentified Company Representative
Mike thank you very much. Now next we’ll go to our Medtech portion of the program, and we Bill Hagstrom of Crescendo.
Good morning, great to be here today. Crescendo Bioscience is a high growth molecular diagnostics company. Our sole focus is in the area of auto-immune diseases as managed by the rheumatologist. Our initial target is rheumatoid arthritis but over time will expand other diseases, like anglo spondylitis, psoriatic arthritis, [indiscernible] and others. We launched Vectra DA our first commercial product in late 2010. This test tracks the patients level of inflammatory disease activity and answers important clinical questions throughout the course of the disease.
Vectra DA plays into a $1.5 billion domestic market, $3 billion globally. We’re first and only in this category in creating first mover advantages and we’re rapidly gaining adoption with patients as well as physicians. Our revenues are expected to grow from $5 million in 2012 to $30 million in 2013. Along the way we’re improving outcomes and reducing overall health costs. And as you will see with a highly focused business model that leverage market access and the ability to build a global autoimmune franchise, little bit on background, we were founded by an auto immune patient, Dr. Mike Centola spent five years at the NIH arthritis branch doing work in genomics and proteomics and when he left he wanted to do translational work, because he had seen the devastating effects of these diseases first hand on his family and him personally. We’re based in South San Francisco, our funding base includes originally Mohr Davidow followed by Kleiner Perkins and most recently Safeguard and Skyline in a series D investment. In September of 2011 we partnered with Myriad to access 25 million in non-diluted funding in the form of long term debt and as part of that agreement they have a three year option to acquire the company on a formula basis once we achieved defined level of quarterly revenues.
The last six months have been tremendously productive for the organization with a number of important milestones. New York State for those of you that follow our industry is very important, that was achieved in the month of April. CIP certification April-May, Medicare coverage in pricing, we extended our sales force by 50% from 20 up to 33 in that same time period, we were able to get significant data out into the doctor’s universe by way of our presence at ULAR the biggest international meeting which was held in Madrid this year. We have nine abstract coming up at the ASAR meeting in three weeks and over 20% of physicians are now ordering Vectra DA on a monthly basis. But why rheumatology , it’s a very attractive market, these are lifelong chronic diseases and conditions, with continuity of care between the same physician and patient, visit after visit, year after year, decade after decade. And it’s a very concentrated audience, 3500 doctors manage 1.5 million RA patients. This has been an area of explosive innovation on the therapy side of the equation. Nine approved drugs, fifty in the pipeline but no accompanying innovation on the disease knowledge insight side of the equation.
As you’ll see the tools that physicians use are highly subjective, qualitative and inadequate for the questions of interest today, not surprisingly there’s a wide range of patient outcomes in socioeconomics. There’s a tremendous opportunity to move more patients into remission, cure is not possible, remission is the goal, yet it’s achieved less than 20% of the time. This is a disease that’s marked by systemic long standing inflammation with significant side effects and co morbidities, 30-50% of RA patients die of cardiovascular disease MI or stroke. Typically a patient deals with issues that have to do with bone erosion, structural damage and cartilage degradation that lead to disability, 50% of patients are out of the work force in five to 10 years. This is a diagnosis that arrives in one’s prime, average age 47, 3:1, women to men and significantly reduce life expectancy. The good news on one front is that there’re are tremendously effective drugs, not without side effects and adverse events, but they’re expensive drugs, $20-25,000 per year, you’ll see the names of some of the drugs off to the right hand side. The real question is which drug, which patient, which dose, is it working and who really needs to go on to a biologic, given that 35% plus of patients fail [indiscernible], could you tell that earlier could you [indiscernible] more productive therapy. And if patients are on drugs three years, four years, five years, seven years and so forth is there a point at which they may be lifted from drug therapy and achieve drug free remission. These are questions of great interest, physicians face complex questions throughout the disease course, what’s the level of severity, which dose, is the drug working, should I change the drug regimen, is my patient at risk for structural damage, erosive processes, is my patient in remission, the best of techniques used today have a difficult time determining who’s truly in remission and yet that’s the goal and what are the chances of my patient having a flair up. There’s no test today that answers these questions.
Current measurements are highly subjective, non-specific markers, key reactor protein which is normal in up to 40% of RA patients, while they have elevated levels of disease activity, that rates, and then physician measurement techniques like the [indiscernible] that measures 28 joints, is it tender, is it swollen, is it tender, is it swollen and so it goes, hand, feet, knees, hip, shoulders and it’s a far less than ideal technique also because it takes time and a significant variation, that technique is only used about 5-10% of the time in clinical practice. Many physicians use what they refer to as their Gestalt, is the patient’s disease activity, high, moderate, low, I think they’re in remission, that’s achieved by asking a number of questions, feeling a few joints and making that general assessment. So it appears as though there’s a better way and an improved opportunity that it can be brought forward, from the background, importantly, there have studies that have been done and you’re familiar with [indiscernible] control [indiscernible] and other specialties like diabetes and others that show if you measure to some kind of quantitative standard and you make rapid decisions, you can make — you can achieve a greater degree of disease control. In rheumatoid arthritis some of the studies like TICORA, CAMERA BeSt FIN-RACo showed that 50% or more patients could be in remission with less than ideal tools and yet in most instance it is only about 20% of patients are in end remission to address this opportunity we addressed we bought four Vectra DA it is a test that uses 12 protein biomarkers and looks at a quantitative score on a scale of 1 to 100 so a very high level of resolution highly reproducible and allows a physician to baseline a patient initially what is your level of severity pre-therapy post-therapy response to therapy this is the patient high risk protrusion or structural damage and I separate with between comorbidities like fibromyalgia versus RA effect which is important when making drug selection choices. The answer is yes with Vectra DA.
We are also able to identify remission versus active smoldering disease and which is a patient that is likely to flare we have now done over 25 studies answering these specific questions on our path to commercializing Vectra DA. The test was originally developed by a rigorous process looking at 100s of biomarkers and close to 2,000 samples from desperate cohorts over a two year period. Along the way we performed feasibility testing development through several different stages a verification study a validation study and I know a wide range of additional studies the biomarkers selected survey of broad range of pathways in mechanisms involved in rheumatoid arthritis.
The test itself is ordered by way of physicians off a strong blood standard StO2 Centaur, Ultramid we have essential lab located in South San Francisco significant investment in automation robotics to achieve a high level of quality and control while assuring scalability and strong margins as we move the business further forward. Typically within three to five days we return a test result back to the physician increasingly that is done via our proprietary web portal called VectraView which you will hear more about. A test report looks something like this in addition to the individual biomarkers being reported out on the second page they see a score in this case they see it serially of patients that is gone from a 55 on their first examine which is high disease activity but most recently 19 which would be somewhere between low disease activity on end remission.
We position the test on its ability to quantitatively measure the biology of a patient at a given point in time as a compliment to a physician’s qualitative ability to generally assess a patient’s signs and symptoms such that are more complete and the firm decision is made Vectra DA can provide insight of all stages of disease to facilitate better disease control the examples that you see here would range from initial severity to assessing frontline treatment like methotrexate the addition of other agents like [indiscernible] and sputolysin which is combination of three drugs in the DMART class that costs less than a $1,000 per year before the decision number four because of inadequate DCs control to go to a biologic where they are anchor pointed with them before there are measures for it in ACR20, 50, 70 response number five productive therapy a physician continues to ride with it into remission.
Here the patient and physician decide to look at a tapering to withdraw protocol yet the patient flares so these are all opportunities to use a Vectra DA. And we are visibly improving patient outcomes and management of RA as we move forward we have dozens of case studies at this point in time in addition to the 25 plus studies and 11 publications that are clearly out in the peer viewed literature. One of unique things that we have done is invest in not just a measurement tool but a measurement system. VectraView allows you to look at the population that manages a physician what is the level of disease activity for each patient how is it shifting and moving over a period of time or why is that important.
So those that want to be able to demonstrate quality improvement and put treat to target into practice which says the goal for every patient is remission you can take your highs look at intensification by way of your interventions and scheduling to drive your highs to moderate look at your moderates and bring them to lows continue to see strong disease control with your lows and your remission candidates perhaps by using NPs and PAs along the way. This is a powerful tool that is creating a movement on rheumatoid arthritis circles as physicians are restructuring their practices around some of these ideas and concepts.
We are focused on the physician to be sure but also on the patient side of the equation and we are building a platform to facilitate greater expanded interactions our report is on one side of the equation and VectraView on another but that is an important tool that we brought forward to patients we found that 60% of patients are self-tracking this is a demographic that is deeply engaged women in their 40s 50s and 60s is the primary demographic they want to be productive they want to stay in the work force they want to articulate to their physician that what has been happening between office visits.
So MyArray allows you to do that it is an iPhone app over 10,000 downloads over the last few months five star rating it allows you to quickly easily in less than 60 seconds a day with the level of pain, fatigue, morning stiffness, affected joint intensity of the joints affected and then produce an at Glance report for the next physician visit that talks about everything has been going in between. Then last we are far more focused in engaged in [indiscernible].
How do we go to market, you will see this is a very focused business model. 3500 docs manage 1.5 million patients. Typically they see between 300 and 500 patients two to six times per year there is 4 million documented [indiscernible] its per year by every patient to physicians.
We require no more than 40 reps ultimately to access this audience that are little better than 1:100 ratio. So get the doc, get the patient, see the patient over an extended period of time, is the model.
We have deployed our direct sales force hiring highly experienced reps from some of the best companies that are in industry, Amgen, Gene Tech Semicor (ph), Abbott, DMS and others. We look for people 15 to 20 years of experience that have been the top 10 performance ranking within their existing organization and we get them, why because they want to be part of the next thing. They have realized that the drug fields may not need the 10th, 11th, or 12th drug but the field does need assistant to better manage, measure and manage what’s going on with these outpatients.
Our recent expansion to 33 broadest to coverage of 90% of the rheumatology marketplace and I think you will find this interesting, we pay very close attention to the breakeven curves on investment and field force. Wave one reach breakeven 18 months, wave two 12 months, wave three 9 months and this last group that we deployed our goal was 6 months to achieve breakeven in 4 months. Our breakeven, the point at which they generate half a million and annualized revenues.
Our ordering base is now up to 22.5% of U.S. rheumatologist and this is an ordering criteria that they had to order in the most recent months after qualify. This is a leading indicator, get access to the physician then their patients, then tracking them serially and it’s working.
Our volumes are going rapidly and accelerating quick. It looks like 22,000 tests for the third quarter just completed that’s up 150 plus percent year over year quarter that’s up 40% quarter to quarter.
As strong as that growth is and that an annualized rate of about 90,000 right now up of 32,000 total tests last year we are only testing 4% of the rheumatology market at this point in time. I mention this is a very large market, we have significant headroom, get the doc, get the patient, see the patient over an extended period of time. We are now covered by Medicare as of May 10 at a price of $586.50 that’s important because Medicare represents 40% to 45% of [indiscernible] lives.
We are receiving reimbursement from many if not most private health plans about 80% at this point in time using existing CPT codes for immunoassay which is due at the 12 different biomarkers and we have an outstanding value prop as we go into the contracting phase next with plan and it close along to two line, one on the medical management side of equation. Rheumatoid arthritis is one of the five or six diseases that they are paying significant attention to. It’s a disease with significant comorbidities and disability and quality of life issues and they see this variation in practice and how it manifested in drug selection otherwise but bottom-line in the fact that less than 20% of patients are remission. There is a huge opportunity for improvement.
On the drug cost side of things, in the specialty pharmacy category it tends to be number one or two on the target list. As these drug represents somewhere between 23% and 27% of the specialty drug class budget and this question who needs the drug, what’s the response that they need switching, is there an opportunity for tapering the trial, these are expensive drugs. So we are developing specific programs to interact with SPs and PBMs to address their significant unmet need and provide a rational approach to interacting with some of these decisions.
We have a significant opportunity to build the global franchise in autoimmunity. It has been said that autoimmunity is the next cancer. This is a field where diseases are again poorly characterized, highly subjective management techniques and area where these drugs are going into not just RA but into ankylosing spondylitis, psoriatic arthritis lupus and others. These are all diseases managed by the same physician population. We have early worked in a number of these areas from a pipeline prospective and from a global opportunity the company is very well known in Europe at this point in time. Some of our most productive and politic scientific collaborators are in Europe and places like Utrecht, Leiden, Nijmegen, Stockholm, London and Glasgow because they have been so fastidious about gathering samples and doing quality studies and this allows us an opportunity to collaborate, access those samples generate data.
We are also providing support to pharma for currently marketed drugs as well as those that are in the pipeline and we can provide a wide range of valuable services, helping them by understand the biology of disease a proprietary models that we had validated by our markers, being able to look at what’s the response in the drug compared to placebo, how fast can we see response in drug, in some cases as quickly as one week and the fasten it’s indicative of what’s the typical 12 with measurement points, the difference in dose effect.
And more recently we’ve had discussions on how wide might we be able to accelerate the improvement into study given that CRP is normal 40% in time but patients for outlay of disease activity and those are the great candidates and many instances to include in trial is supposed to exclude from trials.
We also have the ability to verify involvement criteria and showing you the patients of certain levels [indiscernible] before going into a trial. And in addition to these activities we were selected to be included in the Consortium of the companies that you see listed at the bottom of the page as they were looking for what kind of tool might be able to be developed in the field to determine who would succeed or fail [indiscernible] therapy over the diagnostic partner but we also ran the study and that is coming to our conclusion who’ll provide us a tremendous opportunity to develop one or several new testing of product pipeline.
The team we’ve invested significantly, on the commercial side of thing as well as the medical and the clinical side of the business and more recently in the last 12 months Oscar Segurado who launched [indiscernible] for Abbott, 3 billion in revenues. Eric Sasso who is eight year medical drug in Abbott as well and others such that we’re able to speak to the marketplace in a compelling fashion from several different perspective.
And this is a list of some of our collaborators in the U.S. as well as Europe and the key things that we get invited back for collaboration after collaboration and collaboration as we’re able to demonstrate strong data in very productive interaction with these collaborators.
So, in summary molecular diagnostic company rapidly growing scaling [indiscernible] build a franchise in autoimmune diseases managed by rheumatologists. Vectra DA files into a very large market, we’re scaling over 20% of docs currently ordering the test, 90,000 run rate currently targeting 30 million in revenues by this year along the way we’re improving clinical outcomes and reducing overall cost with the highly focused business model and deeply committed to making a significant impact on the situations that we see.
Can you speak about the – your lab and the metrics you use to measure its efficiency and what kind of capital would you need to improve your lab if you need it?
The question has to do with our lab and its productivity and some of the metric, that’s been [indiscernible] from day one. So, we invested very early on and looking at technologies like capping for tubes [indiscernible] dilution robotics on Hamilton platform that look at how do we take a sample distribute across the three plates that represents hardly 12 buy markers or multi [indiscernible] so that’s high scalable. Next we have anti-robotics technology and a different platform [indiscernible] steps in a fully automated and fashion including incubation four hours later, its [indiscernible] we put through chemilumines since leader in 90 seconds. The metrics that we track are sample rejects at the front end which are roughly 1 to 1.5% which [indiscernible] run rates which are typically extraordinarily low we track turnaround time with our steady commercial normally seven days and we consistently manage that across three to five days over period of time and very early on we were focused on gross profit margin and every variable that ties to cost of goods are ranging from inbound cost, packaging materials, cycling of materials and so forth.
So, that’s a kind of [indiscernible] that we’ve been very focused from the very beginning because we want to make sure we have scalability control of quality that we step at the way and it’s a very elaborate software capabilities that we’ve developed as well.
Could you talk about Myriad’s ability to acquire you what the exit strategy and to the extent somebody could increase the price relative complete against Myriad who will acquire you.
Myriad has an exclusive option to acquire the company up to September of 2011 that was part of the $25 million that was put in the place in September of 2011 there is a pre-specified formula that looks at hitting a trigger then to in a particular quarter to [indiscernible] preceding period of aggregate revenues and growth rates and it ties to [indiscernible] elaborate formula calculations but it also provides for the opportunity that once we hit a trigger that we may also notify them and attention to file an IPO to decision to make and either letting the company proceed with the IPO or exercising on their option so there is call option so we don’t control it. We believe we’ve been performing exceptional very well under the overall agreements. And we will see what happens from here. We’ve been maintaining a certain degree of optionality looking at the public market at the same time for mindful of how do we perform in the context of that agreement.
The option expires in September of 2014 and we’re committed to driving the performance of the business in a fashion such that we would hit that very well in that period.
Yes, so we entered into the agreement in September of 2011 and that agreement had a three year option that expires September 2014.
Just a question about the barriers to entry it seems like from the other presenters here that there are a lot of companies aggregating patient data, lab data, physician data, what are the barrier to entry that one of these other companies present here today could add on a component to track therapies and patient progress like you’re doing.
Yes, I used to have a slide in here actually on creating barriers to entry in competitive distance. But it call something along these lines. This is a really complicated field. And the reason somebody didn’t do what we have done before it is because of some of those challenges. For example working with quantitative proteins in a serum matrix, there are a lot of interfering substances like RF which is timing the field. It took us about six to nine months to work with some of those barriers relatively published on them. The ability to work with huge numbers of biomarkers on platforms and have the technical problem is challenging.
And then we look at some of these statistical algorithm building access to samples, commitment to spent the money to get access to samples; we have accessed other premier sample banks wherever they may be found and some cases we sponsor rolling cohorts like the BRASS cohort at Brigham. So we have unique inside end access to those samples that other people don’t have access to. So for somebody to come in, there is going to be the lead time. There is a technical problem to get to the market. If you are looking at a disease tracking kind of tool, well it’s true that the market may need multiple drugs to look at patient’s different pathways and mechanism.
The market does not need multiple tracking systems. A system in place and embedded at a certain point in time means tremendous advantage particularly when physicians have been tracking the patients to that known tool for specific performance characteristics for an extended period of time. So how do we – it’s we protect by way of some of these variables and access along the way of maintaining our skill set constantly investing in pipeline, not being afraid of versioning as we go forward, filing patents along the way, and looking at some very strong informations technology strategies of our own.
Yes. I think that one has to be careful kind of parsing through some of the unique aspects of intellectual property and how the Supreme Court looked at that versus the opportunity for achieving path physicians and are filled in a broadly speaking – we look at some very advanced strategies to look at, how we interrogate the disease? How we integrate findings from multiple markers in a fashion that we believe will be protectable. We don’t try to claim unique IP around individual markers or anything to do with the genetic themselves, we feel good about our pursuing the IP side of things and pipelines are very important part of our future. So we are investing significantly in that regard.
Yes. There is at least two opportunities. One is that Vectra DA becomes universal companion in diagnostics because we now have experience with virtually every therapy in the class now ranging from corticosteroid to methotrexate to platform of sulfasalazine, each of the TNF agent T cell, B cell et cetera an then general trend is as that these activity is shifting and moving in the phase of productive run for the productive therapy, Vectra moves, in many cases it moves more rapidly than clinical indicators. So it has great potential as a universal companion diagnostic.
We’re getting stacked into our first clinical trials. Now it’s the secondary endpoint. So that was the key step for secondary and then we look at primary. And then for those who wanted to evolve A-tool for our drug where they want a very-very specific test, we’re in a great position to be able to do that. We’ve done biology modeling for a couple of time. So we look at all the upstream – downstream pathways, mechanisms and then identify it for them, say 30 or 40 biomarkers that will be productive for their mechanism and their pathway and how this might be able to be advanced. So those are other opportunities for us.
Will, thank you very much. And next up we have Don Hardison, CEO of Goodstart Genetics
Good morning and I want to thank Jean Franchi, our CFO for coming with me. We want to thank Safeguard for allowing us to be on the program with so many fine portfolio companies. We thank safeguard for their investment that goes back to our series day in September of 2010. Safeguard has been very involved with our Company. We very much appreciate it appropriately involved with our Company, they’re just as advertise, they’re really investor. I want to talk to you about GoodStart Genetics, this is the Company that taken advantage of revolution and absolutely revolution in diagnostic medicine, something called next generations sequencing.
That platform will change diagnostics in major-major ways. We have first mover advantage in an area that we’re going to focus on which we’ll talk about which is in genetic carrier testing. We have files for broad patterns, method patterns across the profile of what we do. The platform has really broad applications across almost any disease any modality you want to look at it; it’s a really big opportunity for us and for other people. We offered guidelines screening test, guideline driven screening test, the reason that is important we want to get paid. We started this Company with the idea, let’s figure what we want to do, but let’s figure how we’re going to get paid and I’ll talk about how we get paid in just second.
We are going to do over 30 million in revenue this year, which is our first full year on the markets so we’re very pleased with that. We had budgeted somewhere around 25 million, so we’re going to pass what we’ve expected. We have all the license shares we need included the New York State license just like Crescendo just mentioned it’s a big deal for us, 20% to 30% of the market right here in New York. Some of the biggest clinics in the country are in New York City, so we’re starting to crack that market with our — now that we have license here which we got back in May-June time frame.
We offer really-really high level of customer service. I have been around diagnostics for a long-long time. I would tell that not many physicians all up as brag about your service. People do call us quite often and tell us they never seen service the way we do it, that’s the [indiscernible] we provide. We are really losing the count because our service is so good. Our test is appreciably better than our competitors, which I’ll talk about shortly. We have a very strong leadership team. We have been able to attract really good people to our Company. We have been profitable for the last several months. We should be operating cash flow break even by the end of this year.
Since we joined the Safeguard family here just some of the things we have done, we have [indiscernible] all the certifications, we’ve field for patterns, we have one issued pattern on the Bioinformatics, side of our business which is very important. We have gone through two funding rounds. We actually have masonry debt facility (ph) in place, Jean Franchi worked down for us and you can see these other things. We have a big meeting coming up in Boston next week of the American Society for Reproductive Medicine. We’ll be presenting a number of abstracts at that meeting about things that we’re finding that other people would have missed, if they had used any competitors of ours. And the following week the American Society of Human Genetics, we’re presenting I think five or six abstract at that meeting with some of the same materials.
The order we’re working on, we do preconception test a couple can’t get pregnant if they have the means or they’re covering by insurance in a state like Massachusetts for example as the covered state. They will come to a fertility center. The doctor will run a battery of test to try to figure out why they can’t pregnant, but as part of that test menu they will offer carrier test because the last thing they want to do is, got a couple pregnant who has not been able to get pregnant and have a child born with a fatal disease and many of the diseases we test for are not just debilitating their fatal diseases.
So we’re doing this ahead of pregnancy, so it’s a great story. You find your carrier or you find out you’re not better story, but you find out you’re and your pattern is you’ve got [indiscernible] chance of having a child with that disease and there are lots of options which I’ll talk about in a second. And we get ready to move into the OB/GYN Maternal Fetal Medicine market. Unfortunately most women find out carrier status after they’re pregnant, so we would call that almost prenatal screening. You find out you’re pregnant, the doctor says wow, we should have done genetic screening on you. So the order of cystic fibrosis testing and some of these other tests we will offer that time.
The woman is pregnant so she’s got — she is a carrier, she has some decisions to make. We will look at embryos. We will look at fetus. We will look at childhood diseases or some of the other areas we can focus on in the future, because of the power of the platform. Big market, ACOG, the American Congress of Obstetricians and Gynecologists, recommends that all women of childbearing age be tested at least for cystic fibrosis that’s 62 million women. I want to install and tell you we’re going to get 62 million women to do anything, but we would like go after at least to big part of this market. And the easier part for us to do is work on these fertility center areas because there are only 470 of these clinics and much Crescendo we can go after that with a very targeted cells organization, in our case 10 people who can cover the top 250 accounts to strive 80% of the business, so each one of them have about 25 accounts.
We attracted most of them from Serono, Serono as you know is a big player in the therapeutic field in reproductive medicine. So our reps not only know all the physicians in these practices and they’re huge. Some of these practices have 300 people in it like small hospitals but they know their embryologist, they know nurses, they know everybody involved with it which has been a big deal for us.
So I mentioned this earlier you find out your carrier and your partners of carrier one and four chance of having the job one with that disease. In spite of the kind of testing that we offer although another platform still one and 100 babies are born every year with some genetic or inherit disorder and 2,500 babies are still born every year in this country with cystic fibrosis in spite of a lot of testing. And if you test it all for today other than hours used imagine a fixed platform a chip no ray something like that, that looks for specific mutations on a gene. So it fits there it will find it but it’s not like interrogating the entirety of the gene which is what we do we find things that chip is not built to even find. So we have a competitive advantage in that we have a better test every doctor gets that we rarely run into a doctor he said I don’t understand why your test is better they get it they don’t want to risk this and it’s about the same price of our competitors.
So I mentioned earlier on we do pre-pregnancy testing. So what happens if you find out your carrier well if you’re an optimist you can say we have three out of four chance of getting through this okay so we’ll cry some things if you’re pessimist you may say I don’t want to take any chance at all we’re out or we’re going to adapt to do something else if you’re in you can get a sperm donation, egg donation, you could go through an IDF procedure such as PGD which a lot of people opt to do. And [pre-natal] you obviously have fewer options and when a child is born there obviously fewer options so it’s a great story for physicians. They want the insurance policy and that’s why we’ve gotten up to $30 million so quickly.
So we could test for almost anything. When I joined the company we’re going to test for lots of disease and I ask the young founders at that time why we’re doing that is that because we can, yes, because we can. And so who is going pay? New insurance companies are unlikely to pay. They only pay for guidelines driven test they’re not going to pay for these broad-broad panels very often. So we only test for things that are in guidelines and I’ll show you what I mean by in just a second. And these are the most prevalent sever diseases. We also could report on anything we see in a gene sequence but we talked to a lot of doctors and they said don’t ever report to me any variant of an unknown significance. If you don’t know it’s pathogenic don’t tell me about it because there is nothing I can tell the patient about it. So we don’t report on things that we have gone through the literature and curetted and no our pathogenic doctors really like that because they’re getting five to 10 times more variance reported through us and our technology than they would be for competitor we have right now.
So this is probably hard to read but this is our menu and it is a menu you can take order anywhere you want to order we don’t force as some of our competitors do for you to or everything. You are supposed to order by the guidelines this color coding shows what ACOG would recommend, the America College of Medical Generics which is AC&G and the Ashkenazi Jewish Societies. We’ve this little out of date now we’ll do we’ve probably done 15-20,000 patients by now we’ll do 250,000 test this year somewhere in that neighborhood. We’re finding lots and lots of things that would have been missed by any of our competitors. We’re publishing this data this is part of what we’re talking about it ASRM and the AC&G excuse me the hemogenetics meeting that’s just coming up. But we’re finding this happens every day almost every day we’ll find something that would have been missed by one of our competitors.
This is just one example everybody seems to know about cystic fibrosis. Our competitors typically report on around 100 variants on that gene the CFTR gene. We’ve gone through the literature. There is 1,900 variants that are in the literature. Literally, we went through them all. We determined there were 544 that were disease causing. So our software is built to pick up those, any of those 544. In addition to that because we’re sequencing we can tell from the sequence if there is a sequence change that’s going to affect the protein coding region we know that’s going to be disease causing so we report that out as positive. You can’t do that with any other platform other than sequencing so it’s a big time competitive advantage. And we’re seeing these, what we call, novel mutations across a lot of the diseases that we test for that only we could pick up.
So what our commercial advantage is? Well, we’re focused, very tight sales organization, very good marketing organization. It’s not that many reproductive endocrinologists in this country they all seem to know who we are now. We have superior customer service every positive result that we get at genetic house calls the physician, talks to physician through it because the physician in most cases is not a geneticist they don’t understand what supposed to be done we’ll offer to talk to a genetic house around the other side on the physician side if they’d like and we do we offer the council their patient we say take us up on quite often but it’s a level of service that they’re not used to.
We also unlike a lot of small companies early on we anticipated that if doctor wants to order with paper we’ll take paper but if they want to order through an EMR system or some electronic way or get their results back electronically we provide that we’re linked in with all the EMR systems that are in our field right now. We’re competitively positioned. We price like our competitors’ price for the most part and we have these really clinically relevant results so doctors getting they know they’re getting the best test from us and we know how to get paid. And I can’t emphasize this enough there are so many diagnostic companies out there who have great technologies, I used to see them all the time when I was at LabCo and other places, but they haven’t really thought about how they are going to get paid, we know how to work the reimbursement.
So this is our growth from last year you can see we really acquired accounts very fast, this gives you some indication on the right hand side what we expect to do the bluish bars are what we would do in the IVS centers and we’ll do around $30 million this year, we had a few months on the market, last year we did about 6.5 million. The green indicates a partnership that we hope to get in place very, very soon and to the OBGYN and the maternal fetal medicine market with a partner who is already there in a contracted lab.
This is our part of the revenue, we would have a revenue split on collected revenue and you can see in 2014 there is a little bit of revenue but in 2015, 2016 it becomes substantial to the point we get up to maybe 140 some million dollars in revenue 2016. So what are the next steps? I showed you what we have done, here is what we planned to do. We would probably check out this box around profitability now, maybe we will. We’re looking at the things we should be investing in ourselves to grow a bigger company.
We will be operating cash flow breakeven by the end of the year I mentioned that, I mentioned the $30 million in net revenue this year, we want to expand the maternal fetal medicine OBGYN market. There are some selected markets outside the U.S. that we want to look at, China being one of them. I will tell you that fertility treatments are big around the world. Carrier testing thought is predominant in the U.S. The medical society recommended, the medical societies outside the U.S. not so much, but there are markets like China, Israel and a few other places that we would be looking at ways to go into.
We want to, we have a long way to go into the IDF space, we have got a nice start but here is plenty room to grow. We want to look at other tests we might bring to that sales channel, we have got a great sales organization. What else do we bring to it? And this is kind of things we like to bring to them or think it would improve success rate, after all a reproductive endocrinologist is in business for one reason and that’s to get somebody pregnant.
So if we can come up with procedures or tests that help them improve that success rate we got a great opportunity there. And then we have other things we can do with this platform that I mentioned earlier on, next-gen sequencing is here to stay, it will revolutionize everything you see in medicine.
So that’s kind of the end of our story, we have got this proprietary platform; we have filed broad patents around, method patents around how we do it. We have this product called GoodStart upto 23 different disorders and for menu alakart that you can order anyway you want to order, or getting about 12 tests plus per patient right now which is phenomenal, we never thought we’d get that many test per patient. We offer great clinical lab service, I have been around diagnostics for quite a few years, I have never seen the service level to even approach what we’re doing.
And we have a very strong management team that I am very, very proud of. So with that I’ll take any question you might have.
Don last time I was up at your laboratories you were mentioning aluminum provided plenty of capacity. Any changes on you need more faster sequencing how is the technology in the market for you, any difference and any need in improved accuracy of just you still have to use to final validation stage?
Unidentified Company Representative
The question is really around the capacity we have with these aluminum sequences that we use, we recently converted from this aluminum high [indiscernible] 20000 to the 2500. It actually did two things for us, it cut our run time down to less than a day, it used to be two to three days and it actually lowered our cost. The cost of the reagent happened to be lower. But since we can run every day, Paulo, we have plenty of capacity, we have three of those machines now that have been upgraded to 2,500. As we go into this partnership on the OBGYN in the same market will probably add one more sequencer. But we’re really in good shape there.
Part of our secret sauce not going into a lot of detail here is the way we do our target capture and some other things we do are just binomially less expensive than any of our competitors. We don’t buy a target capture product off the shelf which is alumina or anybody would offer. We have developed our own. And if I told you the numbers you probably would even believe it the difference in the cost of those compared to our cost in the front end or just dramatically different.
This last question is OBGYN market moves, what’s the addressable market there from where you are right now Don?
Well there is 30,000 or so OBGYN, 1,800 reproductive endocrinologists we have targeted probably the top 1,000 reproductive endocrinologist. Our partner will go after certainly a piece of that — large piece of that OBGYN business but we won’t be precluded to selling into that market also, not going to sell to the same accounts. But it raises the market, the combination of the two and maternal fetal medicine the opportunity is like $2 billion opportunity. It really expands our market from 300 million to 400 million up to about 2 billion. Anything else?
Next up we have Tom Watlington of Sotero Wireless.
Good morning, it’s a pleasure to be here, Sotera Wireless is a San Diego based company, we have just commercially launched a novel and brand new generation of patient monitoring technology. But the capability of monitoring all of the bodies vital signs continuously on patients who are moving about so its capability can extend virtually anywhere. The device is called ViSi Mobile, it’s FDA cleared, I’m wearing one right now, it weighs about a 120 grams, it has the capability of a $30,000 ICU monitor, it acquires the vital signs with the same level of accuracy, with the same level of resolution as the type of monitor you would expect to see in an intensive care unit, and it is a large market, patient monitoring is a $2 billion space. For the most part there’s been very little innovation over the last 20 or 30 years which represents an enormous opportunity for Sotera, we think that the market is very vulnerable to disruption and this type of technology which can be used virtually anywhere I think is going to be very competitive. The model, the business model begins in the hospital where we’re going to validate the technology, there’s so much innovation embedded in the system that we felt it was important to first validate that it works, this isn’t the small incremental step, this is a very significant leap in terms of capability and so we decided we will target the hospital first and then we will migrate the technology into the expanding market outside of the hospital, we have a very significant patent portfolio so they’re many-many layers of technology behind the ViSi Mobile System, this platform and we have done, we have built intellectual property barriers around virtually every aspect of that innovation and I’m fortunate in having a very deeply experienced management team, both technically, scientifically and also on a business basis. So as I said we have two FDA 5-10K clearances for the Visi Mobile device as a standalone vital sign monitor, also for its wireless connectivity an ability to connect to a WiFi network in a hospital and transfer data to and from an electronic medical record. Now I have been checking my phone literally every 10 minutes this morning, because we were assured yesterday by our FDA reviewer that we would receive notice today for the first continuous non invasive blood pressure technology cleared by the FDA, with this type of technology that can be used on an ambulatory patient, so we’re very anxious awaiting that exciting news, the product launch in the latter part of the summer again in a very fast order we’ve received just a surprising amount of interest, we have this slide is slightly out of date, the new number is close to $1 million in orders before the launch which has never happened to me before. Hospitals typically evaluate products, in fact we do have a lot of evaluations in queue right now, we have just literally last week begun our first commercial installation into a hospital in San Diego County, our next one will be in Texas and we have 23 evaluations lining up, so all indications are that it’s going to be a very fast launch and the queue of quotes is reflective of that, there’re almost 60 hospitals that have expressed in a very short amount of time, just since the latter part of the summer, interest in this technology, we have a very unusual mix of investors, we have obviously a very quality investor in Safeguard, we’re very happy to be part of their portfolio and we also have a very large array and this is only some of them of strategic investors who see some overlap in their technological roadmap and in some it’s a business case overlap that affords both parties a significant benefit, so they range from Intel, Qualcomm, Intermountain Health is a very large and innovative health system that is not only going to be a customer but an investor, and sooner, we have just demonstrated our first in a hospital our first transfer of data to an EMR based on a sooner system, that sort of capability usually takes several years for a startup company to be able to accomplish, but we’re partnering with them and we’ve actually already done that. So because of the nature of the device, we’re going to go into those specific capabilities in a moment, it would be possible for us to compete anywhere in the hospital ultimately and ultimately we will, but we have chosen to target first and foremost the largest opportunity where the ability to measure vital signs on patients who are mobile does not exist today, not with the ability to monitor all of the vital signs and particularly blood pressure, and so we’re targeting the med surgical area, the sub-acute area of hospitals that constitutes over 80% of the patients that have been treated today in hospitals, there are 500 in this country alone, 500-600,000 beds in hospitals that are fundamentally unmonitored and by that I mean there is no way to continuously track a patient that is only found that capability in the segment of the market where the big companies are currently competing and when they investment the vast majority of their resources that would be intensive care areas and make use operating surgical areas that sort of thing. But we are going after the area where there is a very significant lead and the bar is very, very low. This is a spot check monitor if I were presenting this technology 20 years ago my slide would not look any different than it does right now.
The spot check monitor is wheeled into a patient room by a nurse every four or five hours and individual measurements are made rarely is it all the vital signs typically it’s a blood pressure ship but the cuff on take a measurement take a few other measurements write it on a piece of paper wheel the device into another room. The technology has seen very little innovation over the last 20 or 30 years time consuming and it is inadequate in detecting early signs of deterioration and there are literally 100s of 1000s of deaths and injuries in this country alone every year and these are published statistics that are deemed preventable that means these are people who have gone into the hospital with the expectation of being discharged in a healthy condition who die because of some unforeseen event.
It could be medical error it could be that because they were simply very, very sick and they had a chronic disease that triggered in a vent it doesn’t matter the point is the statistic is astounding and there is a significant amount of pressure now on providers to improve patient safety and to cut the cost of this serious and endemic problem.
And we think that continuous monitoring on the general floor offers one of the most practical ways to solve the problem. So this is the device it is a FDA approved standalone vital sign monitor I don’t have to be in a network and can use this I can use in an ambulance the Military has invested in the company the Department of Defense wants us to be the next generation frontline system in the field so does the Department of Homeland Security they have given a grant for mass casualties and so forth and so on.
So obviously it has the potential given its size and light weight and capability to be used in many, many places but it was designed as I said for the hospital once on the patient in a hospital it connects to the Wi-Fi network and there is a continuous real time exchange of data that allows a doctor or a nurse anywhere in the hospital to view anyone of the patients being monitored in the hospital. Furthermore that capability extends to alarming so it is possible to send very specific alarms to a nurse for example who is responsible for a particular group of patients.
Now this is how the device appears on the body there are wires in the hospital we concluded that was the best way to guarantee that there is no compromise in the quality of the data that we are able to generate but it is a very unique system this is a completely decentralized fully digitized system that is unlike anything that currently exists on the market so these wires that you see on the body they are necessary but the signals from the electrodes on the chest or the optical sensor on the thumb are digitized and sent on very thin cables .
Next year we will have a 12 lead ECG if any of you have had an ECG done in the hospital you know that there is a big connector with lots of wires and a big thick cable that comes down our 12 lead in only slightly bigger that is actually a cardiac monitor on the chest that is not a connector it changes only a few millimeters in its thickness and the cable running down the arm is also digital and what that means is it is not as susceptible to motion and that is the key to reducing the rate of false alarms that are a plague in hospitals right now.
The JCHO has only recently mandated the hospitals that they must manage and control the high rate of false alarms that are so common in intensive care units in hospitals everywhere literally 100s of false alarms per day are documented on even the best equipment from the market leaders. We are down now and Anju (ph) this is the first generation we spent the first half of the year working with our reference sites partners like Intermountain health and Trinity health system we are bringing that number down into the low single-digits. So we have solved that problem and the way we do it is we have accelerometers in the wrist on the shoulder and on the ECG block three-axis highly sensitive accelerometers so we know exactly what the patient is doing at any given time we know the angle of their body we know if they are moving we know what angle they are in the bed if they are elevated.
But we are able to also measure the level of activity and motion and we are able to offset the effect of that motion on the measurement of the vital signs which is a primary reason why we are able to get the alarm rate so low and it is a proprietary method so we are not even close to technology that exist today the moth body systems we actually use our accelerometers in a way that is patented in the highly affective.
So this would be a typical screen ours is a system it is not just a platform it is a complete system so we have the monitor but we also have a server, we have software that drives that collects, archives the data, communicates with the networks in the hospital and we have backend software for any number of viewing scenarios. So we have software that let you view all in the hospitals patients 30, 40, 50, 60 where we have such as this a agree of software variation for nurse’s tablet for example that leads the nurse, the nurse if he could have his five or six patients that they are responsible for durable on a tablet or a portable computer anywhere in the hospital. Now what’s unique about this one is the fact that incorporating the ability to measure activity and motion we stumbled on the fact that measuring posture and activity is highly clinically relevant and it was the customers, the hospital, the doctors the pointed that after us but we very quickly file a lot of patterns around the application of motion as a clinical sign, as a valuable piece of input for a medical team.
So at any given point in time, anywhere in the hospital, you will be able to visualize exactly what’s the patient is doing, whether they are walking, whether they are in bed and more importantly if they are not suppose to be doing something we have the capability to configure so that an alert is sent to the appropriate caregiver.
Now, that’s very important today because the two most costly and expensive adverse events in hospitals are: one falls which by the way extremely common problem in the home which where we ultimately going to wind up but also pressure ulcers. The hospital has to pay for the rehabilitation of the patients who suffer either one of those adverse events. BMS no longer pays for that. $8,000 is an average cost of rehabilitation for patients who get bedsore.
So that’s just one of the many ways to cost justify this private technology and one of the things that makes it really unique and different from other technologies on the market today.
And so our value proposition is straightforward. We believe that by measuring vital signs continuously on patients and the ability to monitor them remotely it becomes possible to detect very early signs of patient improvement or deterioration and to act on it immediately. And there are many savings that can be generated from this capability. The most significant and this is feedback from the market, it’s the ability to convert any bed in the hospital to what’s called a monitored bed. The current standard of care is an ICU patient is continuously monitored, a telemetry patient is continuously monitored and some step down units you might have the capability to continuously monitor but the bulk of patients are spot check monitor and those beds unfortunately are the least expensive beds in the hospital. So if a patient at risk, ideally you would like to put them there and observe them but you can’t. The patients are put into an intensive care unit where beds are at premium, the two or three times as expensive to the hospital as maintaining the bed in the general floor and consequently there is congestion, patients back up in the emergency department and get the idea, it’s a real bottleneck for the hospital and the bottleneck reduces revenue.
So it’s very significant opportunity for hospitals to improve patients flow and efficiency in the hospital. I’ve talked about the ability to ablate adverse events and by measuring all of the vital signs, we actually provide a richer source of data and early predictive signs of deterioration than any current capability out there because now we have added to the list of continuous parameters, continuous blood pressure which is the holly grill that people are trying for 30 years to be able to do continuously.
And then as a significant efficiency benefits to the staff, the nurses no longer have to go in every night and take a blood pressure then any who have been in the hospital you know how uncomfortable it is over the night, being woken up every four to five hours they will be blood pressure taken, well believe me nurses don’t like doing that either. And with our technology and that some of the early feedback we are getting, patient satisfaction scores are going to the roof because you don’t have — you can actually sleep through the night and that’s where technology ultimately is judged in the hospital, new technology from the prospective of the nurse which is very-very important and the patient.
So the revenue model has multiple levels, there is a traditional CapEx component. We saws the equipment its depending on which end of the product line you want to compares against rather extremely cheap so we have the capability to compete and substitute for a $30,000 – $40,000 monitor in the step down unit or if you compares at the very low end with the spot check monitors, while they are little more expensive because it’s 1:1 ratio with the patient, you would achieve significant savings so there are impossible with the spot check monitor.
If I have taken a photograph of an automobile that’s passing on the road and tell me if you can discern whether it’s speeding up or slowing down. You just can’t monitor the patient’s condition that way. So continuous monitoring offers the opportunity to see substantial growth in the market we believe.
Now getting back to the revenue model, so we have a disposable trail that follow. So there is a kit of the accessories that the patient needs to use in order to be monitored and there is obviously networking services and licenses and installation cost that are very inline with the industry the other area above that unique to us is that fact that we have such a rich pipeline science. The company was founded as a science based company, we will not in the beginning when I joined the company, it was good to scientist and they develop a wonderful algorithm for continues blood pressure but none of them have has invented medical device before.
So, there was until years later that we were fortunate after attract an engineer Intel were put on our board who has renowned in the industry for producing the first ICU monitor in the first [indiscernible] monitor, we were able to then imagine packaging cNIBP inside of our really novel piece of hardware but the scientist never stopped. So, as we introduce new parameters and we have one more I’m going to talk about that more behind the curtain, we’re going to charge an add-on charge and it’s going to be significant, we believe a 100% of our customers are going to chose to pay $1,200 extremely high margin or continuous blood pressure and we think that we’re getting early indications of the interest in cardiac output and some of the other things that we’re doing.
We sell the product through a very small concentrated group of direct sales we have five people right now in U.S. supported by a small team, a clinical special as to give the educational training as well as deployment engineers. We have about 30 to 35 independent sales reps who are scouts who find the opportunities for us and Cerner has the right to sell the product in their premier hospital universe which is very large about 20% of our hospitals and that’s a very large sale force. So, we’ve got good coverage in U.S. Internationally, we have distributors that are being set up.
I have been in this business for over 32 years, I’ve never had a product that attracts this kind of publicity without trying and there is been a lot, there is Dr. Eric Topol on the top on the Colbert report talking about it, that’s Renée James, new President of Intel coincidently that device which is comparing [indiscernible] on the left, Intel invested in our B1 that device is called the ProPaq that’s the most widely used by the same monitor in the world today, our CTO created the company protocol systems and then designed that product during the mid 90s. And I don’t know but she knows that but that is his last generation of technology that’s the newest.
So, there is a lot of curiosity in the marketplace and I think the reason is because there is been so little innovation in this space for so long that it’s generating lot of excitement. The department of the defense invested a lot of money into the company to explore ways to understand how to predict and detect early signs of internal hammerging for obvious reason that’s because of most debts on the [indiscernible].
So, they gave us a significant amount of money to develop a technique for cardiac output we already have a lot of expertise in the company, we have one of the earlier scientist ever involved in non-invasive cardiac output/volume measurement in the company we’ve got patterns on that ready and so we’ve been paid, we have developed the technique and this is the commercialized rendering that’s less pretty the version that we use for clinical trial that demonstrate that our technology can work but we have our publishable paper and that’s been circulated right now at the journals and its very well and it’s unique because instead of measuring the cardiac output I won’t go into the details now but the technique the reason by the techniques haven’t worked in the past is that the measurements are made by injection of current into the chest and measurement pin. The problem is then patient becomes sick with heart failure which is one of the most valuable the body begins to accumulate fluid the chest throws out the fluid and it becomes really inaccurate.
But what we’ve done is we’ve discovered and patented the fact that you can measure the same measurements across the breaking in the arm which is not susceptible to fluid [indiscernible] and we get much more accurate results even among patients who are suffering from fluid accumulation. So, we’re excited about that, we’re about to get an extension from the department of defense to commercials us we would expect this to be on the market in 2015.
So, in summary I guess what I’d like to point out is that the technology that we have I think is a tremendous opportunity within the hospital environment. Again, it’s in environment whether it’s been little innovation, we’re competing not just against a single point of measurement in the hospital it isn’t one monitor in a product line we’re actually going to compete and I think we’re going to compete very effectively across entire product line from current players but we’re starting from a general floor with the competitive activity there is least instance and the opportunity is the largest.
We think it’s an ideal time where everything seems to be conversing with a tremendous interest in appetite for remote non-patient monitor for predicting outcomes, for predicting adverse events and preventing readmission into hospitals these are all areas what we’ll immediately applicable to the type of technology that we’re introducing the market and but remember while this is certainly no absolute guaranty of anything and there have been a number of indications that the appetite for this type of technology is really substantial. I’d if wanted to get — never had customers buy products items seeing before launch of product. I’d never had customers – we’d actually had four hospital systems enquire about investment, one of them actually did, that’s Intermoutain Health, a very highly regarded health system, very innovated health system.
And we have seen the same level of interest internationally where actually we have a base of operation. Singapore has invested in us as well. We have a base of operation there and a number of hospitals lining up in that queue of 23 I showed here earlier, who installed the equipment and be the first in Asia to be using the ViSi Mobile System.
So with that I will wrap up and give you an opportunity to ask questions.
I know that Tom does have some availability for one of one’s after. If anyone wants more detail and in this period of time, since I’ve done a terrible job in managing it, we’re going to move on to Spongecell and Ben promised me he will be really efficient. Thank you Tom.
My name is Ben Kartzman. I am CEO and Co-founder of Spongecell. I will be kicking off the ad-tech portion of today’s event. What I want to do is I want to jump in and sort of paint a broad picture about what’s going on in the digital advertising eco system today. So as you can see from the first chart on the left here, internet advertising as we know, is growing and it’s growing at a click, that’s outpacing any other format of advertising. So whether it is broadcast which internet advertising is catching up to, or it is cable which internet advertising has surpassed and obviously radio and prints which are sort of fading.
We know that we are in a hot space. We know broadly that there is a lot of opportunity and a lot of promise for that growth. If we dig in a little bit deeper and focus on where our business is focused which is on display advertising, so not search but everything that is banners pre-roll videos, mobile ads, tablet ads, all of that kind of stuff. The pattern that you see here is the days of the sort of boring static ad that doesn’t do much or communicate much. Those days are solely fading away. What they are being replaced with are things like rich media. So ads that you can actually engage with as there are dynamic ads that use data to tell a story. And I think that it’s a very important point to make especially as you dig in and look at where the growth in internet advertising is coming from.
So clearly when you look at, if you look at a chart and see who is spending more in traditional, in television, broadcast or cable; you would see the inverse of this chart. You will see more brand dollar being spent in television because that’s easy for that Procter & Gamble executive who has got $50 million spend on a product launch to write 3 IOs to 3 big TV or broadcasting network and run a bunch of those ads at scale. In the digital world that’s more of a challenge for the brand advertiser at least historically it has been. So when you look at it today, the majority of advertising dollars that are spent on the web are direct response dollars. That is going to change.
And if you read the quote on the bottom, it says, 61% of marketers surveyed indicated they are allocating dollars away from direct response to brand advertising initiatives consistent with the 60% who said that last year. So it paints the picture if you take these sort of slides cumulatively together, digital advertising is growing, this way advertising is growing, smarter creative is coming and the promise of those brand dollars are also coming. So what’s the one thing that really matter to the brand advertiser when they think about buying display or buying digital advertising?
You look on this chart you will see that it’s the ad quality that really matters to the brand advertiser. Can they get their message across? Can they use that beautiful HD imagery that they’re used to shooting their commercials then for television? Can they take that and transcribe that into a web based environment? That is what is more paramount to that advertiser than the media plan or the price at which they can buy that media, they want to know that they’re creative, that they’ve spent millions of dollars producing and developing, is going to look in field and listed the brand response that they’re driving for when they push this content out into the web.
So it really is about, and the quote on the bottom from Marc Pritchard, who is an advertiser from Procter & Gamble, talks about creative ideas and the importance of creative ideas. And when you talk to a brand marketer, that’s what they are talking about. They want to know is, did I drive higher recall of my brand after running this ad campaign, has the brand awareness lifted after running this campaign, our people more likely to recommend my product after running next campaign. They are not asking about things like, did I get more clicks, did I get more impression? They just want to know if they had that lasting effect of this brand campaign after they ran it. So in order to do that and in order to accomplish what the brand advertiser is looking for, they need digital creative that does a number of things. So on one hand that needs to engage that needs to be something that when you see it as a consumer that something that you can interact with, it’s a complementary experience, it does not take away from your web browsing, but it is something it doesn’t have to be as interrupting as television has been, but it does need to be something that we can see, touch, feel and ultimately it should be also something that enhances your experience.
So, we do a lot of work with AT&T for example. And one of the big frustration that they as an advertiser have had there’s been a lot of time effort and energy taking all these product shops and across of their mobile lines and their challenging they get restricted by really small file sizes that websites put as place as rules 15 years ago. And when our technology allow them do is to actually break through that so they can show any number of products they want inside of an ad that looks and feels exactly like the type of imagery that they’re used to showing in television. Of course, advertisers need creative that scales so you can’t just say, okay we’re going to run this creative and run in the display campaign and that’s it. Those days are long gone, it’s got to work in mobile, it’s got to work on tablets, it’s got to work in pre-rolled video those ads that you see before video content that you’re about watch those could be 5, 15, even 30 seconds spots. That creative needs to run and it needs to run everywhere and it needs to run very easy.
Beyond that obviously these creative need to use data historically in the digital landscape. The media buyers the planners the data providers the DSPs, they spent a lot of time effort and energy using data to target the right customer and that’s incredibly — I mean that’s one of the big advantage and why digital is growing at the rate it is. A lot of that money and effort is spent finding that right user, but there all being served that same old static boring creative. They doesn’t necessarily speak to them, it’s not personalized to them and that’s the next sort of frontier in this space that’s going to be broken through is actually being about personalized that creative tailor that message to that user who is seeing that ad.
Beyond that of course it needs to be track it all, you need to have good understanding of your advertising performing and then it also needs to be cost effective, so these creative need to be able to truly run anywhere through any type of inventory whether it’s inventory that lives in ad exchanges or that is high value premium inventory that’s being brought directly from publishers or in private exchanges. So this is where we come in the role that Spongecell plays as we take your brand, we take your brand asset, packaged it up through our technology platform and then kick out and have tag which allow that creative to be served wherever the advertiser wants.
So it can run and display, it can run in steam, it can run in mobile, it’s fast, it’s efficient, it’s scalable and that’s what we’ve spent all of our time building is this platform that enables that entire process to happen very quickly. So drilling a little deeper on the product side, I will start with our display product, it’s the sort of bread and butter of our business. Display is the largest segment of non-search related advertising on the web obviously bigger than in steam or mobile today. And what we do and we do inside of it you can see these examples here, so historically you might see a generic ad that says, this is the example I talk about all the data is being used and crunched to get this ad in front of the right user, but they’re just being served sort of generic Hyundai (ph) ad.
What Spongecell does as we take that generic ad and we personalize it to your experience for that brand advertisers, so we know for example it’s a sunny day in Atlanta, and we know that now you are seeing this add and we also obviously know that you’re in Atlanta, so we’re going to put messaging into that ad unit that speaks directly to you where if you were perhaps a woman and you’re in San Francisco and it was raining, we might show you in SUV with different color and obviously different messaging.
But beyond that what we’ll do inside of that creative is we put in links on the bottom your cc that what video links. You see the find dealer link, so when you talk to brand advertisers specially in the automotive category, they want to make sure those commercials, those videos that content that they have created is being shown to their users every time that they can touch them. So that’s what we’re doing in this case, it’s allowing that video to be served very easily into this ad unit. Another one of their core KPIs is you go to any automotive website you will find you will see prominently on that page a find the dealer button they want people to go to dealerships they measure the success of their websites based on how often people are actually going in, clicking on those find the dealers putting their zip code in to find the dealer closest to them. With our technology that actually will all will happen inside the ad unit. So we’ll know where you are, we’ll know the location you’re in, you’ll roll over that a map will show up in the ad unit you don’t have to click to go somewhere else again thinking about what that brand advertiser wants they don’t care about clicks, they care about people engaging, they care about people that are going to sign up for test drive.
So with our technology you can do all of that inside of an ad unit and we’ve run tests with some of our clients where we compare how does that look when you do inside of an ad unit versus when you have to drive some more with a click to a page and they have to go onto the next page and it was like 60% and 100% more people were likely to find the dealer inside of an ad unit because the content was in front of them it was tailor to them it was localized to where they are.
So beyond that when we look at our industry and products we’ve had the good portion of the Internet advertising bureau is selected us to win two of their rising stars’ formats which are their rising stars’ formats are what they call the sort of next generation of digital formats that bring more sort of creativity and enhance that user experience so we submitted two concepts and we’re amongst the group that one those two. And again it’s just about driving that initial interactivity into a better leveraging some of that dynamic capability that I just referred to on the earlier slide but then allowing that to having obviously inside of a [pre-wall] unit.
Beyond that also powering tablet and mobile, so taking these very engaging units and making them available in tablet inventory and mobile inventory. Because when you go to a brand advertiser or you work with their associated creative or media agencies their challenge is to find their audience and then speak to that audience not just in display on the web and not just in through video but obviously where we are all spending more and more of our time which is with our tablet devices and with our mobile units.
So again from a Spongecell perspective being able to take all of those assets, all of that brand content run it through our system and then be able to output ad units that run are trackable and can be fed through any inventory that’s a big power of what we offer.
Beyond that looking at reporting giving creators the opportunity just look at we have this heat mapping technology. So every time an ad impression is served we know where people are clicking on those ads, we’re building technology to help us understand where people are hovering with those ads. We’ve even run some tests to look at how people are looking at our ads and we’ve shown that we actually will drive higher engagement when you put interactive elements into an ad unit versus when they’re just static. And it’s our reporting platform that comes with every single impression that get served we can track each one of these things that a user would do with that ad unit.
Beyond that just that’s the sort of the product piece just a quick background on the company before I wrap up, so pivoted into this Ad Tech space in 2009 raised some additional capital in 2011 Eric Schmidt is a investor in the business, Jim [Puata], Bob [Peipman], guys like that early on and the sort of angel side continue to grow and scale the company. Safeguard came in as a partner with us last year and since they’ve come in it’s given us the opportunity to really scale and advance our product line faster than we have been able to do at any point in our history and I think that’s exciting because as we talk about offering a platform to our advertisers they clearly want things beyond just display or just mobile they’re looking for a platform that will help them bringing all together and manage their creative output.
So team wise we the original founding team we all knew each other for the most part from Carnegie Mellon and have the good fortune of adding some very talented executives to the team. Our CTM who has recently joined us is from previously as the Chief Data Scientist Physician at Live Person before that he was CTO in the Ad Tech space. Our Head of Sales has been in digital media selling digital media for over 15 years at this point. So good season team, know the space really well, and have allowed us to grow it at scale. So offices predominantly across the U.S. do have an office in London and that’s allowed us to work with brands and scale campaigns. We do work with the NBA for example not just helping them with their marketing here but when they are advertising their league pass and that league pass is going — creative is going to run through Asia into Latin America, Mexico, we have the platform that allows global, truly global brands to push their content out in meaningful ways. That’s it thank you very much.
Unidentified Company Representative
Ben also has availability after the formal session for one-on-one, so if someone wants to meet with them please see Cathy. Just some housekeeping here, we’re obviously running behind, we have MediaMath up next, what I am going to do is start all the one-on-one meetings 30 minutes later than anticipated. So if you have a one-on-one scheduled move it all back 30 minutes, it that creates a problem I apologize, come see me if you can make some changes on the flyer here. But with that we’ll pass it over to Joe Z of MediaMath.
Hi everybody, thank you Ben for the AdTech kickoff, who is excited about AdTech part two. So I want to give you guys some of the highlights about one of the trends that are fueling Spongecell business are common to ours as well in the sense of digital media obviously growing very quickly as a class. And this concept of algorithmic automated machine to machine buying is really transforming the practice and the discipline of marketing sort of from the inside, is that I use the [indiscernible] transformation, going from manual process to intuitive process to kind of a art driven discipline into one that is very quantitative, very scientific a very efficient.
And what’s happening now is digital is becoming a bigger and bigger share of marketers budgets as they are starting to demand simplicity, transparency control and results in a way that they didn’t when digital was a small percentage of an overall budget. Now that it’s big and getting bigger they are really starting to pay attention to it and they are demanding a difference in how they actually transact. And we are really one of the leading platforms to help them build their businesses on top of right this transformation, sort of replacing the excel spreadsheets and the emails and the faxes the state of the art, five years ago with technology, will show you guys some of the stuff behind the scenes briefly, obviously somebody is using a PC it’s Mac.
And then the business itself is being growing over 100% CAGR and profitable last year, profitable this year a non-traditional approach to managing an AdTech business itself and really have been expanding globally over the course of this year with north of 40% of revenue coming from non-U.S. So that’s sort of the highlight, the channels that we touched is all forms of addressable digital, so that’s display ads, videos, mobile, social and email. So basically everything digitally that has a one-on-one correspondence with the user at the other end of one of the screens. And then we have got line of site to other forms of media, they as well become digital.
So digital out of home, smart TV applications et cetera. Basically if there is a screen at the other end of it we ultimately will have it integrated into the platform over time. And what does the platform mean? I don’t know who here has seen, anyone who is actively involved in AdTech has probably seen the Lunascape, the iChart full of little logos and it’s designed to sort of speak to the complexity of the eco-system how hard it is to manage all those stuff. And in the pre-platform days that was true really the job of a media buyer, planner, marketer inside an agency or at a brand with really spending a lot of time doing sort of vendor managements across those logos. And that was obviously very, very challenging. What we have done is effectively uber systems right, the Bloomberg terminal that allows sophisticated marketer to walk in log in and get access to the whole eco-system in one place.
And not only all of the media there all the data there but we allow them to sort of manage what they are buying and how they are buying based on a sophisticated set of algorithms that we have developed and allow them, in fact customize sort of a light box, so they have control over the output as well.
So that’s the overall picture and this is what the platform looks like. So we spent a lot of time first to make it very, very powerful. So we used the Bloomberg analogy quite choice fully in that there is a lot that goes on in there sort of the combination of that ETS, ECN and also it’s a financial [indiscernible] all in one product. But as we spent last couple of years really trying to make it very easy to use, so we got thousands of traders across about 350, 400 agencies, about 3,500 brands are using the directly and indirectly representing north of 55% of the Fortune 100.
So it’s a well adopted system and lots of headroom from here as sort of this concept of programmatic is replacing the old world of media planning and buying. So we have got increasing number of clients in which 100% of their marketing, their digital marketing is being run through programmatic platforms and increasingly exclusively ours.
So this is the tool nowadays generally speaking of a new trader will get up and running in about half a day and be comfortable to do their job which is quite a change from the days of yore where really ad networks were sort of the first companies that were doing anything I think of any sophistication you started seeing the mobile ad networks the millenials and the tremors and what not that were sort of becoming an aggregator of new type of media, you have at Ad Network 2.0 which I would say are the almost taking programmatic technology but delivering it to the market in the old world right where the buyer continues to send over an insertion order and ask for outcomes as opposed to doing it themselves, and we’re in this phase right now of really early adoption of people again licensing platforms and building technologies, it’s the transition state from there being one Bloomberg terminal within an average bank to the proliferation where everybody had that, where it’s a requirement to your job, you get your series 6, you get your series 7 routers, series 63 and your Bloomberg terminals that means you’re hirable, that’s basically what’s happening in marketing right now, where it’s becoming increasingly, we’re seeing Canada, it’s coming to us where training on terminal one is one of their job descriptions and their skills on the résumé, so it’s a good sign of where the market is heading and I think two three years from now it’ll be the case that you won’t a job in marketing without being trained on a programmatic platform. SAS like business, so client growth basically doubling this year think about 4x increase in growth as people start using the platform for more and more channels, typically they’ll come in for one type, so let’s say they starting out with display as we release new capabilities, so we’re really social in partnership with Facebook last year, we’re one of the alpha partners in the Facebook exchange program as we release mobile and video we acquired a business at the end of last year that sort of really answer capabilities in both of those media types, then we start cross selling basically and they start treating all of their channels sort of holistically as opposed to channel by channel or media type by media type so that’s leading to increased spend for client as we release again more features and then retention is great, like once you’ve moved from the old world of marketing to the new world, you don’t go back, it’s 3% [indiscernible] on a annual basis and obviously rapidly adopting as well, so about 80% of our clients are platform licensees, so they license the technology, their team gets trained and ultimately uses it themselves so they have the full control, wholly transparent platform where they’re building this internal discipline or practice within their organization, again, whether it’s an internal add an advertiser or their agency or agencies, and then 20% of our revenue is coming in from people that are not quite there yet, they’re still looking at us to operate the platform on their behalf, we view that as a great way to get them started prove the efficacy and then ultimately roll them over to a platform engagement for the long term, it also happens to be great R&D for us as we’re on the hook for outcomes and results in this case, so it gives a sort of good input as to what’s needed to build into the platform for the next route, and then working a lot this year in terms of really thinking about how do we scale you know the platform into truly an ecosystem right, how do we become part of the fabric of how digital happens and four key initiatives that were focused on this year, in order to accomplish that, one is we’ve got a lot of people that are developing apps so one of the nice parts of that being an at scale platform is that any of the new innovation products or features that wants to get wild distribution, they’ll have to get access to those call 400 agencies and those 3000 brands will come to us first, and they will integrate via EPI so basically communicate with our system in a pretty seamless way that allows them to basically bring capabilities to our platform and ultimately not have to go through the same experience of you know, landing a new client, new agency, as per test budget, basically give them distribution so think an Apple Appstore right, the reason why the iOS is a successful device other than the quality of the product is the fact that so many apps are available for it, we’re enjoying some of the same benefits so, got about 20 of these this year, road map for next year’s numbers and probably in the 100s but that’s been an exciting move for the business, we have acquired a data cooperative from Akmai so we acquired a division of Akmai at the beginning this year that had a 150 retailer data cooperative so that you think about an Abacus, albeit it online, and we completed that transactions, it’s been a powerful sort of asset to the business it’s a data asset that we own that rivals Amazon’s or eBay’s in terms of the amounts of data in it, that’s obviously been a boost to performance and results as well as creates a lot of stickiness like once in the [indiscernible] and contributing, you want to stay there for a long time, we’ve rolled out the new marketing institute which I think is, think about it like a programmatic or a sophisticated digital marketing university that we train 300 people in last quarter, we had [indiscernible] which was the Samsung’s agency globally come in to do training so they spent you know several days going through advance classes in order to come out graduates and as a combination of sort of sharing the best practice in how a programmatic [indiscernible] works which sort of brings the water level up for the whole industry which is important and then obviously as we show them the things that are possible, we show them how to do it on the platform which leads to sort of lead generation effectively, people get comfortable with the system and start adopting it and then the level three curriculum is really how do you build a business off of programmatic right, how do you create great results for your client, how do you streamline your operations as an agency how ultimately do you make all this stuff work for your business? And then on the enterprise stack set of things in the same way that we have exposed APIs to suppliers so people that are putting stuff into the platform so we have also exposed the platform to APIs for buyers so we are allowing people to basically build their own UI or their own technology on top of ours. A good example of this was Rocky ’10 just now as we went to Japan and they said boy we love this we have got 41,000 merchants it is a wonderful opportunity we really want you to build your UI in Japanese and we said we will probably get to that in about 2015.
But we will expose our APIs and if you want to do it we are happy to support that and that is in fact what they did, they have rolled out this platform to 41,000 merchants they are the Amazon or the EBay of Japan and we are seeing this increasingly used case where people are building on top of our code and our core stack which is quite exciting so Tom mentioned Tokyo it is part of a express global expansion plan right now we are seeing the benefit of being the first or second of the our programmatic platforms and global leader by opening up new markets and we are doing that pretty aggressively.
So just running ahead of Latin America based on Miami serving Brazil Argentina and Mexico with ultimately a regional office in Sao Paulo opening up hopefully later this year we have got Singapore office opening up in addition to what we currently have which is joint ventures in Berlin in Sydney and Japan along with MediaMath offices in London Boston Chicago San Francisco and I think I mentioned Miami doing this any don’t look that way great I think that is right and I will plug into that quickly no good a tech deck is worth a solve without some reference to big data so lots of big data before it was coined such.
65 billion, 70 billion impressions a day are being looked at in over here in the New York Stock Exchange that volume diverse global financial services transactions it is a huge number it is 1.2 million queries per second and ultimately analyzing a huge amount of data we have done the things that you would expect in terms of putting datacenters next to our major suppliers putting them next to most users to allow for other sub 50 millisecond response time like in the moment that an ad is delivered you have to look at it you have to make a decision about what you are going to serve and that if the technology is going to do it. It has to do with 70 billion times a day and ultimately make the right decision in order to deliver an ad back that is going to garner a response.
That is a huge amount of computational power and we have been spending the past six years developing it proprietary code owner to make that happen. 10 datacenters I think this in just two weeks has been updated but obviously global distributor presence and that leads to an expanding mode right the amount of investment both in terms of brain power and engineering horsepower in order to make this happen put us in a really good spot to deliver sort of a global multi tenant SaaS application and it has been fun doing it.
Same slide take a look at it again. And that is it. Thanks.
Happy Joe could you take couple of questions if any from the audience.
And Joe could you talk a little about the IPO market two questions obviously Rocket Fuel is in your area IPO at a couple of weeks ago at 29 it is now over 60. Joe how do you compare to that? And then second does that change your views on potentially IPOing or next steps?
So I will answer the first question and I will ignore the second so the first question so Rocket Fuel you may remember we had that slide up in terms of the adoption curve and they I would characterize as sort of the at network 2.0 so that is they are using programmatic and that I would define as data driven marketing so you are using data to make decisions. It is automated to using exchanges whether media exchanges or data exchanges and you are using an algorithm to make a choice about what to buy and how much to pay for it.
So we are doing all those things they are building technology for themselves to use themselves as an ad network right so what they are delivering to a client they are taking in social orders right so they are working with agencies it is a month IO generally that says I want to get media at this price versus that price then also they are delivering outcome so they are not licensing self service technology to let other people build rocket fuels they are doing it sort of on their own book. And I think it is a great testament to how powerful the technology is to see the growth in the business.
It is a kind of the old way to buy and sell media albeit which sort of shiny technology underneath. We are ultimately building and selling the software that lets other people build rocket fuel so Excellon for example is one of our client that launched the media planning and buying practice on top of our technology and they compete with rocket fuel every day successfully. Right so when people compete — compare Excellon servicing on top of our platform against the rocket fuel on a media plan they win. So I kind of view it another analogy I will use is they are like one of the first quad shops we are building the technology to let other people build their own quad shops so that this thing should make sense.
So I love it I am thrilled that they are doing really well I think it is a good testament to where things are going in the future pretty I think is in the same cap but here we are I think two years from now I think more people are going to want to bring it in-house they are going to want transparency they won’t be satisfied with sort of opacity of how it happens and how it works but good sign of the sense.
You talked about need for funds or should growing rather rapidly, would you give any metrics on revenue or anything like that?
Yes I mean we are probably 300 and gross billing this year we’ll do 70 million net and probably 10 to 12 in EBITDA so no need for additional capital but for sort of more aggressive expansion, I mean we have been doing all the stuff without sort of incremental capital since probably year and half ago so it’s great. Obviously there are lots of opportunities to integrate other parts of the stack to get there faster through acquisition as oppose to reliance on building, so certainly in our heads and in our thoughts but that’s no absolute need for capital.
Any more questions?
I want to thank the presenters and the participants. For those of you that want to enjoy lunch there is a bagged lunch there and you can sit here and eat for those who that are at one on ones lunch will be provided in the one on one room and anybody with a couture (ph) diet there is some meals out there for you as well. Thank you very much everyone.