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What Can Diagnostics Founders Learn From Two Successful Exits? Andrew Miller · Diagnosing Dx

• David Filby: Welcome to the show this week, Andrew. How are you? Andrew Miller: I'm doing well. Thank you for having me. I'm glad to be here. David Filby: Where in the world are you? Andrew Miller: I'm in San Diego, California. David Filby: Lovely, absolutely lovely at this time of year, I'm sure. Andrew Miller: Yes, it's lovely most times of the year. David Filby: Yeah, San Diego is one of those places that I've never lived but I've sort of convinced myself if I ever did go I'd never leave and that's why I'm not doing it. Andrew Miller: That happens a lot. That happens a lot. David Filby: Yeah, I bet. Well, we've got some really unique things to talk about today that you've experienced in your career. And before we do that, it'd be great to get the background of who you are and what you've been doing. And then we're going to dig into a couple of really exciting exits, which we don't always get the chance to talk about on a diagnostics-focused show, but we're fortunate to have you on today. So why don't you introduce yourself first and then we can dig into it. Andrew Miller: Sure. Because I do some work with my college I went to, UC San Diego. I did undergrad at UC San Diego. I did a PhD in genetics at Stanford, so I am a scientist by training. I worked at a number of companies right after grad school, but always had an interest in trying to start a company, talking with senior executives, learning what they did, how they did it, and how they made decisions. And then back in 2004, with Ionian, I was a scientific founder, got that company going. I think the key points are that I'm a scientist by training in genetics and molecular biology. And then we'll get into the companies I was involved with. David Filby: Interesting thing you said there Andrew, which is not always common, but you said you were always interested in starting companies, which is not what we tend to hear from scientific founders necessarily. That puts you definitely in the minority. Explain that to me. What was interesting and how early did you realize that that was something you were gonna be interested in? Andrew Miller: Well when I was still in grad school, in my last year in grad school, there was a friend, colleague, another grad student from Stanford who started a company my last year in the lab. and so I was sort of exposed to that very early on. And then during my first couple jobs after grad school, I kept coming up with ideas for new better technology to be able to do whatever we were doing. So I had an interest in coming up with new ideas and trying to commercialize those. David Filby: That's really interesting. Yeah, as I said, very rare that we hear that people early on in their career see that as an opportunity or something they want to go do, especially if you're from the scientific side of the industry. So, high level, one of the really exciting things that we get to talk to you about is that you've been through not one, but two exits in diagnostics, which is incredibly rare. Just give us the headlines of those two exits and then we can really start digging into it. Andrew Miller: So both of them were in very rapid molecular diagnostics, suitable for point-of-care. And they're basically similar in approaches, but I had been starting to work on early ideas for very rapid molecular diagnostics going back to I think 2001 or 2002, before I started with Ionian. The concept was molecular diagnostics, take a sample, send it to a lab, you get the results back usually in a day, two days, three days, something like that. And to me that seemed insane. They could take a sample, you should be able to test it where you are at the doctor's office at a clinic and know the results right then. So that was the focus of both companies, being able to solve that problem. David Filby: So you're always trying to focus on quicker access, quicker data to allow physicians to make decisions quickly and avoid obviously the challenges of what could exist and it being allowed to exist. Andrew Miller: Exactly. David Filby: So introduce us to the first company, you've already mentioned them, Ionian. So who were Ionian and what was your role there? Andrew Miller: So Ionian was originally a spinout from the Keck Graduate Institute, which is one of the Claremont Consortium of Colleges in sort of East LA area, East LA County. And I was not a founder on day one. I came in after the company had already been established, the company was established on technology out of a lab at Keck Graduate Institute. Turned out that technology did not work for commercial purposes. So I came in, I hired a team, we developed a technology that worked. We ended up getting about $20 million in non-dilutive funding from various government contracts with Department of Defense, Department of Homeland Security to develop technology for biothreat detection. We also got a bunch of money from the Gates Foundation and a bunch of money from other smaller sources, including SBIR grants. And I hired the team that wrote the business plan, became CEO in 2007 and led the team. We were able to execute on the business plan. And that led to an acquisition by Alere. I think technically at the time was Inverness and Biosite. And they rebranded to Alere about a month after they acquired us. Alere was subsequently acquired by Abbott. And the technology we had developed at Ionian, is now the heart of the Abbott ID NOW platform. David Filby: Wow, so you mentioned 2007, you became the CEO. You were able to raise a significant amount of capital through non-dilutive funding. Just based on where we are in the industry at the moment, take us back to almost 20 years ago. Was it easier or was there more access to non diluted funding back then? Because that's a lot of capital. I mean, in today's market, we hear all the time about the complaints that current administrations are putting on with access to grants that used to be there before. What was it like back then? Was $20 million a number that was still really significant, but there was access to better avenues then? Or was it the technology itself that was driving the access to the different types of foundations you could plug into? Andrew Miller: I think it was a combination of both. it was still a lot of money back then, but this was post 9/11, so they were throwing a lot of money to anything that could potentially detect or rapidly detect biothreat agents like you know, anthrax, Francisella tularensis anything that could be used in those applications. We had aligned ourselves with companies like Northrop Grumman and SAIC, who could develop the bigger boxes and the infrastructure to be able to place those systems. I think the other part is that there were not a lot of companies at that point saying you could actually detect nucleic acids in a 5- to 10-minute time frame. Most of what I got the feedback I got from companies was that's impossible. You can't do that. so when we said we could do that, that attracted a lot of funding sources because at first they didn't believe we could do that and then as we started going through ensuring we could do that, that provided additional funding opportunities. And that led to some of the funding opportunities from the Gates Foundation. David Filby: Interesting. And so you mentioned that that was 2007 and when did the acquisition take place? Andrew Miller: In 2010. David Filby: So that's quite a quick turnaround, right? So what happened in those years where you were there and how did the company progress? How did that story progress across those three or four years? Andrew Miller: So again, we were still working on government grants for biodefense applications and the Gates Foundation work, trying to get additional money in, but the focus was on trying to be acquired. So I started doing outreach, going to a number of conferences, presenting the technology. again, I got a lot of people saying you can't do that, that's not gonna work, that's impossible. but we were able to do that and show that. We had another company that was we had a signed term sheet with, they were ready to acquire us before Alere, that fell apart at the last minute because of a board member on their side. So we did some licensing. There were announcements of licensing the technology for agriculture and food safety and veterinary purposes. so that also provided non-dilutive funding. and that all got us to the point where Alere was willing to acquire us. David Filby: Why the focus on acquisition at that stage? What was driving that decision to be acquired then and there? Andrew Miller: It was basically a financial analysis saying, okay, where we are today, how much money has come into the company so far, what we think we could sell the company for, versus if we want to get to FDA approval, what would we need to build, how much would we need to raise to invest and get to that point? and then at that point, what do we think the acquisition ranges could be? And essentially it broke even that if we sold at that point, the original investors would make X amount of money. If we took the risk and going all the way through FDA trials, the original investors would make probably about the same amount of money. So it was decided based on that financial analysis to market the company for sale at that point. David Filby: Right, so financially for everybody involved, you had the choice of going down the long hard road of raising capital, hitting milestones, or the acquisition into a bigger group benefiting from all of their infrastructure to ultimately Andrew Miller: Correct. David Filby: progress the product and access to it. That's really interesting, so can I ask what was the valuation at the point of acquisition? Andrew Miller: It was never formally published, but we can piece together from different filings. I think it was $85 million. And that's been reported elsewhere as well. David Filby: You're interesting. And then what happened post acquisition? Did you stay on as part of the company or what happened to yourself? Andrew Miller: So again, my goal was not necessarily just to get to the sale of the company, but to actually get the product, the technology to market. so I stayed with Alere, basically leading the Ionian team still, working within the Alere structure, getting through clinical trials and FDA submission in 2014. So I stayed about 4 years. David Filby: Right, so because you were acquired really early on, it made sense for the team to stay in place and really see it through to commercialization and everything else that Andrew Miller: Exactly. David Filby: was part of the deal. Andrew Miller: And that was my goal, making sure I could see the technology. successfully through clinical trials submitted to the FDA with pending FDA clearance. David Filby: Yeah, that's fantastic. when you look back on that first exit, do you look back and cringe a bit at certain things, but also go, well, did really, you know, what were the things that you did well in that process and how you set up the company to be acquired? And what were the things that you look back and go, actually, I learned a lot there that we could have done things better. And there were certain mistakes that we made. Andrew Miller: Yeah, there's certain things that were cringy. I was not the first CEO. I actually ended up being the third CEO. And in in my view, there were some decisions early on that negatively impacted the company as we tried to market the company for sale. I won't go into those details, but there there were some challenges we had to overcome. And I was painfully aware of those when we went to market to try and sell the Ionian company. So I was aware of those and made sure those were not going to be problems as we went forward with NAT Diagnostics. David Filby: Did you look back and think at the time, did you feel capable as a CEO, relatively early in your career and private industry, did you feel capable of ultimately selling a company to a bigger group or were there days where you because you'd never done it before. Ultimately, if you haven't done it before, it's hard to say. I'm one of those people that there's loads of stuff. I just don't know what I don't know and that's how I live and I just try and learn more all the time. But you know, do you look back and think there were times where I was like, don't know if I'm capable of getting the right valuation and actually selling this company as the CEO. Andrew Miller: Yeah, there were. but also I had you know so my father was in industrial sales, industrial packaging all his life, so sales, conventional sales. And one of the things that I learned during that process is that everything you do in science, especially if you're gonna become a CEO, is sales focused. You have to sell the company, the ideas to investors. You have to sell the concept of the technology, the business to employees you hire. And you know, if you're trying to raise money from non-dilutive grants, you have to sell the concept of technology, what it can do to potential grant funders. so I had been doing sales by selling the concepts of the companies to people for years. and then it was just getting some of the big companies to come look at the technology, kick the tires and realize yes, it works the exact same way that we say it does. David Filby: So that's interesting. actually the more we learn about you and your background, that you were really interested in being entrepreneurial very early on and actually you felt that you were very commercial and that you understood the need for sales, sales acumen, presentation and so forth, even though your leaning and your interest was ultimately scientific and you've got your PhD, right? So it actually all starts to come together. You mentioned that Alere ended up being acquired by Abbott and the technology was at the heartbeat of ID NOW. ID NOW was obviously expanded into a, you know, a huge product and do you ever sort of get those moments where, you hear it come across ID NOW in conversation or, in your life and you're like, Oh, you know, that sort of warms the heart a bit. Andrew Miller: Yeah, there was actually an event at UC San Diego about two months ago now. and one of the people I'm involved with or I know well, introduced me to somebody he knew well who worked in infectious diseases at UC San Diego. And I'm like, You guys use the ID now? He's like, Yeah, yeah, all the time. That's our standard platform we use for I'm like, Yeah, well that was my technology, so there are moments like that that makes me proud of what what I was able to develop. David Filby: Yeah, interesting. So let's come on to the second company then. So you'd stayed on with Alere and then eventually exited. So what was the decision process and how did the second company, NAT Diagnostics, how did that even come about? Andrew Miller: So after I left Ionian/Alere I did a little bit of informal consulting for a couple of diagnostic companies and talking with other diagnostic companies. And the feedback I got was they were all aware of the Ionian technology. They didn't think it was going to work. They didn't think we were going to get FDA approval. We didn't think we would get a CLIA waiver. Well, it worked, we did, and we got the CLIA waiver. So they felt they were behind the proverbial eight ball at that point. And so they were asking me if I could help them identify other technologies that they could acquire that would allow them to compete with that commercialized platform, which at that point was called the Alere i. I said, here are all the other technologies out there. There's RPA, which is also owned by Alere, there's LAMP, there's HDA, you know, but none of them have the clinical validation at that point, or the potential validation that the Ionian technology platform had. and so I asked outright if there was another company that I developed that had another isothermal rapid technology, would you be interested in acquiring? And they said, Yeah, we want to have a product in the space. We don't have one now. How can we get there? David Filby: So did that allow you to gain access to capital early on in that next venture? Andrew Miller: It did, but not necessarily because of that. I was able to access capital fairly easily from the former investors in Ionian who made money. And they rolled over I joke, they rolled over their winnings from Ionian into NAT Diagnostics. so I had the previous investors in Ionian willing to put money forth for NAT Diagnostics. David Filby: For yourself, did you feel like you had to do something better than the previous technology? Were you sort of driven to go, I'm not just gonna create a me-too product, did you have gaps that you wanted to improve or was there things that you were looking at going, look, what we did was great, but we can be better this time around. Andrew Miller: Absolutely. I was acutely aware of the limitations of the Ionian technology. I can't go into those obviously, but I was acutely aware of what those limitations were. And I knew, okay, if I could develop something that's going to be able to do this and this and this, then that would provide a platform that could be used more broadly. David Filby: Yeah, that makes sense. And so when did you start with NAT Diagnostics? When was that launched? Andrew Miller: it was officially incorporated at the end of 2014, we actually started some lab operations in the middle of 2015. David Filby: Right, and so how did that start in terms of raising capital, the team that you put together, the technology, where did it all come from? Andrew Miller: So again, one of my key hires was one of my dear friends who is a great assay chemist, amazing scientist, and she joined me at NAT Diagnostics and she led the assay development at at NATDx. And then it was, you know, via connections, getting out to people who I could hire fairly quickly. We actually started space in JLABS which is the Johnson & Johnson Janssen incubator space here in San Diego, which is great for early-stage companies. we were there for a year until we basically grew large enough that we needed our own space. David Filby: How much capital did you raise early on in them early rounds? Andrew Miller: I think the very the first round was I think $3.5 million. Something in that ballpark. David Filby: Right? And how long was NAT Diagnostics? How long was it accompanied before the ultimate endpoint exit? Andrew Miller: That exit occurred in basic beginning of 2020, February 2020, just before COVID hit everything. so we did raise additional money after the original $3.5 million but yeah, we grew the company and this time it was designed for sale. So I knew I was going to develop the technology in the company to a certain point and then look for an opportunity for acquisition. And so we actually worked with a small investment bank, a boutique bank specializing in sort of biotech diagnostics acquisitions and M&A and funding. and they set up meetings with us with essentially every diagnostic company in the world and went through a process with them and it ended up being that NAT Diagnostics was acquired by Becton Dickinson again, beginning of 2020. David Filby: And what was that point in your mind that you said, when we started NAT diagnostics, you want to get to this point to make it attractive to investors? What was that point that you had in your mind? How far along did the product need to be for it to be acquirable? Andrew Miller: Basic clinical feasibility. So we needed the technology to be tested and demonstrated in external hands, outside of our laboratories. and we had several different parties, partners who wanted to kick the tires and so they validated it for us. David Filby: And so did you have that same plan in mind when whoever was going to be the acquirer, did you intend to always go and be a part of that company and lead the future of the product? Andrew Miller: Yes, absolutely. David Filby: Yeah, that makes sense. And so what was it that you took into the second time round? Because this is, now you're an experienced CEO, an exited founder, you've started this second company, you've already come into it knowing that exit is the plan and how you're gonna do that, when you're gonna do that in theory. Andrew Miller: Yeah. David Filby: But what were the real key lessons and even practical steps that you took early on in the company, knowing what you knew that second time around? Andrew Miller: Some of it was, you know, very again, having gone through the acquisition process the first time, the due diligence, if you don't have, you know, clean books, clean documentation of every round, investments, everything, it can be a bit messy. it was a bit messy with Ionian, just 'cause everything was not already in a data room. so with NATDx everything was set up from day one to essentially have a data room ready that could be uploaded immediately. So I think that was the one big lesson. David Filby: What about commercially? Was there a commercial plan, strategy, data? When you come into that company the second time around, you're trying to validate technology, but at the same time, how much did the commercial angle of that product play into what you were going to try and achieve and ultimately the exit? Andrew Miller: So I can go back to when I was talking with the companies after I left Ionian and people and other large diagnostic companies saying they need a platform in this area. and in that time frame, many companies moved into that point-of-care space and even more so since. you know, Cepheid with the GeneXpert Xpress, HDA was acquired by Quidel. Quidel also recently acquired LEX Diagnostics and they have a new platform now. Abbott had acquired the ID NOW or the Ionian technology and for the ID NOW. SPOTFIRE from bioMérieux there were a lot more platforms and technologies on the market for point-of-care. And so it became obvious companies that did not have a platform for point-of-care, how are they going to be able to compete? So, that became one of these commercial focuses of who has these platforms already, who does not. David Filby: So really the commercial elements of what you were building was ultimately really scientific. Does it work in terms of is the platform going to actually do what it says it does? Is it going to be able to compete in the market? Is there potentially things that it does better so that the major strategics who didn't have that platform could quickly acquire it and roll it up? But ultimately it was always going to be their responsibility plus you, because you were going to intend to join, to then develop the product through to go to market and use their resources to build a robust commercial plan where it made money. But really, the commercial was, oh, I'm not exiting, I'm going to come on board and we're going to make sure that we get you this product ready and we build the commercial plan together. Andrew Miller: Correct. And it would open a new market opportunity for those companies, a new revenue stream in point-of-care. So for example, Roche had their Liot platform that they had already acquired. we didn't really talk to them at all because they already had a platform for point-of-care. That would have been a competitive technology with NATDx. So we didn't really talk with them because we couldn't offer them anything they didn't already have. So we focused more on companies that didn't have an existing point-of-care platform in the molecular space. and saying here's what the opportunity is for you. David Filby: Do you think this model works now? Cause you mentioned LEX Diagnostics, which was acquired earlier this year, right? So do you think this model still works? if so, are there certain gaps in diagnostics or technology that this is a model that's, know, prime, that there's big strategic looking to add certain technology through acquisition right now that companies, there's a gap there to jump into. Andrew Miller: In many cases, yes. typically they'd be bolt-on acquisitions that provide a new market opportunity for these large companies. but I think most of them already have a platform now that allows them to do molecular diagnostics at the point-of-care. The next step is something that could be a you know commercial over the counter direct to consumer type products. and there are a handful of companies at this point that are focused on those opportunities. those might not be acquired by the large conventional diagnostic companies 'cause they don't necessarily have a direct consumer focus. So those could be acquired by what I would consider to be non conventional diagnostic companies. David Filby: We've had 12 months of pretty interesting and robust exit activity, whether it's through IPOs, acquisitions and so forth, whether it's some of the biggest acquisitions we've ever seen, but also smaller ones as well. Do you think the current market landscape is more favorable for exits versus what it's been? Obviously, NAT was six years ago now, Ionian was 12 years ago, but, how the three sort of different landscapes now and the other two compare to sort of being acuired? Andrew Miller: again, I think it might be harder to sell a company pre FDA approval these days, just because of the risks associated with that. And in my experience, larger companies tend to be much more risk averse these days. So they want something probably that's already FDA approved. And again, that's what you saw with the QuidelOrtho acquisition of LEX Diagnostics. That was not complete until after they got FDA approval. And I think probably we'll see more acquisitions like that in this space. David Filby: Now you're, well, you can tell, what are you doing now, Andrew, with your time? Andrew Miller: So I mentioned UCSD, so I'm involved in a number of things at UCSD. I'm on the Dean of Biological Sciences Leadership Council, mentoring some students, doing a number of other things with UCSD, including some philanthropy. I'm also working with a number of early-stage companies. A couple of them mentioned Anvil Diagnostics in Cambridge, Canal Biosciences also in the Boston area, and Captihue here in San Diego. that are all sort of in the diagnostics tool space. they all tend to be smaller companies with very cool technologies trying to get to an exit as well. David Filby: And so when you're coming into these companies now, what's the big lessons and principles that you're trying to instill in them based on what you've learned through those two exits? And where are you most surprised of how maybe ill prepared or naive, and trying not to be too mean about it, but what's the sort of gaps that you're seeing in early-stage companies as they go, know, yeah, we want to be acquired one day, but what are those sort of values you're trying to instill through your advisory work? Andrew Miller: So I come in with sort of a mindset of what are the risks associated with the company, and to me there are four different risks. so I assess the company and make sure the company views these risks and monitors them as time goes by. But technological risk, does the technology work the way you say it does in real world situations, in third party evaluations? Does it work the way you say it does? two is operational risk. Do you have the right people to do this? Are the materials you need commercially available? Can you actually build what you're saying you're going to build? third, financial is do you have the money? can you raise the money to be able to get to where you need to go? And then the fourth one is what I call commercial risk, which is assuming all the other risks are solved and you build exactly what you're saying you're going to build, is anyone going to care? Is payers, physicians, patients, are large diagnostics going to cut care, are large companies going to care, are they going to want to acquire you or not? If no one's gonna care, you're redeveloping a product that's not gonna be successful. So if you can manage those four risks of having the technology work, being able to actually get it done and having the funds and having interest in what you develop, you can get to the point where some company will come in and want to acquire you. David Filby: Out of those four, what do you think tends to be the weakest of how people are prepared in early-stage companies? Andrew Miller: The fourth one. they think it you know, there's a difference between something that is going to solve a problem in the real world versus something that ends up being a very cool technology. after I left NAT Diagnostics I am talking with a handful of other founders who were developing some cool platforms, but they didn't know at that point how the platforms were going to be used in the real world, who was gonna use them. And in my mind I'm like, you have commercial risk here because no one's going to care if this works. They might go, that's a cool technology, that's some cool instrumentation, but unless you have a product, a platform, something that people can use to address a question, no one's going to be interested in that. David Filby: Is there a challenge that we hear this quite often in terms of scientific founders falling in love with their technology but not really understanding how it's going to improve patients' lives or will clinical workflows actually change to or have to change to bring this technology in? Do you see a lot of that where the early-stage scientific heads are potentially too biased in what they're trying to develop? Andrew Miller: Some cases yes. I also think of many of the first time founders, some of the roles that I play and some of the roles that I have other colleagues play is helping to coach these founders and making sure that they're just not focused on the technology and being blind to the commercial applications, but making sure they realize that they need to be focused on how the technology is going to be used in the real world, where it's gonna be used and those intricacies. David Filby: And so what's your objective overview on the state of the diagnostics industry now? Someone who's been at the forefront of it, who's achieved what every founder would dream to do twice. But what's your view on where we are now and where we're going? Andrew Miller: We've made a lot of progress over the last, I'd say 20 years. you know, 20 years ago there was no molecular point-of-care. now there are numerous molecular point-of-care platforms. and I think the next, as I mentioned, I think the next opportunities are gonna be in sort of direct-to-consumer products. I know you've had a couple companies on here that have been focused on direct-to-consumer, over-the-counter focused on diagnostics. I think that's gonna be a big opportunity. the other ones are gonna be simplifying some of the diagnostics that are being used right now. So antibiotics susceptibility testing, sepsis testing and being able to move those closer to the patients having faster time frames to results. David Filby: So you're optimistic about the industry and where it's going? Andrew Miller: Yes, absolutely. David Filby: Good. Andrew Miller: I think there are lots of new opportunities. And again, there's you know, never underestimate the creativeness of founders and the perseverance of founders. they will come up with new technologies that answer questions that we don't have today, but will answer problems that appear over the next, you know, several years. David Filby: I like that. I do like that. Even in just the last 12 months, one of the changes I've seen is the amount of founders who are moving away from what was deemed as the traditional life cycle of a company, a diagnostics company, where it's, development, validation, commercialization, and instead trying to find alternative ways for their technology to serve a purpose throughout its journey, which are actually becoming now the majority of their commercial opportunity. And that's been super interesting to see. I love it when I speak to a founder and they say, we've actually struck this partnership. And you're like, Ooh, it's completely left field of what you're expecting to hear rather than the classic, you know, how do we get patients to take this test? Just going completely different avenues. And that's great to see. Andrew Miller: And some of that is I think integration of diagnostics. Traditionally a lot of diagnostic companies are focused on diagnosing one disease or one condition, but being able to integrate that with other diagnostic criteria, potentially AI, other medical information to be able to create a fuller picture rather than just having, you know, one data point of, yes/no on the diagnostic scale. David Filby: Yeah, fantastic. Andrew, thank you so much for coming on and telling the story because it is so unique and we just don't ever really get the chance to speak to an exited founder, yet someone who's done it twice. And it's also really positive that we can ask for your perspective and that you are optimistic on the industry at large, but also that you see certain opportunities and... are excited about certain specifics within the industry, that's what we need to hear. We need optimism, but we need optimism from the people that know, and ultimately you're one of them. So Andrew, thank you so much for coming on and sharing your insights. Andrew Miller: Thank you very much for having me. I'm glad to be here.