Latest / Diagnosing Dx / Will Payer-Dependent Diagnostics Companies Get Left Behind? Marty Keiser, Founder at IVBH / Mammogen
Transcript
- David Filby: Welcome to the show this week, Marty. How are you? Marty Keiser: I'm doing fantastic. Thanks for having me on the show, David. David Filby: Yeah, absolutely. And in the beautiful Southern California at the perfect time of year I hear. Marty Keiser: it doesn't get any better than Newport Beach in the end of July. David Filby: Let's make all the listeners a bit jealous. Marty Keiser: Yeah. David Filby: We've got some really cool stuff to go through today, and when we spoke before, I'm really interested in your perspective on the industry, the diagnostics industry, and how you're approaching it. And I'm a big believer that sometimes we need people to come in with a bit of a blank canvas and some out of the box thinking to really get this industry going. So we'll get into this, but I think firstly If you could introduce yourself, your background and career and who you are, that would be great. Marty Keiser: Sure, let's start from the top. So I have spent the last 20 years or so in really at the intersection of science, technology, and capital markets. The first decade of my career was in the asset management industry where I raised capital for a wide variety of different investment strategies and investment vehicles. Gave me exposure to so many different industries, sectors, asset classes, market cap structures, deal structures. It was a really great experience. It gave me a well-rounded perspective on a lot of different things and a lot of different areas. And then transitioned into biotech 8 years ago. So for the last 8 years, I've been building as a startup founder and operator in biotech with a very specific focus on blood-based molecular diagnostics. You could call it liquid biopsy. For us, everything is all about early detection and being able to detect disease at the earliest possible stages in blood. But doing it as a broader platform, not just kind of a series of one-off bets, but really creating platform that allows us to enter into multiple disease areas, do it repeatedly, do it at scale, and do it agnostic of disease types. So we've done work in oncology, but we've also done work in metabolic health, and really the sky is the limit in terms of the amount of innovation that we can create across so many diseases that still require earlier and more accurate, reliable diagnostics. David Filby: How did the transition into biotech and diagnostics come around? Where did that thought process start and develop? Marty Keiser: Yeah, it really started in 2016. I'd had some early exposure in like the earliest forms of artificial intelligence back in around 2014. But then 2016 is when we were raising capital for a growth equity fund that was investing in Exact Sciences at the time. And at that point in time, they were about 18 months into the commercial launch of Cologuard. And I'd watched them go from 0 to $100 million in revenue in the first year and a half. And for diagnostics, we've just never seen any level of growth like that. and obviously they never looked back. And so it was in that moment where I really, from a Wall Street perspective, I hadn't really seen a company create a product that was really meant to do so much social good and have so much social impact that could be rewarded financially so quickly and so abundantly. And so that whole new kind of world of liquid biopsy and early detection to me just felt like a really fascinating and exciting field to want to be a part of. And I didn't want to just invest in it. I didn't want to just sit on the sidelines and watch others do it. I really felt compelled and called to build in that world and to lead in that market and that industry. And even though Exact Sciences was wildly successful. There are a lot of flaws in the diagnostics industry that I saw from the capital markets perspective. Two of the major flaws I would tell you is number one, the time and the cost and the risk profile of diagnostics is very similar to therapeutics. It takes a long time, it costs a lot of money, they fail 9/10 times. But the difference in diagnostics is in at least in the United States, as an example, is we really live in a more of a sick care system than a true preventative health care system here. And so diagnostics just don't get reimbursed and rewarded the same way that therapeutics do. And so if it takes you 10 years and costs you half a billion dollars to bring a product to market and 9/10 times they fail, the 1/10 that do succeed, you're sort of forced to pick the better of two evils. You either have to price your test really high to make up for all that time and cost and risk that went into it. And knowing that you're not really going to get the level of reimbursement that you hope to or that you aspire to, or you price it really affordably and you essentially put yourself out of any potential of ever reaching profitability as a company. And so both of those things create this really difficult kind of market dynamic for diagnostics to succeed in. And then the second biggest issue that I saw also from a capital market side. Is that really, I don't think I know of any diagnostics company that's ever expanded their pipeline organically beyond their core flagship product. I mean, Exact Sciences with Cologuard, amazing product, great success story, but all of their pipeline expansion came through acquisition, through inorganic growth, and paying these massive premiums for technologies that are already de-risked. And all of that bloat and all that borrowed capital tends to weigh on the balance sheet of a diagnostics company and it suppresses its overall market cap and valuation. So as I kind of saw the potential, this evergreen, exciting, intoxicating opportunity in early detection liquid biopsy, I felt like there were so many areas where things could be done differently and done more efficiently. And really I looked to a lot of different industries and a lot of different types of companies to borrow inspiration from to try to solve some of those inefficiencies. And create a much more scalable, reliable, predictable way to bring these technologies to market. And all of that really was sort of as I was evolving into this field of just pulling ideas and inspiration from everywhere else but our industry. And that seems to have made, you know, a pretty big difference in how we've been able to grow and scale at IVBH and my collection of companies. David Filby: So pre IVBH you've seen firsthand the Exact Sciences hyper growth you were right at the forefront of that and obviously what they've gone on to be since then and you were also noticing the flaws of the industry which you perfectly articulate and I also don't think the industry actually talks enough about the lack of organic growth because actually when the Exact Sciences acquisition was announced Marty Keiser: Last year. David Filby: I was quite excited because I felt like that was a good thing for the industry objectively, just to put that level of acquisition into the the eyes of investors. But as an investment banker in diagnostics told me and put me right, it was like, well, actually, one of the saddest things is that Exact Sciences fund and invest in quite a lot of early stage innovation. Where does that money go now? And potentially that dries up now because that money or capital is at the mercy of Abbott, right? But organic growth isn't something that's talked about enough. So when you're deciding then how to set up IVBH when you're gonna go into the market, what were the early decisions that you decided there and then that you were gonna take? And based on how you were gonna set up this company. Marty Keiser: Well, the first one was about business model and business structure. And, you know, as any founder, it's one of the most fulfilling but also one of the scariest things is to try to look out into the future of what kind of company you ultimately want to create. And, in the very early days you can just take the leap and set up a business and just sort of hope for the best. But if you really want to create a long-lasting, highly disruptive, enduring enterprise, you really do have to think long and hard about the type of business that you want to create. And so most of the inspiration for the IVBH Bio innovation studio model, it came from a lot of different companies and industries. I worked in asset management. I worked at Legg Mason Global Asset Management, which has since been acquired by Franklin Templeton, but they had this parent and affiliate model that worked really well. In sharing resources and distributing risk and sort of the compounding effect that happens and the kind of the diversification aspect of that model. Louis Vuitton, Moet Hennessy, LVMH, luxury apparel company, very similar parent sort of holding company model that sort of centralizes a lot of the core values, but leaves each of the companies and each of the brands autonomous to sort of continue on and create and innovate in the way that they want. And I'd say probably the closest business model to IVBH is the Walt Disney Company. They have this central kind of Disney Studios, Disney Pictures, that creative hub, that creative engine, but they've been really smart about creating these franchises around them. You think about Marvel, and Marvel's first big blockbuster was Iron Man, and then Iron Man turned into a massive sub-franchise, and then Avengers, similar things, subfranchise, and all of that value starts to compound across an ecosystem. And so IVBH is set up almost identically. We centralize our core discovery capabilities and our core technology, our core creative engine. But then as science develops and as IP is formed and created, we form these health franchises around that IP. And so we have a women's health franchise, a lung health franchise, a metabolic health franchise. Each of them has their own major kind of first blockbuster release In Mammogen, we're focused on early detection of breast cancer. At Liquid Lung, we're focused on early detection of lung cancer. HepGene is focused on early detection of MASH and all stages of fatty liver disease. And then each of those has the potential to kind of go up and downstream into prognostics and sort of predictive capabilities or diagnostics and sort of confirmatory type diagnostics. And then the platform itself can expand all of them into other areas, you know, women's health, we can move into any other, women's health indication that needs innovation. So that's really how we think about it. It's multiple companies, but they're sort of all centrally tied back to that same core engine and core philosophy. David Filby: Wow. And so you you set up IVBH I think you said 8 years ago. And so take us through what's happened then in the last 8 years up until today, because you obviously had some really exciting milestones recently, but take take us through the development over the last 8 years. Marty Keiser: Ooh, yeah. I mean, anybody who's been in biotech the last 8 years has seen a lot. I would call it a full market cycle experience. You know, coming into it in 2018, 2019, 2020, there was just so much capital flowing. Acquisitions and licensing deals were happening really early stage. We had some pretty major acquisition opportunities on the table in late 2021 for all three of my health franchises, and they were very early. I mean, we just had some early data and some early intellectual property and everything seemed to just be, flying really high and almost easier than I had ever expected it to be. And then really after COVID, when inflation started to run away in 2021 and persist through 2022, and then interest rates started to follow inflation and try to chase inflation to keep it at bay. I think everybody got a really hard lesson in how interest rate sensitive the biotech industry really is. And we hadn't ever really experienced that before. We've been in this secular interest rate decline since the early 1980s, which is really when biotech was born. And so for the whole history of the biotech industry, we had this really nice declining interest rate tailwind behind us. But once 2021 and 2022 hit. And rates came up and they were really kind of here to stay at a much higher level. It put a lot of pressure on our industry. And because so much of our development cycle is so long and arduous and it takes a long time and it costs a lot of money, all of that future cash flow is sort of discounted based off of interest rates. So when rates are high, all of those discount rates really come into effect and they put a lot of pressure on company valuations. we saw M&A dry up, we saw the IPO market dry up. When M&A and IPOs dry up, there's a lot less capital to trickle down and flow down to the earlier stage companies. And so for the last few years, several years, it's been a really challenging market for this entire industry. And even more challenging in diagnostics for all the reasons that we talked about at the beginning of the show. And so it felt like sort of overnight the bar got raised to the absolute highest level. And if you're going to get acquired, if you're going to take a company public. You need a fully de-risked product. You need, prospective clinical data. You need reimbursement, regulatory, a really clearly defined regulatory path. And in most cases, you need some early revenue and some early adoption to show to your partners. And so, where early deals were happening on IP alone or some early data, that world, got turned upside down on its head and everybody was forced to go a lot longer and take it a lot farther than I think most we're really accustomed to. And so we've been fortunate to be able to grow and to persist through that period. We always were very lean by design. And one of the things that when I talked earlier in the show of doing things differently, we prioritized speed and capital efficiency and a rigorous focus on risk management as our core, those are like our three core growth metrics. And if you think about biotech, everything takes a long time and costs a lot of money is really risky. So we turned that on its head and we always kept our team very small. We never relied on a huge amount of capital to bring our technologies to market. My parent and affiliate subsidiary model worked really well because we could raise capital at the parent and deploy it down to the subsidiaries in a way that allowed them to keep hitting milestones without being out in the market raising for each and every company. And my team and I talked a lot about how the leaders of tomorrow are born in the downturns of today. And so we just took, we made the hard decision to just lean into the downturn, make the sacrifices, invest in people, invest in data, invest in publications, invest in technology, so that when the turn finally came, we'd be there for the turn. And it seems that that's actually paying off. I mean, the market does seem to be turning. We've had a nice tailwind, we've seen some great acquisitions, we've seen some great IPOs. We're starting to see investment come back into the space. And we're fortunate with one of our lead health franchises in Mammogen to recently announce a significant institutionally led Series A round of equity financing. And for us that was a nice validation and a nice proof that when you do the hard things, when nobody's clapping and nobody's looking, it will pay off when markets eventually turn. David Filby: Yeah, fantastic. I mean, anybody raising Series A in this market as with this year stands out, right? And it's fantastic to see. Could you help me understand where does the science originally come from and which one of your franchises or products is the most advanced in terms of, closest to commercialization and generating revenue? Marty Keiser: Yeah. So scientifically, you know, everything we do at IVBH is internally developed. So we're not licensing IP from academic institutions or we're not sort of an idea think tank. We're leveraging our core discovery engine to produce our own novel biologic IP. But the scientific approach, I'll tell you, it's all focused on cell-free RNA. And early detection liquid biopsy, the vast majority of published scientific papers, even still to this day, are focused on sequencing some form of circulating tumor DNA or cell-free DNA that is, you know, coming from the tumor itself. From the very beginning, almost a decade ago, I felt like that approach was very flawed in early detection, just from a very simple premise that if cancer has to live, grow, and die. By the time those dead tumor cells are circulating and detectable in blood, by definition, you're getting late stage information. And therefore, it will likely be a limiting factor to true early detection of disease. And so instead of focusing on DNA, we focused on RNA. And our platform is really unique in that when we are in kind of that early discovery phase, the software, the engine is converging on two sources of cell-free RNA. We call it dual-source cfRNA. One source is coming from the host response. So these are RNA biomarkers that are represented across all the major pathways in the body. And so when disease is starting to manifest, these markers are lighting up and sounding the alarm bells really loud, really clear, in the earliest stages. The body's saying something's here that shouldn't be here, and we're alerting you of it. But the other source of cell-free RNA is coming from the tumor. And these are not dead cells from the tumor. These are actually real-time active living RNA biomarkers that are being secreted from the tumor into the bloodstream. They're largely encapsulated in EVs, exosomes, and extracellular vesicles. And these biomarkers are being secreted into the body from the tumor, and that's driving our specificity. But it's also contributing to the early stage detection ability because on one hand we have this host response that's giving us really loud signal, really strong sensitivity in early stages. But because we're detecting those markers that are being secreted from the tumor in real time in the early stages, it's confirming not only is it breast cancer, but we're also getting those signals very early in the disease process. And so if you look at breast, lung, liver, any one of our assays. They all have unprecedented levels of sensitivity and specificity, which is very rare in our industry. You tend to see highly sensitive tests at the expense of specificity or vice versa. And we don't have that issue. And it's because our system is really getting to the core biological drivers of the disease process and getting it from those dual sources really really sets us apart. So that is a consistent theme across every company and every assay. Each assay is using its own kind of distinct IP. So they're different biomarkers for different diseases and they form its own independent assay. All three companies are fairly at the same stage of development in terms of their data. Mammogen is slightly a bit further because we did complete and publish our CLIA validation study, and now we're entering our prospective clinical trial. And that puts Mammogen and our early detection breast cancer tests closest to the first assay that will enter the market commercially as a lab developed test. But the other companies are really close in terms of their stage, just slightly different strategic priorities and focus. David Filby: And you've mentioned there, Marty, lab developed tests and also clinical trials. What does your commercial route look like from here in terms of launching that LDT or seeking full FDA approval? Marty Keiser: Yeah. Well, I mean, as you know, LDT pathway was great for a really long time and then, had so much uncertainty around it with the legislation in the US for a handful of years. That legislation's now since been cleared and we've got a really nice clear path to be going down and following that path. And everybody's launching as an LDT these days. There's really no reason not to. And I'll tell you, like timing wise, some things have happened over the last few years that make LDT just an even better path than it ever was before. You think about these platforms like Function Health and Hims & Hers and Ro. You know, being able to create these direct to consumer like experiences, but still being able to follow that sort of physician prescription driven, even if it's through a telehealth platform, you're still able to to satisfy and check all the regulatory boxes as an LDT, but creating a very direct to consumer like experience, which is really exciting. David Filby: Is that an angle you see yourself going down commercially in terms of providing testing into the, whether you'd got your wellness side of the industry for want of a better term? Because I mean you can buy a Galleri now through I think Hims & Hers, I think, or maybe it's Function Health. But is that yeah, is that is that something you see as a big opportunity for the company? Marty Keiser: Absolutely. I mean these are I view function and the others as brand new storefronts for diagnostics. I mean they're not doing anything like truly that novel, but they did find a way to package and market and create this consumerized marketplace that didn't really exist before. And you are seeing these massive trends in health, wellness, people paying a significant amount of money out of pocket. I mean, I can't tell you how many investors we talked to over the years that lead with the question about what our reimbursement strategy is. And yeah, reimbursement's important, but the market's changing. And if you're coming to market with a payer dependent model, you're gonna get left behind and you're missing the opportunity here. I mean, GRAILS's product at $1,000 price point is doing $200 million a year in in revenue. In a purely cash pay industry without any payer coverage and without FDA approval. So GRAIL's doing a really good job at proving that there is truly a market and that there is a real persisting and lasting trend here. I just happen to believe if we can bring individual products that are more targeted at at-risk individuals, products that fit within very defined care pathways that have very clear value propositions for the patient, the provider, and the payer in some ways. And the system, let's call it. I just think that's a better approach long term, just commercially, that's our view. That's our our strategy. And ideally to bring it at an even more affordable price point. And you know, the lower you can get on cost with these highly technical tests, I think the better everybody's gonna be. David Filby: You've mentioned obviously reimbursement a number of times. You mentioned it at the top of the show in terms of the biggest challenges in the industry, right? And obviously you've emphasized that this leaning towards the world is going, where everybody wants their own health data in their own hands and the access to these things. How does the reimbursement pathway come into it for you then? What what do you still pursue and what's important? Marty Keiser: Well, we still pursue it. It is important. I mean, especially once you think of people over the age of 65 and making sure that things are really easily fully covered and reimbursed. I do think that that is an important element. It's something we'll obviously, a path we'll walk down and we'll pursue. But I will say I mean half of our country in the US is on high deductible health care plans and diagnostics hit the deductible. Even if they have full reimbursement coverage, it still feels like an out-of-pocket expense. I personally experienced that with one of our daughters. We did the Natera test, the prenatal test, and it was $700 and it had full reimbursement, full coverage, but I had a high deductible plan and it hit my deductible and I still paid $700. It was like, so it had coverage, but it didn't matter, and I still had to pay. And so I think we have to be really aware of that reality. And unless that's gonna change sometime soon, which I don't think it will, I think we have to be really creative in how we price our products and how we market them. Think about a $500 test that gets built in as part of a subscription plan with a concierge practice that you only pay forty dollars a month, but you have access to that test at least once per year. That's a lot more affordable and economical. And for us as the business, a subscription model pulls that revenue recognition forward by orders of magnitude and cuts the payer out completely. And those are really good things for a business. So I see a lot of potential and a lot of opportunity to do things differently here. David Filby: And what about things like direct to consumer? Does that come into to your own thought as well? So you've mentioned these wellness platforms, but how about your own marketing and getting it out there? Marty Keiser: Yeah. I like the idea. I think it's the future. I don't think we're there yet. I think that we're seeing so much growth and so much opportunity, somebody recently put this to me. it was true disruption comes through a series of events that sort of layer on top of each other and stack on top of each other. If you try to disrupt too much too soon, it just fails to get adoption. And we've seen some of these tests that are really far out there, direct to consumer, you know, collecting teardrops to try to detect an early stage cancer, and they're just not getting the adoption because it's just too much innovation too soon. You still need to walk through some traditional paths, build up really great data, layer on publication after publication, really get the buy-in from KOLs and from the industry, start building brand loyalty and test adoption from the consumer and then I think then you can start kind of really rolling down the more DTC path with a much higher probability of long term success. I do think it is the future. I just don't think we're there yet. David Filby: What was the investor feedback during that Series A raise? What do you think really made you stand out and be able to secure that raise in what is a incredibly challenging landscape to do that? Marty Keiser: It really seemed to come down to three things, for Mammogen in particular in that raise. First was really getting the and finding an investor who really understood and appreciated the power of the scientific platform and really looking at the 26 biomarkers that power our genTRU-breast Assay and understanding biologically what is the basis, why are they able to achieve early stage detection in a way that nobody else has been able to achieve. Understanding and appreciating that really is kind of at the heart of that story. And then starting to look beyond that another layer at the people and the team. We have a really capable, very experienced team at Mammogen from our chairwoman who is the founder of Bench International, which I'm sure you're familiar with and building great teams and boards at very mature and enduring companies. Over a 50 year career. To our CEO who's been in commercial diagnostics for over 20 years and commercialized one of the first RNA based diagnostics in the industry through Exosome Diagnostics that was an early detection urine test for prostate cancer with a very successful exit that she helped pioneer and lead and to also you know rolling out the Myriad BRACAnalysis test in the women's health market of that for Myriad. So we have a lot of Cs and a lot of expertise to our chief medical officer, Dr. Elise Berman, who is one of the most renowned breast radiologists in the country, who, you know, interestingly, as a breast radiologist, was the first person to step up and identify where are all the flaws and all of the limitations when we're using mammography or ultrasound or MRI and where can we insert a biologic signal to make breast imaging more valuable and more accurate and more reliable and getting that kind of unique perspective from the boots on the ground of a physician who's actually done this day in and day out for you know 25 years. That team started to give a lot of confidence that not only do we have really promising and unique and novel science, but we have a team that's capable of turning it into a commercial product. And then you layer in the third ring, so to speak. Of the market opportunity. And particularly with breast cancer, coming off of the heels of the Mammography Quality Standards Act, MQSA, which is now requiring every breast imager in the country to notify a woman of her breast density and all of the risks that are associated with that that require her to get additional screening that most women in America were never informed of before. And so that legislation alone, that FDA mandate defined about a 38 million women patient population that are at risk that should be taking a product like genTRU-breast and you put a $500 price point on that and you're looking at about a $25 billion a year annual market opportunity if we only focus on women that have dense breast tissue. So let take those three rings, start with the science, lead to the team, look to the market, and it it became a very compelling story for an institutional investor that could see the long term value creation in that asset. And so it was a really big win. We're really excited about it. David Filby: For a man that's effectively running three diagnostics companies simultaneously, you seem remarkably calm, to be honest, Marty. I think Marty Keiser: Yeah. David Filby: one diagnostics company could, you know, really punish someone but you seem Marty Keiser: Ha ha David Filby: to you seem to be doing just fine. why is that? Marty Keiser: I could use a haircut and they've got a little grayer over the years. So, you know, I guess it's like the duck on the surface looks calm, but the gray hairs are the little feet below the water that prove that there's a lot of activity, there's a lot of pressure. I pray a lot. David Filby: Good for you, yeah. So what are the future milestones that we should look out for from here for people that want to follow along to the stories of IVBH and the franchises? Marty Keiser: Well, it'll just continue to be about execution for us. It'll continue to be about papers and publications and building awareness around the scientific platforms across these different companies. But long term I'm really excited for the industry that seems to be finally catching up to a lot of the early themes that we wove into the DNA of IVBH 8 years ago. I think the industry is realizing that speed, capital efficiency, risk mitigation, these are actually growth metrics. they're not preservation metrics. They really do make a difference in bringing products to market that can actually scale. If you can cut out as much of that time and that cost and that risk, at least on the very front end of the journey, it puts the company on a path to be very successful, to be profitable, to be able to grow and to expand organically. And I'm really looking forward to IVBH starting to kind of take its place on the front of that stage and really start to share why we did things differently the way we did and then show why those different decisions have really benefited us and the field. David Filby: Marty, I think it's fascinating what you're doing and I think it's fantastic. As I said when we did the introductions, I think it's always great when a different perspective comes into the industry and we're not sitting here talking to someone who's just been in diagnostics for 30, 40 years and who says this is the way it always gets done. I think it's great when people are trying to take alternative routes, but ultimately bring incredibly profound novel science to populations of patients who need it and will benefit from it. And who can argue with the milestones that you've already hit. So the we're really going to start to see some super exciting updates over the next couple of years with these clinical trials and the other products coming through. But I think it's fantastic. I can't wait to to hear more about it. Marty Keiser: I appreciate that very much, David. But I'll tell you it takes a lot of different types of people and perspective to make this work. An outsider's perspective by itself isn't as valuable as combining it with people who have been in the industry for the last 20 or 30 years, but are open minded enough to see the flaws and to see those flaws as opportunities to do something better and differently. When you bring those two together. That's really where the magic is. Unfortunately, there's just a lot of people who've been in it too long to be able to see the flaws. But when you find them, and I found them, I've built a great team with them. When you find those people, the sky is the limit in terms of how we can bring real innovation to this field. And it is an evergreen opportunity. One kind of closing comment, I'll just say, I mean, the healthcare industry. Well, wouldn't even call it an industry. It's about a $63 trillion dollar a year economy globally. Like healthcare, there's $63 trillion dollars spent in some form of healthcare worldwide every year. If you compare that to the advertising, the global advertising market, healthcare is 5-6 times larger than the global advertising market. And that's where the alphabets and you know and just go down the list. Apple, all these companies are trillion dollar companies based on the advertising. For whoever creates real disruption in healthcare in this $63 trillion economy, I think you're gonna see dozens of trillion dollar healthcare led companies come to market over the next decade. And I think people have to start thinking differently because there are no trillion dollar healthcare companies today. So you really need to start borrowing inspiration from these other industries and these other types of businesses if you're really gonna participate in that revolution. But the sky is truly the limit and this market's only just getting started. David Filby: Marty, thank you so much for coming on and sharing your insights in the market and the story of IVBH and how you're trying to do things. I think it's fantastic for the industry. Marty Keiser: Thank you, David. It's a pleasure to be here.