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Life Technologies Corporation (NASDAQ:LIFE)

Barclays Global Healthcare Conference

March 13, 2013 11:15 am ET

Executives

Ronald A. Andrews - President of Medical Sciences

Unknown Analyst

Good morning, everyone. I have the distinct pleasure to introduce Ronnie Andrews, who's the President of the Medical Sciences Group at Life Technologies Corporation. The format will be somewhat obvious. We'll do a fireside chat. We actually do not have audience response questions. There will be a breakout across the hall in the New Yorker Sands, so we'll at least give the audience some opportunity to visit with Ronnie and be able to ask their questions. And I think to start, Ronnie, thank you very much for coming. And the interesting thing that you and Greg Lucier put together in the Medical Science Group, but more important, let's just call it, the diagnostics business, I think, is really unique. It's unique among a number of the companies that are in, what we'll call, the life science tools space, right? And so I'd love to understand how you think about that business. It is a business in a business, so how do we shareholders can go making money from what you're able to drive into the overall Life Technologies business portfolio?

Ronald A. Andrews

Yes, Greg has spent, and the team has spent, the last 10 years building arguably one of the top life science tool companies. And having been a customer of Life for years in my world at Clarient, we watched them really do an amazing job and put together some of the top brands in life science tools. My world is all about taking those tools and applying them to solve some of the unmet need, unmet questions left in the clinic. And I think the big opportunity for us is really to look at some of the key decisions that have to be made by physicians to manage these diseases and understand at that point when a physician and a patient meet to talk about a cancer, we call it that physician-patient moment, what information is necessary to make that decision to help that patient get on the right course early because everyone knows these complex diseases typically have a time limit to them. And so what we are doing at Life is really identifying the key unmet clinical questions and trying to focus our energies around taking the various platforms that we have at our disposal, everything from -- most of you don't know at Life, but we have IC, immunohistochemistry capabilities. We make a lot of reagents that are used in the marketplace today. We make a lot of the molecular probes that are used in FISH testing, and we have imaging, a nice imaging molecular -- or a fluorescent microscope for imaging those cells, all the way to what you hear most about from Life, which is next-gen sequencing and the Ion torrent. So because of that pallet of opportunity in terms of technologies, we really got the opportunity to sit back and take the lens from the physician-patient moment and look back at the value chain and say, what information does the doctor need right now? And what's the value of that information at that point in time in the patient event? What's the reimbursement most likely to be? And now, what platform do we have that's best suited to provide that information? So very different viewpoint in the medical sciences approach than you might see in life sciences, which is very product-oriented. We have a product, let's go find somewhere to sell it versus we have a problem that a physician's trying to solve and we got plenty of solutions, what's right solution for that moment in time. And so that's really sort of the genesis of what we're thinking about as we think about Medical Science, and our play into the medical sciences arena.

Question-and-Answer Session

Unknown Analyst

And when you think about some of the acquisitions that you've made so far, Compendia, Navigenics, is it -- was it wise to start there, or was that just opportunistic? Was it wise to start there to develop a portal, a way to actually transfer information first when you don't even really know what information you're transferring at least yet?

Ronald A. Andrews

Yes, it's a great question. If I look at the success we had in my previous world at Clarient, one of the things that helped us keep stickiness with customers was our ability to take very complex information, synthesize it, push it through our web portal and educate the consumer of the information, and in that case, it was an anatomic pathologist in a laboratory, in a hospital, and educate them on how to use that very complex information to manage that patient locally. So if you think about the importance of that -- and in that world, I had a 99% recurring rate of customers. We very rarely lost a customer. And other people got to the point where they were doing similar things that we were doing in terms of molecular mapping a cancer, but they weren't able to communicate it well and educate. And so we knew -- knowing that, the team that came with me from Clarient to start this initiative with Life, we realized that especially as the advent of next-gen sequencing in the clinic starts to take hold, the next-gen sequencing data is only as good as the relativity of that data to outcomes. And so we knew we had to go out and get a bioinformatics engine, and then in that engine, we had to be able to communicate it in a 10th grade level because candidly, as smart as these oncologists are and pathologists, when I'm with them, they tell me, give it to me simple. I'm seeing 40 patients a day. I don't have time to look this stuff up. Help me understand how to use it. So we decided somewhat opportunistically, these 2 assets were available last summer. Let's go and build out the bioinformatics engine while the Ion team and our genetic analysis team are working on the platforms, let's get the bioinformatic piece put together because we think we'll accelerate development of those platforms because in my world, it's less about the platform and way more about the content the platform produces, and that bioinformatics engine helps accelerate that content play for us.

Unknown Analyst

So when you think about content, you've also done some very interesting partnerships with Toronto Children's, with Boston Children's. Is that part of the content play? But more importantly, do you need greater juice? Do you need greater bioinformatics? Is that an outsource there further? Is it going to be all of what Life develops? Because it just strikes me that the portfolio of information is really, really large. I doubt it's a only-invented-here syndrome. So how should we think about that?

Ronald A. Andrews

It's a very, very good question. And I think you always have to look at the disease area because it's a different answer by disease area. So if you think about the inherited disease world, we went after the partnership with Boston Children's because our play in inherited diseases really needs to be mediated by a world-class group of geneticists and doctors that manage that type of information and patient every day. Boston Children's is arguably one of the top facilities in the world in that area, and so creating Claritas as a joint venture allowed us to have an expert backstop, if you will. So as we go out to Toronto Children and the sick kids movement, as we go out to other children's hospitals running in the United States, they're going to run panels that we will develop at Boston Children's with the Claritas venture, but those panels will then become standard panels that will be run across the Children's Hospital network. And that network, when they have questions, will have somewhere to go to really get the education they need on how to manage it. Cancer's a little different. So in cancer, obviously, Compendia represented an opportunity to get access to the most well-curated data set, right, in the industry at the time. So I would argue that the mathematical engine that we have with Compendia is probably what we need. What we now need is more data. So we have 62,000 patients. We've curated the cancer genome map list. We have over 1 billion data points in that database. But 1 billion data points typically is a retrospective at this point. What we need are longitudinal prospective data going in, so that's going to rely on these partners that we create around the world in cancer, where they're actually putting data into this database on a real-time basis. But the idea of being, at the end of the game, at the installment -- and you've heard me say this last night, but the end game is an iPad in a community hospital, where a doc can log in, pull down the EMR, get his patient's or her patient's information from their lab information system, look at it in context of the imaging and the morphology and everything that goes into that patient workup, and then say, wow, I haven't seen this before, query the cloud and say, all right, Compendia database, show me the top 10 outcomes from someone that looks like this patient. And being able to push that back out of the cloud into the hands of that physician at that moment in time makes Life relevant in the decisions that that physician has to make to make that patient's life better and hopefully, cure that cancer. So the engine is there, but the data that's got to go in is going to be a partnership opportunity for us.

Unknown Analyst

And once that it's built, and that's probably going to take quite some time, I expect, and probably continues to evolve even -- once you start pushing it out and selling it, the question becomes who actually pays for the information at the other end. I don't -- I can't perceive Dr. Andrews actually writing a check for it out of his practice. How do you think about that from who gets -- who's the payor? And you're going to tell me it's insurance company, I guess, but how does that route through? How does Life get paid in the end?

Ronald A. Andrews

Yes. So the business model for Life is obviously -- as we develop the content both with academic centers, with our partners around the world and mainly with the pharmaceutical companies, they're very eager to have access to our engine, that that will create data that will turn into tests. And those tests will be sold in kits on our platforms. So there's one revenue stream. There'll be services around that. That will be another. But then there's the whole informatics play. And today, I think we're too early into it, but our goal is to work with the Aetnas and the Kaisers of the world and to make the proposition. Today, if you think about -- if you use the government statistics, $70 billion spent on cancer therapeutics in 2010, $30 billion, they claim, had no impact on the patient. So if you bring that down to the microcosm of an Aetna or a Kaiser and you assume that somewhere in the -- hundreds of millions of dollars of wasted money that the Kaisers and Aetnas are going to spend, if you could put in the hands of one of their physicians, the tool that would allow them to, on purpose, pick the right drug out of the gate, so they didn't do trial-and-error medicine, it's better care for the patient. So you don't have the end-of-life issues typically as acutely as you might have if you had a patient go to Stage 4 and then try to treat them. But also, you have that physician on a disease pathway protocol that allows them to create standardization on how they're managing these diseases, which, they believe, can control costs. So is there an opportunity to go to an Aetna and say, hey, for $500 of covered life, we'll manage all your cancer patients, or to say, hey, for $1,000 a license, we'll give each of one your physicians accesses? We think so, but we've got to test that out.

Unknown Analyst

It's interesting. You alluded to the drug industry, and I've been very close to the majority of those players for probably too long. But the real question then becomes how do you actually -- how do you go to them? How do you go to them and say, we want to partner with you, we'd love to partner? Let's just take oncology since we alluded to it, and it's a clear, obvious opportunity from an informatics standpoint. How do you go to them and -- say, Roche or Bristol, who comes and say, partner with us, let us understand how you're doing your trials, let us get us some information, this is where we want to go?

Ronald A. Andrews

It's a tough question because a lot of people are doing this today, and I get asked this question a lot. How do you differentiate what you guys are doing? Well, we're kind of -- we're going to combine a holistic approach to this, and we're going to go after more in the C-suite, in that level. Because we do a lot of business today in pharma. We sell quite a bit of product to pharma, but we're not actually capturing the companion diagnostic from beginning to end like we want to. So the Compendia acquisition really gave us a unique opportunity. Compendia, for those of you that don't know, has a software product called Oncomine that allows us to look at pipeline, pharma's pipeline, and actually run in-silico designs of applications or marker sets that will actually help select patients for their drugs, so. But that's what they do today, and they got a nice business. They're in 18 of the top 20 pharmas doing that today, Compendia. We want to add to that. So what we're adding to that is an ecosystem of regional spinners to include regional oncology, community oncologists, as well as regional centers, where we will be able to help them do genotyping and phenotyping of a patient, put them into a database, so we will be able to then go to pharma and say, here's the in-silico design of the assay. Guess what? We've already designed the assay for you in our lab. You send us 250 blocks. We can prove validity of that marker set. And then guess what? If that works, we found you 200 patients that we can bring into your trial. And the challenge pharma has, as most people that cover pharma know, is getting patients into these early-phase clinical trials. They're difficult to get into. But patients want to be in them, especially cancer patients. And so we think it's a great place to go to a pharma and say, not only can we help you design an assay that could become an IVD, which we can take all the way through for you, but now we can also bring patients into your world that want to be on your trial, based on their phenotype or genotype of their cancer. And so we think that's a different value proposition for pharma, and so far, it's been very, very well received.

Unknown Analyst

Ronnie, would you say the risk then, therefore, would be on Life, on your group? If pharma sends you a block, it's probably no cost to them, if you will. It's a handshake. You're doing the work. You're taking the blocks, and you're running the sequencing, and you're putting it into an informatics framework. Is that fair?

Ronald A. Andrews

Yes, I think that's fair. I think the reality, though, is today, pharma pays for all that work along the way. The question is, are there partnerships opportunities, where if we want to own the IP around the test versus them on it? Would we give more? Would they pay us half? So those models are being worked out. But pharma today, they pay individual contract -- outsourced contractors to do each part of this, and we're talking about now soup to 2 nuts, doing it all. And so the question becomes should we create more partnerships down the IP or not? And I think those are the things that we have to think about as we enter those relationships.

Unknown Analyst

Makes sense. And if you actually think about it 5 years from now, Ronnie, and let's say you've created some partnerships, probably, you have some readouts of some products, you've probably built a reasonable database, maybe you've even got 1 or 2 tests out in the marketplace by them or maybe more. Can you help us think about -- from a competitive landscape, is there anyone that really is doing this as equally well, or do you think that you've got another 1 or 2 competitors that are running as hard as you are?

Ronald A. Andrews

Well, there's people running as hard as we are, but I'm not sure there are folks thinking about it quite as holistically as we are. Most of those companies are product companies. So they either have next-gen sequencing box, or they have a PCR box, or they have immunohistochemistry box, or they have a FISH capability. And so they are fixated on how do I get my technology to matter, right? And like I said, we're looking more at what technology is best at the point of information distribution from a reimbursement perspective, from a what do they actually need. To give you an example, this is Ronnie's take on the world, and listen, my grandmother used to say, "Hey, you get what you pay for," and this is free, right? So take it for what it's worth. But in the world I see, in the next 5 to 7 years, we'll see next-gen sequencing settle in really well at the very large academic centers for what I call Hail Mary medicine to practice on those -- that 10% or 20% of patients, where we can't find a good treatment for them. What's going to happen, though, is -- and if you look at the reimbursement landscape and you look at the knowledge that we have around these markers and how to use them, we're going to take next-gen, and we're going to synthesize from that, small panels. This could be anything on our world of a qPCR panel of 30, 40 markers or maybe it's a PGM in the next-gen world, but it's a set of markers, 200, 300 genes, with transcriptome. And that information will be put out into the clinics, into the regional centers, and that's what 60% to 70% of the patients will need without having to go to full next-gen sequencing. And that will be reimbursed because we'll know what to do with the information that's actionable, and doctors will understand it, easier to educate. And so I don't think we're going to make a huge, massive leapfrog right into full next-gen sequencing, candidly, because I don't think the health care system can afford it and be at[ph]what we saw at Clarient in trying to get all these tests through the CMS is they're only going to pay for information that they know is actionable. They're not going to go pay for stuff they don't understand. So I think as that model begins to happen, Life really becomes a major player because we're the company that can do everything from the next-gen sequence all the way down to the fluorescence microscopy in that 150-bed hospital, where the doc's selecting the cells to send to the regional center to do that panel on. So I think that for us, it's a holistic view. There's going to be great competitors. They're already out there. I mean, look at -- you've got Roche. You've got Abbott. They're already well entrenched in the diagnostics world. Our channel is early and young, but we've got technology that they don't have. So it's going to be an interesting play, and some of those may turn out to be partners versus competitors, so interesting to watch.

Unknown Analyst

I would also think CROs may be an interesting competitor, but they also may be an interesting partner at the same time.

Ronald A. Andrews

Huge partner, huge partner. The clinical trial work that we'll be doing in our own lab will be really Phase I and pre-Phase I clinical trial. Once we get to a point where we've got a design of an assay that matters and the pharma company approves it, we'll hand that off to the CRO on our instruments under our design control. Pharma will run the clinical trial for the drug. The CRO will supply the information for the diagnostics, selecting the patients, and that will be on our platform. And at the end, we'll take that dossier. We'll submit it to the FDA, and they will launch it on our FDA-cleared platforms throughout -- the pharma company taking the drug. The CRO plays a huge role in that, so they're clearly going to a big partner for us.

Unknown Analyst

That's great. I'm going to -- let's go back to today, and can we talk about qPCR and QuantStudio? These are real products today. They're being sold today. What's the go-to-market for QuantStudio?

Ronald A. Andrews

Well, for those of you who haven't heard that term before, QuantStudio was Life's play into creating a diagnostic instrument for PCR. And the beauty of the QuantStudio product is it is a sort of a generic box, can run any form of PCR, including digital PCR. And so we submitted that late fourth quarter last year at the FDA, and we're eager to get approval on that. Most of you saw the press release. We've got approval on the Sanger sequencing box. It was arguably the hardest -- I've been around way too long, about 30 years in diagnostics, and that's been the most complex submission that I've ever seen have to go to the FDA. And so getting FDA clearance on that has been really, really awesome for us internally because we think we now understand what the FDA is looking for. So QuantStudio was a nice follow-on to that. Hopefully, we'll get a rapid approval because when we do, we've been working with Quidel to put infectious disease applications on it. And the idea is to go to market in the infectious disease space. Today, we have over 7,000 PCR instruments in clinics around the world. And so the goal is to take QuantStudio with the infectious disease market -- markers and go to those sites and replace out the older ABI products with the new FDA-cleared or the IBD product. In the end, it come right behind it and add our cancer menu, starting with the Pervenio Lung prognostic test, which we hope to have in kits and then to CE Mark format by the end of the year, so we can launch that right behind the virology test that we've put on there first. So I think the QuantStudio Dx is a great opportunity for us. And hopefully, the FDA will give us clearance soon, and we can get that to market and start really building the diagnostics business for Life.

Unknown Analyst

This is going to be a hard question, Ronnie. It's really around your business and the business model you are attempting to create but more importantly, have a vision about. And the question really is around, could you have started this enterprise, if you will, outside of Life? Was it easier to start it within Life? And is it sort of -- it's a loaded question for the third. But is it a good idea to be under the umbrella of Life?

Ronald A. Andrews

Right. You know what, I think you could have started it outside of Life, but you would have had to have a lot of money. And I think we all know in this world that we live in, a capital-constrained world that we live in today, that's not -- no one's going to bet on the future of these kind of technologies without some early-phase revenue idea. So starting it in Life is clearly the right thing to do, which is one of the reasons I went to Life, right, because I didn't want to go back to corporate America after a long time at Abbott and Roche, and then Clarient was such a great opportunity for us. And when GE acquired Clarient, I decided that another small company was probably my future. When Greg talked me into coming here, it was really just a great opportunity to fulfill the vision of oncology that I had at Clarient but to do it in a platform play. So I think doing it under Life is clearly the best way to do it. But the thing we have at Life is clearly as shareholders again, like I did at Clarient. So one of the goals that we have is obviously not to be dilutive but to use small tuck-in acquisitions off our balance sheet to build out the content and to build out the capabilities that we need, which we kind of did with the bioinformatics piece last year. But now use that CLIA lab to start to get early revenue, use the QuantStudio Dx when it's launched, get early revenue, take our lung cancer program to China, get early revenue, and so to create multiple engines. We have a transplant diagnostics business. That's a very cash-rich business. It creates a lot of cash. Build that out. And so we started to create some of these smaller opportunities, but they generate cash, so we could fund the R&D to do the other things we want to do. And that's how you build it within Life without dilution in shareholders. Plus, we have to make some choices within our own portfolio at Life. We spend $300 million in R&D and how do we focus R&D more in the clinic. And so that's [indiscernible] I have to do out of Life. I have to go evangelize every day in why we need to do that. But the company is getting very excited about where we're going in the future. And I think just the opportunity to really be a player in cancer for the company has really ignited the morale and got people focused on moving this thing forward.

Unknown Analyst

I certainly can appreciate the energy. Our last question before we break is really around the structure that you've built, and are you still looking for new hires? Where may they be? Or do you feel satisfied today?

Ronald A. Andrews

Yes, I'll never feel satisfied because I'm not the smartest guy in the room and I never will be. So my whole life has been about hiring the right people, putting them in the right job and making sure that you give them the freedom to operate. And so we have, I'd like to think, an amazing culture of entrepreneurs and even within Life, and I've been able to recruit some really top talent. A lot of these guys came with me from Clarient, and they were with me at Roche before that and Abbott before that. So I've got a nice core group that's done this a few times with Abbott, with Roche, with Clarient and now at Life, so they know diagnostics. But we need some talent. We need to shore up some talent in terms of channel in diagnostics. We need to shore up some talent in terms of IBD R&D folks, where they've had IBD experience. Listen, our regulatory team is as solid as they get. So we're solid there, and that's usually the hardest one to figure out. But the fact that we've got the Sanger box approved and we've got such -- last year, we had all our sites pretty much inspected, and had 0 483. So it's just a testimony to how well we do regulatory at Life, which is great thing to come into because it's not always that way in diagnostics, as you know. So for us, I think the real opportunity now is R&D strength and the bench strength there and then channel access.

Unknown Analyst

Perfect. You've been great with your time.

Ronald A. Andrews

Well, thank you very much.

Unknown Analyst

Thank you so much. We will have a breakout just across the hall. Ronnie Andrews, thank you again.

Ronald A. Andrews

Thank you all.

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