25 Nov 2020 | 03.10 pm
Shot In The Arm For Diagnostics
Interview with Diaceutics plc founder Peter Keeling
25 Nov 2020 | 03.10 pm
A conference pitch in Florida set Belfast entrepreneur Peter Keeling on his way to securing a public listing for his pharma venture, he tells Gerry Byrne
In 2005, Peter Keeling went to Dublin Airport and used a vending machine to print some business cards. He didn’t yet have a company but he had a clever idea. Keeling was en route to a pharmaceutical conference in Orlando, where he planned to launch his business before an unsuspecting pharma industry.
Attending the conference was itself an 11th hour decision. Keeling was given the very last slot on the last day of the event to make his pitch for a scheme to overhaul the international medical diagnostic testing sector, one that Keeling viewed as broken.
The entrepreneur had a deep knowledge of what he was talking about. For the previous seven years, Keeling (60) had run a medical testing company with a presence in Ireland and the US. That venture had to close when it ran out of money. Diagnostics was an unprofitable, inefficient and unproductive money pit, in which it was almost impossible to secure a decent return on investment. And as Irish cervical cancer patients discovered recently, the sector was not always reliable.
As happens at conferences, participants were playing truant on the last day, drifting out of the conference rooms to Disneyland and SeaWorld before catching their flights home. “By the time I spoke there were just 50 people there, and by the time I had finished my presentation there were only seven,” Keeling recalls. “It was soul destroying.”
Seven proved to be a lucky number. Among them were two representatives of pharma giants GlaxoSmithKline and AstraZeneca. They were intrigued by Keeling’s pitch that big pharma could benefit from giving the diagnostics sector a makeover. Keeling recalls one asking him: “You’re telling us that as a business we need to change our business model to embrace diagnostics and the return to us would be significant. Can you prove that?”
In retrospect, Keeling admits that the entrepreneur in him spoke before his slightly more cautious, rational self, and he replied that he could prove it. “The sooner an accurate diagnosis is made, the quicker you will have new patients buying your drugs on prescription,” he explained. “In fact, because so many cancer patients become sicker waiting for test results from an inefficient diagnostic system, they don’t get better and die before they should.”
Keeling notes that c.22,500 people die every day of cancer. “The majority of these deaths result from delayed diagnosis. Three out of four of these patients are likely to have been diagnosed with stage three or stage four cancer when they should have been diagnosed at stage two, when medication would have been effective.”
The Covid pandemic is making the problem even worse. Diagnostic labs are shoehorning Covid testing programmes into their already overworked schedules, with the result that everybody is suffering. Outside of Covid-19, diagnostic labs sometimes bypass approved disease tests because of the cost of the chemicals involved. They then might try to develop their own solutions, which often give mixed results. Some tests require specially qualified lab technicians whom many labs cannot afford.
Although a diagnostic lab test is instrumental in 70% of medical decisions, the sector only gets 5% of the average health budget. In retrospect, Keeling says he is not surprised at the large numbers of cervical cancer tests delayed or wrongly interpreted, the consequences of which are still working their way through the Irish legal system.
Back to Orlando, where the story starts. GSK and AstraZeneca signed up Keeling as a consultant on the diagnostic aspect of five new drugs slated for a forthcoming launch. Diaceutics was born and now the company employs 130 specialist pharmacists, diagnosticians and other experts in several countries, including Northern Ireland and the Republic. Besides helping improve existing test regimes, they must also prepare the ground for launches of new drugs that must work hand in hand with testing labs.
While Keeling always reckoned that big pharma would benefit handsomely from testing regime improvements wrought, even he had no idea of the exponential impact of some 200 subsequent new drugs – like breast cancer drug Herceptin – targeted at patients with biomarkers indicating their suitability for that particular form of therapy. In the case of one drug launched in 2016, and for which Diaceutics designed the testing regime, the client earns at least $40 for every dollar it invested in improved diagnostics.
Diaceutics experts spend as much time working with labs as they do with the pharmaceutical majors that employ them. They may help them negotiate higher fees for less profitable tests, or they may introduce training programmes in advance of new tests to accompany fresh drug launches.
In 15 years, Diaceutics has amassed a huge amount of information on the world’s diagnostics sector. Thousands of labs are featured in a specialised database which, Keeling explains, is being built into a unique diagnostics marketplace called Nexus, launched recently, enables drug manufacturers and other users of diagnostic services to trade directly with each other.
In developing his venture, Keeling says he kept venture capitalists at a distance because his experience was that they are too impatient. Three years ago, after a dozen years of financing growth from cashflow and borrowings, he explored private equity but recoiled from one advance that promised to turn him into a ‘data company’.
“A bell went off in my head and I said to myself, I don’t think I want them to turn us into anything. I want them to support our plan, not stage a conversion.” Instead, Keeling headed for the London Stock Exchange’s AIM market in March 2019 and raised £21m equity capital.
According to Keeling: “As a result of our first year on AIM, we had a really good year trading and the opportunity arose in 2020 to go back for additional funding. We tapped existing and new institutional investors and raised a further £20m. We now have a really good war chest.”
Diaceutics doesn’t lack for working capital. Balance sheet cash at the end of June 2020 amounted to £29.8m and total liabilities were £1.6m. In the half year to June, revenue advanced 20% to £5.3m and the company broke even, compared with a pre-tax loss of £2m a year earlier. The results disappointed investors, with the share sliding 23% on the day the H1 results were announced. That reduced market cap to £108m, still a generous premium to net worth of £41m.
“Going public has been very good for us,” says Keeling. “It has helped our profile with pharma clients, who respect the fact that we are regulated like them, and that we are acting in a grown-up way to approach a global problem.”