Event Recap: QB3 Seminar May 15, 2018 on Why Do Diagnostic Companies Fail?

Urdea Talks About Why Diagnostics Companies Fail

By Marie Daghlian

The classroom at QB3 on the UCSF campus was small, only sixty seats, but it was packed—all the seats were taken and at least thirty more people lined the walls and sat in the center aisle. Before introducing Mickey Urdea, health sciences incubator QB3 Executive Director Regis Kelly noted that over the past decade, several diagnostics companies that showed initial promise ended up failing. He also spoke to what diagnostics developers often hear from venture investors: “We don’t want to go there.”

A mix of ages, young and old, graduate students, scientists, entrepreneurs sat in rapt attention waiting to hear Mickey Urdea, founder and partner of bioscience consultancy Halteres Associates, expound on why diagnostic companies fail and how to avoid their pitfalls.

Urdea knows failure. His first diagnostic company, Tethys, which was working to develop a predictive diagnostic for type 2 diabetes, failed after 11 years because it couldn’t secure reimbursement for its tests. He’s learned a lot since then and he was ready to impart his wisdom to his audience.

He should know. Over the past decade, Halteres has advised more than 150 diagnostic startups, small to mid-sized companies, large multinational manufacturers, clinical labs, their investors, and not-for-profit organizations.

Mickey Urdea

He based his talk on a recent study commissioned by the Bill & Melinda Gates Foundation to understand why diagnostic companies fail.

Taking on a professorial role, Urdea started off with an ancient quote: “The wise man learns from the mistakes of others, while the fool learns from his own mistakes.”

He went on to describe the study. Halteres evaluated 28 diagnostics companies, which were assessed and scored on how well they were doing. They defined three types of companies: successes, zombies, and failures. Successes had reached and maintained sustainability for at least three years. Zombies were continuing to struggle to become sustainable and Halteres considered them likely to ultimately fail. Failures, of course, had already gone out of business or had sold themselves for very little money.

The team also identified specific events in the phases of development that they believed triggered the eventual or probable failures. They also confirmed their findings through interviews with industry experts.

Urdea’s team defined five phases of development: design and concept; feasibility and planning; design and development; validation and launch readiness; and commercialization. Triggers for zombie status usually occurred in the design and concept phase of the commercialization phase—failure of its reimbursement plan. Failure triggers occurred in all phases of development, though mostly in the first phase—design and concept.

Urdea went on to discuss questions that his team asked at all stages of development while evaluating the companies. He and the experts interviewed agreed that the most important success factor is an experienced leadership team and a good understanding of the full ecosystem for the intended product, including understanding the end-use customer.

He urged entrepreneurs to come up with use cases for their intended products to figure out best-case scenarios, and to develop story boards to map out all scenarios where the product could be useful and the steps that would need to be taken by an end-user. He also discussed developing target product profiles (TTPs) and risk and mitigation plans.

Finallly, Urdea drew from his business experience to discuss business modeling of diagnostic products and answered questions from the audience, which were many.

One audience member asked him what the best argument was that he could give to a VC to get funding. Urdea answered that he would need to articulate his product/idea’s value so that people will want to pay for it.”

QB3 graciously provided delicious sandwiches, chips, and drinks for attendees.