3.6.8 Commercialization Plan

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Contents
Value of the SBIR/STTR Project, Expected Outcomes, and Impact
Company
Market, Customer, and Competition
Intellectual Property (IP) Protection
Finance Plan
F. Production and Marketing Plan
Revenue Stream

A. Value of the SBIR/STTR Project, Expected Outcomes, and Impact

Tree Star will develop a novel research technique that validates tools for the automated analysis of flow cytometry data in a clinical setting. The key objective is to develop computational algorithms that can with confidence identify populations of interest within flow cytometry data. Tree Star has collected data to assist in the diagnosis of two disorders targeted as candidates for the initial development and for deployment in Grant Phase III. Our objectives include establishing an efficient system of assessment of clients' needs and introduction of software into clinical laboratories based on that assessment. In addition, the consultation service will assist the user in complying with 21CFR Part 11 [72], HIPAA [73], and Health Level 7 [74] regulations to ensure anonymity, validity, and signature integrity.

The need is twofold:

Tree Star's commercial model consists of negotiating contracts for the installation of software analysis protocols in clinical labs currently employing procedures that are slower, much more cumbersome, more labor-intensive, and more expensive. Tree Star anticipates many new customers, not currently engaged in these tests, based on the ability to obtain high volume at low cost.

Benefits include increased speed, decreased cost, improved accuracy, and simplified regulatory compliance. Tree Star's early automation targets are SIV and Graft vs Host Disease. A Leukemia/Lymphoma panel was originally included, but was dropped from the project as the clinical lab was problematic to deal with. They have since released an analysis product in conjunction with one of our competitors.

Noncommercial benefits include lower health care costs in high-need areas in the U.S. and abroad, greater accuracy, and reduced physician time. Tree Star also anticipates that users will appreciate software that assumes more of the regulatory burden of diagnostic work.

Tree Star has produced a mature and very successful data analysis program specializing in research cytometry. As we refine it and add features reflecting developments in the field, we look for opportunities to exploit our software as experience. It is a logical progression in Tree Star's development as a company to assume the challenge of the more technically demanding clinical tools.

Technology Niche Analysis
Tree Star took advantage of the NIH-funded market niche analysis program conducted by objective third party, Foresight Science & Technology. The FST website states, "We offer... a market research report and mentoring [to] prepare for commercialization and introduces you to potential lead customers and Phase III partners."

The Foresight Science & Technology report included these assessments:

Even with a very conservative assumption regarding our probable market share, their forecast in the first years exceeded our estimates by an order of magnitude. We agree that the market is large but admit it will take several years to make the process efficient.

The report from Foresight Science & Technology was highly favorable toward a software product that sped up often-repeated analyses while reducing the labor cost of performing them. The fact that Tree Star was the one attempting the process increased their assessment of the possibility for success.

B. Company

Tree Star began as a software company in 1989. The founder, Adam Treister, developed a number of applications devoted to interactive data analysis and display. His work in Stanford University’s Information Technology department led him into contact with the Herzenberg Laboratory, where modern flow cytometry originated. There, he and Dr. Mario Roederer collaborated on the creation of FlowJo. As the utility and power of cytometers quickly evolved, there arose a need for a more powerful and user-friendly analysis program. Tree Star licensed the rights from Stanford, finished the first commercial release, and for over fifteen years has been refining the analysis tools in cytometry software. The development of FlowJo’s graphical user interface, experiment-based modeling, and automated compensation have made polychromatic flow cytometric data analysis practical.

FlowJo made its debut as a commercial product in 1996. Its novel structure, breadth of features, and ease of use have made it the de facto leader in the field. Since then, Tree Star, FlowJo, and flow cytometry have grown rapidly in parallel.

Tree Star has no previous history of federal funding, prior to Phase I of this grant. Adam Treister was an investigator on R01 EB-005034-02, “Innovations in Biomedical Computational Science and Technology,” a four-year grant creating ontologies and open data standards for flow cytometry.

Tree Star’s sales are almost $5 million this year, coming entirely from FlowJo. It is widely accepted as the most sophisticated and powerful analysis tool in the field and dwarfs all other software, including those from Becton Dickinson and Beckman Coulter, in key immunology journal citations. Users buy multiple licenses and routinely pay for the latest upgrades as they are announced. FlowJo has been introduced into most major research laboratories and is currently licensed to over 10,000 users, including site licenses at National Institutes of Health, Stanford University, UCSF, Emory University, University of Pennsylvania, Amgen, and Genentech. FlowJo continues to show strong grow potential as cytometry continues to grow, as it starts to penetrate the Windows market and commercial labs, and as its presence expands internationally. We still have no director of marketing. All of our field representatives (application scientists) have extensive experience in cytometry, though none has training in Sales. We have built it, and they have come.

FlowJo’s growth from 1998 to present follows an enviable growth curve. The 2009 revenues have already exceeded those from all of 2008. We are seeing ten to fifteen percent annual growth in the worst economic conditions imaginable. Compared to the cost of reagents and instrumentation, software is a small expense and is recognized as critical to the efficiency and productivity of any laboratory.

The best quantitative data to predict success in the project is our quarterly sales:

Figure 1: This graph shows twelve years of sales and projected growth in three areas:
The blue RESEARCH line represents continued growth in the current research market.
The yellow CLINICAL line projects earnings from repeatable, automated clinical protocols.
The red SUPPLY line shows the addition of the income from partnerships in the reagent market.

Tree Star’s goal is to leverage our strength in the research market, combined with the new tools and techniques coming out of FlowDx, to build a presence in clinical cytometry equivalent to our position in research. Because there are comparable numbers of instruments in clinical and research cytometry, and the unit price is higher for clinical software, equal penetration will more than double sales revenue.

The biggest commercial potential is in using the information generated for analysis to automate the supply chain for antibodies. We are building a database to collate vendor catalogs, and a way to create orders directly from FlowJo’s protocol creation tools, both of which will debut in FlowJo in 2010.

C. Market, Customer, and Competition

The potential market for automated clinical testing is large. The Centers for Medicare and Medicaid database of all legally operating licensed clinical laboratories in the United States contains 33,674 laboratories. Howard Shapiro estimates the number of flow cytometers in active use in the US to be 15,000.[64] Of these, perhaps half are engaged in clinical use, where they perform multiple types of testing, predominantly T-cell counting and typing, and Leukemia/Lymphoma panels.

Potential customers are research directors and laboratory directors at clinical and hospital labs engaging in, for example, toxicology, immunology, virology, and oncology. In every case the acquisition and analysis of data is a big expense. A large reduction in the analysis time and cost represents an opportunity to serve more patients.

The difficulties in this marketplace are centered on the compliance regulations. Each laboratory will have a distinct hardware configuration within which the installation of FlowDx product and process will have to be customized. The precise test configuration preferences of each client also will have to be accommodated within the software. Tree Star anticipates a period of customization with each client to hammer out solutions for these variables.

Competitive Landscape
Two large companies dominate flow cytometry. Becton Dickinson has the biggest market share, followed by Beckman Coulter. Each instrument manufacturer produces instruments, reagents, and software. They all have basic analysis functions, but these functions mainly support data acquisition. None are competitive with FlowJo’s capabilities, and each manufacturer routinely bundles FlowJo with their hardware according to specific customer requests. Importantly, both have large sales forces and the resources to distribute and support software around the world.

In addition, there are two other competing analysis packages: WinList (Verity Software) and FCS Express (DeNovo Software). A handful of regional products from Europe and Australia have appeared, but generally without US operations, they struggle. FlowJo has carved out its niche in the research market. It outsells the others. Each of the others has characteristic strengths. Each has features aimed at the clinical market. FCS Express has added logging and authorization functions specific to the clinical market. WinList has recently added database functionality, which specifically is of use to the clinical user.

FlowJo was Macintosh-only for many years, ceding the PC market to the others. This included the clinical market, as it is biased toward PCs. FlowJo in Java is cross-platform and making inroads into this market. None of these applications provides automated gating. FlowDx will stand apart from them for its customized, research-validated automated gating, and FlowJo will provide the access to the users.

D.Intellectual Property (IP) Protection

Tree Star made the specific decision to release the new process as open-source, so that scientists can see into the software and satisfy questions of validity and so that interested parties can use and extend the technique. No IP protection is foreseen. This is compatible with Tree Star's marketing plan. Tree Star will not generate revenue from selling the secrets hidden in the software code but will adapt its toolkit to each laboratory’s specific needs.

E. Finance Plan

Tree Star does not anticipate the need for outside financing. Tree Star's current cash flow is sufficient to cover the potential deficits of this new project. It is the nature of software to be inexpensive to create and distribute. Almost all of the expenses come from expert labor developing the intellectual property. In this case, Tree Star is developing the intellectual property with half-time effort of all key company personnel and will have paying customers to proceed to Phase III development. A signed contract with those customers is part of the Phase II milestone, Initial Operational Capability. [63]

F. Production and Marketing Plan

Tree Star has established a web site at FlowDx.com. We maintain this site, TreeStar.com, MyCyte.org, and FlowJo.com through a combination of contracted third-party service provider agreements and several staff members.

Standard security policies and procedures will be used to ensure the integrity of the information and code made available from this web site. Members of the community who download code will have an opportunity to register with Tree Star; downloaders will receive notification of updates and important bug fixes. There may be a BBS or other method available for users to communicate with Tree Star and their peers.

Our group of six field representatives (application scientists) and the FlowDx web site will be the primary source of new leads and, combined with the FlowJo client base, will promote the custom automated analysis services.

G. Revenue Stream

The Foresight report estimated 44 sales at $20,000 per client, or $880 thousand in the first year of release, based on 1% of expected cytometer unit sales and growing to 3% penetration (over $4.1 million) in annual sales over five years. That would be a huge incremental gain for a company our size.

Phase III funding will come directly from end-user service contracts. We currently have consulting clients who pay $1,000 per day for design analysis templates. They'd pay double that rate if the final solution were automated and reduced the labor cost of a test. Tree Star projects a successful application scientist billed at $250 per hour could generate $400,000 in annual billing, and another $200,000 in project management, support, and infrastructure costs. This represents the escalation from off-the-shelf software, to higher-end customized solutions, which is an important step in Tree Star’s business strategy.