NEW YORK – When Jack Phillips joined Accelerate Diagnostics six months ago as chief operating officer, he declared his intentions to tackle two major problems that have dogged the firm since launching its Pheno bacterial identification and antimicrobial susceptibility testing instrument.
The firm has faced challenges convincing customers of the clinical and financial benefits of the testing, and it currently takes up to a year to set up the instrument in a lab. Also, because Accelerate switched to reagent rental as the primary means of placing Phenos, that means there are no revenues generated until a lab starts requiring consumables.
Phillips, who became the CEO of Accelerate as of earlier this month, reported in a call to recap the firm's earnings on Thursday that Accelerate is making progress on these fronts.
It has just rolled out a return-on-investment tool to its sales team and has some new strategies for improving the "go-live" time, as well as for expanding sales in the Europe and the Middle East. It is also applying for a New Technology Add on Payment (NTAP) from the Centers for Medicare and Medicaid Services, and working out the details of getting a CPT code for its testing.
Steve Reichling, Accelerate's CFO, noted on the call that 85 percent of its customers take advantage of the reagent rental program, so instrument revenue was a small part of growth in 2019.
Overall, Accelerate Diagnostics placed 304 Pheno instruments in the year, with 137 placed in the fourth quarter alone. The bolus at the end of the year has actually been a chronic issue, causing executives anxieties until the last minute about whether the firm would meet its guidance each year. Phillips has previously said he would smooth this out by rejiggering the compensation plans for salespeople.
Pheno instruments currently running testing produce a reliable stream of approximately $45,000 annually in consumables revenues, Phillips said. However, of the 419 total instruments it has placed in the US, there are only 164 that are live and generating revenue. There are 255 contracted instruments "at various stages of the go-live process," Phillips said.
The team anticipates improving this go-live process. It has described as much as 12 months to get the instrument validated on-site for every target at complex multi-site locations. Phillips said the current average is nine months. But Accelerate has launched a new program called the "Pheno Implementation Experience," which it expects will standardize the process.
A pilot launch of parts of the program "received great customer feedback, with reduced time to go-live results," Phillips said.
Phenos at multi-site institutions have been particularly slow to come online, "because there are so many more decision makers, [and] having alignment of testing across five to 10 institutions is much more complicated than one single site institution," Phillips said.
To speed up the process at those sites, the firm will add more project managers in the project planning and customer readiness stage, and more resources for the validation and verification stage. In essence, being "much more organized, by preparing much more in advance for the go-lives and then executing as an aligned team," Phillips said.
"The signs that we've seen from the Q4 pieces of this program that we've launched are absolutely showing some good signs of helping us to be more effective and efficient at getting customers live," he added.
The firm's longer-term goal is now six months until an instrument is ready to run testing at a new site, and Phillips said the sales team compensation structure has been arranged to incentivize go-lives, as well as consumables revenue, and to deliver results "every week, every month, and every quarter," rather than all by the end of the year.
For the backlog of 255 contracted instruments, Reichlingsaid those sites were contracted to what their annuities will be "and they're in line with that $45,000" estimate annual consumables revenue.
To place additional Pheno systems, the sales team generally confronts what Philips described as a "complex and multilayered hospital decision-making processes."
He said that he visited a number of customers recently and noted that microbiology labs still run diagnostic tests that were developed a century ago. "Because they've been doing a lot of the same testing that they've been doing for 100 years, it's also very cost-effective, and so the budgets are very tight in microbiology," he said.
In order to get the lab on board with a transition to new, more expensive technology, Accelerate needs to frame it as an investment. "That's why it's so important to have a [sales] strategy that brings in real outcomes tied to return on investment, and tying that to the actual economic impact as well."
To address this, Accelerate developed a ROI tool, and trained its entire US sales organization to use the tool this month. The tool pools clinical and economic outcomes data obtained from current Pheno users. It models a customer's expected results using data specifically from health systems similar to a potential customer's own, in terms of size and patient population, and the tool generates estimates for potential customers of the benefits they might see if they adopt the system in terms of patient health outcomes health system costs.
The firm recently closed a deal with a five-hospital system in the Northeast in part by using this tool. He declined to name they system, but said it has five distinct microbiology labs. "These are very complex sites and the strategic selling process is extremely complex as well," he said.
After about a year of interaction, the sales process started to gain traction when the ROI was brought online, Phillips indicated. This enabled the stakeholders to "clearly justify how Pheno will have an outcomes impact for their patients, and also a financial impact for their institution." Over the term of this particular contract, the firm anticipates it will receive more than $1 million in revenue, once the rented systems go live.
Phillips also noted that Accelerate's US commercial strategy will ramp up its reliance on so-called customer advocates going forward.
"In my experience, the low-hanging fruit [of sales growth] arises when you reach a critical mass of enthusiastic customers, who, armed with data, begin to actually sell for you." Advocates are starting to talk about Pheno and the impact it is having on their institutions and the patients with their colleagues, "and that has been a major benefit to the overall strategy, and will be a big part of our momentum in 2020," Phillips said.
Accelerate also hopes to drive revenues in the future with a few other new strategies.
It is directing an eye toward growth internationally in Europe, the Middle East, and Africa (EMEA), and China. It has contracted 165 instruments in EMEA to date, a majority of which were placed through distributor channels, "So, we have limited visibility into their revenue-generating status," Phillips said. Still, the firm has been undertaking a plan of re-locating already-placed instruments to sites in EMEA that are seeing more throughput to improve revenue streams.
In China, Accelerate is in the process of registration and clinical trials. "We were recently notified that a registration has been delayed due to government resources being diverted to address the coronavirus outbreak," Phillips said. That said, the firm expects China to be a significant market in the future because the sepsis challenge in that country exceeds that of the US due to rates of antibiotic resistance that are twice as high, he said, combined with a large population and the government's focus on healthcare investment.
Accelerate has also submitted for an NTAP — which would enable CMS-participating sites to apply for 65 percent reimbursement on Pheno testing — but did not bake the potential revenue increase into projections for 2020 of $16 million to $18 million in revenues.
Phillips said he expects the summary of the NTAP application will be published for public comment approximately in April, with a decision possible in August, and NTAP codes implemented on Oct. 1, 2020. Last year, T2 Biosystems,a competitor of Accelerate, became the first diagnostics firm to be granted an NTAP, so there is precedent.
Accelerate has also secured a CPT code for its Pheno bloodstream infection test and is working with Medicare Administrative Contracors for different regions to establish payment, Phillips said, adding that the process is ongoing and that the firm just had a meeting with all the MACs a few weeks ago on the West Coast.
Sepsis testing tends to be done on very ill, hospitalized inpatients, but the firm still estimates roughly 10 percent of patients are tested in the ER setting, and therefore might not fall under the standard DRG reimbursement and require a CPT code for reimbursement.
Phillips also provided an update on the pipeline for Pheno and a next-generation Pheno 2 instrument.
In 2020, the firm expects to add several new antibiotics and features to its current blood test kit.
"These new drugs are important de-escalation agents that further differentiate us from old-line AST providers who are often slow to add new drugs to their panels," he said. Additionally, the firm's respiratory test kit continues to advance as its prepares for clinical trial testing.
Pheno 2 will be a "low-cost, high-throughput, next generation platform," Phillips said. Currently, feasibility is being established on several sample types, including direct positive blood and urine, he said.
To lead these R&D efforts, Parampal Deol has replaced Andrew Ghusson as head of R&D, after the latter retired. Deol had been senior director of microbiology R&D at BioMerieux, responsible for new product development related to the identification of microbial pathogens in antibiotic susceptibility testing. "She is one of the foremost experts in ID/AST, and we are absolutely thrilled to have someone of her caliber leading our research and development efforts," Phillips said.