Six years after arriving in Tucson, Accelerate Diagnostics is living up to its name in more ways than one.
The company has grown rapidly as it has rolled out its new system to identify bloodborne pathogens and help determine their best antibiotic treatments.
Accelerate, which was lured to Tucson from Denver in 2012 in an effort spearheaded by Pima County, now employs about 180 people locally — far more than required under a lease deal with the county — and has nearly 100 more in field sales and in its European operation based in Spain.
The company has not only taken over an entire floor of Pima County’s Herbert K. Abrams Public Health Center at 3950 S. Country Club Road, which houses manufacturing and well as development and administrative functions, but it has moved into an expanded annex and is already looking for larger quarters.
And though its long-term success is not yet assured, Accelerate is selling its flagship diagnostic instrument to hospital labs worldwide and expects to be cash-flow positive in the next couple of years as sales ramp up, CEO Larry Mehren said.
“Our sales process is great, our instrument is fantastic. It’s demonstrated that it’s saving lives over and over and over again, which is really, really exciting. It’s now being used by hospitals around the world,” Mehren said.
A native of Tucson and a University of Arizona alumnus, Mehren is no stranger to the diagnostics business, having spent five years in senior management at Ventana Medical Systems before leaving to invest in Accelerate’s predecessor company in 2012.
Oro Valley-based Ventana was founded by UA pathology professor Dr. Tom Grogan in 1985, and after becoming a market leader in automated tissue diagnostics, it was acquired by Swiss drug giant Roche in 2008 for $3.4 billion.
Accelerate seems to be following a similar path in developing new, rapid diagnostics to improve patient care.
WINNING FDA APPROVAL
Accelerate’s Pheno system and PhenoTest BC kit, which won marketing approval from the U.S. Food and Drug Administration in February 2017, can identify a range of bacterial pathogens found in blood and automatically test them for their susceptibility to antibiotics, as well as optimal dosages, using a proprietary imaging technology.
The Pheno system can cut the turnaround time of identifying blood pathogens to about 90 minutes and antibiotic testing to about seven hours, compared with one to two days more for conventional methods, the company says.
That can save precious time by getting patients on the right antibiotic as soon as possible, while avoiding the potentially toxic side effects of the wrong antibiotics.
“We can get that patient on the right antibiotic in just a few hours, where before it would take days,” Mehren said.
While shifting its focus from product development to manufacturing and sales, Accelerate has seen revenues climb, but it has yet to turn a profit and is still burning through cash.
This year through the second quarter, the publicly traded Accelerate reported that revenues more than doubled from last year to $2.5 million, with 430 instruments now placed under sales or evaluation contracts in more than 100 hospital labs across the U.S., Europe and the Middle East.
However, the company posted a net loss of $44 million in the first half of this year, up from a loss of $30.6 million in the same period last year, as Accelerate spent more to build up its sales force and research and development costs rose as the company works on a new test for pneumonia.
Even at the “burn rate” of some $15 million a quarter, Mehren said, the company has plenty of cash to see it through to a positive cash flow within a few years.
Accelerate netted about $100 million in a private placement of convertible notes — debt instruments that can later be converted to stock — with institutional investors earlier this year.
“It looks good for us to turn the corner with the cash we have on hand,” Mehren said. “We should see a very significant ramp up in sales over the next 18 months and that will also decrease our cash burn significantly.”
So far, Wall Street has given Accelerate a mixed response. The company’s Nasdaq stock has traded recently at about $23 per share, or about in the middle of its 52-week high and low.
But many investors are still betting Accelerate will fail, as about 42 percent of the shares outstanding are deemed to be owned by short-sellers — investors who borrow shares and hope to replace them later when share prices drop, pocketing the difference.
GOING TO MARKET
In the marketplace, Accelerate faces competition from existing diagnostics companies, as well as some emerging companies developing fast antibiotic susceptibility testing.
Accelerate counts among its competitors on the antibiotics testing side, diagnostics giants Becton Dickinson & Co., France-based BioMerieux, Danaher Corp. and a subsidiary of Thermo Fisher Scientific.
But those companies use forms of gene-based testing to check for antibiotic suitability, and none are as fast as the Pheno system, Accelerate says.
The initial Pheno BC test kit can automaticaly test for 17 blood pathogens, including bacteria like E. coli and streptococcus and two yeasts, and test the their susceptibility to an array of about 20 antibiotic drugs.
The Pheno system uses a process known as fluorescent in situ hybridization (FISH) to tag and identify pathogens and a technology known as morphokinetic cellular analysis to record images processed through special software to track each pathogen’s response to different antibiotics.
“The Pheno really has no competition right now — it’s groundbreaking technology,” Mehren said.
Company and external studies have shown the Pheno system accurately identified pathogens better than 95 percent of the time, with antibiotic testing accuracy similar to established methods.
But converting customer interest to sales has been tough as it’s hard to get hospitals entrenched in established test systems to commit to the Pheno system. Each instrument costs about $60,000, with test kits running in the hundreds of dollars apiece.
In Arizona, Tucson Medical Center helped Accelerate test the Pheno system and has adopted the device. Banner–University Medical Center Phoenix was a clinical site for the study submitted to the FDA, said Andrew Chasteen, communications director for Accelerate.
Company officials hope a randomized clinical trial of the Pheno system by UCLA and the Mayo Clinic that is enrolling patients later this year will help document improved patient outcomes like reduced deaths, as well as show lower costs from shorter hospital stays, boosting sales.
INVESTING IN GROWTH
Meanwhile, the company is still running out of room after expanding from a 15,000-square-foot space at the Abrams Public Health Center to occupying all 50,000 square feet of the fourth floor and expanding into an adjacent annex.
And the company plans to open a separate lab to use as a reference lab for clinical trials, Chasteen said.
In Accelerate’s biosafety lab, 141 Pheno systems whir and hum as researchers work on the pneumonia test kit, which is expected to undergo trials next year.
Mehren said the company is having an easier time recruiting talent from out of town, while the UA provides a valuable pool of job candidates.
The lab is run by team leader Justin Towne, who got his cellular and microbiology degree and a masters from the UA and started working for Accelerate right out of school in 2013.
“I came from the veterinary side, but it’s the same principle, only the client is different,” he said.
Mehren said the county’s investment in luring the company, which included about $2.5 million in lease breaks and building improvements, has paid off.
By this time under its agreement with the county, Accelerate was supposed to have 65 employees with an average annual salary of at least $63,000 per year, while the 180 current employees earn on average $80,000, or $140,00 including stock compensation.
The company has paid $4.7 million in rent to Pima County and has invested another $4 million in facilities, and with wages the company figures it has returned the county’s investment fourfold, Chasteen said.
“It’s exciting that we’re doing something that is causing some growth, and God willing, we’re going to be a very large company here,” Mehren said. “As long as the business climate remains the way it is and as long as we can continue to recruit here, we’ll continue to locate almost everybody here.”
“Our sales process is great, our instrument is fantastic.
It’s demonstrated that it’s saving lives over
and over and over again.” Lawrence Mehren, Accelerate’s chief executive
