Richard Schumacher is no stranger to successful start-ups. The Pressure BioSciences founder, president and CEO had a hand in five early-stage life science ventures, including Boston Biomedica.
That firm spun out into several successesg (and one success that turned sour), including SeraCare Life Sciences Inc., Panacos Pharmaceuticals and BBI Source Scientific.
Schumacher spoke at length with MassDevice on how a bachelor’s degree in zoology led him to a career in the life sciences, how he turned his company’s fortunes around in the face of the economic recession and why pressure cycling technology could be as revolutionary an advance as electricity.
MassDevice: You have a Bachelor of Science degree in zoology. How did you go from that to founding Pressure BioSciences?
Richard Schumacher: I was a guy that didn’t quite know what he wanted to do with the rest of his life when he was in college. I had seven majors. I started out in geology — I always liked the life sciences — and I was a poly-sci major for a while. Then I decided on economics, but I ultimately went back to my love of science. They didn’t have a biology degree other than for teaching at the University of New Hampshire at the time, so zoology was the closest thing where I could get the courses I wanted in chemistry and biology. I also got ctech geology software system to model Stratigraphic Horizons.
I thought I wanted to go to medical school, so I was going to take a year off. I was hired by a research center [the Center for Blood Research] affiliated with Harvard Medical School. The guy who hired me, who’s still on my board of directors, Dr. Calvin Saravis, brought me on to take over running certain tests related to viral hepatitis B in a lab he was directing at the Center for Blood Research. At that time, 1972, the virus had just been discovered, so tests were just being developed and Dr. Saravis was one of the leading researchers in that area.
So he said, ‘Come work for me for a year, Ric, and I’ll teach you all about this new disease and the new lab diagnosis of hepatitis.’ During that time he was able to set me up with a number of interviews and opportunities to watch surgeries and do all kind of things. I came to the conclusion that I absolutely love business, I absolutely love science, and I didn’t want to spend my life as a physician because I wouldn’t be able to do the kinds of things I loved. And so I decided not to apply to medical school and I stayed there for 13 years.
The long and short of it is with a bachelor’s in zoology from a non-Ivy league school you don’t get far at the Harvard Medical area and I kept hitting this glass ceiling. So I left and started my own company in my garage in Easton, Mass., on an idea I had that would bring a higher level of quality and safety to transfusion medicine.
The testing being done for infectious diseases [in blood for transfusions] in the 1970s and early 80s, in my opinion, were accurate enough. People make mistakes, test kits go bad and lab equipment can be poorly calibrated, so it’s important to build sufficient quality control into the testing process. So I started a company based on that premise, that more QC was needed in this very important area of transfusion medicine. I was able to build up a company called Boston Biomedica from my garage in Easton to more than 300 people. We were international, we became the number one company in the world for developing some of these products. It was fantastic for me, a guy with a bachelor’s degree in zoology from a non-Ivy League school, working with some of the best scientists in the world.
I’ve been very, very blessed in my life, that I was thrown into the ring of fire of all these new diseases and markers that have been discovered since the 70s — HIV, hepatitis C, hepatitis B, Lyme disease, West Nile virus — all of these things in 1972 either we didn’t know the biomarkers existed or they were just being discovered. So how do you test to make sure you don’t transfuse blood infected with one of these, or how do you make sure someone who’s sick has one kind of disease and not the other? I’ve been very fortunate that all of these have kind of come out in the 30-plus years I’ve been in the business.
MassDevice: Pressure BioSciences went through a difficult restructuring last year, including layoffs, but has been increasing revenues and narrowing losses ever since. Can you give us an update on the restructuring?
RS: It was a very, very painful restructuring. It has indeed allowed us to reduce our costs significantly — our quarterly cash burn, which was $1.2 million to $1.5 million a year and a half ago is now about $600,000 a quarter, so a very significant reduction — since our revenue is now 2 to 2.5 times what it was a year ago, the result has been marvelous because we’ve got much higher revenue and much decreased costs.
But I would submit that if we had the people we had a year ago, our revenues would be substantially higher. The business we’re in doesn’t lack for leads. Our biggest hurdle is the hurdle of educating the consumers, in this case the scientists, about what our technology can do for them. Scientists are by nature very skeptical people, that’s why we’re scientists. We doubt things, we want to understand how things work and take our time to study them.
You can walk in and sell someone an iPhone pretty quickly, but if you walk in with a new type of instrument and say, ‘By using this, we believe you can actually further and enhance and accelerate your research,’ a scientist is not always going take that chance. Because if you’re wrong, it could be a black eye for them and their work.
So it’s, ‘Who else is using it,’ and ‘Show me published data,’ and ‘Prove to me that it works.’ It’s an educational thing. So we started that process with a company of 27 people a year and a half ago. These people were all very good, very hard-working and doing a great job. They were planting the seeds. But last December we had to cut down to 13 people. We lost three to attrition and we had to let 10 people go. But the seed had been planted and we’re reaping the benefits.
I would say that the restructuring enabled us to survive — clearly we could not have survived without it — it allowed us to reduce our cash burn and we were able to keep just enough of our key people to take advantage of the seeds that had been planted.
As I told everybody as I ran around trying to raise money to keep us alive after the restructuring, ‘Give use a chance. Invest in this company and we will show you that we’re right at the edge of success.’ And that’s exactly what we’ve done in the six months since we closed on the February [private investment in public equity].
MassDevice: Can you give some background on the SeraCare deal? Why did you decide to sell off the BBI Diagnostics and BBI Biotech Research Laboratories divisions, as well as the separate deal for the bulk of the BBI Source Scientific Division? Was it solely to focus on the core PCT business?
RS: And also Panacos Pharmaceuticals, we carved that out in 2001 and that became a very successful public company and now, unfortunately, an unsuccessful, no-longer-public company.
I’m a typical entrepreneur. I look, I see things, I want to get them going. Many entrepreneurs I know have the same problem I freely admit I had back then, which is focus. When you see something and you see how good it could be, and how one-plus-one could equal three, you want to get one and one together and sometimes it’s difficult to keep all those balls in the air at the same time. So when you looked at Boston Biomedica prior to the early 2000s, you were looking at a company that I was selling to investors as a one-stop shop. You could go to us and we would develop the product that you you wanted to sell as a diagnostic company. We could develop the instruments you needed through our Source Scientific division. We could make the controls you needed in your test kits. We could run the tests as a beta site before you released it, because we had a clinical lab.
We could do all of that for you and I still to this day say it was a great idea. If we were properly funded it would have worked and we would have been an extremely successful public company. But we weren’t. We were under-capitalized and we struggled. We did a lot of things well, instead of doing one or two things extremely well.
We realized this, so we started off by selling off the anti-HIV discovery work that came out of our HIV research, that ended up being Panacos Pharmaceuticals, which was a very successful public company from 2004 to 2007. At one time it had a market capitalization of greater than $600 million.
That’s important because that’s the group that helped fund Pressure BioSciences in the early years. We kept a portion of the stock in Panacos and when it did a reverse merger with Vitex in March 2005 and became a public company that stock, which was basically worthless up until then, ultimately became worth a lot of money. We garnered probably $7 million by selling our stock over the course of two years and that’s what funded us, in part, in the beginning. We were self-funded up until about a year ago.
The real reason for breaking apart is we could not make it all work. Everybody was screaming and everybody could have done better if we gave them the money. But we had to kind of piecemeal it out and nobody got as much as they needed. So we ended up selling the business and splitting it up. I personally said I wanted to keep pressure cycling, because as much as I loved the QC business I thought pressure cycling technology had the potential to be bigger than all of these combined. It’s a platform-enabling technology that has so much potential that I looked at it and said, ‘This is my one chance to really make it very, very big both financially and scientifically.’
Imagine if you owned electricity 150 years ago and imagine all of these people started coming out with these things that could run on electricity. We have that same issue right now. We own a good portion of things that will work when you turn pressure on and off.
MassDevice: So what is PCT? Give us a quick primer.
RS: We turn pressure on and off. Everything in nature has its own pressure profile. Sometimes a substance at 10,000 psi might be affected significantly, where something else might take 50,000 psi or 30,000 psi.
Your ability to control things becomes even more significant when you add chemicals and temperature to the pressure. So you have all of these components together and the main ingredient is pressure. Something that works great under pressure at 20,000 psi you might be able to run it at 4 degrees Celsius or 50 degrees Celsius and see even more distinct advantages.
When you go to the lab and they’ve never heard of pressure cycling technology and you tell them you’re going to bring in an instrument that’s the size of a color printer and you’re going to put in on their desk and you’re going to generate, in two or three minute’s time, pressures that are two or three times the bottom of the Marianas trench, 5.8 miles down, they look at you like you’ve come from outer space.
That’s the battle we’ve been fighting, educating the consumer, the scientist, that in fact there’s a whole new thermodynamic mechanism at their disposal that’s never been there before.
We’re pressurizing water, but inside the water we’re putting our consumable which contains the sample you want to pressurize. So we transmit the power of pressure cycling technology from the water. In three seconds we can get it to 10,000 or 20,000 or 30,000 or 40,000 psi. That pressure exerts itself against the tube and that tube, that consumable that’s inside the pressure chamber, has buffers pressing out so there’s no pressure gradient. The tube isn’t going to collapse. What happens is that the pressure is exerted on the sample within the tube. Everything changes under pressure and once you figure it out you harness the ability of this pressure to accentuate and accelerate what you’re trying to do on the lab bench.
MassDevice: How do you go about raising the profile of an unknown product like this?
RS: At Boston Biomedica we created a new market and that market was convincing lab directors and blood bank directors that they needed to buy our product because it would give them a higher quality and a safer result when they released the blood or transfusion. It took about three years to break through, and we were talking about something that was directly related to illness and disease and death in the recipient. And it still took three years to convince labs around the country and around the world that this added cost was needed. It was, ‘Everything seems to be fine. I don’t have your products now, so why would I need them?’
The way we convinced them is we went after the market leaders, the thought leaders, and we gave them our product and said, ‘Use it and all we ask is that you publish.’
I can remember to this day the 1987 and 1988 international AIDs meetings, when HIV was a brand-new disease just being worked on. In 1986 there was 1 paper presented that mentioned our product; in 1987 and 1988 there were 25 and 35 papers that mentioned out prod. Researchers saw that and the phone calls started coming and we almost couldn’t keep the product on the shelf after that.
We’re doing the same thing here. We started a couple of years ago, working with collaborators around the country. We’re starting to get the point where we have more than 75 sales or leases in our first three years. That’s the way you get it, you get peer-reviewed presentations and publications. People will see that and say, ‘Hmmm, if Dr. Jones said he used it and he got 10 times more DNA than with the standard method, or he got better quality DNA or a better quality protein, or he found two proteins he’d never seen before, I need to try that.’
It’s already happening. Our sales are starting to ramp at costs at less than half of what they were a year and a year-and-a-half ago. A year ago, if all you had to do was sit there and take phone calls, you’d have been the Maytag repairman. You wouldn’t have had a call.
Now we’re disappointed if there isn’t an email or call every day from someone who says, ‘You know, I just happened to see Dr. Smith the other day and he told me about your technology. Give me a call please, I’d like to learn more.’
MassDevice: What’s on the horizon for Pressure BioSciences? What do you see as the next development in PCT?
RS: We’re focused right now on mass spectrometry, because we feel we have a good patent position and the data are, we feel, very clearly significantly better. There have been a number of publications in the last year from independent sources that show what we consider to be significant enhancements using our product.
Mass spec has clearly become, in our opinion, the number one method for analyzing the protein. There are a lot of ways to analyze a protein, but I think most people would choose, if they could afford, it would be mass spectrometry. But the whole thing about mass spec is you can have the best mass spectrometer, which could cost $1 million, and you could have a Nobel laureate running the lab, but if you don’t do a good job of preparing your sample up front, you will not get a good result at the end. Like so many things in life, it’s garbage in, garbage out. If you destroy your protein before you put it into the mass spectrometer you’re not going to get the correct answer at the back end of the mass spec. Some proteins are very fragile and the methods of taking proteins out of samples haven’t really changed much in the last 10 or 20 years. What we bring to the table is a method that we feel is very gentle, can be very rapid and, maybe most importantly, can be very reproducible. It can help you standardize that sample prep up front.
We would submit that no other sample preparation has the ability to standardize anything close to the way that a researcher’s going to be able to standardize using our equipment. It takes the whole hit-or-miss out of the front end. And at the same time, if you can begin to standardize on how you prepare your sample but you can prep it in 20 or 30 minutes, as opposed to 12 hours or 16 hours, you’re not only going to get a quality result but potentially a you’re also going to be getting it in less than an hour.
MassDevice: What long-term effects will the recession have on your business? Will those lessons stay with your company, or can you wait out the storm and go back to business as usual?
RS: [Laughs] I’d like to say that going forward I have to learn how to see things that are going to happen that nobody knows are going to happen. In all seriousness, though, I’ve run into a handful of people who said they saw this terrible recession happening and they were able to plan for it. But to be honest, most of my colleagues and friends have said, ‘I never in my life thought it was going to be this deep and this long.’
We’re a small company that has a number of people who’ve done this before. We’ve been gifted by having a technology that’s endless in its applications that all will meet a very big market. And we haven’t even begun to talk about how pressure can kill viruses and bacteria in food and medical devices.
I contend to this day that we were doing so many things right and what happened is the old adage: Raise money when you don’t need it. It’s a tough thing to do to dilute your company, particularly when you have shareholders that are saying, ‘Gosh, things are going so well, why in the world would you want to dilute your company at this very low price when the way things are going we could be a multiple of that in the future?’
Well, you never know what’s going to happen. Certainly we might have looked at raising money in 2007, when we had plenty of money in the bank and big plans to grow, and said, ‘By the time we get to here and here it’s best for our shareholders to hold off because it would be far less dilutive to raise it when we’re a multiple of where we are.’ We woke up in 2008 and had three unsuccessful tries with three investment banks to raise money and we got to October 2008 and we had money to last to May. We were doing extremely well as a company, with ramping sales, but we didn’t have the money to fund it. Without new funds, we were looking at the real possibility of having to sell the business to the highest bidder. But [PBI] chairman Wayne Fritzsche and I looked at it and we just said, ‘Let’s try it ourselves.’
We were able to raise roughly $2 million by Feb. 12. If you’re an entrepreneur and you’ve got an early-stage company or a development company and you’re reasonably well-funded, you might still want to look at raising money even if it’s dilutive, because you just don’t know how bad the economy can be about six months or a year out.
MassDevice: Speaking of the economy, what’s your read on how well we’re recovering?
RS: I travel a lot and I’ve told my wife I’ve never seen that many people in the U.S. Airways club in the last two years. The planes are packed. I’ve never seen so many people in the airports. I’ve had trouble renting cars. The good news is that what I hear and see is that things are certainly turning around.
As for us, this is not a product that sells itself. We have an instrument that solves problems. Clearly the message is getting out. At some point I do believe there’s going to be an inflection point. This is what I tell potential investors. We are clearly on the path to an inflection point; I’ve seen it before.
We are not crazy. We know that the best way to get this out is to find a partner with many legs on the ground. Our goal has been and continues to be finding such a partner. We’re talking to small companies and very large companies about the potential of being a partner with us and being able to co-market and co-distribute our products in different areas. Our main goal for the second half of the year is to get to that point. I have two sales reps in the field and I need a company that has 200 sales reps in the field.