MedCity News Q&A: Meridian Bioscience CEO Jack Kraeutler

By Mary Vanac

CINCINNATI, Ohio — Over the years, Meridian Bioscience Inc. has gotten good at making diagnostic test kits that detect bugs like C. difficile and H. pylori, both bacteria that can wreak havoc in the digestive tract — or worse.

The longtime Cincinnati-based life sciences company also knows a lot about testing for upper-respiratory infections, antibodies in the blood, and even for parasites and fungi, as well as supplying big laboratories with the proteins they need to do their work.

Now, the company that sells most of its tests to hospitals, reference laboratories, research centers, doctors’ offices and veterinary testing centers is getting into molecular testing — tests that are so sensitive they can spot a single bacterium or virion in a tiny sample.

CEO Jack Kraeutler talked with MedCity News about the promise of this new generation of diagnostic tests — and potential acquisitions – for his company.

MedCity News: In January, Meridian Bioscience started clincial trials of its molecular test for C. difficile, which like other future molecular tests will will go by the brand name “Illumigene.” What’s the development strategy behind this new platform technology?

Jack Kraeutler: As we move into molecular, there are a couple of detection goals that we have. One is, if it’s a single-point detection, let’s say you’re looking for a virus, that uses a simpler technology. Now, if you’re looking for a virus or a bacteria that might be resistant to a particular drug, now you need to have multi-analyte capability. With the current generation of Illumigene, you could do multi-analyte testing, but it would require two different tests. In the future, we’ll be able to do it in the same test.

MedCity News: So what’s the market opportunity for Illumigene?

JK: For us, the ability to go into molecular gives us, not necessarily a displacement technology, but a technology that augments all of the immunoassays that we sell. The first platform of C. difficile – and that’s the one we expect to launch later this year — is capable of producing somewhere in the range of $10 to $20 million annually. The second generation of Illumigene, which will probably start to go into clinical trials later this fiscal year, should be able to do even more than that.

MedCity News: Is Illumigene part of the medical industry’s move toward personalized medicine?

JK: Many of the most rapidly growing tests are the ones that can be done in 10 or 15 minutes. Most people tend to think of these tests as doctor-office tests. But when you’re dealing with acute diseases, hospitals need to be able to run these tests 24-7 so the right therapies can be selected. That happens to be a type of personalized medicine in the acute-care market.

The interesting thing about Illumigene is that most molecular assays that are in the market are very cumbersome because they’re based on a technology called “polymerase chain reaction." With PCR, you have to raise and lower the temperature of the sample several times to amplify it so that it can be tested. It usually requires large pieces of capital equipment to do PCR.

Our product is run at a constant temperature, and it is simple enough to be run one at a time. There’s no capital equipment associated with it. So it does have a much greater reach.

MedCity News: Tell me about the amplification technology you licensed from Japan that enables you to run samples without thermo-cycling them.

JK: The technology was developed for oyster farmers who were concerned about norovirus contaminating their oyster beds. So they needed a very sensitive technology that would measure down to a single virion in a water sample. And they came up with the LAMP technology, it’s loop-amplification, and we’ve adapted it to human samples.

MedCity News: Now, sales of your current generation of C. difficile test were flat in the fiscal first quarter because of increasing competition. It strikes me that Illumigene could re-energize your test line for this bacteria.

JK: That’s actually been our history. We’ve been detecting C. difficile for almost 20 years now. Every 18 to 24 months, we introduce a new product. So, we’ve had about seven evolutions over the last 20 years. And this, of course, is a major step up. I think Illumigene is a platform that will change the perception of Meridian as being just a little kit company to being a company that is a player with advanced technologies.

MedCity News: What are the major challenges that Meridian Bioscience will face in 2010?

JK: One of the nice things about the business is because it’s built around infectious diseases, it doesn’t ebb and flow because of economic conditions. And in virtually every case, our products help the patient get better faster with the right therapy. So it’s a stable business.

What’s impacting us today is so many companies have tried to go for the high-volume diagnostics. They’re beginning to open their eyes to see our space, which has largely been populated with Meridian and three or four other companies.

The problem is, the technologies these other companies want to bring into our space are extremely expensive. My worry is these companies are going to do stupid things in terms of pricing their products and other taking market share other ways. And it’s going to be disruptive. But this is a fast-moving business, and we can deal with it.

MedCity News: What are the biggest opportunities your company has this year?

JK: One is to increase sales outside the United States. For the first quarter, for example, our international sales were up 17 percent, which was a good number for us. Our international sales increases had been running around 9 or 10 percent. We think we can increase international sales by fine-tuning some of our distributor partnerships. We made some changes in Canada, Australia, Argentina and Israel recently. We’re looking at two other markets.

We also have new product lines, like one that tests for the bacteria that causes most stomach ulcers, H. pylori. And food-borne infections like E. coli and Campylobacter are emerging markets for us that are growing very fast.

There is no silver bullet. This year is about balanced opportunities and making sure that we maximize those opportunities.

MedCity News: Your company has zero debt. What gives?

JK: Any time that we’ve raised debt or borrowed money, we’ve paid it off quickly. And that makes us a shopper this year. We are looking for opportunities. But because we’ve got a financially efficient business, we’re not going to buy something and make our shareholders wait three years for the payback. It has to be accretive in the first year.

MedCity News: Is there a certain type of company that you’re looking for?

JK: We’re looking at businesses that we can bolt into our life sciences business. To make it clear, our life science business is one that supplies the biggest automated diagnostic companies like Abbott, Roche, Johnson & Johnson with their essential proteins. So it’s a limited customer market, it’s a highly technical sale, and the more components and biologics you can offer them, the better that business will grow. So, small, private businesses … $5, $10, $15 million in revenue are excellent bolt-ons for us.

And then there are a number of diagnostic opportunities, either carve-outs that are non-strategic for bigger businesses, or a number of smaller [firms], both public and private, that have been wandering for years and could use a good home.