A NanoLogix N-Assay Economic Analysis

N-Assay Economic Analysis Background Information


A rough analysis of the economic potential of the NanoLogix N-Assay technology is offered at the end of this post. The result is astounding and involves only the assumption that this technology can capture a 20 percent share of the US Group B Strep test market. The additional implications for the bacteriological test and treatment markets for Sepsis, Enterococcus, Gonorrhea, MRSA and several other infectious diseases expand the potential of the NanoLogix N-Assay test panels into revenue dimensions you can envision yourself. I have attempted to make the assumptions underlying the projections explicit but feel free to clarify or challenge aspects that you think need bolstering or that are wrong.

In the first two sections of the post rather than requiring the reader to go back to review prior posts I am trying to provide a sense of the truly advanced diagnostic technology the N-Assay represents based on research reports from Drs. Sebastian and John Faro. NanoLogix is incredibly fortunate to have been able to work with the testing and development of its “game changing” technology with two of the most highly regarded medical professionals in the area of women’s gynecological health and infectious diseases including Group B Strep, Sepsis and several others with critical needs for rapid diagnosis.

Part of the analysis highlights the seriousness of several bacterial diseases and infections in terms of their scale and severity of consequences. The numbers are high and of course this relates to the commercial and medical potential of the N-Assay system. Another key point is that rapidity of initial diagnostic results and greatly reduced period for determining the most effective type and dose of antibiotics to be administered patients. This gives the N-Assay a very significant advantage over existing diagnostic systems that in the case of Group B Strep means with the N-Assay GBS the complete diagnosis can be done in as little as 6.5 hours while with existing methods it generally takes three to five days.

Given the inherent conservatism of the medical field and the power and dominance of large companies in the market an extremely important development that is expected to rapidly increase demand for the NanoLogix N-Assay panels is that the Centers for Medicare and Medicaid will start withholding payment for certain Hospital Acquired Infections (HAIs). The Center for Disease Control states: “People getting medical care can catch serious infections called healthcare-associated infections (HAIs). Right now the CDC is focused on orthopedic and bariatric procedures for which infections develop but they will probably increase the denial of payment program to include caesarian and other gynecological services. This development is something that will generate considerably greater incentives for hospitals, HMOs and doctors to take significant steps to ensure the prevention of infections as well as the early detection and effective antibiotic intervention. The idea is to nip the infectious bacteria “in the bud” when it is most susceptible to focused treatment at the point before it develops into a serious (and non-reimbursable) event. The rapidity and accuracy of the N-Assay technology is precisely what is needed for this purpose.

An equally important fact that will drive the demand for the N-Assay panels is that for OB/GYNs the N-Assay is very important because they are the second most sued group of doctors in the US behind only neurosurgeons. This makes GBS screening very important due to neonatal morbidity and mortality. Even if those problems do not immediately manifest, the “down the line” consequences of untreated GBS during pregnancy involve a wide range of health problems as the child develops. A birth that seems normal can turn into a “horror story” for parents who find a developing set of severe and debilitating problems affecting their child. One of the first places they look will be the hospital, doctor and associated processes. Estimates suggest the average cost of treating a GBS-infected infant in a Neonatal Intensive Care Unit (NICU) is $30,100. But in Sebastian Faro’s judgment and based on his experience he estimates the cost is around $100,000. Plus most of the exposed children have significant problems with health over their lifetime.

The information below offers a sense of the great competitive advantages of the N-Assay, the potential numbers of uses and needs in the areas of Group B Strep, sepsis, Enterococcus (VRE), MRSA, Gonorrhea and several other areas of infectious bacteria that the Faros’ work has shown can all be successfully tested by means of the N-Assay panels. As indicated, I offered a “rough cut” of the earnings potential of the N-Assay diagnostic panels just in the US system and just with the Group B Strep infection. This is what I consider a conservative projection that assumes a 20% market capture for GBS diagnosis. Although I didn’t project anything for the other types of infections I listed them below the GBS analysis and may begin to put numbers on the categories and do some projections. But with the GBS N-Assay panels alone it is obvious that NanoLogix has incredible earnings and profit potential. In any event, have fun reading.

• Dr. Faro and his son Dr. Jonathan Faro are internationally respected experts on women’s reproductive health and have conducted research for more than three years with the NanoLogix, Inc. technologies, including a highly successful clinical test involving 356 women in the 35-37 week period of gestation at which the Center for Disease Control (CDC) urges testing for Group B Strep.

• They have expanded their research to include the NanoLogix N-Assay multi-well technology (N-Assay) and applied that technology not only to the area of Group B Strep (GBS) but have expanded the method to include the detection of other infectious diseases and conditions including sepsis, enterococcus, c. albicans, MRSA, c. difficile, and gonorrhea.

• This process includes the design of specific diagnostic “panels” (the N-Assay system with 96 individual “wells” on the panel)—each capable of being set to identify different bacteria. The N-Assay panels are of great importance in relation to sepsis and neonatal diagnosis for G BS and other concerns. The N-Assay multi-well panels significantly expand the utility of the methodology because the multi-wells allow an array of different types of infection to be evaluated simultaneously rather than sequentially.

• There is no other methodology that can come close to matching the N-Assay technology on a significant range of diagnostic qualities detailed in 2013 by the Infectious Disease Society of America. The Society stated that what was needed in order for a physician to have a positive impact on a patient’s care was a diagnostic test that produced reliable results in an hour. The reliability of the test and its functional utility in a variety of important settings depended on the results being:

• Accurate
• Composed of heat stable reagents
• Having an extended shelf life
• Was portable
• Low cost relative to other methods
• Suitable for diagnosis of a broad range of clinical samples
• Required minimal technical skills
• Was rapid
• Sensitive
• Specific for each disease for which it was being used
• Provided on-demand individual testing rather than being delayed for large batched pools in order to reduce expense.

• The N-Assay not only provides almost immediate (as low as thirty minutes) initial identification of potential problems with infection but also reduces the subsequent incubation period to only six hours during which antibiotic sensitivity and potential effectiveness in a patient’s treatment are accurately evaluated. This compares to the three to five days time requirement involved in the use of current technology for GBS. The rapid detection of antibiotic sensitivity allows the specific use of the most effective antibiotic to treat the infection. This is a vital step forward in terms of reducing the overuse of multiple antibiotics by medical professionals that has increasingly been resulting in antibiotic resistance for a number of the most widespread infectious diseases. Obviously it is also a major benefit to patient treatment and well-being.

• The N-Assay provides an unbatched, low cost, simple to use test. This is important from both a cost and diagnostic perspective because current cost considerations dictate that labs delay sample testing until they have a substantial batch of different requests. This occurs in order to reduce the cost to the lab of tests due to the expense of existing technologies. The N-Assay offers an immediate, better, and less expensive individualized test which avoids potentially harmful delays in diagnosis and patient treatment.

• The N-Assay technology is a “game changer” across a range of distinct and dangerous conditions of bacterial infections.

• The N-Assay test represents the future direction of bacterial medical diagnosis and the ability to deliver more effective treatment through targeted and precise antibiotic infusion. An important consequence of improved patient treatment is the avoidance of unnecessary and generic antibiotic treatments that may not help the patient, may have negative health effects and is likely to result in more rapid development of antibiotic insensitivity.

• There is a serious and growing problem of rampant antibiotic (AB) resistance caused by now almost automatic large scale generic infusion of antibiotic treatments that make up the treatment protocols in situations where a bacterial infection is diagnosed.

• The rise in AB-resistant strains makes it essential that antibiotic overuse is avoided because a result of overuse and imprecisely targeted AB applications is the rapid growth in resistance by microbes that adapt to medicines to the point of rendering them ineffective.

• Many doctors use antibiotics like they were “turning on a faucet”. (Presentation of Dr. Sebastian Faro at BioOhio)

• The problem entirely independent of the issue of AB resistance is that these are not simply benign substances but quite dangerous drugs that can have important impacts on patients.

• Current tests are simply not good enough to satisfy the Infectious Disease Society of America’s criteria. They are also ill-suited to help deal with the array of emerging challenges related to infectious diseases.


Commercial Implications of the N-Assay/BNF Technology


I. The “Numbers Game”:

1. There are at least 6,000,000 pregnancies annually in the US with 4,058,000 live births and 1,995,840 losses from various causes. This includes 1,200,000 abortions, 600,000 miscarriages, 64,000 ectopic pregnancies and 26,000 stillbirths. CDC 7/8/2014.

2. 14.5% of women experience one or more pregnancy complications, 7.7% deliver prematurely, 5.1% have low birth weight and 7.6% have inadequate prenatal care. CDC 7/8/14.

3. The Center for Disease Control (CDC) now recommends universal screening at 35-37 weeks of gestation. The screen is to determine the existence and degree of colonization of GBS due to the morbidity and mortality potential from the infection. The GBS infection in women beyond “regular” child bearing years (mid to late thirties included) represent a high morbidity and mortality potential further exacerbated by such other conditions as diabetes, HIV and other infectious conditions. More mature patients are therefore at greater risk and require screening to ensure that surgical outcomes will be improved.

4. Group B Strep Potential—US Premature Births: Another issue of significant medical concern is that ten percent (10%) of women deliver prematurely and this increases the morbidity and mortality (M & M) potential for the newly born infant due to their immune systems not being fully developed. GBS “M & M” is a particular problem in the very young and very old. For women who go into preterm labor there is a significant risk of the premature rupturing of membranes. These women are placed on an antibiotic mix but up to 60% of E-coli strains are resistant to ampicillin. The # 1 source of neonatal infection is E-coli.

5. The Alan Guttmacher Institute estimates there are 6.7 million US pregnancies annually and 208 million worldwide with 185 million of those pregnancies in the developing world. The AGI indicates 358,000 women die from pregnancy related complications with the vast majority of those in the developing world. The US leads developed countries in terms of the worst maternal mortality rate.

6. The World Health Organization (WHO) concludes: “The high number of maternal deaths in some areas of the world reflects inequities in access to health services, and highlights the gap between rich and poor. More than half of these deaths occur in sub-Saharan Africa and almost one third occur in South Asia.”

7. “The maternal mortality ratio in developing countries in 2013 is 230 per 100 000 live births versus 16 per 100 000 live births in developed countries. There are large disparities between countries, with few countries having extremely high maternal mortality ratios around 1000 per 100 000 live births. There are also large disparities within countries, between women with high and low income and between women living in rural and urban areas.” WHO.

8. “Improving maternal health is one of WHO’s key priorities. WHO is working to reduce maternal mortality by providing evidence-based clinical and programmatic guidance, setting global standards, and providing technical support to Member States. In addition, WHO advocates for more affordable and effective treatments, designs training materials and guidelines for health workers, and supports countries to implement policies and programmes and monitor progress. During the United Nations MDG summit in September 2010, UN Secretary-General Ban Ki-moon launched a Global strategy for women's and children's health, aimed at saving the lives of more than 16 million women and children over the next 4 years. WHO is working with partners towards this goal.”

9. Enterococcus (VRE) is one of the serious infections with which the N-Assay is able to provide very rapid detection. VRE affects 2,000,000 people annually. Estimates are that 23,000 people die from the infection each year. The CDC has classified VRE as a serious threat. It is a major threat in hospital acquired cases of VRE.

10. C. difficile causes diarrhea linked to 14,000 American deaths each year. Many others suffer from the infection. The N-Assay panel is also designed to detect C. dificile. Those most at risk are people, especially older adults, who take antibiotics and also get medical care.”

11. Sepsis infections represent an enormous volume of dangerous afflictions for which an N-Assay panel has been developed. Sepsis causes millions of deaths globally each year. Sepsis is becoming more prevalent because of antibiotic resistance plus it is very dangerous as a complication for patients. The severity of the sepsis “crisis” is highlighted by Anne-Marie Botek, “Sepsis: The Common Cause of Death You've Never Heard Of”, http://www.agingcare.com/Articles/sepsis-dead...153239.htm. She observes: “Caused by the immune system's over response to an infection, sepsis (also referred to as blood poisoning) is the most common cause of death in hospitalized patients in the United States. … If left too long, sepsis can escalate into a fatal condition, called septic shock, which is marked by extensive tissue damage and organ failure…. Anyone can get sepsis at any age. It can start off as a practically anything—a bug bite, a blister, a sinus infection—and escalate to extreme proportions in a matter of hours…. Despite the fact that it kills nearly 200,000 people in the U.S. every year, only about one-third of Americans have ever heard of sepsis.”

12. “The Surviving Sepsis Campaign (SSC) estimates that the incidence of sepsis is 3 per 1,000 worldwide. It is estimated that there are over 30,000 cases of severe sepsis in the UK every year. There is a steady rise in the number of patients with sepsis. Worldwide there are over 18 million cases per year. Because of its high mortality, sepsis is a leading cause of death. In the developing world, sepsis accounts for 60 to 70% of deaths per year. It kills over 6 million new-borns and children each year and there are over 100,000 cases of maternal sepsis. Each hour around 36 people die of sepsis and over 1.16 million people are affected annually in the US.” See, Dr. Ananya Mandal, “What is Sepsis?” http://www.news-medical.net/health/What-is-Sepsis.aspx.

13. The N-Assay Sepsis panel is very important because the sepsis infection may take several days to fully manifest. With hospitals and insurance providers establishing requirements that lead to quick discharges and short term stays for patients a patient may be released and then have to come back in several days later as fever, diarrhea and other serious effects increasingly set in. As reimbursement for Hospital Acquired Infections becomes more limited this raises not only a serious issue in patient care but a looming financial dilemma for doctors and hospitals.

14. Jim Kling, “C. difficile Infections Rising, deaths Leveling Off”, Medscape Medical News, 9/12/2013. “Rates of Clostridium difficile infection (CDI) nearly doubled in a decade in US hospitals, results of a new survey show. The diarrhea-causing bacteria, which often occur as a complication of treatment with antibiotics, affected about 2.2 million people during a 10-year period…. The median age of the 2.2 million hospitalized patients with CDI was 75 years (interquartile range, 61 - 83)…. The median hospital stay overall was 8 days (range, 4 - 14), but it was shorter for patients with a primary diagnosis of CDI than for patients with a secondary diagnosis….The mortality rate peaked in 2003, at 8.7%, and hit its lowest in 2009, at 5.6%. The overall mortality rate for the study period was 7.1%, but it was lower for patients with a primary diagnosis of CDI than for patients with a secondary diagnosis… he increased incidence is a concern. "The study gives clinicians and researchers an idea of the burden of disease in our hospitals, which can help to push forward implementation of prevention initiatives and public policies that can help reduce the incidence of these infections. There's more work to be done on prevention," said Dr. Daniels.”

15. There are 800,000 new cases of gonorrhea annually in the US and 246,000 of them are drug resistant. The cost of treating “primary” gonorrhea is over $250,000. Gonorrhea infections run at a rate of over 800,000 per year and early detection and rapid intervention with the most effective and targeted treatment protocols is vital, as is informing affected individuals about the condition to avoid further spread. Gonorrhea is an immediate public threat the CDC has indicated requires “urgent and aggressive” action.

16. MRSA is estimated to result in 20,000 deaths each year and this is only the “tip of the iceberg” in terms of the number of people who need to be tested for the infection. MRSA infections, particularly outside of health care facilities, are much more common than government statistics suggest. They sicken hundreds of thousands of Americans each year in various ways, from minor skin boils to deadly pneumonia, claiming upward of 20,000 lives. The inability to detect or track cases is confounding efforts by public health officials to develop prevention strategies and keep the bacteria from threatening vast new swaths of the population. ” http://www.usatoday.com/story/news/nation/201...s/3991833/.

17. “Methicillin-resistant Staphylococcus aureus (MRSA) bacteria are resistant to all beta-lactam antibiotics such as methicillin, penicillin, oxacillin, and amoxicillin. A MRSA infection can be fatal, and is sometimes called the "Super Bug."… According to the CDC, an estimated 10,800 deaths in the U.S. each year are caused by staph; 5,500 of which are linked to MRSA. … According to JAMA [2005], an estimated 94,360 cases of MRSA infection are reported in the U.S…. According to JAMA [2005], MRSA is responsible for an estimated 18,650 deaths in the U.S.” CNN Library, “MRSA Fast Facts”, June 14, 2014.

18. The antibiotic susceptibility testing capability is one of the most important aspects of what the methodology provides. The other pathogens with which the test has been adapted to this point include 1. c. albicans, 2. MRSA, 3. enterococcus, and neisserial gonorrhoae. The work involves the creation of specific testing panels that focus on some of the most prevalent and dangerous bacterial infections. These include a “Sepsis” panel, a “Prenatal” panel, and several others.


N-Assay Market Potential in US

My main focus in this part is on the US markets for the N-Assay. This is because different economic and medical cultures produce distinct potential. Countries that operate large scale national health systems are much less price and consumer sensitive than the US market. The UK system for example is unlikely to consider significant cost savings for medical technology to be all that important because its system is a massive bureaucracy that is not very responsive to consumers and not at all concerned about investors. The same can be said for most such systems in the developed world. This does not mean that public health systems that operate through massive tax subsidies might not at some point adopt superior technology but means that the determining factor will not be price. It also means they are not competing with anyone and are largely not accountable for their shortcomings so there are few pressures directing them to take action to improve what they currently do.

A separate issue relates to the nature of entry into many developing world countries. Since most do not have highly evolved medical centers, lack significant financial resources of their own and do not operate according to US-type market forces entry into such systems almost has to depend on UN, WHO, Non-Governmental Organization (NGO) and/or charitable foundation sponsorship and networks. This means there is a need to develop relations with those organizations but the speed at which this can be done is uncertain as is the scale of the resources and earnings that can be gained from such projects. This in no way means the approaches should not be made but that the priority must be to focus sales energy on US markets with all direct resources even while working with distributors in areas that do have resources sufficient to make it feasible to market the N-Assay and other NanoLogix products.

The agreements with Saudi and Singaporean distribution companies offer examples of how this might work and solid contacts developed. Certainly using Singapore as the means to enter the Malaysian, Indonesian, Japanese and urban Indian markets for the N-Assay represents an intelligent business strategy since those countries have highly developed market segments in the medical area and significant resources. All I can say about China and Russia is that NanoLogix should act as if they do not exist due to the high probability that they would immediately pirate the technology.

1. N-Assay Group B Strep (GBS) Potential in US

There are roughly 4,000,000 live birth pregnancies annually in the US. The CDC protocols require GBS testing of pregnant women between the 35-37th weeks. In a number of instances retesting will be required after targeted treatment to determine if a treated GBS-situation has been reduced to a safe level. It is vital for doctors to anticipate possible problems in patient management and this is why the GBS screening is essential.

This is the clear leader at this point because of the Faros' research and reputations. There are more than 6 million US pregnancies annually but there is a “net” live birth volume of a little over 4 million due to abortions, miscarriages and stillbirths. So let’s work with the 4 million live birth figure for the analysis. In relation to this figure we can assume that close to 100% involve doctors and hospitals and that given the CDC figures something close to that number receive the current 3-5 day GBS tests as part of their protocol. We will also follow Dr. Sebastian Faro’s estimate that close to 25% of pregnant women are “colonized” with GBS and have to be treated. This then assumes that those 1 million women will have to be retested to determine the effectiveness of the antibiotic treatment their doctor administers.

If we go for the “best case” scenario, within a year or so every woman tested for GBS in the US ought to be evaluated by the N-Assay panel technology. That would mean there something in the vicinity of 5 million tests sold at 100% of market capture. For this analysis I am using only a 20% market capture and 1 million tests sold.

I said in a different post that the Neo-natal GBS N-Assay panel would have to be outsourced for production given the sheer size of the market being serviced and the required scale of production. Obviously this outsourced production will be done through an independent company that is not a competitor. It has to be an experienced manufacturer of advanced medical products with a demonstrated capacity and technical expertise in the medical field. This fact is obvious and if we can see it NanoLogix leadership and the Faros are fully aware of the need in order to move rapidly into the market for the panels and there should be no question that they are certain to be engaged in discussions on design and cost. Of course they would also be crazy to share that information with us so I made some assumptions I consider reasonable.

It should also be understood that from I can discern from the presentations and research reports that the panels are sophisticated and not simply petri dishes but carefully designed and “filled” instruments fashioned for specific needs and containing critical substances with the ability to attract and bond types of bacteria as a central element of the diagnostic process. My guess is that such advanced 96-well diagnostic N-Assay panels are likely (in mass production) to cost NanoLogix somewhere between $25 and $40 to produce, including the essential profit margin to the actual manufacturer. That’s just my “best guess” but it is the figure I will work with. To be conservative in the profit projections I am going to go with the upper end of the cost of outsourced production to NanoLogix, the $40 per panel assumption.

An added cost factor to NanoLogix is the cost of operating the research and management facility in Hubbard and the cost of what must inevitably be an expanding sales staff as the N-Assay sales grow. The Hubbard facility in my understanding is a very “lean” operation. It would only require a small volume of N-Assay sales to cover the costs of the core operation that looking at the staffing I am going to estimate at around $500,000 per year. As N-Assay sales develop, however, there will need to be significant growth in a highly experienced, mobile and dedicated sales force “pushing” the N-Assay aggressively. My best guess here is that the sales force two years from now will require perhaps $1.5-2.0 million annually. Anyway, I am going to use that as my assumption.

With these figures in mind I am going to assume that the full cost of the N-Assay panel to NanoLogix is going to be in the vicinity of $75 per panel for the first 100,000 sold, $65 per panel for the next 500,000 sold, $50 per panel for the 500,000-1 million panel sales and $40 per panel after that. The latter figure might even be lower due to volume discounts based on larger production. Since the N-Assay has significant cost advantages (including labor savings) over current technologies and those technologies in my understanding are quite expensive to the point they require the assembly of larger test sample batches before actual testing in an effort to reduce costs per tests I am going to assume that NanoLogix is going to price its N-Assay at $200 per panel. This price could (and probably will) go down for individual volume purchasers.

Based on these assumptions we come up with revenue figures such as the following and not assuming total market dominance for the N-Assay. Of course there will not be total market dominance but let’s see what the best case is for NanoLogix.

100,000 panels sold @ $200/panel: Gross revenue is $20 million, cost of production $4 million, operating costs $2.5 million. Net revenue is $13.5 million @ 100,000 panels sold.

400,000 additional panels sold @ $200/panel: Added gross revenue is $80 million, cost of production is $16 million, additional operating costs $0 million because the initial 100,000 sales cover all those expenses. Net revenue on added 400,000 panels sold is $64 million.

500,000 additional panels sold @ $200/panel: Added gross revenue is $100 million, cost of production is $20 million, operating costs $0. Net revenue on 500,000 added GBS panels sold is $80 million.

In this scenario involving capturing only 20 % of the US Group B Strep (GBS) market of 5 million tests annually, the total gross revenues are $200 million, production and operating costs $42.5 million and net revenues $157.5 million.




Other Bacteriological Infections Diagnosable by the N-Assay Technology

2. N-Assay MRSA Potential in US : Significant potential to help rapidly diagnose and treat a potentially fatal disease that according to the Journal of the American Medical Association (JAMA) saw an estimated 94,360 cases of MRSA infection in 2005 and an estimated 18,650 deaths in the U.S.


3. N-Assay Sepsis Potential in US : Huge potential and area of N-Assay concentration. It could be larger than GBS. One researcher laments that Despite the fact that it kills nearly 200,000 people in the U.S. every year, only about one-third of Americans have ever heard of sepsis.”


4. N-Assay Enterococcus (VRE) Potential in US : Significant potential in human infection diagnosis and treatment and even in the area of veterinary medical diagnosis of VRE. Estimates are that 2 million people are infected annually and 23,000 die each year from VRE.


5. N-Assay C. albicans Potential in US


6. N-Assay C. dificile Potential in US


7. N-Assay Gonorrhea Potential in US : Gonorrhea infections run at a rate of over 800,000 per year and early detection and rapid intervention with the most effective and targeted treatment protocols is vital, as is informing affected individuals about the condition to avoid further spread. Gonorrhea is an immediate public threat the CDC has indicated requires “urgent and aggressive” action.