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Close-Up: Kim Blickenstaff

Biosite founders come up winning

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In 1988, Biosite (Nasdaq: BSTE) co-founders Kim Blickenstaff, Kenneth Buechler, Gunars Valkirs and Richard Anderson took a gamble that paid-off. They left secure corporate jobs at Eli Lilly-owned Hybritech to develop a new method of detecting illegal drugs -- fast -- when patients presented at the emergency room.

Photo: J. Kat Woronowicz Kim Blickenstaff, CEO, Biosite

Now Biosite makes a whole battery of tests, including drug detection, heart failure and internal parasites. In the pipeline there are products for detecting strokes, heart attacks and sepsis.

Biosite has a market cap of $890 million and recently unveiled fourth quarter 2005 revenues of $72.4 million, up 9 percent of the previous year; net income of $13.7 million, up 13 percent; and a rise in its gross margin to 71 percent, up from 67 percent.

"Our whole strategy is rapid answers," CEO Kim Blickenstaff said. "That any time of the day or night anybody can run."

At the heart of the company's success has been a belief in science and scientists. It is committed to spending 15 percent of its topline sales on research and development every year.

Citing this as one of the best decisions the company made, Blickenstaff said, "The board said to us after our first product, 'You have been successful, you now need to go unprofitably and expand your R&D to do more things on that strategy.'"

That strategy evolved into discovering proprietary diagnostic markers for acute diseases and producing point-of-care fast diagnostic tests. In recent years the company has also signed a number of collaboration agreements with pharmaceutical and biomed firms as well as leading research universities.

Biosite first focused on congestive heart failure, a degenerative disease where the left side of the heart begins to function inadequately. Typical symptoms include constant fatigue, swollen legs and shortness of breath. Blickenstaff estimates that there are about 8 million people a year with those symptoms, but there was no simple test to determine who needed emergency treatment.

So Biosite took a five-year and a $5 million gamble on a device to measure the levels of BNP (B-Type natriuretic peptide). A gamble because at the time there was no definite scientific evidence that BNP levels and heart failure were linked.

In 2002 it paid off. A meeting of the American College of Cardiology in Atlanta concluded that BNP levels were the single most accurate indicator of the disease. By this time Biosite's BNP test had already received FDA approval and was ready to go -- far ahead of the competition. The test is now used in about half of America's hospitals.

In effectively creating the BNP market, Biosite carved out a niche that distinguished it from the giants of Roche, Bayer AG and Abbott. But in recent years these big players have begun to nibble into the franchise, launching their own BNP products.

Blickenstaff said he is not worried.

"We know how to win on speed, accuracy and quality of results," he said. "We don't fear competition. It makes you smarter, it keeps you on your toes.

"We have the best performing test medically and clinically and physicians are not going to take a step backwards to save a little money and go to a competitor if it is cheaper, if it jeopardizes their medical judgment."

The company's shares are currently trading at around $51, down from a high of nearly $70 a year ago, but significantly recovered from a low of the early $30s in April 2004. Though the stock, mainly due to the sector it is in, is still volatile, analysts are becoming increasingly confident in the company. Historically there had been concerns that the company's market share would be gobbled up by larger competitors and whether there was a fertile market for rapid testing.

Richard Watson of William Blair & Co. wrote in a February research report that he was maintaining a "Market Perform" rating. But, he wrote, "We are increasingly impressed with management's ability to pull multiple levers in keeping the company's underlying business on course during a challenge period. We believe this bodes well for Biosite's outlook over the next few years."

Watson highlighted how management spent more time discussing products other than the BNP test on its fourth quarter conference call, how Biosite had maintained its BNP market share and higher than expected EPS growth.

Biosite is pushing forward on a battery of new tests, with high hopes invested in a new product for diagnosing strokes that will function on the same device platform as the BNP test. This would enable strokes to be diagnosed much earlier and give physicians greater certainty about treatment options. It is ready to go once FDA approval is achieved.

"We hope to replicate what we have done with BNP," Blickenstaff said, noting that turned into a $100 million market. "That is what our goal is here to have each one of these unmet areas become a significant new category that we maintain a majority share of that market place."

With new tests comes a problem: how to create the market. Biosite's history has been littered with naysayers unconvinced that there was a medical need for faster testing. To combat this, Biosite has set up a specialist medical affairs department -- staffed by doctors to reach out to other doctors.

"When a physician leaves medical school, science doesn't stop," Blickenstaff argued. "Somebody has got to teach them after they have been out of their formal study period about integrating new technologies, and it is up to the manufacturers to do that if you want your test to be integrated quickly into routine medical care."

The routine care also includes general practice, with some family doctors describing the 15-minute BNP test as a "lie detector" -- allowing them to know while the patient is in the room if they have been cheating on their diet, exercise or medications. Blickenstaff is optimistic about the future.

"It is amazing to me the number of disease states we continue to focus on and find new ideas, product ideas, new ideas for potential monitoring of drugs or of categorizing patients," he said.

He is also pleased that the rapid testing philosophy is moving from left field to orthodoxy, adding, with a smile, that the company's work is changing medicine for the better.

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