Healthy Skepticism Library item: 1024

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Publication type: news

Stone A.
LScan helps drug cos. stem their paper trail
Philadelphia Business Journal 2003 Mar 21
http://philadelphia.bizjournals.com/philadelphia/stories/2003/03/24/focus2.html?page=2

Full text:

CONSHOHOCKEN – Each year, the pharmaceutical industry hands out to doctors some $10 billion worth of sample medicines. A few years back, Congress noticed that no one kept track of the whereabouts of all those controlled substances, so it told the drug industry to start keeping records.

Today, that requirement forces each of the major pharmaceutical firms to generate something like 25 million pieces of paper a year.

Talk about a bitter pill.

In January 2001, Martin W. Michael moved to combine his own technological know-how with the obvious need for greater efficiency in the pharmaceutical industry. He founded LScan Technologies in Montgomery County with an aim to deliver today’s fast-growing mobile computing platforms to pharmaceutical manufacturers.

“Up until about a year ago, most bar-code devices cost several thousand dollars, because of the technology and because of patent issues. Today, you can buy a scanner for less than $50, but we still are missing the useful applications – the software that really adds value,” he explained.

So, five months ago, LScan released its SampleScan product, an enterprise software application that uses bar coding and portable scanners to track all those millions of samples, without all that pesky paperwork.

Industry observers say there is much market potential for such a product.

“It makes a lot of sense” as an answer to the otherwise overwhelming administrative burden, said Rhonda Gilbert, president of pharmaceutical-industry consulting firm R Y Gildert Associates in Maple Glen. “I would assume that most major pharmaceutical companies would look to adopt this type of technology.”

Others seem to share that enthusiasm.

At a time when capital is extraordinarily tight, Michael has raised $2.2 million in funding. In addition to the management team’s own stake, the firm has drawn backing from private investors, as well as $500,000 from Ben Franklin Technology Partners and $700,000 from state, local and county governments, including a grant from the governor’s office and diverse low-interest loans.

Even with that kind of backing, Michael said his 12-person firm has been affected by the ongoing economic slowdown. His vision had initially been broader than just the pharmaceutical industry, but by mid-2001, he made a strategic decision to narrow the target area.

“With the depressed technology market and the depressed technology investments, you really have to focus on one core area,” he said. That being the case, “pharmaceutical health care was always, and still is, the rising star.”

This is especially true in the bar-coding arena. Michael noted that the U.S. Food and Drug Administration is expected within the next two to three years to issue a new regulation requiring all pharmaceuticals sold in the nation to bear bar codes.

Already, pharmaceutical firms throughout the industry have begun to anticipate the change.

“The companies that we run into are all moving that way. They are all either using or evaluating mobile technologies for their field sales force,” said William Reese, senior marketing strategist for Conshohocken-based pharmaceutical marketing firm Cadient Group.

For the most part, though, Michael sees little competition in the field.

At this point, the primary rivalry comes from fewer than a half-dozen firms that print and manage the millions of paper documents in use today. To them, he has a ready answer.

“We argue that when they are running a 20 percent to 30 percent inaccuracy rate on paper, you are not really meeting the regulatory requirements,” he said. Moreover, the average sales rep these days devotes four to six hours a week to doing papers, “and we can remove all of that, so there is a tremendous return on investment in business efficiencies.”

Vendors of paper-based systems do not see it that way.

At Dakota Services Inc. in Hatfield, for instance, President Bob Neubert highlights the reliability of paper-based record keeping.

“Our systems don’t break, so customers know they can count on us,” he said.

Still, when Michael goes out to talk to the 25 biggest pharmaceutical makers in the nation, his mission is clear.

“We have to make the case that they cannot stay on this paper process forever,” he said.

It is, in some respects, a tough sell. While pharmaceutical companies may be willing to acknowledge the need for change, many are reluctant to invest in new technologies, particularly in light of the dot-com debacle.

“The biggest challenge that any company like ours has today is that these big companies spent untold dollars over the past couple of years buying things from companies that went out of business,” Michael said.

At the same time, the regulatory environment surrounding pharmaceutical-industry products means that firms like LScan face a longer-than-usual process of bringing new products to market. Taken

together, these factors mean a slow sales cycle, which means Michael has to be tight with the cash.

“We micromanage down to the penny what we are going to do and where we are going. You have to really budget it, and you really have to stick to it. You have to make sacrifices until you get to the point where you have enough revenues to show people that you are being successful,” he said.

Those revenues are scant at the moment, as LScan has only just begun to market its flagship product. Still, Michael feels emboldened to make big predictions: He sees his business grossing $50 million to $100 million in the pharmaceutical industry three years from now.

“I think it is really going to start happening soon,” he said. “The companies have enough real problems out there that they are going to have to start reinvesting in new technologies fairly quickly just in order to keep their own businesses moving forward.”