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INNOVATE

Testing Positive

Companies on the frontlines of West Nile and SARS.
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Behind the News

West Nile virus tore through America last summer, killing horses, birds, and 274 humans -- making mosquitoes the most feared summer predator since Jaws. But where others panicked, Charlie Harwood got to work. This spring, his company, Focus Technologies Inc., became the first to sell parts of a test for the West Nile virus. It arrives in hospitals and labs just in time for what health officials say could be the worst West Nile season ever.

But though Harwood, president and CEO of the Herndon, Va.-based company, won bragging rights in the industry, he cannot rest for long. The infectious disease business is complicated, with new mystery ailments like SARS popping up all the time. Companies like Focus -- which had $55 million in revenue last year -- often work on as many as 20 projects simultaneously. Only a few diseases will ever become serious enough to provide a decent return.

Creating a diagnostic test is no small technical feat, nor is it simple from a management perspective. In fact, with each test he brings to market, Harwood faces a textbook case of the innovator's dilemma. Like large rivals Quest Diagnostics and LabCorp, Focus runs testing labs -- for example, technicians in its facility in Cypress, Calif., conducted more than 35,000 West Nile tests last year at an average price of $70 per test. As Focus develops a test for hospital use, the company inevitably disrupts its lucrative lab business. Hospitals that buy Focus' 100-test packs for $800 pay almost 90% less per test than if they were to outsource the same diagnosis to the Cypress lab.

The reason Focus nevertheless develops test products is that, as a disease becomes more common, big labs like Quest capture greater market share. Selling a test allows Focus to continue to generate revenue from a disease; in essence, it switches from being a rival to the larger labs to being a supplier. "Our biggest competitors are also our biggest clients," Harwood says.


WEST NILE: Mosquitoes like this sucker helped to infect 4,000 Americans with the virus last year.

Of course, managing such transitions -- and so many R&D projects simultaneously -- is a strategic planning nightmare. "It's a business model most companies would be a little nervous about," says Harwood. "You can't pencil anything in financially. It's like looking into a fog."

Getting distribution for an approved test is also convoluted. Focus is now waiting for federal approval so it can sell an entire diagnostic kit for West Nile. Currently, the company is allowed to sell only a few chemicals with no directions, forcing hospitals and labs to figure out the test on their own. The government does this to ensure that only sophisticated labs work with a new test.

Besides West Nile, Focus has tests for dengue fever, Lyme disease, and herpes. And at presstime, it was working feverishly on a test for SARS. "It's what's great about this business," Harwood adds. "You never know what will emerge. Diseases can always come up with different ways to attack the human body."


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Last updated: Jun 1, 2003




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