iTunes Business Model For Digital Path Scans

Things heat up in digital pathology market as BioImagene introduces 99¢ per slide pricing

CEO SUMMARY: If BioImagene’s CEO is to be believed, the company is ready to deliver a digital pathology system that is robust and affordable, even in settings with just two or three pathologists. One key to the BioImagene strategy is “per scan” pricing that avoids the need for upfront capital to acquire its system. Confident investors just pumped $26 million into BioImagene and, as of this month, its new CEO is a 20-year veteran of Siemens, who was leader of its Image and Knowledge Management business.

iTunes PRICING COMES TO anatomic pathology. Imagine purchasing digitized pathology images based on the iTunes pricing model of 99¢ per scan!

That’s the business strategy of BioImagene Inc. (www.bioimagene.com), of Cupertino, California. BioImagene intends to make digital pathology affordable to hospitals and pathology groups of all sizes—even groups with just two or three pathologists.

Evidently professional investors are impressed with both BioImagene’s digital pathology systems and its unorthodox pricing model. This summer, BioImagene closed a $26 million round of financing, with Burrill & Company of San Francisco, California as a lead investor. Rounding out the investors were Acension Health Ventures, National Healthcare Services, Artiman Ventures, and ICCP Ventures.

Further evidence of BioImagene’s potential are two additions to its management team. At the closing of the $26 million financing package, Steven Burrill, CEO of Burrill & Co., assumed responsibilities as Chairman of BioImagene’s Board of Directors. He issued the confident statement that, “the company has established itself as a clear innovation leader in digital pathology over the past years, and is well positioned to lead the market.”

The strength of BioImagene’s digital pathology technology and its market strategy helped it recruit another executive heavyweight. On September 17, BioImagene announced that Ajit Singh, Ph.D., was its new CEO. Singh comes to BioImagene from Erlanger, Germany, where he was CEO of the Image and Knowledge Management business of Siemens Healthcare. He worked at Siemens for nearly 20 years in various roles.

Founder and former CEO of BioImagene, Mohan Uttarwar, is now Chief Strategy Officer. In discussing his company’s future with THE DARK REPORT, Uttarwar explained that his company has ambitions to change the current business model for digital pathology. “The first step is to change the thinking of most pathologists, who believe, because of cost and other considerations, digital pathology systems are just for large pathology groups and hospitals,” he stated. “That thinking is no longer accurate!

“We believe our current generation of digital pathology systems are compelling, comprehensive, and affordable—even for groups with only two or three pathologists,” declared Uttawar. “We are working to change the paradigm. Our mission is to make digital pathology the standard of care, just like what happened in radiology. Our system is designed by pathologists for pathologists and we believe market forces are already in motion that will make digital pathology systems a necessity for all pathology groups.”

Good Timing For Growth

Uttarwar and BioImagene may also benefit from good timing. As clients and regular readers of THE DARK REPORT know, momentum behind digital pathology is building. For example, Aperio Technologies, Inc., (www.aperio.com) in Vista, California, is marketing its digital pathology systems in the United States, Australia, and other countries. Tucson, Arizona-based DMetrix Inc., (www.dmetrix.com) is developing highly sophisticated digital scanners for pathology applications. (See TDR, July 7, 2008.)

However, probably the biggest boost to the future of digital pathology systems was the entry of imaging and radiology giant General Electric (GE) into the field of pathology imaging last June. That was when GE and the University of Pittsburgh Medical Center (UPMC) announced a new joint venture, called Omnyx, LLC (www.omnyx.com). The two partners will invest $40 million to develop and market digital pathology systems for primary diagnosis.

Two Years To Market

At the press conference last June, Omnyx executives stated that their goal was to have their products cleared by the FDA and into the pathology marketplace within two years. Omnyx promises that its system will perform whole-slide scanning in 30 seconds. (See TDR, June 16, 2008.)

Gene Cartwright, CEO of Omnyx, caused quite a stir with one prediction when he stated, “We envision the market [for digitized pathology systems] will expand to be about a $2 billion market in several years. We will be addressing the market on a global basis, and we expect it to be adopted at about the same rate that digital radiology was adopted.”

Another indication of how fast things are changing in the market for digitized pathology systems is a milestone achieved by BioImagene. “We have already placed 40 systems since January and will be the first company to introduce a new digital pathology system and have 100 of those systems deployed within one year,” declared Uttarwar. “That will happen later this year and it will be a feat unmatched by any existing company selling digital pathology systems today.

Enterprise Software

“That market acceptance underscores what we consider to be a fundamental difference between our company and the others in this market,” Uttarwar said. “We believe that digital pathology is built on enterprise software, which we have. Yes, of course you need instruments and scanners. But you also need software to analyze digital images. Over the years, we have partnered with almost all the companies in this field. That means our software works with all the systems. We believe this feature gives BioImagene a recognizable competitive advantage in the digital pathology market.”

That’s not to say that Uttarwar underestimates his competition. “Aperio is aggressively putting marketing dollars behind its products,” he noted. “DMetrix challenges all of us with its scanning innovations. Everyone is waiting to see what GE and UPMC develop at Omnyx.

“We welcome these companies, because the pathology imaging industry is growing at a pace where no one company can be the dominant player,” explained Uttarwar. “Digital pathology will probably be much like the radiology market in that it will have three or four solid players. As demand for digital pathology products expands, all these digital pathology companies will help each other by growing the national and global market for pathology imaging.”

Fast-Moving Developments

THE DARK REPORT recommends that pathologists and their practice administrators recognize the importance of these developments in digital pathology, as well as the unique nature of BioImagine’s iTunes per-scan pricing strategy. First, it demonstrates how steady advances in information technology, including hardware and software, are rapidly changing both the capabilities and the economics of digital pathology. Costs are coming down, even as functionality and speed improves.

Second, the field of competitors offering digital solutions to pathology groups is growing. BioImagene, Aperio, and DMetrix have entered the market in recent years. Certainly established vendors selling microscopes and other imaging systems will not cede this market and have their own solutions to offer pathologists.

Third, THE DARK REPORT observes that BioImagene’s adoption of iTune’s pricing model, offered to pathologists at 99¢ per scan, shows how longstanding business practices in anatomic pathology will be upended. Pathologists are going to see disruptive marketing strategies and disruptive clinical technologies tumble into the profession as aggressive vendors borrow what works outside healthcare and bring it into laboratory medicine.

Digital Pathology Era Is Here

Finally, the accelerating number of placements and sales successes of Aperio, BioImagene, and DMetrix, among others, should be convincing evidence that the pathology profession has crossed the threshold and is now squarely in the early stages of an era of digital pathology.

Apple’s iTunes 99¢ Pricing Model Inspires BioImagene’s Per-Scan Pricing Strategy

MOST PEOPLE KNOW ABOUT THE PRICING MODEL FOR APPLE’S ITUNES. Open an account at the online iTunes store and pay 99¢ cents for each song you download. That was the inspiration for executives at BioImagene, Inc., who were looking for marketing strategies that would encourage pathologists to acquire and use digital pathology systems.

Despite the significant differences between downloading a song and digitizing a slide of human tissue, BioImagene’s executives saw parallels in using the iTunes pricing policy in digital pathology. “Can you beat that price of 99¢ per scan?” asked Mohan Uttarwar, BioImagene’s Chief Strategy Officer. “We know that laboratories make 200 million slides every year. But the number of pathology slides currently scanned is quite small—only a couple of percentage points of that 200 million number.

“So, we asked ourselves, ‘What does it take to jump start the digital pathology market?’ We were inspired by the iTunes example, where the Apple iPod, in combination with the 99¢-per-song download at the iTunes store, became the most successful online music business in history,” he said.

“BioImagine knew its digital pathology technology was robust and affordable,” recalled Uttarwar. “But technology alone would not accelerate market acceptance by hospitals and pathology groups. We wanted to combine our innovative technology with an innovative business model. These two elements would work together to accelerate market acceptance.

“The up-front investment in an integrated, fully-digitized pathology system is significant, because most companies in this market sell large systems that cost about $200,000 each,” noted Uttarwar. “When a pathology group puts all the pieces together, buys the software, and does the integration, total costs can approach $500,000. Because of these costs, typically it is academic groups and larger hospitals and pathology groups that acquire and use an integrated digital pathology system.

“On the other hand, much of pathology is performed in lower-volume settings,” he added. “For example, two or three pathologists work together in a group or a smaller hospital, and these sites are often part of a multi-hospital health system or integrated pathology group practice.

“Most pathologists work in these types of settings, yet there was no digital product for that segment of the pathology market,” observed Uttarwar. “That is why BioImagene developed a digital pathology system that has a small footprint, a lower price point, is compact, and integrates easily with other laboratory systems.

“To appeal to this rather large segment of the pathology profession, we designed a pricing structure which requires no capital expenditure. That’s a paradigm shift!” he enthused. “BioImagene’s pricing model is 99¢ for each slide scanned. If the pathologist wants to add diagnostic tests, that’s about $10 per test. We have some minimums, such as we expect 1,000 slides to be scanned each month. However, that volume is something that is commonly generated by a couple of pathologists with no problem.”

 

Will Digital Pathology Lead To Outsourcing to India?

IN THE UNITED STATES, MANY PATHOLOGISTS are concerned that digital pathology will create opportunities to outsource pathology to lower-cost countries, such as India and China. But one digital pathology expert believes this is wrong thinking, for a surprising reason.

“Not likely to happen!” said Mohan Uttarwar, Chief Strategy Office for BioImagene Inc. “This phobia is rooted in a belief that digital pathology, computers, and the Internet will take jobs outside this country because pathologists in China and India will soon do the work of pathologists here in the United States. Yes, digital pathology gives us a way to work across borders. But it can also enable work to flow into the United States.

“The benefits of digital pathology are significant because it allows a pathologist to work remotely,” he noted. “You can get a second opinion or an informal review at the click of a button. Your colleague could be around the corner or around the world. All of this work can be done easily. And doing so is simple and affordable. In fact, our goal is to have no barriers to get onto the digital pathology platform.

“But contrary to what some pathologists think, we find that pathologists in Mexico, China, and India want to get second opinions from pathologists here in the United States!” Uttarwar explained. “This is particularly true for those pathologists who treat patients at the higher end of the spectrum. They want to tap the expertise of the well trained and well educated pathologists here.

“We find keen interest from pathologists in many countries to refer cases to the United States,” stated Uttarwar. “Yes, outsourcing of pathology will happen, but is it likely to be pathologists in other countries outsourcing to pathologists here in the United States.”

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