Neuromedical’s PAPNET® Undergoing Enhancement

After a difficult year, Neuromedical seeks to reposition its automated cytology system

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CEO SUMMARY: Financial pressures and a falling stock price impelled Neuromedical Systems, Inc. to revamp its sales and marketing plan for the PAPNET® System. During 1998, expect a new sales approach that supports a product with enhanced capabilities. Neuromedical is developing overseas markets while pursuing primary screening approval in the United States.

EXPECT TO SEE A NEW LOOK and a new marketing plan from Neuromedical Systems, Inc. of Suffern, New York. The company’s PAPNET® System is undergoing a comprehensive makeover.

During 1998, the company intends to radically revamp how its PapNet System is packaged for laboratories. “It would be fair to say that we learned a lot from the experiences of 1997,” stated Jack Henneman, Executive Vice President, U.S. Operations at NSI.

“Our corporate priorities during 1998 will be to build overseas sales of the PapNet System while developing the necessary clinical data to gain FDA approval for PapNet as a primary screener in the United States,” he said. “Even as these priorities are addressed, we are making fundamental changes to the way PapNet itself is operated by laboratories and marketed to laboratories and physicians.”

Neuromedical’s financial performance throughout 1997 was disappointing. From a high of $24 in January 1996, share prices dropped steadily. NSIX shares currently trade at less than $3. The pressure to perform led to a change in leadership during the last part of 1997 as well as a reassessment of the company’s product position in the marketplace.

Neuromedical’s PapNet System was approved by the Food and Drug Administration (FDA) in 1995 only as an adjunct Pap smear test. Because of that, NSI decided that marketing directly to the consumer would be the best way to unlock new money for Pap smear screening and to educate women about the benefits of a PapNet Pap smear.

Need To Make A Profit

Laboratories that offered PapNet testing needed to make a profit. So NSI recommended a $35 patient bill fee while charging the referring laboratory $18 for the procedure.

For many reasons NSI chose to centralize scanning of Pap smear slides at laboratories operated by NSI in Suffern, Amsterdam and Hong Kong. As a result, the referring laboratory had to send the slide to the scanning center, then wait for the slide and the scan file to be returned. Details of NSI’s business plan and the technology involved in the PapNet System were presented in an earlier issue of THE DARK REPORT. (See TDR, July 1, 1996.)

“Our new business plan for PapNet recognizes the importance of involving both pathologists and cytotechnologists in the process of physician and patient education about PapNet and its benefits,” stated Henneman. “We better appreciate the collaborative process between a physician, his patient and his chosen laboratory. We want to support that relationship.

“For PapNet itself, we are building in the capability for it to run unattended. This permits any laboratory to acquire and operate the instrument by itself. Ultimately, we will eliminate the need to ship the slide to a central scanning center.”

Henneman recognized the importance of gaining authorization to use PapNet as a primary screener. “Given rapid developments in the marketplace, it is essential that we achieve this. Realistically, FDA approval for primary screening is probably 18 months away.

“During the time necessary to obtain primary screening approval, we see two useful applications of PapNet,” he continued. “First, we have an existing rescreening business here in the United States. We will continue to support and expand that business. For laboratories which elect to rescreen 100% of their Pap smears using PapNet, we are now offering substantial discounts.

“Second, there are niche applications for PapNet as an adjunct test which make sense. These niches include high-risk populations of women, or women who choose to minimize even the small risk of a false negative by having a PapNet test done in tandem with the normal Pap smear.”

Europe plays an important part in Neuromedical’s short-term business plan. “The different regulatory environment there means PapNet customers in Europe can use the system for any clinical purpose. Laboratories there are accumulating a vast quantity of data and experience with PapNet involving a variety of populations, including data from primary screening.

“Currently five significant clinical studies involving PapNet are under way in Europe,” he said, “including a 20,000 smear study by the United Kingdom’s Health Service. We expect these studies to confirm the clinical efficacy of PapNet and support further growth in European markets.”

One key philosophy defines Neuromedical Systems and sets it apart from its main competitor. “Our philosophy is that a human should make the ultimate diagnosis,” noted Henneman. “We recognize that the cytopathologist and cytotechnologist possess unique knowledge and experience that have clinical value. This is particularly true where an urban academic laboratory may triage more slides from a high risk population of women as compared to a suburban laboratory serving woman from an upscale community.”

Operationally Robust

“We are making rapid progress in re-configuring PapNet technology so that it is operationally robust and can run efficiently in the customer’s laboratory,” he said. “We released new scanner technology outside the United States. We expect to release an entirely new scanner configuration during the second half of 1998.

“The PapNet System has always been cytologically robust, in the sense that any given PapNet scanner can examine specimens with different staining and cover slips without re-calibration or human intervention” explained Henneman. “This was an essential requirement for the scanning center business model, since we needed to run smears from any customer on any machine. This capability to handle a variety of stains, cover slips and other variables makes PapNet attractive to laboratories. This is particularly true with the increasing use of different cytology preparations, including liquid-based preparations.”

Changes Under Way

Jack Henneman’s enthusiasm and energy reflect the changes under way at Neuromedical Systems. NSI’s new leadership is willing to acknowledge–and has learned from–the two crucial mistakes in the old business plan: marketing to women and emphasizing the “dangers” of the Pap smear did not endear the company to physicians; operating centralized scanning centers instead of placing instruments directly into individual laboratories failed to meet the needs of their laboratory clients.

Despite the handicap of FDA approval only as an adjunctive test, Neuromedical has made considerable progress. As of 1998, there is a CPT code for re-screening. A number of managed care plans have agreed to reimburse for the PapNet procedure. The company is known and recognized within the laboratory and physician communities.

Given the opportunity to redirect the company’s marketing plan and product placement strategy, it is incumbent on NSI to develop unquestionable clinical data on the efficacy of PapNet’s ability to significantly improve the accuracy of Pap smear diagnosis. If Neuromedical Systems can accomplish all of this during the next 24 months, then its PapNet System may yet carve out a profitable chunk of the Pap smear testing marketplace.

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