The Unlikely Union of Bard and Bainbridge

CR Bard bought Bainbridge Sciences three years ago as part of an effort to expand the portfolio of its highly regarded urology franchise into high tech, high margin areas. Proponents saw it as an opportunity to get Bard Urological division moving again. Opponents wondered what the device company wanted in a complex business it didn't know anything about.

• CR Bard bought Bainbridge Sciences three years ago as part of an effort to expand the portfolio of its highly regarded urology franchise into high tech, high margin areas.

• The venture is risky, but along the way Bard has taken steps that show its faith in the product, including allowing the subsidiary to operate autonomously, and approving the decision to use not only Bard’s urology sales force but also outside distribution networks to sell the product.

• Bard’s ability to work with its diagnostics subsidiary may have implications for other device-diagnostic partnerships, as companies in different sectors of health care increasingly seek to work together.

In the early 1990s, CR Bard Inc. was still reeling from a series of run-ins with the FDA involving its once high-flying cardiovascular business. Diversity has always been one of Bard’s strengths, but many of its key offerings were in price-sensitive, mature markets. Bard’s old management had been distracted by the company’s legal problems and the R&D pipeline looked thin. A new management team brought in after the scandals was eager to find higher-growth opportunities.

Urology, which contributes nearly 30% of the company’s sales, was a priority. Bard was a leader in the urology drainage market, having built the business by pioneering Foley catheters and accessories. But Foley catheters and other drainage products are in mature markets and the urology division’s sales growth was slow. Bard was awaiting FDA approval of one high-tech device that it had pinned its hopes on, a urinary incontinence implant, and had little else in the way of interesting new urology products to offer.

So when Benson Smith, then Group Vice President and now president and chief operating officer of Bard, championed an investment in a small diagnostics company developing several markers for urological cancers, a furor ensued. Proponents saw it as an opportunity to get Bard Urological division moving again. Opponents wondered what the device company wanted in a complex business it didn’t know anything about. The tumor marker field in particular required intensive research and development and was fraught with scientific and commercial risks.

A Marriage of Convenience

The seven-year-old Bainbridge Sciences Inc.was working on a new platform technology applicable to screening, diagnosis and monitoring of urological and other cancers. By 1993, Bainbridge management felt it had the underpinnings of a good initial product for a complicated and risky market: a rapid urine-based test for detecting bladder cancer. What Bainbridge lacked, however, was money and access to the urologists who would be ordering the test.

Into the void stepped Bard, which agreed to put up funding for development of the test in exchange for distribution rights to it. But Bainbridge’s need for capital was relentless, as was the pressure on Bard to come up with new products for its urological sales force. In looking more closely at Bainbridge, Bard was intrigued by other ongoing projects, notably the work on staging cancers. While largely directed at prostate cancer, these efforts seemed to have potential for breast cancer, which might provide fodder for other Bard divisions. The opportunity would slip away if the cash-strapped Bainbridge was acquired by a corporation that wasn’t interested in urological cancers or wanted that market for itself. For protection, Bard agreed to pay a rumored $22 million for Bainbridge. “A number of us felt this was risky but it could have big dividends,” says Smith. “We approached it with the idea that at that point it was a lot of work to even get the first product to market.”

Three years later, the marriage appears to be working, although both parties acknowledge rough spots. Bainbridge, now renamed Bard Diagnostic Sciences, has had to adjust to life as part of a large conservative corporation that sometimes seems more interested in financial analysis than in being entrepreneurial or taking risks. Bard, for its part, must overcome a stigma, reinforced by its past regulatory difficulties in its angioplasty business, that it can’t manage fast-moving high-tech businesses and that it is stuck in the old fashioned mentality of selling on a product by product basis. While Bard sees the acquisition of Bainbridge as a cornerstone of a disease management approach in urology, its efforts in that direction are seen by some as belated and still in an embryonic stage.

Searching for New Products

The Bard Urological division is best known for a product it introduced more than 60 years ago, the Foley catheter. Bard pioneered the concept of including Foley catheters in sterile procedural kits and trays and remains the market leader in the field. Other urology products include urine monitoring and collection systems, biopsy and cancer monitoring devices, ureteral stents and specialty devices for incontinence, ureteroscopic procedures and stone removal. Some of these are case goods, sold in high volumes to institutional buyers such as hospitals, and others are specialty items, sold to hospitals or urologists.

The urology division was not involved in the regulatory scandals of the late 1980s and early 1990s, which led to criminal convictions against several former Bard executives and forced the company to withdraw from the angioplasty catheter business, once its most promising product line. But, as Bard’s top management grappled with its legal problems, all of Bard divisions, including urological, suffered from lack of attention to R&D. “It would be hard to misunderstand how distracted Bard was by the FDA problems,” says a former Bard executive. “They consumed a lot of the energy and attention that normally would have gone to new product development.”

Nevertheless, during this time, Bard began a major, albeit cautious, effort to obtain new technology from external sources. It has in the past three years spent more than $400 million to acquire companies with products that fill in gaps in its own portfolio. Internally, it created the position of VP, R&D, to formally coordinate for the first time internal R&D programs throughout the company and speed up the development cycle. It hired an MD, H. Laurence Shaw, to fill the post.

In the Urological division, even before it got involved in diagnostics, Bard licensed rights from Collagen Corp. to sell a collagen-based injection, Contigen, for stress urinary incontinence, a disease that it and others saw as a huge untapped opportunity. The product was launched after receiving FDA approval in late 1993. Bard has put a tremendous effort behind Contigen, so far with disappointing results. Far from being a several-hundred-million-dollar product, as some analysts initially forecast, Bard estimates the device will have sales of $36 million in fiscal year 1996, slightly below the company’s goal of $40 million. The problem with Contigen, says industry experts, is that it requires an injection, which many women seem reluctant to get.

Even as it comes to grips with Contigen, Bard remains committed to changing its product mix. As if to underscore its determination, a year ago it invoked a major change in its urological sales force by splitting it (similar actions were undertaken at its vascular and Davol divisions). One group, to be operated as part of Bard Medical Division, would focus on selling case goods to institutional buyers, who are highly concerned about efficient delivery and price. The other, consisting of about 60 reps, would call on urologists to pitch the higher-tech, more medically complex products. Reps in the latter organization would assume a consultative and educational role, helping the urology customer cope with changes wrought by managed care.

“Urologists are one of the specialties that have had some difficulty dealing with managed care,” says Smith. They have been hurt by managed care’s reluctance to pay for some quality of life treatments, such as transurethral resections (TURPs) for treating benign prostate hyperplasia (BPH). TURPs, which are one of the most common urological procedures, relieve discomfort but don’t save lives and under managed care, the number of TURPs performed has declined in proportion to the population.

These dynamics are not lost on Smith, who observes that one attraction of the cancer diagnostics field is that products have the potential to save lives and hence are more secure in a managed care setting. “In an area like prostate cancer, where there may be a deadly element, if you can distinguish between patients who might or might not benefit from prostate cancer treatment you could be competitive in bidding for managed care contracts,” he observes.

A High-Tech Risk-Taker

Bainbridge, on the other hand, embraced the entrepreneurial riskiness that Bard shunned. Founded in 1986 by Don Mowat, a Seattle-based business man, and Morgan Van Aken, PhD, a scientist and currently Bard Diagnostic’s VP, new technology, its initial focus was on the utility of basement membrane complexes (BMCs), proteins thrown off by tumor cells, in the detection of cancer. Van Aken wanted to develop a blood test that could detect cancer generically, but he couldn’t arouse much interest in the concept because it wasn’t organ specific. He then theorized and found that the presence of BMCs in various body fluid samples indicated the existence of cancer at the source of the fluid. Since urine was easy to obtain, he chose to focus on bladder cancer. Nor was the commercial promise lost on him: A test for bladder cancer could impact treatment decisions and even improve outcomes, since the disease is widespread but curable if caught early. And the only way that managed care will reimburse a new cancer test is “if it can detect the presence of cancer so early that it reduces the cost of treatment,” says Steve Van Leeuwen, Bard Diagnostic’s VP, marketing and business development, who is convinced that Bard’s bladder cancer test, Bard BTA,can do that.

In its short life as an independent company, Bainbridge also received a patent on the use of microvessel density measurement, or angiogenesis, for cancer diagnosis and monitoring. Angiogenesis, which is a controversial and emerging field of medicine, measures the ratio of small blood vessels to tissue on the theory that the number of blood vessels increases proportionally as tumors grow. The density of microvessels provides clues as to whether a tumor is organ confined or has spread beyond the tumor site.

In February, Bard Diagnostic is planning to launch Biostage, a tumor assessment service which combines the results of angiogenesis analysis with other standard parameters for staging prostate tumors in order to help urologists and pathologists more accurately determine the progression of prostate cancer. The analysis will be done in-house by Bard Diagnostic because it requires the use of sophisticated software and robotics that wouldn’t be feasible to sell to individual customers. SmithKline Beecham Clinical Laboratories will transport the tumor specimens to Bard and handle billing and reimbursement issues for Bard, says Van Leeuwen.

A Learning Experience

Corporate Bard’s confidence in the two products is evident from the resources it has put into their development and commercialization. While it won’t disclose the amount it has invested, it clearly has spent significantly to get BTAthrough the FDA’s PMA process and to launch it in Europe and the US. Bard, says observers, left the old Bainbridge management intact following the acquisition and has allowed the subsidiary to operate autonomously, even as the subsidiary implements a marketing strategy far different from the parent’s traditional campaigns.

On the surface, such enthusiasm seems warranted. Bladder cancer, while not as common as prostate cancer, ranks fourth in incidence among kinds of cancers found in men and ninth in women. Each year, more than 70,000 new cases are reported in Europe and 50,000 in the US. One in five bladder cancer patients die from their disease, but bladder cancer is highly curable (92% chance of survival) if diagnosed while still localized. The population is highly definable: it is an environmental disease, rarely occurring unless the patient is a smoker, or worked in the dye, rubber or leather tanning industries.

Current methods of diagnosing the disease begin with urine cytology, followed by cystoscopy, which both have limitations. Cytology isn’t sensitive to early stage disease and must be interpreted subjectively by a pathologist or cytologist. Cystoscopy is invasive, uncomfortable, costly, and carries a risk of infection in the urinary tract; nor is it always accurate at assessing tumors that are small or present under the epithelial layer of the bladder.

BTAis a simple-to-use dipstick-like urine-based test that delivers results in three minutes. It detects analytes shed into the urine when a tumor degrades the bladder’s basement membrane into fragments. The fragments combine to form unique basement membrane complexes. When the urine is mixed with the Bard BTA reagent, any present antibodies and antigens combine. The test uses a color reaction to indicate the presence or absence of this agglutination.

Bard Diagnostic’s marketing strategy, although an aberration for its low-key parent, is classic for complex tumor markers. Take the product to Europe first, where regulatory requirements are much less stringent. The idea is more to arouse scientific interest than to generate significant revenues: Europe isn’t a big market for tumor markers, Van Leeuwen notes. Now that key urologists worldwide have generated supportive data on the product and become its proponents, Bard Urological, with training and marketing support from Bard Diagnostic is approaching the 6,000-7,500 general urologists in the US.

The plan is straightforward but smooth execution can make or break it. In this respect, says Van Leeuwen, association with the parent company has been extremely beneficial. Bard Urological’s relationships with urologists were critical in helping the diagnostic subsidiary assemble 80 key urologists in the US and Europe. Bard plowed them with samples, encouraged them to evaluate BTA, and invited them to attend meetings where many of them discussed their experiences with the test.

But corporate Bard wasn’t fully prepared for just how much would be involved in marketing a diagnostic. Multiple channels of distribution are necessary to realize the full value of a new tumor marker, given the way they are bought and who has influence on the buying decision. The need to reach pathologists, laboratories, and general practitioners is great because of the high costs of R&D involved with cancer tests, the need to meet stringent regulatory requirements, and the skepticism with which the end results are greeted by clinicians. Allowing Bard Diagnostic, however, to use outside distributors to extend the scope of its customer base to general practitioners and pathologists would mean lower margins for the corporation. The decision was difficult for corporate headquarters, particularly in light of its original desire to use Bainbridge to fill out its own sales force’s urological portfolio.

Bard Diagnostic has since hired Curtin Matheson Scientific Inc. (CMS), a division of Fisher Scientific International Inc., the laboratory distributor, to sell BTAto US reference and hospital laboratories, and recently signed an agreement enabling Sorin Biomedica SPA to distribute Bard BTA-TRAK, a quantitative microtiter-plate version of the test worldwide, excluding North America and Japan. The company is looking for distributors who specialize in selling to general practitioners and is in discussions with three potential partners for developing an automated quantitative version of the analyte. It is also talking to a major pharmaceutical company, which it won’t name, on a possible co-promotion or joint venture involving BTA.

Perhaps the biggest departure of all from CR Bard’s past experience is the appeal being made to consumers, says Van Leeuwen. Most of Bard’s traditional products don’t lend themselves to direct-to-consumer marketing, a technique that is expensive and thrusts the participant into a high-profile role that contradicts the conservative approach of Bard’s management.

Diagnostics “is a business that you can’t drive through one sales channel,” acknowledges David McKinley, VP and general manager of Bard Urological. “The key is getting urologists to drive demand for the products. It won’t matter if you have all of these other partners unless the urologist is aware of the products.”

Is BTAanother PSA?

BTAin its current form has been on the market since March and is being sold mostly to physicians’ offices, but also to hospital laboratories as an aid in management of bladder cancer. It is being used in addition to cytology and cystoscopy, although Bard believes that eventually urologists may accept it as a replacement for cytology. Clinical trials, conducted at 14 cancer centers across the nation, showed that the Bard test is superior to urine cytology in detecting bladder cancer and concluded that it is an effective adjunct to cystoscopy, Bard says. Physicians can do the test while their patients are changing clothes and if the test is positive they’ll know to examine the bladder much more carefully, says Michael Sarosdy, MD, professor and chief of urology at the University of Texas Health Science Center and lead author of a paper on the BTA trials that appeared in the August 1995 issue of Journal of Urology.

Tumor markers tend to have ambiguous scientific validity and limited sales and BTAso far shows that it is no exception. Its sales to date have been disappointing. In a big setback for Bard, the test didn’t get excused from having to comply with CLIA regulations, quality control regulations set by the US government for all laboratories, with the exception of those who perform only a handful of very simple tests.

Thus, urologists who use the test must meet certain regulatory criteria and have trained staff in their offices, increasing the operating costs of the test and limiting its financial viability. And while more and more urologists are joining large group practices, many of which meet CLIA requirements, a substantial number, who remain in small groups or operate solo, aren’t likely to test in-office. A simpler-to-use second generation test that can be done in one step is waiting for FDA approval. If it gets a CLIA waiver, the economics of running the test will become more appealing to urologists; it can bring as much as $25 profit per test, says Van Leeuwen. Still, he adds, Bard has managed to sell several times more BTAkits than PSA, the model for all tumor markers, with sales of nearly $300 million a year worldwide and unit growth of 20% or more, sold in its first year.

PSA’s positioning, as managed by Hybritech Inc. (now a division of Beckman Instruments Inc.), is very much on Van Leeuwen’s mind as his company plots its moves. He sees parallels between BTAand PSA, which was introduced as an aid in the management of prostate cancer, the same indication BTA has for bladder cancer. Bard’s selection of CMS is based in part on the distributor’s track record with Hybritech’s PSA. Aware that Hybritech stumbled badly when it dismissed the importance of automation, Bard Diagnostic is looking for partners who can automate a quantitative version of the test. Yet it is also leery of Centocor Inc.’s handling of its portfolio of tumor markers, which include, for example, CA-125 and CA 15.3, and is likely to sign only a limited number of deals. Centocor, in contrast to Hybritech, licensed out rights to automate its markers to anyone willing to pay enough money for them, flooding the market with product and putting pressure on pricing and margins.

More importantly, BTA, like PSA, he believes, can survive as a stand alone product and doesn’t need to be tied into other tools and therapies for cancer. That’s because, from an economic perspective, it can be used to get people who don’t think they are sick to come in for care, and if the test is positive, it expands the market for existing services and products. Thus Bard Urological, which doesn’t offer many tools aimed at bladder cancer in its portfolio, and Bard’s distribution partners are selling the product on its own merits.

Indeed, while monitors and management aids tend to settle into niche markets, Bard’s real hope, as is the case with most tumor markers, is to develop a product that is acceptable for screening. PSA’s success in this regard is a phenomenon that so far appears, however, to have eluded others in the field. Because BTAis highly specific and more sensitive than cytology, and because treatment in early-stage bladder cancer cases is effective, BTA may be able to follow PSA’s lead, argues Van Leeuwen.

But, as with most tumor markers, it will take several years to accumulate clearer scientific data regarding BTA’s clinical utility and cost benefits. Some scientists predict that BTA’slimited sensitivity in detecting low-grade tumors may preclude its adoption as a screen. Neither urine cytology, BTA nor a competing marker, the Matritech NMP22 Test Kit, which is made by Matritech Inc. and which received FDA approval this summer, seem particularly useful in detecting low-grade, low stage cancers, says Michael Droller, MD, at Mount Sinai Medical Center in New York, a urologist and expert in bladder cancer. BTA is more sensitive in detecting high grade tumors than NMP22, but NMP22 may be better at determining the probability of recurrence, he notes.

A Continuum of Care For Cancer

But despite such far-reaching efforts, manufacturers might not be able to realize the full potential of a single marker sold outside of a continuum of care as approaches to managing cancer become more scientifically complex and subject to ever-greater cost constraints.

This argument is supported by UroCor Inc. , a competitor of Bard Diagnostic, which is distributing NMP22, together with a package of tests and analyses for bladder and prostate cancer. A single test isn’t going to add enough value to the decision-making process to make it commercially viable, contends William Hagstrom, CEO of UroCor. “If Bard has access to urologists that’s a great starting point but one of the biggest issues [in building a business in cancer diagnostics] is to have enough critical mass in cancer so it can really make a difference.” The market views a single test as incomplete, he explains. “The most important determinant of success will be whether someone has assembled the requisite knowledge and expertise at the disease level and is capably assembling a continuum of tools to assist doctors, be it diagnosis, tracking, or therapeutic capabilities. If you don’t do that, all you are doing is trying to have a product which doctors will view skeptically because it seems to lack context.” Having a service component is also key to commercial success because the charges for a service can be as much as several hundred dollars, he adds.

An Integrated Approach to Cancer Diagnostics

If that is the case, Bard Urological does appear to be taking some steps toward incorporating its diagnostic business into a disease management program. Bard wants to “build a urology business as opposed to a urological device business,” says Benson Smith. As lines between diagnosis, monitoring and treatment become blurred, he says, Bard wants to help urologists understand what tests are of value and what to do with the results. “The more we offer in this area, the more we can help urologists,” he continues.

This is more apparent with its prostate cancer offerings than with BTA. Biostageresponds to a key difficulty in treating prostate cancer, the inability to stage the disease without surgery. The Biostage service for staging prostate cancer gives urologists and pathologists a probability of cancer being confined to the prostate based on a complex algorithm that incorporates not only angiogenesis analysis but also the patient’s PSA and Gleason scores (a rating system based on how well-differentiated cancer cells look under a microscope) as compared to other prostate cancer patients.

Biostage, unlike BTA, needs to incorporate information from a variety of sources and to be linked to a package of products because it helps physicians manage care of patients who have active disease, including playing a role in ruling in or out the need for surgery, argues Van Leeuwen. The company is integrating the selling and marketing of Biostagenot just with in vitro diagnostics but with other products addressing prostate cancer. These include a core biopsy device for prostate diagnosis and tumor identification, generic surgical devices, and an imaging agent, ProstaScint, which Bard is marketing for Cytogen Corp., and which helps physicians follow prostate cancer patients after therapy. Eventually it hopes, through alliances, to add therapeutics to the continuum.

But, like BTA, the value of the angiogenesis program has yet to be proven. Moreover, angiogenesis has more scientific hurdles to climb than BTAat this point because it doesn’t have or need FDA approval, since the analysis will be performed in-house at Bard. As a result, there isn’t as much clinical data substantiating the utility of angiogenesis as is available for BTA and other FDA-approved tumor markers.

And the attempt to wrap a series of products into a bundle and then offer it as a service can backfire if clinicians view the offering as a marketing ploy rather than an alternative with real scientific merit. A number of laboratories bundle new or controversial techniques for analyzing cancer into sophisticated analytical reports as a way to get business, says William Catalona, MD, professor and chief of urology at Washington University in St. Louis. The techniques may or may not provide significant information; angiogenesis, he believes, is likely to have a more promising role in the development of therapeutics than it will in diagnosis.

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A High-Tech Transformation

The diagnostics effort is certainly a gamble on Bard’s part but it is not the company’s only effort in the area of disease management. In addition to looking externally for products that meet the needs of its disease management programs, Bard says it has quietly undertaken other steps to facilitate the implementation of such programs. It has in place, for example, a national accounts team of 35 people to go after large group buyers. This team recently put together an alliance among Bard, Guidant Corp. and Cook Group Inc. to bid for cardiovascular care on a Premier Health Alliance Inc. contract, an outcome that hasn’t yet been announced.

As Bard and others look to pharmaceutical companies’ experience with disease management programs for guidance, they ought to be aware that there are as many differences as there are similarities. Pharmaceutical companies are certainly far ahead of device and diagnostic companies in putting together disease management programs. But pharmaceutical companies’ attempts to integrate diagnostics into their sales have in the past foundered because of the differences between the two businesses, not the least of which is the huge gap between margins on diagnostics and pharmaceuticals.

For low-tech device companies like Bard, however, the margins on a diagnostic are likely to be quite attractive. And as the growing interest in disease management coincides with an interest in selling more high-tech, medically complicated devices, the rationale behind such unions may begin to make sense.

Still, the Bard-Bainbridge union faces some critical challenges, some applicable to any similar relationship and some unique to the two parties. Bard insists that the diagnostics business is critical to its long-term strategy. Indeed, the launch of BTAearlier this year is no small feat, given the difficulty of getting tumor markers approved by the FDA. But, if BTA is anything less than a home run, will cancer testing remain a major strategic thrust for Bard corporate? And, if it takes several years for the BTA market to sort itself out, will Bard grow impatient?

While Bard has left the diagnostic division alone, is it because of the decentralized structure it has throughout the organization or, as some cynics believe, is it because Bard doesn’t know much about diagnostics? Bard is embarked on an experiment that is likely to seem courageous if BTAis used as a screen by millions to detect the possible presence of bladder cancer. At the least, even if sales don’t take off, the entry of Bard into the cancer diagnostics business could help to re-cast the image of a slumbering low-tech company into one that is at least seriously attempting a high-tech transformation.