Assay Depot Founders Morphed Their Biotech Startup Into e-Commerce Provider of Drug Discovery Services

12/17/09Follow @bvbigelow

The three co-founders of San Diego’s Assay Depot started the company in 2006 as a for-hire cancer research outfit, with the big idea of creating a Web-based system that would make it super easy for biomedical researchers to order assays, screening tests, and other lab services.

“We were building the website and we really wanted it to be special,” co-founder Kevin Lustig tells me. “We wanted customers to come to our website and get information, request quotes, and place orders.”

But Lustig says they stopped in their tracks after several other contract research organizations (or CROs) that provide biotech laboratory services asked him if they could be included in the website that co-founders Andrew Martin and Chris Petersen were building. Lustig recalls asking himself, “Maybe we’re going in the wrong direction. Maybe what we should do is bring all the CROs into one place.”

Assay Depot CEO Kevin Lustig

Assay Depot CEO Kevin Lustig

Lustig, who got his doctorate in cell biology at UC San Francisco, has spent his career in biotech. He was previously a co-founder and research director at Kalypsys, a San Diego biopharmaceutical firm with high-speed molecular testing capabilities that was spun out of the Genomics Institute of the Novartis Research Foundation. But co-founders Martin and Petersen had fundamentally different skills. While they both had also worked at Kalypsys, Martin headed informatics and Petersen led software development. So their in-house expertise made it possible to transform what began as a biotech services startup into more of an IT startup—a full-service, e-commerce website that Lustig describes as an Amazon.com for biotechs and biomedical scientists.

Assay Depot automates a CRO hiring process that can take a principal investigator days or even weeks to work out, Lustig says. “If I’m a scientist, I have to talk to 10 CROs. I have to sign a master service agreement with each one, then a legal agreement, and then I can begin negotiating, and that all takes time.” In contrast, Lustig says Assay Depot’s online marketplace includes thousands of laboratory tests and services, and enables scientists to buy services they want or to post a request for bids.

The website also enables CROs to list the laboratory services they provide, and the prices. CROs pre-sign the requisite master services agreement, confidentiality forms, and other documents when they register to list their services on Assay Depot’s website. That makes it possible, as Lustig puts it, for a scientist to log onto the website and just click to purchase an Ames test ($2,512 and up) or a general toxicology screen ($4,250 and up) the way ordinary folks click to buy a book at Amazon. Asset Depot takes care of the paperwork, including billing.

The website is free to join and, for customers, free to use. Asset Depot says it only gets paid when customers actually place orders for laboratory services—by charging the CRO a 7 percent commission on services they sell through the website. After launching assaydepot.com roughly a year ago, Lustig says it was three months before the company processed the first order. But the company now has roughly 150 CROs registered, and has five full-time employees and three consultants.

Lustig says Asset Depot raised $1.8 million in startup capital entirely through friends, family, and a handful of individual investors, including some Hollywood money invested by comedian/actor Adam Sandler and producer Jack Giarraputo. Lustig anticipates raising an additional $1 million to $2 million in January, but says he hopes to avoid venture investors because Kalypsys “gave away 75 percent of the ownership” in raising its first $170 million.

Assay Depot’s timing also has been ideal. The economic downturn of 2008 and doubts about the VC-based business model for the biotech industry have prompted biotechs everywhere to turn to outsourcing laboratory services as a way to cut costs. “Almost overnight, the core philosophy of [in-house] pharmaceutical research is being abandoned,” says Lustig, who cites one market report that estimates the biotech outsourcing market will double to $14 billion in the next four years.

Assay Depot’s website has drawn substantial interest throughout the biotech industry—and Lustig says one very large pharmaceutical company that he is not at liberty to name has hired Asset Depot to develop a version of the website within the pharmaceutical’s corporate intranet. “We’ve constructed a private marketplace that only the 10,000 researchers of that pharma can access,” Lustig says. The customer would not let Assay Depot charge a 7 percent commission on each transaction, however, so Lustig says it operates on a subscription business model.

Big Pharma companies typically provide 1,000 lab services internally, but Lustig says such firms are also looking for ways to trim costs. A private website provides a central clearinghouse where all of the scientists within one company can go to order laboratory services—whether they are provided internally or through a CRO. In fact, Lustig says Assay Depot has developed a rating system for its private marketplace that enables the pharmaceutical company to assess whether CROs provide better service at lower cost than the company’s internal service providers.

“They might be able to reduce their costs by $100 million a year by asking their scientists to rate the internal lab services (up to a five-star rating) and let them compete against the outside CROs,” Lustig says.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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