Can you tell us more about you and the idea behind QSM Diagnostics?
I consider myself a chemical engineer and my PhD is in bioengineering. The research and interests that I have, have been at that interface. As a postdoc, I lived in the Netherlands for a few years, and then I looked for faculty positions in 2010. That's when I got interested in the specific research that ended up turning into QSM diagnostics.
I came across a publication, talking about what's called the quorum-sensing molecules [where the abbreviation QSMs comes from] and thought that they were fascinating. So, I started learning more about them and as I learned about QSMs – which are these molecules that microorganisms secrete as part of their communication system – I became interested in their potential as biomarkers for diagnostic applications.
In the microbiology community, people have known about QSMs for several decades, but they've always focused on them fundamentally. As an engineer, I've been very interested in the analytical side of things. Some of the questions we wanted to answer when I became a professor in my research group were: what's the rate at which QMS get produced and secreted? And how unique are they between species?
My background was on the diagnostic instrumentation side, in making tools that can detect and measure biomolecules. We had to gather information from dozens and hundreds of different sources to piece together the uniqueness, as well as run our experiments, get different microbes into our laboratories, test them on our instruments, and learn about the QSMs.
After a couple of years, we figured out that QMSs get produced in relatively large quantities that can be measured by diagnostic instruments and these molecules are unique.
At least, from the ones that we've been able to find. So, common pathogens get studied a lot more; there's more data and information, but there are more obscure pathogens and microbes out there that we don't have those answers for yet. That’s going to be something in the future.
Once we knew they were being produced, all the time and they were unique, I knew that there would be some applications for this technology in medicine and the industry. That's when I decided to form QSM diagnostics to commercialize this.
What do you feel are the biggest stressors as a founder?
As a CEO, fundraising is my number one priority. We’re having success in this current round, but the market downturns made it a little bit more challenging. I think the other thing is that we’ve entered the market by launching our first products for sale in June last year, and we’re focused on selling them to animal hospitals. That is a unique set of customers and reaching these hospitals is our number two challenge. That has its own set of challenges that we’ve been able to figure out and manoeuvre.
I like being in a leadership role some days more than others. There are stressful periods and very many highs I like, particularly when there’s funding available because I can focus on strategy and directing the company. When we run out of funding, you wear all the hats and that can be a little bit more tiring, especially being the technical founder.
What was the transition moment from the human to the animal health sector?
It was an evolution. We started like everyone on the human side. One of the interesting parts of this is that there are only a handful of pathogens out there that infect animals, and humans being animals, tend to be on the same path.
We started by looking at humans as part of the process of commercialization. Since I was at university, a helpful thing was all the programs that supported us on the business side. This is when we started to look at product-market fit and answer some of these value proposition questions.
At some point, somebody asked us “had you ever talked to a veterinarian about this?” When we started talking to them, we discovered that they were an underserved market within diagnostics. Usually, they get hand-me-downs from the human side. In our case, because it's such a new and breakthrough technology it was easier to start in the animal market because they're looking for new technologies and because it's not as regulated.
For a while, we started to think about ourselves as a kind of one-health or a holistic technology company, but we found that it's very difficult to get funding for that.
Even though it sounds good in theory, the markets are so different, so after much longer than it should have taken us – close to two years – we finally figured out we wanted to be an animal health company. We stopped talking about the human side for now, even though all those applications potentially still exist. For the moment we’re focusing on companion animals.
Once we were on this route, we were able to start targeting very specific applications and dog ears became quickly the number one focus because that's always in the top three reasons to bring your dog to a veterinarian.
Our technology was most advanced around bacteria that are very problematic and dog ear infections were our starting point. Where our tech and tests are evolving is to broaden out among other common pathogens. Beyond ears, it naturally became urinary tract infections as the next product. We’ve been able to add some things to that space.
We'll go down the list of what veterinarians commonly see at clinics and, considering the business point of view, we’ll try to address those things with our products.
Were there any moments when you thought it was all over?
That would've been around the fall of 2019. We were starting to run low on funds. We had an SBIR grant from the National Science Foundation, which got us started. We got our first investor, which set terms for the first pre-seed round.
But then we had challenges in pitching. We were lucky that at that time we got accepted into two accelerator programs. The EFL Frontier Labs, which run out of the NYU Business School, as well as CDL, the Creative Destruction Labs run out of the University of Toronto.
They are very similar programs and they both gave us good advice. It was helpful having them tell us “Hey, you guys need to focus. Pick a market.” This was one of the big things to focus on getting to revenues as quickly as possible. That has its ups and downs, but it has served us well to have constantly our eyes on how we get revenues as quickly as possible. Particularly in life sciences biotech, you could spend a decade in R&D and not have anything to show for it in terms of revenue. Not having the luxury of that kind of runway has allowed us to move forward and be quite successful.
How was your funding process?
The decision to stay in the animal health market was funding-driven, and as first-time entrepreneurs, we found it easier to maneuver and get funding for the companion animal market. For one, there’s far less competition. There are a lot of companies working on trying to get better infection diagnostics for humans that have raised a lot more money already and they’re serial entrepreneurs. At the same time, they haven’t been successful yet because of the regulatory hurdles involved. Even the go-to-market strategies around insurance reimbursements for humans are very different for animals.
We decided to go down to the animal market knowing that we could get to market much faster. We also got helped a bit by COVID. People realized that new types of diagnostics are needed and suddenly people are spending a lot of money on their animals. They have continued to humanize them and treat them as family members and that invigorated a lot of investors to look at us and move us forward.
Now we’ve entered a new stage. We're beyond what most of the accelerator programs are geared for, which is very early figuring out a lot of these things.
There are far fewer programs to do a second seed round or a series A. At the same time, we refined our pitch, and presenting to investors got a lot easier.
Then the challenge now is building the network. What we find is that there are so many potential investors out there but getting the introductions and building the network is our current challenge. The number of people in that space as investors is a small fraction of what's out there for humans. It’s a challenge finding them and finding investors that are adjacent to this space and getting them to expand out. For example, we could help pet insurance and telehealth companies with our products.
We wanted to raise a series A. It’s the downsides of starting to sell products.
Suddenly you get your value, and your valuation gets tied to your revenues. Not having been on the market and not having a big sales and marketing team, we repositioned that and the economics of it slowed down.
So, we’re raising a second seed round on a convertible note now. We’re trying to raise $2 million. We’re just over halfway there at this point and that convertible note has an $8 million cap with a 10% discount.
That builds on our first seed round where we had raised a safe agreement with our investors, in which we had a $5 million cap at a 20% discount. We’ve made a lot of progress now we’re on the market. We think that our valuations increase focusing on that. But we do plan to have a series A of raises, probably by the end of 2023, to do a price equity round convert into shares for all our investors.
What do you see for the future of QSM? Do you plan on looking at human health in the future?
Yes, for sure, but that's long-term. We've made quite a bit of progress on getting the additional cartridges ready to test for additional pathogens and additional use cases. This is – I’d say – our most recent pivot, away from the instruments that we originally started with.
We're still working on it, but it's been a business decision, because of the challenges that animal hospitals are facing. We find it very difficult to get the attention of veterinary staff because (1) you need to educate them about every new technology and (2) find the time to train them. They are so overworked and under-resourced right now that that's been challenging.
In response to that, we ended up launching six months ago mail-in tests called FetchDX. We provide those to the vet clinics in a format they’re already familiar with. For most bacterial testing, they must send out to a reference lab anyway. They don't have the instruments or the time to do it in-house. With our kits, instead of them collecting and processing the samples and sending them out, we have them sell the kits to the pet owner. It’s the pet owner that collects the sample, registers it, and ships it to us.
They can then just look at the test results and diagnose to come up with treatment plans. That has worked very well for us as a business model because we can run the tests on our instruments in our lab.
We can also perform a whole suite of tests because we have a full laboratory.
It's something that doesn't require any training or new effort. It's also a lot easier to provide samples so we can have a veterinary clinic, test it out themselves with one of their animals when they have time and see how the process works. It’s also at a much lower cost than setting up an instrument and getting salespeople to come into their hospital.
That’s been kind of our most recent evolution and for the time being, we're focused on selling those. Meanwhile, our R&D team is adding more tests to the menu for our instrument platform. We're hopeful that, at some point, the animal hospitals will go back to normal operations and when having that bandwidth, they’ll be able to bring in our instruments.
I think the future will be a combination of using our instruments or in-clinic testing – rapid testing – in which you can get your animal the next day or the same day, and having the convenience for the pet owner to be able to do a re-check at home without having your animal go into a hospital unless it’s necessary.
Which other founders or companies in the market inspire you?
There are several cool companies out there making progress specifically in the diagnostic space. We're big supporters of Lacuna Diagnostics. They got acquired by Heska a couple of months ago and I think that's a big trend.
There are only three or four big animal health companies out there. As soon as the start-up’s making progress, and getting traction, they come in and are swallowed up by one of those. I think that's part of our fate. They had a cool technology that could make the lives of veterinarians easier, that was recognized, and went through. Aaron Wallace was the founder of that company.
What changes would you like to see in the animal health market?
I think the bright conversations are starting and we would support additional meetings and conversations around evolving veterinary healthcare. This is where there are so many challenges that the industry faces. Being able to have those discussions and figure out how to move forward is important. For example, some veterinarians are comfortable with our mail tests, while others are still hesitant.
We see a lot of pet owners that want this, but getting all the stakeholders into one room and having those discussions around, how do we make access to healthcare? Also having reasonable working admissions available and having all that come together is very important.
We're starting to see that, but I think we need to figure out how can we reach all those overworked veterinary staffs to tell them about the innovations and the progress that's being made. With this, they can evaluate them and understand that some new options are coming out for them.
