Response Biomedical charting turnaround story

The new management team of Response Biomedical (OTCBB:RPBIF; TSX:RBM), with the strong support of its controlling shareholder, OrbiMed Advisors, has adopted an aggressive plan to drive sales and achieve profitability.

Jeff Purvin, who moved into the executive suite as CEO about two years ago, contends that any corporate turnaround needs more than tweaking the existing game plan.

“There has to be some pain involved in a turnaround and some fundamental change in direction,” Mr. Purvin says in an interview with “We took the attitude that some serious doctoring was needed to get this company on the right road.”

Although Response has been around for over 20 years, Purvin and his new team are managing the company like it’s a startup. They have focused the employees on executing a simple three-point strategic plan and have created a very cost-conscious company culture.

Vancouver-based Response manufactures and distributes point-of-care and lab-based diagnostic tests and readers that quickly analyze serious cardiovascular conditions, infectious diseases and potentially life-threatening environmental and biodefense dangers. The company generates sales in 27 countries, including countries in the E.U. as well as the U.S., Brazil, Russia, India and China.

Its RAMP Reader and newer RAMP 200 readers are designed to analyze a blood sample and return test results within an average turnaround time of 15 minutes, compared to the one-to-three hours for central lab systems.

“Faster test results can mean faster, more successful diagnoses and medical treatments in hospitals, with lower downstream medical costs and litigation risks,” Mr. Purvin says.

The RAMP 200 is a breakthrough system that can run multiple tests on the same patient or on different patients simultaneously. Mr. Purvin points to this as a great advantage over the test devices made by competitors, Alere (NYSE: ALR), Abbott Labs and Roche.

“In addition to producing test results in approximately 15 minutes, being much less expensive and having an extremely small footprint, we correlate quite well with the performance of $200,000 hospital laboratory systems,” he adds.

In 2013, Response Biomedical posted a net loss of $6-million on sales of $11.5-million. Nearly two-thirds of 2013 sales were generated in China.

The company’s three-point strategic plan includes establishing a major sales presence in the U.S., increasing sales in China and optimizing efficiencies to increase margins.

Mr. Purvin recalls that one of the first things the new management team noted on its arrival was that, although China represents only 3% of the global point-of-care diagnostic market, Response depends almost entirely on sales from China. “So, we asked ourselves why we don’t have a stronger presence in the U.S. and Europe, which account for nearly 85% of the worldwide point-of-care market.”

He says it didn’t take long to realize there was no way to establish a beachhead in the U.S. without a reasonably large sales force. Last year, Response inked three distribution deals with U.S. partners for its RAMP-branded cardiovascular and infectious disease testing lines, and boosted its U.S. sales coverage from two direct reps last year to 50 contract sales reps this year.

According to Mr. Purvin, Response completely changed its distribution network in China starting in the fourth quarter of 2013.

“When we analyzed our China strategy 18 months ago, we found that our current distributors were not very dedicated to our product line, were not pushing forward with very many local marketing programs and were making a lot of money selling Response’s products while we were making relatively little money due to very low, legacy transfer pricing,” he recalls.

“Our response was to open an office in China for the first time, hire in-country management, increase prices and begin the process of getting our own assay regulatory clearances,” he adds.

In the fourth quarter last year, Response achieved its own registrations and promptly brought on board two new distributors, with plans to add a third this year.

“Our new distribution team in China has much broader geographical capabilities than our previous distributors and shows much more enthusiasm for expanding Response’s already high share of market in the country,” he says.

“Increasing our importance in the big worldwide point-of-care market is not going to happen overnight,” he adds. “After we succeed in growing our sales in the big U.S. market, we intend to use our learning to penetrate the European market.”

Mr. Purvin points out that Response is seeing many positive signs that its turnaround effort is making progress. For example, gross margins have increased meaningfully from 1% in the first quarter of 2010 to 44% in the first quarter of 2014.

“Since the new management team joined Response, we have changed just about everything the company was previously doing,” Mr. Purvin contends. “We are determined to get the company to profitability for the first time in its history and then establish sustainable growth, year after year, thereafter.”