Tailwinds Research Group LLCTailwinds Research Group
3D Signatures: Disruptive Technology with an Attractive Business Model
By Daniel Carlson - April 21, 2017
At Tailwinds, we are focused on finding future leaders. Companies that fit our model bring new technologies to growing markets. The combination of disruptive technologies with expanding end markets gives our portfolio companies the opportunity to grow at multiples of the overall economy and command premium valuations. 3D Signatures (3DS) is one of those companies.
Genomic Analysis for Personalized Medicine
In 2003, after more than a decade of research, the Human Genome Project was completed by the U.S. Department of Energy and the National Institutes of Health.
The goals of the Human Genome Project were to learn the order of the 3 billion units of DNA that go into making a human genome, as well as to identify all of the genes located in this vast amount of data. By 2003, almost all of the pairs of chemicals that make up the units had been put in the correct sequence—enough for a pronouncement of success.
The information garnered from the genome project has the potential to forever transform healthcare. Many believe that genome-based medicine, frequently called personalized medicine, is the future of healthcare—the next logical step in a world in which more is known about human genetics, disease, and wellness than ever before.
Personalized medicine is a young but rapidly advancing field of healthcare that is informed by each person’s unique clinical, genetic, genomic, and environmental information. Because these factors are different for every person, the nature of diseases—including their onset, their course, and how they might respond to drugs or other interventions—is as individual as the people who have them.
Personalized medicine is about making the treatment as individualized as the disease. It involves identifying genetic, genomic, and clinical information that allows accurate predictions to be made about a person’s susceptibility of developing disease, the course of disease, and its response to treatment.
In order for personalized medicine to be used effectively by healthcare providers and their patients, these findings must be translated into precise diagnostic tests and targeted therapies. This is where 3D Signatures comes into the picture.
With their unique diagnostics centered around Telomeres, a protective structure that safeguards chromosomes and insures genomic stability, 3DS has discovered a platform with the potential to provide advanced diagnostic results for many diseases, allowing personalized therapies to be delivered to the patients.
“Our novel, proprietary technology analyzes a specific part of an individual’s unique DNA (their telomeres) to determine how a disease will progress and if a patient will respond to treatment. This information enables clinicians to measure the appropriateness and effectiveness of different treatments for specific patients.”
This is groundbreaking research with the potential to provide both better patient outcomes and significant savings to the healthcare system. As an example of how this works, examine the results from 3DS’s recent assay validation study related to Hodgkin’s Lymphoma, a disease for which the standard of care is chemotherapy and in which 20% of patients suffer a relapse.
Powered by the Company’s proprietary TeloView™ software platform, the test stratifies HL patients at the point of diagnosis into non-relapsing and relapsing patients. Relapsing patients may then be considered for alternative treatments at the time of diagnosis rather than waiting until they have failed multiple rounds of standard chemotherapy.
Avoiding multiple failed chemo treatments not only is of obvious benefit to the patient, but can result in savings of over $90,000 per treatment that is avoided. At this time, there is currently no biomarker available that can predict patient response to standard chemotherapy in HL patients. 3DS is hoping to change this and will launch their clinical trial soon, in an effort to be first to market with a successful diagnostic.
And, it’s not just Hodgkin’s Lymphoma. TeloView™ is a platform that has potential applications in many diseases. The above chart shows 3DS’s progress in discovering biomarkers in several forms of cancer as well as Alzheimer’s; as you can see, they are already progressing on multiple fronts and this is just a partial list of potential applications. The Company already believes the technology has potential in 12 kinds of cancer, and expects that number to only increase.
Diagnostics With a SaaS Model
To date, 3D Signatures has demonstrated success in many early stage trials. This has enabled them to obtain financing, not only in the public markets, but through significant, non-dilutive, grants as well. It has also sparked the interest of many large pharmaceutical companies, which, according to the Company’s recent press release, might fund them “through non-dilutive or independent financing arrangements, such as a joint venture.”
Joint ventures would make a lot of sense for 3DS as they could partner on many diseases, thereby increasing their pipeline, without diluting investors. However, the broad applicability of their platform would make an acquisition less likely, in my opinion, as their technology could help assay a far broader swath of diseases than any one pharma company would be attacking.
Thus, I fully expect 3DS to be coming to market with their own assays in the future. Which brings up another very positive aspect of their business. Besides being potentially able to assay many different diseases, the model is incredibly high-margin, scaleable, and protected on the IP. This is due to their SaaS model of performing assays.
The assays analyzed by 3D Signatures are all collected elsewhere, at outpatient centers or in the hospital labs. Once prepped, they are shipped to 3DS for analysis. 3DS has a very intense three dimensional imaging program that examines each sample and returns back the data needed to diagnose diseases, their stage, progression, etc., with those results then returned to the patient’s physician.
The important part, from the business model perspective, is that 3DS is simply running a software diagnosis on samples that are collected and prepped elsewhere. It’s kept in house to control the proprietary nature of the program, but the majority of the labor is external. This creates a very high margin and scalable Software-as-a-Service (SaaS) model for 3DS.
This high margin, scalable model is a key differentiator for 3DS. As they grow the number of assays performed, the company’s bottom line will expand rapidly. The SaaS model is one that typically gets rewarded with a much higher multiple by the market, due to the upside potential, as well as the high margins which limits losses should business slow for any reason.
A Disruptive, Scalable Platform
The bottom line here on 3D Signatures is that this company represents everything that we at Tailwinds are looking for in our Select Portfolio companies. They have a highly disruptive business, being able to (hopefully) perform diagnostics on diseases that haven’t been accurately diagnosed, from a personalized medicine perspective, in the past. By doing so, the Company provides a benefit to patients and a much needed cost savings to the whole healthcare system.
Meanwhile, they are doing this with a high margin, scalable software model that will allow them to be highly profitable if and when their business takes off. And, finally, their technology is a platform with broad applications within the medical field; a platform which has yet to fail in a clinical trial. Put together, 3D Signatures represents a compelling investment opportunity.