Canada

The big wait: an entrepreneur's agony at Spartan Bioscience

ALMONTE - APRIL 9, 2020 - Nurses take COVID-19 swabs at drive-thru testing site outside the Almonte General Hospital Thursday. Julie Oliver/Postmedia

There’s a vast difference these days between what is and what should have been for Paul Lem, the founder of Spartan Bioscience of Ottawa.

Three months ago, his company secured Health Canada’s emergency use approval for the Spartan Cube — a portable lab-in-a-box that tests for the SARS-CoV-2 virus that causes COVID-19. The Cube produces results in less than an hour, compared to days for tests done through laboratories.

Alberta, Ontario, Quebec and the federal government promptly ordered nearly two million test cartridges and the Cube devices that process them — approaching $200 million worth of potential business with more to follow, all of it contingent on the performance of the initial samples.

Lem reckoned Spartan would be shipping hundreds of thousands of COVID-19 test cartridges every week by mid-July.

Instead, he finds himself deep in limbo. On May 1, Health Canada advised him Spartan’s proprietary swab wasn’t picking up sufficient quantities of the virus DNA to ensure accurate readings, a not uncommon problem with testing technologies that rely on relatively non-invasive swabs, as is the case with the Cube.

Lem promptly shut down the firm’s production line and, ever since, Spartan’s scientists have been experimenting with different sampling methods. A decision from Health Canada on whether the revised methods work is expected any day. Of course, a ruling has been expected imminently for the past few weeks.

This is an entrepreneur’s nightmare.

It’s not just that Lem has to keep a rather complicated supply chain on standby. Wistron Corp. of Taiwan is to manufacture the Cubes and L-D Tool & Die of Stittsville makes the swabs and cartridge. Lem had also lined up a Toronto-based contract manufacturer, believed to be Sanmina, to handle the higher expected volumes of swabs and cartridges.

As long as these firms believe there’s a reasonable chance Spartan Bioscience can solve the technical issues, they’ll hang in.

What’s keeping Lem and his investors awake at night is the potential lost opportunity here. When Health Canada warned Lem about his test swabs two-and-a-half months ago, the country’s laboratories had conducted about 800,000 tests for the coronavirus. Since then, an additional 2.3 million tests have been performed, 56 per cent of them in Ontario.

These tests are all being performed by technology built outside Canada. Twenty-six devices have been authorized by Health Canada to perform COVID-19 tests since last March — including 21 aimed at detecting the infection caused by the virus, and five devices that can spot antibodies that signal the body’s response to an infection.

Eighteen of the test kits are U.S.-designed, four originate from South Korea and two are German. One Chinese-made kit has been approved. Which leaves the lonely Canadian — Spartan, whose Cube is still designated “research use only” thanks to the swab issue.

The importance of getting an early start in developing COVID-19 test kits can be seen in the experience of Texas-based Luminex, a biomedical firm that received emergency use approval for its testing technology in both Canada and the U.S. last March. Demand for the test kits has been huge, not surprisingly, given the explosion of confirmed cases of COVID-19 south of the border. On July 8, the company revealed its second-quarter revenues would jump 30 per cent to US$110 million. Pre-pandemic Luminex had forecast a revenue increase for the year of just seven per cent. The second-quarter surge was driven by a doubling of revenues to US$65 million in its diagnostics division, which markets the COVID-19 test kits.

Luminex is actually one of the smaller companies on Health Canada’s list of approved testers. Most of the others — Roche, Abbott Laboratories, Thermo Fisher for instance — are cash-rich giants in the business of pharmaceuticals and diagnostics. For them, it was relatively straightforward to adapt existing products to target the specific virus that causes COVID-19.

For Spartan, the risks were much greater. Lem has devoted the past 14 years to building test kits for detecting the DNA of the bacteria that causes Legionnaire’s Disease. Another application of Spartan’s technology examines the DNA of heart patients to determine whether they will reject certain blood thinners because of a genetic mutation.

The mechanism for the proposed COVID-19 test kit is industry standard — genetic material is extracted from a swab and parts of it are amplified through a polymerase chain reaction. Spartan uses a technique called realtime or qPCR, in which data is collected throughout the PCR cycle. The Spartan Cube offers analysis of the genetic material picked up by the swab on-site.

Although Spartan employs 70, it is still very much a startup, without deep financial reserves. It relies on risk capital to keep going. When the extent of the coronavirus’s spread was becoming clear in February, Lem directed much of the firm’s focus to developing what he believed would be a highly competitive product — the portable Cube can be used in so many places where speed or availability of testing is key. Think border crossings, airlines, conferences, office buildings and remote communities without access to labs.

Look down that list of Health Canada-approved devices. There’s just one other firm — Cepheid of California — that makes a portable COVID-19 test kit similar to that of Spartan.

Cepheid’s device was approved for use in Canada in March but, unlike Spartan, has kept its emergency use designation throughout. A company official told this newspaper that since last March Cepheid has shipped an average of 2 million cartridges per month worldwide, which are processed by 25,000 Cepheid systems (comparable to Spartan’s Cube). “Test demand continues to outweigh supply,” the official noted, adding that the company is evaluating “options to further increase production.”

Indeed, such is the demand for the product in the U.S., Cepheid has sold relatively few cartridges in Canada.

Which suggests there is still time for Spartan to make its mark here, especially since its Cube’s portability and speed appears well suited for testing employees in a reopening economy.

Indeed, Spartan last month re-jigged its management to prepare for potentially rapid growth. Lem stepped aside as CEO to become chief medical officer, while company board member Patrick Mallon, an industry veteran with global experience, will manage Spartan’s operations. Meantime, the board is hunting for a new CEO with experience in transforming a startup into a much-larger enterprise with multiple product lines.

That hire, too, might depend on how well Spartan’s scientists have re-engineered the company’s swabs — and whether Health Canada agrees they work. Any day now.

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