Can St. Paul startup succeed where Theranos failed? Ativa bets on $8 blood tests

A flash of sparkles appears as an industrial-grade laser unleashes a blast of energy, precisely manufacturing channels in laminated tape for a medical device component.

Someday, a laser-cut strip of tape almost exactly like this could be used in a tabletop analyzer at a clinic to count your blood cells or check your urine for signs of infection, executives at St. Paul medical device startup Ativa Medical say.

But to overcome the significant hurdles to reach such a breakthrough, Ativa will have to succeed where many other health care companies in the past have failed.

"We have a team here that is really good at doing really difficult things," said Ativa co-founder David Deetz, for whom Ativa is his fourth startup. "We usually [form startup] companies where the last 10 companies have failed."

Decade-old Ativa is designing a system it calls the Ativa MicroLab to run accurate diagnostic tests on tiny samples of blood or urine inside a doctor's office or ER in a few minutes' time. The system relies on single-use test cartridges expected to cost about $8 per test.

If it works as intended, such a system could upend the massive blood and urine testing industry, allowing doctors to use lab results to prescribe drugs during 10-minute office visits, and expanding access to primary-care services to underserved areas. The system is not cleared by the U.S. Food and Drug Administration.

Ativa is targeting a massive market for disruption with its $8 tapes. Analysts with Grand View Research estimate that the North American market for clinical lab services was worth about $100 billion last year — and that's just one continent.

Meanwhile, the global market for "point-of-care" diagnostic testing generates more than $6 billion in revenue, and is expected to grow rapidly because of macroeconomic trends, analysts with Grand View Research estimate.

It's such a compelling market opportunity that investors poured hundreds of millions of venture dollars into a similar company called Theranos, which turned out to be a $9 billion mirage that led to fraud charges last year against its founders. (Theranos' founders have pleaded not guilty.)

"This technology — the concept — is amazing. I think that's why people were willing to go down that road with Theranos," said Kathleen Tune, managing director of Minneapolis' Fourth Element Capital. "But I'm sure [Theranos' collapse] did cause a taint on the technology area."

Deetz, the chief technology officer at Ativa, said Theranos also consumed much of the venture funding that would have been available for legitimate point-of-care diagnostic systems. As a result, Ativa has had to raise much of its $50 million through venture funding in China and dozens of individual "angel" investors in Minnesota, like Stillwater dentist Dr. Phil Flodin.

"I see it as being a really big cost-saving and timesaving device for medicine," Flodin said. "I think it can change primary care."

North Carolina's LabCorp, one of the largest clinical lab companies in the world, invested an undisclosed amount in Ativa's Series B round in 2015, along with China's Ping An Ventures, according to investment-tracking firm Crunchbase.

Ativa's MicroLab platform includes a base unit about the size of a desktop CPU that contains precision optics and a reloadable pack of chemical reagents needed for the tests. The base unit has a slot for single-use test cartridges, which are designed to have a low price tag to encourage widespread adoption.

This point-of-care "fluid processing engine" is supposed to be so easy to use that the Centers for Medicare and Medicaid Services (CMS) will give it a waiver from its standard rules for lab testing, known as CLIA, similar to blood-glucose meters or pregnancy tests. That means the MicroLab will have to be factory-calibrated, and doctors' offices will only have to register for a certificate of waiver to use the device.

While the device incorporates a wide range of technologies, much of the innovation is in the design and manufacture of those precision-cut tapes inside the single-use test cartridges, which are churned out on a custom-built, room-sized machine at LasX Industries in White Bear Lake.

"See that thickness there? That's five layers of tape — that's where all the action is," Deetz said recently as he held up a tape containing laser-cut microfluidic channels no thicker than a few strips of tape.

The pattern of channels in the tape looks a bit like circuitry in a computer chip, which is not a coincidence. Just as electric circuits are designed to line up packets of information into single-file order so they flow in a predictable manner, Ativa's microfluidic channels are designed to force blood cells from a 12-microliter lab sample into single-file order so they can be counted or analyzed in a precisely controlled way.

"It's hydrodynamic focusing, is what it is," said Ativa co-founder and Chief Operating Officer Barbara Roth. "It actually not only brings them into single file, but it also speeds them up as well."

The Ativa MicroLab is designed as a platform that will be able to handle a wide variety of CLIA-waived tests eventually. For now, the company is working to perfect its complete blood count test or CBC, which is supposed to be submitted to the FDA early this year for 510(k) clearance. The next two tests will be the basic metabolic panel, which is the second-most-common blood test performed after CBC, and a urine panel that can screen for urinary tract infections.

Dr. Brad Karon, a pathologist and co-director of the Mayo Clinic Point of Care Testing program, said some elements of what Ativa is trying to do are already common in the market, like using microfluidics to create tiny samples for CLIA-waived lab tests. But the overall product would be unique, if validated.

"The microfluidic technology to produce the right sample, like a plasma-like substance to measure glucose, or sodium or potassium or all electrolytes, is not new. And it is being done well now," Karon said. "What no one is doing well now, and is a home run for whoever does it first, is the universal platform."

Ativa is optimistic about its pending application to the FDA for clearance of its CBC test, based on promising results from a federally funded study with Massachusetts General Hospital.

Those study data have not yet been published in a peer-reviewed journal. A detailed white paper outlining the results, which Ativa allowed the Star Tribune to review on the condition that it not be published, showed a high degree of correlation between Ativa's results and a traditional lab testing device used by the hospital's central lab on 218 actual patient specimens.

Investors say Ativa may find more interest in its published results than would be typical, because of all the negative publicity around Theranos.

"The basic question at Theranos was, where was the demonstrated evidence that could validate the claims that the company was offering?" said Jodi Hubler, managing director at Minnetonka's Lemhi Ventures, which invests in health-industry startups. "Those that follow them [such as Ativa] are going to face what might feel like an additional level of scrutiny."

Joe Carlson • 612-673-4779