Emerging company profile ACT: Capturing value-added downstream

When companies develop money-saving technology, a critical issue is how much of the savings can be captured by the company as profit and how much will be captured by intermediaries in the form of higher margins or customers in the form of lower prices.

As the emphasis on cost savings grows in the health care system, one way for biotech companies to ensure that they capture some of the revenues - as opposed to being squeezed by health care providers - is to integrate downstream to make sure they share in the profits.

Cell therapy companies such as Activated Cell Therapy Inc. are developing stem cell processing devices that dramatically lower the costs of stem cell transplantation compared to traditional bone marrow transplant - by about $30,000, according to some estimates. How best to structure the business to capture those savings therefore is a critical question. A key choice is whether to be a seller of devices or provider of services.

ACT (Mountain View, Calif.) has chosen the latter route.

Growing segment

Stem cell transplantation already is a significant business. About 43,000 stem cell transplant procedures were performed in the U.S. in 1994 at a