Why A Tech Billionaire’s $50 Million Bet On A Covid Testing Firm Is Still Waiting For FDA Approval

Diagnostic firm Fluxergy’s pivot to Covid-testing was supposed to give it a huge boost – but even with backing  from Kingston Technology’s John Tu, it’s stuck in limbo.

John Tu, the cofounder of computer memory maker Kingston Technology, had a close call in July. In a sliver of normalcy as Covid-19 surged across the country, Tu was chatting in close proximity with a friend – not wearing a mask.   

The next day, that same friend called him to say he’d been in contact with someone who tested positive for the virus. Tu, 79, decided to get tested. Instead of going to urgent care and waiting a week or more for his results, or summoning a private doctor like many other billionaires, he phoned his son. “Do you have one of your machines available,” he asked. “Come home now.”

Jonathan, 33, rushed over with a device, roughly the shape and size of a computer tower, that could turn around coronavirus results within an hour. Jonathan got it from medical diagnostics company, Fluxergy, where he is chief financial officer. At the Irvine, Calif.-based company, his job is to keep an eye on the bottom line, so he had never actually administered the test himself. But the device was designed to be used by anyone with a little training, even if it hadn’t yet been approved by the U.S. Food and Drug Administration. So, Tu, the sole investor in the diagnostic company,  leaned his head back as his son stuck a swab up his nose and tickled what felt like his frontal lobe. It came back negative, a result later confirmed by an outside test.

Fluxergy’s analyzer, which automates the kinds of medical diagnostic tests performed in a lab and is designed to be used in urgent cares, office clinics and other community health facilities, snagged John Tu’s attention — and financial backing — years ago. Fluxergy CEO and cofounder Tej Patel, 32, is a childhood friend of Jonathan Tu, who pitched the point-of-care test to his father as a “billion-dollar idea” back in 2013.

“A lot of other startups focus so much on the fundraising, trying to get the big brand name VCs…We’ve been able to kind of avoid a lot of that, just because of the close relationship that we have with John.”

It’s not a huge surprise that Tu agreed to invest. “If you have a good partnership, that is the key point that makes you be successful,” he recalls “So I thought from the beginning that they have the quality. They’re nerdy, but they think right.”

Tu has built a storied career and $6.5 billion fortune around the notion that all business is personal. In 1982, he put his trust in friend and basketball partner David Sun, who had a hunch that personal computers would be the next big thing. They grew computer memory company Kingston Technology into an industry leader by prioritizing relationships with customers and employees. Personal connections turned out to be more important than technology in a quickly commodifying business. Ultimately no one really knows (or cares) who makes the memory chips in their laptop. The company, which Tu and Sun still run as CEO and chief operating officer, respectively, now does nearly $13 billion in sales.

With that kind of capital and clout, he could be an investing force if he chose to be but instead has apparently invested in only a few start-ups run by people he knows — a manufacturer and an AI company, both founded by friends in Taiwan. The manufacturer is still around, if floundering, while the AI company folded.

Now, his biggest bet is on the CEO who was once the nerdy kid who went to high school with his son and played video games with him in the basement. Tu has poured $35 million in Fluxergy, including $15 million this year, with another $15 million coming down the pike. “The dynamic changes all the time. But the testing is still very necessary… it’s still the beginning,” he says.

Tu’s money has floated the company for the past seven years. allowing it to focus on refining its tech and identifying the right market. “A lot of other startups focus so much on the fundraising, trying to get the big brand name VCs. All the sort of cliche Silicon Valley stuff,” says Patel. “We’ve been able to kind of avoid a lot of that just because of the close relationship that we have with John.” 

But the pandemic has created a once-in-a-lifetime opportunity for Fluxergy, and the pressure is on to get its product to market. The demand for Covid tests right now is massive. As the number of daily cases in the U.S. hovers around 220,000, approximately 1.9 million tests are conducted each day. In order to properly track the virus, the National Institutes of Health wants to hit 6 million tests per day. That demand will wane; Pfizer’s Covid-19 vaccine got emergency use authorization from the FDA on Friday, and Moderna is expected to be close behind.  Although vaccine rollout will take some time, NIH director Dr. Anthony Fauci expects vaccines will be widely available by April. Even with vaccines, Covid-19 testing will likely be necessary for years, but experts anticipate that peak demand will end by the spring. Time to benefit from that surge is running out.

Fluxergy got its start in 2011, the year Patel and University of California San Diego engineering classmate Ryan Revilla founded it . Pivoting from auto engineering, they developed a prototype of their analyzer, intended to be portable and cheap enough to be used in non-traditional lab settings, in Patel’s kitchen by 2013.

Jonathan, thrilled with the idea, convinced his dad to get on board in 2013. The Tus invested $450,000, buying roughly third of the company. As Fluxergy honed its product and prepared to expand, Tu funneled in millions more, dissuading the young founders from pursuing VC funding that would wield influence over the company.

Fluxergy’s system, which costs roughly $8,000, was originally designed to quickly and conveniently perform a range of tests, simultaneously, from routine health screens for maladies like high LDL cholesterol to seasonal bugs like the flu. The lab-in-a-box dream is still a ways off. In the meantime, the pre-revenue company tried to make quick cash by avoiding the FDA’s lengthy approval process, and marketed the product to horse owners, but it brought in almost no sales.

When the coronavirus started spreading in the U.S. in February, Fluxergy’s purpose snapped into focus. It dropped its equine pursuits and set out to create a cartridge for the novel virus as the FDA declared it would issue emergency-use authorizations for Covid-19 diagnostics. How it works: a cartridge is inserted for the specific disease that holds a biological sample, like mucus or blood, from the patient. Once the cartridge is inserted, it is flooded with a biochemical reagent solution that makes many copies of genetic material from the virus or other substance it is looking for. After about an hour, there are enough copies (or lackthereof) that Fluxergy’s software can detect whether or not the virus is present.

With its technology ready to go, Fluxergy submitted for FDA authorization at the end of March, understanding that it was not only its ticket to an immediate boost in sales but provided the startup a limited window to get in the door of healthcare facilities and large employers across the country, hopefully securing customers that last long after the coronavirus fades. But that can only happen if the product gets approval from the U.S. Food and Drug Administration, and the window is closing. 

Fluxergy has been waiting eight months. Meanwhile, 12  companies already have same-day Covid tests on the market. If Fluxergy’s tech can’t get approved in the next few months, it will be a big setback for a company that’s struggled to find its footing.

Fluxergy is not the only outfit caught up in the bureaucratic weeds. There are at least 6 others, probably more. After a flurry of authorizations for point-of-care tests during the first six months of the pandemic, the FDA appears to have slowed down, approving only two rapid tests in the past two months.

Companies that have gotten the green light, however, are cleaning up. Between April and July, medical tech giant Abbott sold $180 million worth of Covid-19 tests for ID Now, its point-of-care platform similar to Fluxergy’s analyzer. In the third quarter of the year, diagnostics manufacturer Quidel nearly tripled its revenue compared to the same time last year, raking in $318 million from its rapid Covid-19 test. Becton Dickinson, which only got approval for its rapid test at the end of July, has gotten $440 million in revenue from Covid-19 testing.

“If you have a good partnership, that is the key point…So I thought from the beginning that they have the quality. They’re nerdy, but they think right.”

Even as it has waited, the company has been busy getting ready for its big moment. It’s lined up corporate partners, dependent on FDA approval, from the automotive defense and hospitality industries, eager to get their employees safely back on site. Using another $15 million from Tu, Fluxergy also leased a new 20,000-square-foot manufacturing space and stocked up on materials so it would be ready to go.  In the past year, it has doubled its number of employees from 40 to 80. Once it gets the green light from the FDA, it says it will start producing 1,000 analyzers per month, up from 300 total in the past 7 years.

Fluxergy’s most direct competitor, Cepheid, has been selling its rapid Covid-19 test since March, and got a combination Covid-19 and flu test approved in September. Patel hopes what will eventually set Fluxergy apart from Cepheid and the 11 other  companies that have tests on the market will be its cartridge that can test for the Covid-19 virus and antibodies at the same time. But that cannot happen until the FDA authorizes the analyzer itself.

That eight months of waiting is not unusual for the FDA in a normal situation, but it is frustratingly slow given the circumstances. The FDA declined to comment on Fluxergy’s status, but a spokesperson for the company says the hold up is due to their analyzer’s software, which has to be separately evaluated by a specialist at the FDA.

Perhaps a bigger reason it hasn’t gotten approval comes down to Fluxergy’s inexperience, despite Tu’s backing. Almost all of the point-of-care tests that got the go ahead in the months immediately after the outbreak were made by companies that had experience dealing with the FDA, and could simply retool what they already had for Covid-19 , according to Michael Wolfson, project manager for the NIH’s Rapid Acceleration of Diagnostics (RADx) Tech program. “The ones that are coming are from companies that have never gotten a device approved before,” says Wolfson.

Even if the FDA proves to be insurmountable over the next several months, Patel is exploring options outside of the U.S. He says that the company is preparing to submit the test for approval in Australia and the European Union. He also believes that the device’s ability to simultaneously test for so many other things other than Covid-19 can help it move past this stalemate. “I think it will not be the end all for us,” he says. “We still have a lot of opportunities here.”

Tu agrees it is smart to pursue the international market, but thinks FDA authorization is still crucial to give Fluxergy the credibility they need. He is surprised it is taking so long. But Tu, who is no stranger to setbacks, is not panicked. He still believes in Fluxergy’s tech, and the young men behind it. But from his own experience, he also knows that it’s not enough to just have a good product and partnership. “Timing,” he says, “is everything.”

Source Article