PathCentral Inc.’s business plan aims to keep independent pathologists “in the game” against larger medical laboratories.
“It occurred to me that if as a small, private pathology practice, if I could afford the sorts of tools the large laboratories had, I could compete more effectively,” said Matthew Watson, founder and chief executive of Irvine-based PathCentral.
The software and services company offers pathologists—doctors engaged in the study and diagnosis of diseases such as cancer—a new avenue for testing beyond big labs tied to hospitals and large-practice groups.
PathCentral offers in-dependents and smal-ler-practice groups software and its own reference laboratory for tests.
“We actually do the more sophisticated and expensive cancer diagnostic testing here in our laboratory,” Wat-son said.
The company em-phasizes DNA-based and genomic testing in its laboratory.
PathCentral’s software is delivered via cloud computing and available online. It’s based on software used at larger laboratories such as Clarient Inc., a cancer testing provider in Aliso Viejo that’s now a unit of General Electric Co.; Irvine-based US Labs, part of Laboratory Corporation of America; and San Diego-based Genoptix Inc., which is being bought by Novartis AG in Switzerland.
Cloud software is attractive to a smaller pathology practice, according to Watson, “because you don’t have to buy the software, you don’t buy any hardware (and) you don’t have to hire any IT personnel.”
PathCentral is part of a smaller niche in the overall U.S. diagnostics market. Watson estimates the overall market at some $60 billion yearly. He puts the pathology niche at about $4.4 billion yearly.
PathCentral, founded in 2009 by Watson and Dan Angress, its chief operating officer, has venture capital backing.
The company originally raised $1.5 million in startup money from angel investors. Its most recent funding of $10 million came in November 2010 and helped it open its laboratory. That round was led by Laguna Beach-based Okapi Venture Capital, and extended to $13 million in August.
Okapi invested in PathCentral because it’s “well-positioned to take advantage of the changing healthcare landscape” for community pathologists, Sharon Stevenson, the firm’s cofounder and managing director, said.
Arboretum Ventures, based in Ann Arbor, Mich., along with Baird Venture Partners, a unit of Milwaukee-based Robert W. Baird & Co., also took part in the recent round of funding.
PathCentral has some revenue, but Watson declined to reveal how much.
He said the company is in “very good shape with our current funding” and could raise more money for targeted deals or to put into growing the business.
Watson worked at Clarient in its earlier iteration as ChromaVision Medical Systems Inc. when it was developing microscopes used to help detect breast cancer. He also served as vice president of operations for US Labs.
Watson’s idea for PathCentral came when he was an administrator for Allied Pathologists Medical Group, a 45-member practice that served 11 hospitals and two large clinical laboratories in Southern California and Phoenix.
“It was the first time in my career that I’d actually run a pathology practice rather than having pathologists as my clients,” Watson said. “I got to see things from the other side of the table.”
Competition
He noticed that larger laboratories “had been competing very effectively against the local pathology practice,” and most of the new technology being developed was going to larger laboratories.
Watson and his team eventually formed a holding company that bought Mission Viejo-based information technology vendor eTeleNext and created PathCentral.
Watson said he wanted to approach a client “with a completely different question—what can we offer to help you improve your practice?”
“It’s a different focus,” he said.
Various Options
Some pathology practices might be in the market for a new laboratory information system, while others “are looking for an easy, send-out laboratory relationship or maybe they’re looking for some specialized testing that they’re having trouble finding elsewhere,” he said.
The company can also help pathologists with marketing materials and setting up courier networks.
PathCentral’s clients “find us in some ways and we find them in others,” Watson said.
The company has a website and sales force, exhibits at various pathology industry trade shows, and sends direct mail pieces to prospective clients.
PathCentral now has 50 employees and is looking to hire more, according to Watson.
