Competition
The ELAST Device offers a completely unique approach to the
diagnosis of allergies and sensitivities than any allergy testing
method currently employed by the health care industry. The
science underlying the ELAST Device represents a paradigm shift
from biochemistry to bioelectricity. Accordingly, Elast's
competition will not be other firms offering a similar product,
which is the competitive norm, but rather existing testing
methods. There are several including the skin-prick, Oral
Challenge Test and various types of blood testing. But, these
allergy-testing methods suffer, as a group, from being
insufficiently accurate and/or invasive, painful, time consuming
and expensive. Worst of all, they are too often diagnostically
inaccurate, leaving patients' conditions untreated, to the
frustration of both patient and doctor.
In fact allergists agree that results of available blood testing
are not a good indication of allergies. For example, a clinically
significant maladaptive response to a specific food (or other
allergic substance) cannot be diagnosed by the presence of a
positive serological or skin prick test alone; neither can the
diagnosis be invalidated by their absence. Even when the food
allergy is of the immediate type, skin prick tests and
measurement of allergen-specific IgE may be negative.
Furthermore, it is clear that IgE mediated immune responses do
not explain many food reactions.
Clinical reports have shown that, in addition to typical allergic
responses such as asthma, skin rashes, and rhinitis, other
disorders such as vascular headache, irritable bowel syndrome,
Crohn's Disease, arthritis, and neurological problems including
attention deficit disorder and hyperactivity may be attributed to
food sensitivities.
Additionally, for most foods, true standardization is not yet
available. Radioallergosorbent Testing ("RAST") testing is
usually inferior to other means of allergen quantification.
Because of the inaccuracies and inconsistencies present in
current clinical allergy tests, the elimination diet continues to
be the "gold standard" for diagnosing food allergies and food
intolerance.
Currently, the market for allergy testing devices (skin-prick
test kits, RAST and cytotoxic testing) and products (allergens,
solutions, syringes, etc.) consists of companies of varying size
and capabilities, ranging from small privately held companies to
divisions of multibillion dollar international companies.
According to its 1994 Annual Report, Bayer Corporation (formerly
Miles, Inc.) holds over 50% of the worldwide allergy testing
market, exclusive of in vitro testing. In 1994, Pharmacia (now
Pharmacia & Upjohn, Inc.) held a 73% worldwide market share for
in vitro allergy tests. Additional competitors in this area
include Sanofi, Ciba Corning and Diagnostic Products Corporation.
This list of competitors is not exhaustive.
Sales and Marketing Strategies
People with actual allergic reactions or food-related symptoms
often seek treatment from physicians who specialize in allergy
treatment. In addition to these specialists, patients often seek
relief from other medical practitioners who believe that food
allergies and sensitivities are often the cause of underlying
medical complaints. These medical practitioners include
chiropractors, naturopaths, clinical ecologists, and
otolaryngologists (ear, nose and throat specialists).
The number of these practitioners in the United States are
approximately as follows:
Allergists/Immunology Physicians - 3,400
(according to the American Medical
Association)
Otolaryngologists - 8,400
(according to the American Medical
Association)
Chiropractors - 50,000
(according to the American Chiropractic
Association)
Naturopaths - 1,400
(according to the American Association
of Naturopathic Physicians)
Clinical Ecologists (estimated) - 500
Pharmaceutical Retail - unavailab
le
All Physicians Prescribing Medication - unavailab
le
Management believes that all the above listed medical
practitioners and their patients could benefit from Elast's
technology, which is designed to provide a more accurate and cost
effective testing method than those currently in use for food
allergy testing. The ELAST Device has significant benefits over
the testing methods commonly used to detect allergies and
sensitivities. Both RAST and cytotoxic testing require that the
patient's blood be drawn and sent to an outside laboratory, which
causes results to be delayed several days. Skin-prick testing is
also invasive in that it requires that the patient's skin to be
scratched or punctured. The ELAST DeviceT, by contrast, requires
only the attachment of harmless electrodes to the patient's skin;
furthermore its results are immediate.
Elast anticipates that it will contact medical practitioners
through specialized marketing agents and Company sales
representatives. The Company plans to provide education, training
and support to physicians and their staffs in testing and
identifying potential allergic conditions for testing diagnosis
and treatment. These initiatives, however, cannot be undertaken
in the US until the FDA grants approval.
International Sales and Marketing
Outside the US, where the FDA does not have jurisdiction,
regulatory approval of the ELAST Device is expected to be granted
more readily (if approval is even required). Thus, ELAST plans to
aim to introduce its ELAST Device in selected overseas markets
prior to its anticipated introduction in the US.
Elast Technologies has entered into a licensing agreement with
River Plate (New South Wales, Australia), which acquired
exclusive rights to market the ELAST Device in Australia and New
Zealand.
The Company is also currently negotiating proposed marketing
agreements for both Japan and Mexico as well as a joint venture
for Chinese distribution. An Asian medical diagnostic device firm
seeking to acquire the licensing rights for the ELAST Device in
the South Korean market has also approached the Company. The
Company is very cognizant of the potentials offered by the
international market and has made it a high priority to have
international licensing agreements in place when the ELAST Device
is ready for market.
Product Placement
The Company plans to place the ELAST Device with physicians and
hospitals through a lease program as opposed to a direct sale.
The current plan calls for a three-year lease with a forfeitable
lease payment of $3,000 each term. Test revenues will be in
addition to, and separate from, the cost of leasing the device.
This model will have advantages for both the Company as well as
the physician and health care facility. The lessee of the device
will receive training, maintenance, service and software/hardware
upgrades and the Company will receive the recurring revenue of
the lease payments and the retention of ownership, including
ownership and control of test data.
Chiropractic Division
Since its founding Elast Technologies, Inc. has focused its
energies on perfecting the ELAST Device. In pursuing that goal
the Company's engineers realized a chiropractic application for
Elast's technology. More specifically, the Company discovered
that it had the capability to objectively measure the outcome of
a chiropractic spinal adjustment. After further exploration,
Elast's Board of Directors concluded that the Company would
establish a chiropractic division to market its chiropractic
device, transforming Elast from a purely research and development
company to a manufacturing/marketing company and providing a
mechanism to generate revenue to further the refinement of the
allergy diagnostic device.
The Company has entered into an agreement with Dr. Terry A.
Rondberg to head its newly established chiropractic division and
oversee the marketing of the device to the chiropractic
profession. Dr. Rondberg's extensive knowledge and contacts in
this field, and his position as founder and president of the
World Chiropractic Alliance, make him the ideal candidate for
this position.
The ELAST Device derives its diagnostic capabilities from its
ability to measure, non-invasively and in real-time, the body's
electrical responses to external stimuli. For the chiropractic
profession the patented technology should prove valuable when
applied to measuring the outcome of the chiropractic event.
Doctors of chiropractic have long sought an objective means to
measure outcome of the correction of vertebral subluxation. Until
now, however, the technology to quantify this phenomenon has not
existed. Elast's Bio-Potential Instrument will measure the
electrical flow of the patient and show changes in real time,
both assisting in establishing care parameters, and encouraging
patient understanding of the efficacy of subluxation corrective
care.
By providing doctors of chiropractic with the means to measure
the positive indications of vertebral subluxations, small
misalignments of the vertebrae which interfere with the normal
nerve flow and homeostasis, and the correction of a vertebral
subluxation through chiropractic spinal adjustments, the Bio-
Potential Instrument offers an objective outcome assessment to
doctors of chiropractic. In its present stage of development, the
Bio-Potential Instrument is capable of providing such an
assessment, and with appropriate input from a chiropractic
perspective, the device is being tailored into an objective
outcome-measuring instrument for use by the chiropractic
profession.
Chiropractors will measure their patients with the device pre and
post delivery of the spinal adjustment to correct the vertebral
subluxation(s). The patients will be able to see for themselves
the immediate results of correcting or reducing the spinal nerve
interference by measuring any change in the outcome of electrical
potential. Management believes that the Instrument will eliminate
any uncertainty regarding the efficacy of rendering chiropractic
spinal adjustments to correct vertebral subluxations.
We believe that the chiropractic application of the device will
provide significant revenues in the near future. Through
expansion into this field, increased product recognition will
lead to future applications for the device in other health care
fields such as reflexology and acupuncture, whose industry
leaders are also active in the search for objective methods to
justify their costs and treatments. ELAST will be well positioned
to become the leader in the field of health care outcome
measurement and assessment methods.
Chiropractic Market
There are approximately 60,000 chiropractors in the United
States. A 1991 Gallup poll commissioned by the American
Chiropractic Association found that 10.1% of adults had used
chiropractic services within the last year. Chiropractic is the
third largest primary health care field after medicine and
dentistry.
Management's estimates demonstrate that Elast should realize $8
million dollars in revenue after marketing the device for one
year. When the Company achieves a 10% saturation rate of the
domestic chiropractic market, Elast will have realized $18
million in device revenue and $30 million annually in test
revenue.
BIO-POTENTIAL INSTRUMENT
The Bio-Potential Instrument is a patented, non-invasive,
diagnostic device based on the physiological fact that the body
has an electrical current and the clinical observation that the
body's current changes when exposed to an external stimulus (such
as a chiropractic spinal adjustment). The device detects,
measures, and records the body's electrical current in real time.
By running the micro-voltage measurements through the Company's
proprietary software, the current is then represented graphically
on a PC screen similar to an EKG. The Instrument is vastly
different and superior to any other device that claims to do
something similar because it puts nothing (i.e. a guard voltage)
into the body, and the electrical measurements are not dermal in
origin.
The Bio-Potential Instrument consists of a number of
interdependent components. The first is a dual sensor electrode,
which is a proprietary development of the Company, in combination
with an analog to digital conversion unit. This is the portion of
the device that is in contact with the test subject. A fiber-
optic communication system connects the sensing unit to the
second part of the system, the test module. Rechargeable power
cells provide a medical grade power supply, which achieves
accuracy and stability of the system. The test module can support
and record multiple (30) sensing units simultaneously. The test
module then sends the readings to a server of the Elast network,
a designated computer running the Elast software, which converts
the measurements to a graphic format that can be stored,
analyzed, and transmitted over the Internet. The resulting
graphic file of the test is then transmitted back to a screen in
the practitioner's office where it can be printed out for the
test subject and become a permanent part of the patient's record.
The Bio-Potential Instrument in its current state of development
successfully measures the change in the body's electrical flow
following the metabolic event of a chiropractic spinal
adjustment. The final modifications to this device are desirable
more from a marketing standpoint than as a result of
technological necessity.
Sales and Marketing
Elast Technologies Inc. has recently entered into an agreement
with Dr. Terry A. Rondberg to head its newly formed chiropractic
division. Dr. Rondberg is internationally prominent in the field
of chiropractic as founder and president of the World
Chiropractic Alliance. The World Chiropractic Alliance boasts a
large international membership representing the interests of
50,000 doctors of chiropractic in the United States and another
10,000 doctors outside the U.S. The Bio-Potential Instrument
presents an opportunity for the chiropractic profession to gain
increased credibility through objective measurements through its
ability to measure the powerful effects that occur after
chiropractic adjustment and the changes in electrical flow when a
vertebral subluxation is corrected in a human being.
Dr. Rondberg has developed a plan to market the device to the
chiropractic profession. Elast plans to employ its own well-
trained sales force to market the Instrument to ensure that the
needs of the doctor of chiropractic will be understood and met.
In addition a technical support staff will be employed to monitor
and support constant network connections to ensure network
testing and billing operations.
Elast plans three components to its marketing plan. First, Elast
will enlist chiropractor participation in a wide reaching study
in which the participating doctors of chiropractic will lease the
Bio-Potential Instrument and incorporate its use in their
practice. Test results and user comments will be compiled as part
of the clinical study.
In addition, Elast has enlisted the assistance of Robert H.I.
Blanks, Ph.D. Dr. Blanks is a Professor of Anatomy and
Neurobiology at the School of Biological Sciences, University of
California, Irvine. Since receiving his Ph.D. in 1973 Dr. Blanks
has continued his studies through extensive and almost constant
funded research as well as postgraduate teaching. Dr. Blanks is
widely published, has lectured extensively and has received
numerous awards from the scientific community. At Elast Dr.
Blanks will evaluate the Bio-Potential Instrument as it applies
to the physiology of the human body in an effort to provide the
scientific support for the Instrument.
The second component of Elast's marketing strategy will involve
traditional advertising. Elast plans to focus its marketing
attention on the approximately 50,000 existing doctors of
chiropractic in the United States along with the 10,000
international practitioners and with Dr. Rondberg's experience
its advertising dollars will be spent most effectively. Moreover,
as the Bio-Potential Instrument will revolutionize the
chiropractic profession, its low cost should ensure its ready
saleability
The third component of the marketing plan is designed to convey
the benefits of the Bio-Potential Instrument to the future
doctors of chiropractic. ELAST plans to place Bio-Potential
Instruments in participating chiropractic college clinics.
Preliminarily approximately six chiropractic colleges have
indicated their interest in using the Bio-Potential Instrument.
Aside from providing valuable data this strategy will expose the
Instrument to students of chiropractic and hopefully, upon
graduation, they will use the Instrument in their practices.
Elast's Bio-Potential Instrument presents a new technology that
the chiropractic profession has been searching for since its
earliest development. Therefore, by employing a focused marketing
plan Elast has unlimited earnings potential.
Product Placement
The current chiropractic-application business model calls for a 3-
year renewable lease with a forfeitable lease payment of $3,000
per device. Another lease payment will become due upon renewal of
the lease in the fourth year and at the beginning of each
subsequent lease period.
In order to encourage doctors of chiropractic to incorporate use
of the Instrument into their practices, Elast anticipates
charging a nominal fee (i.e. one dollar per patient) for testing.
At that cost, the chiropractor will not have to alter his patient
fee rates to add the Instrument to his practice. Each individual
test will be transmitted over the Internet from the Instrument to
the central data center where the results will be collected in
the database and then instantaneously transmitted back for use by
the doctor of chiropractic.
The advantages of leasing the Instrument accrue to both Elast and
the practitioner. Elast will receive more revenue (through lease
renewal) as well as retain the rights and privileges of
ownership, especially as these rights would pertain to the
database of test results. This database should prove a most
valuable asset of Elast. The practitioner would receive the
benefits of training, service, maintenance, and software or
hardware updates as they became available.
Competition
The Bio-Potential Instrument is based on a new and exclusive
technology developed by Elast Technologies Inc. The instrument
satisfies a need of the chiropractic profession that has never
before been met; accordingly there is no current competition for
Elast. Through patent protection and Elast's business plan, Elast
will protect its proprietary property for as long as possible.
Elast will have taken control of the market and be the industry
standard before competition has the opportunity to present
itself. In this way, Elast will limit future competition as well.
Operating and Manufacturing
While the allergy device is still in the development and clinical
phase, only the chiropractic device will be in production. In
order to keep the costs as low as possible while retaining as
much control as possible, the first production run will be a beta
run of 25 units. This run will be sub-contracted out to domestic
manufacturers. While the sub-contracting scenario sacrifices some
control, economies of scale make in-house manufacturing
impractical. At this point in time, the Company does not want to
send the manufacturing overseas because while it may be slightly
cheaper, vital control of the process would be sacrificed.
The Company has developed positive relationships with vendors
during the development phase, however, and has confidence in the
reliability of these sub-contractors. The Director of Engineering
will personally oversee the manufacturing process and coordinate
interaction and assembly between the vendors and sub-contractors.
In order to ensure a manageable production run the first run will
be limited to 25 units. That number of units should provide a
satisfactory number of units that may be required by the Company
for further refinement or research trials.
The product will be manufactured in two stages using Surface
Mount Technology and computer automated assembly processes. After
assembly, all electronic components will be rigorously tested
before release using the Company's proprietary computerized
testing system. The heart of the devices is electronic circuitry
that controls all data collection functions. Many surface mount
manufacturers can provide the electronic parts necessary for
manufacture. The Company also has its own sources for all
components. After assembly, the tested electronic circuit boards
will be encased in technologically - advanced looking packaging
that will psychologically impart the advanced characteristics and
technology of the devices.
When the Company is confident that it has identified all changes
or modifications that would be necessary for the marketable units
or in the manufacturing process, Elast will initiate a production
run of 10,000 units. At this level, the cost per unit would start
to come down and the Company will have an inventory that should
cover all reasonable sales expectations until such time as
another run may be undertaken. Storage and handling of the
finished product will be contracted to a public warehouse
operator specializing in medical products and offering a secure
environment so that the Company is assured that its sensitive
technology will be protected.
Government Regulation
A significant factor in the production and marketing of the
Company's products, and in its research and development
activities, is the Regulation by governmental authorities in the
United States and other countries. The FDA regulates medical
devices and categorizes them into three regulatory
classifications subject to varying degrees of control:
Class I: Subject to the least regulatory control. Require
compliance with labeling and record keeping
regulations.
Class II: Subject to performance standard and other
general controls.
Class III: Require clinical testing to assure safety and
effectiveness. Subject to other general controls
Management believes that the ELAST Device should be classified by
the FDA as a Class II medical device similar to an EKG. The
Company has prepared a 510K application for approval but has not
yet submitted it to the FDA pending consultations with leading
consultants in the field. Management is still in the decision-
making process regarding regulatory approval for the chiropractic
Bio-Potential Instrument. A 510K could be submitted, using a
Surface Electromyography (SEMG) device as a predicate, however,
the Company may be limited in its marketing claims and uses if it
takes that approach. Another alternative would be to simply use a
disclaimer and not seek FDA approval.
The decisions in this area are made more complex due to the
unique and exclusive nature of the company's technology and
diagnostic devices. The FDA makes approval processes much simpler
for companies who just want to copy and compete with existing
technologies. Elast has a brand new technology however, and for
that reason, does not fit neatly into the FDA's guidelines. The
Company is consulting with leaders in this field in order to
determine the best course of action in this regard. If deemed the
right course, the Bio-Potential Instrument may be marketed
without FDA approval. The allergy device requires approval and in
a worse case scenario, the FDA would require large-scale clinical
trials, which the Company plans on undertaking anyway. In
addition to human health care products and medical devices, the
FDA also regulates the processes and facilities used to
manufacture such products.
Among the conditions for marketing products approved by the FDA,
is the requirement that the prospective manufacturer's quality
control and manufacturing procedures conform to the FDA's Good
Manufacturing Practice (GMP) regulations which must be followed
at all times. These regulations require adherence to strict
quality control procedures, including documentation of all
aspects of manufacturing process, to demonstrate that a
"controlled" process that ensures consistency and reliability of
the end product. Any significant changes to the manufacturing
process require notification and documentation to the FDA.
The FDA has the right to conduct inspections of the manufacturing
facility at any time and at its discretion. To ensure full
technical compliance to FDA regulations, the Company will
continually spend time, money and effort in all areas of
production and quality control.
Compliance with Federal, State, and local provisions which have
been enacted or adopted regulating the discharge of materials
into the environment, or otherwise relating to the protection of
the environment, have not had a material effect upon the capital
expenditures, earnings or competitive position of the Company nor
are they expected to be significant in the future.