Cantech Letter interviews Terry Debono, CEO of ISee3D

The skill of picking your first move to market when your company is pre-revenue is one of the critically important and overlooked steps that every large company had to make. Ford decided to make cars, not Ford branded lamps. Coca-Cola settled on its particular brand of sugared water, not beer. Thousands of potential competitors we have never heard of did not make the right choice.

When Toronto’s ISee3D (TSXV:ICT) brought in Terry Debono as its CEO last November, the company was struggling. Debono, who was a broadcasting and advertising exec with thirty years experience, set about identifying one thing the company could do exceptionally. After a long inward look, ISee3D decided its patented 3D technology would be best on the multi-billion dollar medical science image & diagnostic imaging industry. While Debono was zipping between meetings in Toronto, Cantech Letter caught up with him to talk about how close the company is to going to market, how its products are differentiated from others in the space, and what’s on deck for the rest of 2012. Below is a full transcription of the conversation.

Terry, you came on board November of last year, you raised some money and set out a new strategy for ISee3D. Can you tell me what you saw then, and where you’re at with your plan right now?

Yes. First of all, to put it in perspective, I’d been aware of ISee3d for a few years prior to my coming in in late 2011. I have a pretty significant background in the broadcast industry, and was always intrigued in new developments for cameras and lenses, and had heard about ISee3d. I was intrigued by the notion of being able to capture 3D through a single lens. In the middle to late autumn of 2011, I had an opportunity to come onto the board of ISee3D to provide the company with some insight into potential marketplaces that could be used to exploit the technology, and once I got on to the board I had a chance to spend some time with the physicists and engineers and architects of the technology, and I was incredibly impressed about some of the specific opportunities that the 3D imaging technique could be used for.

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What were the challenges the company was facing at that time?

What I saw at that time was that ISee3D’s 3D technology could be used in a variety of marketplaces, whether it be consumer electronics, mobile phones, broadcast & production, industrial imaging, and/or medical imaging. One of the challenges a lot of early stage technology companies face is finding the right initial product to commercialize the technology and commercialize the viability of that venture. Through the course of October/November, I spent some time with the team and really identified that the best and shortest to commercial viability segment of the marketplace would be the medical imaging sector, for a variety of reasons that I’ll explain as we go through this. Once I’d been able to do that, I was able then to go out to the marketplace with the ISee3D story and talk about ISee3D’s technology and a business model and business plan that was going to concentrate on focusing the use of the technology on key market sectors, so that instead of trying to develop ISee3D’s technology for ten different market applications, we were going to concentrate on one or two. That led to us going to the market in late November and early December and doing a small non-brokered private placement of $1.2M, which was the initial start of what I’ll call funding for the turnaround and focus of the company on the medical science image & diagnostic imaging industry.

When you are small and have limited resources, it is incredibly important to choose the right market opportunity first. Can you tell me a little more of the market research you did, how large the medical imaging space is, and how large the immediately addressable market for the product that you’re going to enter the market with is?

I’d be happy to. The first thing is we had to look at all the different market opportunities for the technology, and look at a variety of factors. One factor was competitive delivery systems, so for example, although our technology is unique in that it can provide 3D images from a single lens source, that doesn’t mean it’s the only way to create 3D. As you’ve seen from Avatar and other movies, you can shoot 3D and do a beautiful job using 2 lenses and 2 optical chains. So we had to really take a look at where a single optical chain had an inherent value. The first issue was that two optical chains vs. a single optical chain requires additional optics, so there’s a cost reduction [to moving to a single lens]. Second, there’s complexity reduction. But cost and complexity reductions don’t necessarily guarantee us any market share. What we needed to do was to find where there was a unique ability for a single lens to do something that a dual lens system could not do either technically or cost effectively. That really showed us the value of the medical imaging environment, where either space is at a premium. As an example, in endoscopy, where a camera is in use inside the human body, being able to create a 3D image with one set of lenses vs. 2 means a smaller incision [due to a smaller endoscope], less of a displacement to the patient, a shorter recovery time, and provides the benefit of 3D without actually increasing the technology costs and/or the size of the incision. So that’s one application where a single lens has a significant advantage over a dual lens system. Another area that we quickly realized was in high magnification to extremely high magnification, for example in microscopes. So if you’re familiar with microscopes, or remember back to high school or university, microscopes provide the user with an extremely high magnification rate, and based on that magnification rate certain information or data can be distilled. If I was a lab researcher looking through a microscope that had two eyepieces, generally microscopes with two eyepieces are not stereoscopic (3D) microscopes, it’s a mono microscope where the 2 eye pieces are designed to show you the same image – the two eye pieces are there to allow you to have less fatigue. If you can imagine looking into a microscope squinting with one eye vs. using two eyes, you can understand the design. You’re seeing the image with two eyes, but it’s a mono (2D) image. The reason that second eye-port exists is just to reduce the fatigue.

So the 3D is really an illusion?

When you’re looking through a microscope in that application, there is no 3D imagery. Our brain helps us calculate a 3D image because we’re trained to by looking at certain things or racking focus up and down, we can build a 3D perception map in our brain in the same way that if you look at a black and white or color photograph hanging on the wall, you can calculate distance. Your brain will say ‘The person in the foreground is closer than the mountains in the background’, and your brain calculates 3D but you actually don’t see it. So what we were able to discern was that when you put single lens 3D into a microscope, you can actually see 3D at extremely high magnifications, and this is where a single lens had an inherent advantage over a dual lens system , in that if you can imagine the convergence that 2 lenses would have, if you can imagine pointing two fingers in front of you and having to toe them in or nose them in, the high magnification would actually be difficult to virtually impossible to get 3D with 2 lenses, because there’s not enough space to have the lenses get that physically close together when you’re at 50-100x magnification or higher [another issues is that the centers of the lenses themselves are too far apart to focus on one image, so the lenses bump into each other long before they can resolve a single image]. So that provided us with what I’ll call the ‘aha’ moment, that we can do something that no one else can do.

So what was next?

We then went to the industry and looked at the size of the microscopy industry itself, and there are about 13-million microscopes presently in use worldwide, and we have identified that about 700,000 of those as an install base that could be used to retrofit our technology onto existing microscopes. Those 700,000 represent the portion of the 13M that are in use in the medical/research sector and have the capability of utilizing our technology]. Again, this is an inherent advantage – we can take an existing high magnification microscope and make it 3D. Out of that 700,000 microscopes, there is a wide range of uses. Microscopes are in medical science, research, education, and a variety of subsets. You can imagine in every lab where any type of analysis is done, where blood work or cell work is being examined, someone is actually looking through a microscope to make a decision. Pathologists, researchers, etc. So we looked at the existing microscope market as an opportunity to take our technology from just being a patent, and put into a product that we could build and sell that would enable the user to take their existing 2D microscope and use it in a 3D manner. We’re extremely excited about the size of the install base of the existing marketplace. About 700,000 new microscopes are produced worldwide every year, and somewhere between 60-70 thousand are going into that same medical and research environment that we are targeting. As we looked at how we could capitalize or commercialize the use of our technology, we had an incredibly large install base, and a consistently growing new product base on a year over year basis, which has been stable over the past 10 years. When we consider the install base of the 700k microscopes that can use our technology and are in our market space , and an annual increase of 60-70 thousand, it gave us some very strong numbers to sell our product to.

Who of that market absolutely has to have your product? Who is going to look at it and
go ‘Okay, I need this.’

That’s an exceptionally good question, and it’s one that has as yet been unresolved. We have been demonstrating the technology, most recently for example at USCAP (United States and Canada association of pathologists convention in Vancouver), which was in the 2nd week of March. This is a disruptive technology in that people who are gainfully employed providing analysis and decisions using a 2D microscope will have the opportunity to use 3D in their decision making process. If somebody is looking at a cell, and they’re trying to do a diagnosis of a particular type of cancer, there are certain types of cancers that have a chaotic growth attached to them that are very difficult to see in a 2D environment – difficult but not impossible. We’ve been able to show that by providing the researcher with the extra depth dimension, that decisions can be made either quicker, or with a higher degree of accuracy. In some ways, it’s not dissimilar to the emergence of ultrasound as being a technology that can be used for diagnosis and assessment. In the medical science environment, we believe that even a very very small percentage, and when I say small percentage let’s say .05% to under 2% of the microscopes that we’ve identified in the medical science environment, and that’s completely ignoring all of the other areas where 3D could have some value, just getting that portion of microscopy is extraordinarily large market for us – somewhere north of $40-50M on an annual run rate. [There has also been interest expressed by people who manipulate cells, where the 3D would make it much easier for them to use tools to interact with the cells directly, rather than having to ‘guess’ at the relative positions of the cell and the tools in space.

You mentioned that the ISee3D technology dovetails with existing technology, and so the capital
outlay wouldn’t be as intense.

Yes, this is an incredibly important part. If you can imagine a medical research environment, educational research environment or lab, every inch of that space has been allocated. If there’s a microscope in cubicle A and it’s sitting on a desk, we’re not disrupting that space. Our unit literally bolts to the existing microscope, so we haven’t had to displace something that’s already in place, and as microscopes have the better part of a decade long life span, sometimes longer than that, there is the opportunity to really use the last five years of microscope sales where there is for the most part camera ports that we can put our technology to. One of the other advantages to 3D is that we can take this imagery and display it and have it stored in such a way that, for example, beyond looking through the microscope, where if you’re looking through an existing microscope with two eyepieces, you can still be looking through the eyepiece in 2D. When you come through our technology and you go through the camera port to a display screen, you can see it there in 3D, but it also means that all of that information can be digitally stored, it can be digitally sampled and shared in environments where either pathologists, researchers, accredited medical professionals, have the ability to review that information without having to go back and pick up the original glass slide, put it under the microscope, file it accordingly, etc. It’s a digital translation, but it’s a real time capture. What that provides us with is that we believe this technology will become part of a diagnostic toolset. We’re very much of the opinion that ISee3D’s technology is not about entertainment value, there are lots of companies involved in 3D that are trying to create products. We’re really a toolset; we consider ISee3D as an enabling technology that allows user (in this case the medical science community) to get more information out of the existing infrastructure, and based on having more information, we would contend that better decisions and/or faster decisions (or both) are the likely outcome.

Everybody’s talking patents these days – what does your IP look like?

Well, it’s such a critical issue for any company, especially a small, emerging technology group. We have some established patents and a very large list, approximately 20, that are in the patent process. I can’t be too specific about what we’re patenting, because that violates the patent process, but we have taken steps to protect ourselves in a variety of markets, inclusive of some filings in china which may take many years to have any value, because we do believe that we have the opportunity to both generate revenue from the sales of our technologies, but one of the biggest opportunities for us is the licensing of our technologies to much larger companies for use whether its in this type of microscopy environment, or endoscopy or other types of very very high accuracy, very demanding imaging systems.

You mentioned in your recent letter to shareholders, and this may touch on that, that you’re looking at strategic technology alliances. Would that be a licensing situation, is that what you’re looking for?

It is in part. Here’s what I’m at liberty to disclose. We see, beyond additional capital coming into the company, that there are some opportunities for us to work with manufacturers of key components, and/or distributors who have a long lineage in selling product into the medical science industry, and as such we are underway in discussions with potential strategic partners for support in the manufacturing
and in the sales & distribution of our products.

So you are on the cusp of going to market with this, is that correct?

Yes. We are scheduled to have our proof of concepts – and just because of the terms that I’m using, we have our prototype which we have demonstrated and shown to a variety of different companies and to medical researchers, we’re now moving to a proof of concept where we take that initial prototype and we’ll put it into what I’ll call a commercially friendly package. That commercially friendly package is the proof of concept that we will be manufacturing and shipping out in limited quantities in the 4th quarter of this year. What we’re doing by shipping those units out is having these beta tests out in the field for end users to provide us with feedback. The feedback could be they want it in a different color, or they want control knobs a little larger, or different software, or specific adaptations to their optics. We will have that out in the marketplace for anywhere between 90-180 days while we’re getting feedback from the POC users. These are users that will be in a variety of different parts of the world. Based on that information, we will then make changes based on the POC, and that will become our first product that will go into manufacturing and sale. So while we’re out doing the proof of concept, we’ll be out talking to people about initial orders, we will have by that point secured what I’ll call our sales channel distributor who will be preselling product to the marketplace, and again like all products today, there is a certain amount of budget allocation that needs to be made so that there’s room in people’s budgets when the product is available, and we’re expecting to be shipping products for sale before the end of the fourth quarter of 2013.

Your cash position – you have just put some money in the bank. Is that going to take you to that time,
or are you going to have to go back to market?

We have just completed a secured note with one of our long standing investor supporters, and we are going back to the market for a more significant raise in the next few months.

What do you hope to accomplish by the end of this year?

TD: This is a transition year. We’ve been able to focus the priorities of the company. It’s been a transition in that we’ve closed offices, we have really put the company into the right position so that it can take its first product to market. During that process we’ve also started the important discussions on strategic alliances for our future sales and manufacturing needs, and that’s really the goal of this year. There will continue to be research done on our products, but we’re really focused on the D side of R&D, on the development and commercialization, and that’s our transition for ISee3D.