Bioscience and Commercialization and Health Care & Life Sciences and Life Science & Biotech

Ex-prosecutor's lab biz builds network of government clients

September 18, 2006

Scott Newman grabbed a handful of M&Ms from a jar on his desk before leading a quick tour of his young DNA-testing operation, Strand Analytical Laboratories.

A backup bag of the candy waited on another desk in Newman's tidy office. But the former Marion County prosecutor finds his true power source in a different tooth-rotting treat.

"Actually, I'm addicted to these Atomic Fireballs," he said, pointing to a near-empty container. "It gives me a burst of energy, lets me work my 15-hour day."

Those long days appear to be paying off for Newman and his business, which provides forensic and paternity DNA testing. Strand's labs are nearing capacity as the company enters its second year of operation, and CEO Newman projects 2007 revenue will reach $4 million.

That would more than double the expected 2006 total.

"I think we are really hitting our stride, and I know this because we've now made a couple payrolls in a row without having to dip into reserves," he said.

However, Strand will have to pry additional growth from a market packed with competition. About 100 government and private laboratories provide forensic DNA testing around the country.

An additional 50 to 60 private labs focus on paternity testing, said Howard Coleman, CEO of Genelex Corp., a Seattle-based company that has conducted DNA analysis since 1987.

"I would never start a forensic and paternity testing lab at this time," he said. "It's way too crowded and it's gotten too competitive, and we're actually moving in other directions because of that."

Even so, Newman and Strand's laboratory director, Mohammad Tahir, possess a valuable edge, Coleman said. Both men have connections.

Newman, 46, is a Republican who served as Marion County prosecutor from 1994 to 2002. Tahir, 57, served on a DNA advisory board for the FBI and was a technical manager of the Marion County Forensic Services Agency's DNA section.

Those connections helped lay the foundation for their southwest-side company.

Strand began operations in July 2005 after about 18 investors--including furniture retailer Jim Kittle and former Conseco Inc. executive Mark Lubbers--spent more than $1 million to build and equip the lab.

It focused on private contracts while it waited until January for the certifications it needed to work with government agencies.

"You're just hemorrhaging money those first few months when no one lets you bid on anything because you're not even accredited," Newman said.

After certification arrived, Strand became the only privately owned lab in Indiana accredited for both forensic work and paternity testing.

It's now built a wide-ranging network of government contracts, which account for most of its business.

It works with state police in Indiana and Illinois. It also handles paternity testing for several Indiana courts.

Strand employees arrive at courthouses wearing white lab coats. They sometimes set up a temporary workspace to swab the cheeks of possible fathers for DNA samples.

"We've made a sensation in the courts because we're always in our lab coats," Newman said. "It's a little bit retro. To me it says ... experience, discipline, cleanliness and precision."

DNA provides a genetic profile that is unique to that individual. It can be found in blood, sweat, hair and skin.

One of the services Strand provides for the Marion County Prosecutor's Office is a sophisticated DNA analysis that the county's own labs can't perform.

This analysis separates identities in a mixed sample of DNA, which can be crucial evidence for a jury in a rape case where a married victim may have earlier had sex with her husband, said Lisa Borges, the office's chief of staff.

The government clientele have given Newman and Strand a steady stream of both income and headaches.

The slow crawl of government processing surprised the former prosecutor.

He said one client rejected an invoice--after a six-week delay--because it had to be signed in blue ink.

"You have to have good financial depth, which we do fortunately, because the customers are indifferent to your cash flow situation," he said.

Private customers include the New York-based Innocence Project, which helps people seeking exoneration of criminal convictions. DNA labs like Strand play a big role in the Innocence Project's mission, spokesman Eric Ferrero said. Strand's work, however, has yet to lead to an exoneration.

"Oftentimes, private labs can get results where a government crime lab cannot because they're able to do more sophisticated kinds of testing, or they have more highly trained analysts," he said.

Strand has about 40 clients, which are scattered across the country. Forensic work provides slightly more than half the company's revenue. Parentage testing and training grants make up the rest.

Revenue has increased every month and totaled $150,000 in August.

"That's a pretty good clip" for such a young company, Newman said.

But he sees room for improvement. He wants Strand to become less dependent on executives' connections to develop business. The lab also may delve into other arenas like genealogy, which involves the exploration of family history and the relationships of people who are not direct descendants. Such work is useful in chronicling medical history or sorting out an inheritance.

Competition in many parts of the DNA business is stiff.

Major players include New Jersey-based Orchid Cellmark Inc., a publicly traded company that registered $61 million in revenue last year.

"It's a very crowded field," said Coleman, the Genelex CEO. "There's a lot of players and a lot of price cutting going on."

Even so, Newman remains undaunted.

"I don't know that it's more formidable than any other business," he said.

And the demand for services is growing. Forensic DNA work began in the 1980s. Now, there are 75,000 cases handled in the United States annually, Coleman said.

A new use for DNA seems to develop every month, Newman said. For instance, burglary investigators over the past year have begun using DNA evidence. At the scene of the crime, they'll look for a cigarette butt or blood on a broken window, anything that might provide a sample.

"Once juries know that you can do this, if you don't do it, you're going to lose your case," he said. Newman first worried about bringing enough business to Strand. Now, concern focuses on managing capacity and shepherding growth.

"The prospects are very exciting," he said.

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