Response Oncology, Inc.

1775 Moriah Woods Boulevard
Memphis, Tennessee 38117
U.S.A.
(901) 761-7000
Fax: (901) 763-7045

Public Company
Incorporated: 1994
Employees: 53
Sales: $101.9 million
Stock Exchanges: NASDAQ
Ticker Symbol: ROIX
SICs: 8093 Specialty Outpatient Facilities

Response Oncology, Inc. is one of the fastest growing cancer management companies in the United States. The firm has three core businesses, including the provision of highly sophisticated, state-of-the-art treatment services through a network of outpatient facilities supervised by practicing oncologists; the organization and implementation of extensive clinical research in association with leading pharmaceutical companies throughout the United States; and ownership and management of nonmedical operations of oncology practices directed by physicians. With more than 400 medical oncologists associated with Response Oncology through these various activities, the company has grown rapidly since the mid-1990s. By the summer of 1998 the company reported that its network amounted to 28 wholly owned outpatient facilities called IMPACT Centers, 15 managed programs, and nine IMPACT Centers operating as joint ventures with hospitals across the nation. With its headquarters located in Memphis, Tennessee, the company has wholly owned centers in Florida, Georgia, Indiana, Louisiana, Michigan, Minnesota, North Carolina, Missouri, New Mexico, Pennsylvania, South Carolina, Tennessee, Texas, and Virginia.

Early History

The founder and driving force behind Response Oncology, Inc. is William H. West, a practicing oncologist who devoted his life to providing more accessible advanced cancer treatments to patients throughout the United States. As the medical profession and academic research facilities made significant discoveries in the field of cancer treatment during the 1970s and 1980s, West became worried that these discoveries might be delayed in reaching both rural areas across America and practice settings that were not ready to administer such advanced cancer treatments. Moreover, West wanted to provide the same quality and level of advanced treatment to all cancer patients, not just those who were fortunate enough to be treated at urban and regional academic medical centers. The cornerstone of West’s belief was that all cancer institutions, academic research facilities, medical centers, and practicing oncologists must collaborate through the sharing of research, experimental data, patient treatment results, and professional knowledge and experience. According to West, this type of close cooperation was the only way that major strides could be achieved in the clinical management and treatment of cancer.

West’s vision led him to establish Response Technologies, Inc., initially operating as a wholly owned subsidiary of Seafield Capital Corporation, an investment firm that provided capital for his dream to come true. In addition to his idealism, West was a savvy entrepreneur whose desire was to provide an effective advanced cancer treatment delivery system while also reducing the ever-burgeoning costs for the treatment. After his agreement with Seafield was finalized, therefore, the ambitious doctor formed partnerships with leading cancer specialists across America to provide standardized clinical techniques that would not only increase survival rates among cancer patients but also reduce costs.

In 1989, through his partnerships West established a nationwide network of centers that provided high-dose chemotherapy to cancer patients. Along with the clinical treatment, West also developed a sophisticated cancer management infrastructure that included well-defined treatment strategies and that accurately monitored patient results. Yet West’s focus on high-dose chemotherapy treatment was extremely controversial, since a large segment of both the nation’s practicing oncologists and insurance companies were reluctant to embrace a treatment known for its high risk to patients and its booming costs. In addition, high-dose chemotherapy treatment was available only at the more prestigious academic medical centers and, most important, more than one out of ten patients died of complications related to the treatment during the early years of its development and implementation.

Under the direction of West, Response Technologies forged ahead in developing safer methods for high-dose chemotherapy treatment, while also paying close attention to reducing costs. Building on previous research and clinical trials conducted by numerous academic medical centers in the United States and Europe, Response Technologies implemented a method of stem cell harvest that facilitated and lessened the time of a patient’s recovery from the treatment.

The newly developed treatment eschewed the extraction of bone marrow from the patient involved in the traditional method and replaced it with a chemotherapy schedule and mild drug regime that facilitated the stem cells into the patient’s blood for harvesting. The next step was to extract the stem cells from the blood and then freeze them at one of the company’s treatment centers. After receiving a high dose of chemotherapy, the patient’s immune system then was bolstered by the infusion of his own stem cells, which immediately replaced the cells depleted by the high-dose chemotherapy treatment. This new method of treatment soon was used by the company and its practicing oncologists for patients with breast cancer, recurrent lymphoma, and a wide variety of other types of cancer.

At the same time it implemented this method of stem cell harvesting, rather than treating patients at hospital locations, Response Technologies re-engineered the delivery of high-dose chemotherapy services by providing treatment at one of the company’s growing network of what were called IMPACT Centers (Implementing Advanced Cancer Treatment), which not only created a more relaxing environment for patients, since it was likely that one of the treatment facilities was located near the patient’s residence, but significantly reduced costs. As his company grew, Dr. West was able to fulfill one of his dreams by assuring patients who required treatment that they would have access to the most advanced methods of treatment to date.

Growth and Development in the Early 1990s

During the early 1990s Response Technologies grew at a steady but not rapid rate, primarily due to the reluctance of many oncologists to accept wholeheartedly high-dose chemotherapy treatment as a regular option for cancer patients. That situation changed dramatically in 1995 with the publication of randomized data that justified the company’s strategy of promoting high-dose chemotherapy treatment. A randomized trial for high-dose chemotherapy treatment for recurrent lymphoma was published by the New England Journal of Medicine, and it corroborated the company’s position that its method of treatment should be the standard type of care for patients with the disease. In an unrelated randomized study on patients with multiple myeloma, originating from France and presented at a session of the American Society for Hematology, more than 50 percent of the patients in the trial survived five years when treated with high-dose chemotherapy, in contrast with 12 percent of the patients who received a standard-dose treatment.

The randomized studies and their data were interpreted by the company as a vindication of the hypothesis that high-dose chemotherapy would gain widespread acceptance both with the general public and oncology specialists across the United States. Although low-dose chemotherapy was considered standard treatment for patients with multiple myeloma, denial of high-dosage treatment by insurance companies and other payors who argued that such treatment was experimental became less common. In fact, immediately after the publication of the aforementioned randomized studies of high-dose chemotherapy, referrals of patients for this type of treatment rose dramatically during 1996. The number of women who had breast cancer and underwent high-dose chemotherapy treatment immediately after surgery increased to an all-time high.

At the beginning of 1996, having changed its name from Response Technologies, Inc. to Response Oncology, Inc., company management made a strategic decision to diversify and implement a physician practice management. This long-term management services agreement extended to all nonmedical aspects of the operations of oncology practices affiliated with the company. Under the agreement, Response Oncology was responsible for arranging facilities, providing equipment and supplies, hiring personnel, and conducting all management and financial consulting services. Starting with a nine-member oncology practice in Miami, Florida, within a short period of time the company had entered into a complete practice management services agreement with nine more oncological practices in other areas of Florida and in Knoxville, Tennessee. By the end of 1996 the company operated wholly owned centers in 13 states, managed centers in nine states, and jointly owned centers in eight states. This activity and expansion of the company’s services contributed to a skyrocketing increase of revenues totaling more than $67 million at the end of fiscal 1996.

The year 1997 was the most successful yet for the company. One of the important developments was the growing attention given by pharmaceutical firms and biotechnology companies to Response Oncology’s clinical research and site management program. Having already established an efficient network of physicians, research nurses, and willing patients, the company designed a system to implement clinical trials with the utmost speed and precision. During 1997 alone, more than 32 major clinical trials were conducted by the company on the behalf of pharmaceutical firms around the world, one of the most significant including the phase three trial of Leucotropin, an innovative drug used to fight cancer. An added benefit, of course, and one that enhanced the reputation of the company among its growing number of patients, was that the trials provided affiliated physicians with the ability to provide their patients earlier access to revolutionary drugs and new treatment techniques.

The expansion of the company’s network of high-dose chemotherapy centers across the United States, with the added demand from oncologists and patients alike, gave further credibility to its treatment strategy. Referrals of patients for high-dose chemotherapy treatment was gaining wider and wider acceptance throughout the country. Growing rapidly, Response Oncology added a total of seven new IMPACT Centers to its burgeoning network in the year 1997, with a total of 49 centers across 25 states either owned or managed by the end of the fiscal year.

In July of 1997 most of the company’s stock was made available to the general public for purchasing. The board of directors at Seafield Capital Corporation, Response Oncology’s former parent company, announced its plan to distribute the firm’s stock to its shareholders, which resulted in the company becoming a public entity for the first time in its short but successful life span. Response Oncology’s treatment strategy and financial performance had firmly convinced Seafield’s board of directors that a greater number of investors would be interested in the company.

Looking Toward the Future

Response Oncology’s net revenue for the first six months of 1998 amounted to a little more than $62 million, in comparison with $50 million during the same period in 1997, an increase of 24 percent. In fact, the company experienced impressive financial success during this time, including an increase of pharmaceutical sales to physicians, an increase in practice management fees, and an increase in revenue from the IMPACT Centers.

With an innovative approach to delivering new technologies for the treatment of cancer patients in a cost-effective manner, Response Oncology is at the forefront of what might become a revolution in medical practice. Astute management and sound fiscal strategies should enable the company to remain ahead of its competition for years to come.

Further Reading

Connelly, Mary, “More Dealers Join Ford’s Drive To Boost Breast Cancer Research,” Automotive News, November 9, 1998, p. 44.

“Four Costliest Outpatient Procedures,” Hospitals & Health Networks, September 20, 1998, p. 32.

Hudson, Teresa, “Short Stays or Short Cuts?,” Hospitals & Health Networks, March 5, 1998, p. 36.

Lutz, Sandy, “Suit Signals Cancer Services Fight,” Modern Healthcare, April 15, 1996, p. 24.

Snow, Charlotte, “Post-acute Progress: Outpatient, Rehab Services Experience Most Growth,” Modern Healthcare, May 26, 1997, p. 74.

Weissenstein, Eric, “Hospitals, Congress Fight Over Outpatient PPS,” Modern Healthcare, September 7, 1998, p. 6.

—Thomas Derdak