“A catastrophe occurs when the product is not saleable because of a production or transportation problem. That’s what our system is designed to prevent. It means knowing ahead of time that something is going to happen. In our business that’s the prediction of a freezer failing.”
—Rick Kriss, CEO, KLATU Networks
We recently sat down with Rick Kriss, CEO, and Chris Wilkes, Chief Commercial Officer, of KLATU Networks to discuss cold chain storage and transport, vaccine distribution, and the effect of COVID on the industry. The following is inspired by our conversation. Stream all episodes here.
Watch Our Conversation with KLATU Leadership
WHO’S IN CHARGE OF KEEPING THINGS COLD?
A chilled product comes out of a manufacturer’s freezer to be transported in a box cooled with dry ice or liquid nitrogen. During its journey it sits on airplanes, airport tarmacs, warehouses and trucks. When it finally arrives at its destination it goes into a freezer again. From the customer’s perspective it looks like a single shipment, but a minimum of three vendors are involved, and sometimes many more. If something goes wrong, whose fault is it?
Unless that chilled box contains a data-logger (required for regulated pharmaceuticals in the U.S., but not for products used in clinical trials), no one will know that the contents are damaged. And even with a data-logger present, no technology is available to tell you where the problem occurred. The information is just unavailable, which raises “chain of custody” issues—a term that didn’t even exist ten years ago.
SUPPLY CHAINS ARE BECOMING MORE & MORE COMPLEX
Largely because of the COVID pandemic, these issues are now on the minds of many people who never thought about them before. The Center for Disease Control (CDC), which has been keenly aware of them for a long time, released a study five years ago estimating that between 15-35% of vaccines have a potency or efficacy problem—that is, they might not work or definitely will not work. Many of these problems arise directly from the failure to maintain a cold temperature during transportation.
Cold storage is now a necessity driving much of the pharmaceuticals market. Eight of the top ten blockbuster drugs require cold storage. That represents a structural change at the molecular level of the industry that is driving a demand for cold chain logistics. Then there are specific episodic events like Ebola or COVID riding on top of that trend. We are now right in the middle of the COVID phenomenon, and it is causing huge changes across entire industries.
KLATU’S TRAXX MONITORING SYSTEM
In a sense, every product is temperature-sensitive: Some have to stay frozen, but others can’t be allowed to freeze. People are often surprised to learn that room-temperature products are part of the cold storage domain, as are incubators. In fact, there are actually more incubators in the market than there are freezers—almost two-to-one. One of the main use cases for incubators is cell growth, which is very important in the vaccine business.
COLD CHAINS ARE BECOMING MORE & MORE CRITICAL
Today, most of the focus is on cold storage for therapeutics and vaccines, but an enormous amount of waste occurs throughout the scientific cold chain—in research markets, and other markets in biopharmaceuticals. Every time an Ultra Low Temperature (ULT) freezer goes down, samples are lost for which there is no backup. Almost everyone in the field knows a story about an organization that lost months, and sometimes years, of research for this reason.
KLATU Networks is an IoT monitoring company in the business of preventing such catastrophes. They do it with predictive failure analytics—monitoring the health of equipment and predicting the inevitable failures before they occur. With its TRAXX monitoring system, KLATU transitions their customers from a “fail and fix” maintenance model to a condition-based, proactive maintenance practice that allows customers to stay ahead of problems that inevitably arise.
KLATU calls this “monitoring 2.0,” distinguishing it from the previous “monitoring 1.0” which was a simple observe-and-report system. Monitoring 1.0 typically measured only one parameter—temperature—and notified the user of any substantial departure from the norm. If you’re running a ULT freezer at -80°F, you can walk by it and see it running at -80°F. In your monitoring 1.0 system, you can see it holding steady at -80°F. Users would adopt the standard operating procedure of looking at their monitoring system at regular intervals to verify, with their eyes, that the unit was behaving correctly.
Monitoring 2.0 means knowing ahead of time that something is going to happen, what KLATU calls “predict and prevent.” Ninety-five percent of KLATU customers who buy TRAXX are replacing an existing temperature monitoring system.
KLATU often humanizes its innovations by comparing them to developments in other areas of life that people are familiar with. Thus, their TRAXX monitors are called “EKGs.” TRAXX EKGs incorporate multiple sensors which include things like amperage, voltage, room ambient temperature, and humidity. But the monitors also monitor themselves. Why? Half the failures in the market are due to networking and device breakdowns rather than an issue with the equipment being monitored.
THINKING LIKE A CUSTOMER
In general, the computer business tends to fight the same battles over and over again, often thinking of them as brand-new battles because they are occurring in different industries, or in different parts of the technology chain. In the 1980s we had the nearly religious wars over protocols in the IT industry—DECNET vs. WangNET, vs. AppleTalk, vs. SDLC, 2780, 3270, and on and on. This pattern is now repeating itself in the “computational cloud” with proprietary “cloud apps” surfacing from every vendor, all of whom believe this to be their path to salvation.
But for the end-user it’s more like the path to confusion and chaos. KLATU’s leadership believes that customers will soon demand not only application consolidation, but also integration with other systems—industrial operations systems like OSIsoft PI, building management systems, and even proprietary systems like those developed by the largest pharmaceutical companies which have been in use for 20 years or more.
If you think like your customers, it becomes instantly apparent that throwing away old systems and adopting multiple new and largely incompatible applications merely adds to the waste. Customers are open to embracing the future, but they greatly prefer to take incremental steps toward an objective. Integration is the means by which the old way and the new way “meet in peace,” without the customer going through painful transition in software and operations.
Integration is a large part of KLATU Network’s deep thinking and expertise, and one of the main reasons why they presently serve nine of the ten largest life-sciences firms in the U.S. Similar to likening their monitors to EKGs, KLATU compares their integration approach to the financial meta-application Quicken, which brought 5,500 financial institutions “under one roof” and thus freed its users from dealing with proprietary apps from every bank and brokerage firm they did business with.
With TRAXX, KLATU compares the performance of a specific freezer to the performance of all its peers in the population, which is similar to a FICO score. The FICO-scoring concept makes sense of the data because KLATU is able to say that this freezer is performing in the lower quartile of its peers on the measurement of energy and mechanical stress, and if it’s performing in the lower quartile, you should do something now and not wait for it to break.
THE NECESSITY OF ORCHESTRATION AND COOPERATION
There are two or three large OEMs that operate worldwide and can control the factors necessary for their customers to succeed. Otherwise, what is present in the market is in serious need of orchestration. Especially on the services side, the market remains distinctly siloed. Customers want manufacturers to work together to provide an ecosystem that delivers real value to the end-user.
All of KLATU’s customers have multiple vendors for the equipment they are monitoring with TRAXX. There are at least ten freezer manufacturers selling products in the United States, and all ten of them have some form of monitoring system. But what KLATU has discovered is that customers don’t want that. They want one monitoring system that presents the information in a homogeneous user interface, agnostic to brand-names. In short, players in IoT need to integrate disparate assets, with all of their different brands and interfaces, and give the customer what they really want: Open systems architecture and ubiquitous connections.
As KLATU’s CEO Rick Kriss told us, “My first advice to anybody in the IoT business is that the technology piece is table stakes. Yes, you have to have something that works, that provides a useful result. But that’s just the tip of the iceberg. You need a deep understanding of the industry, and you can’t get that without being in the trenches for years. We don’t run KLATU with VC money, so we can’t afford to make many mistakes. Nor can we afford to not be successful with our customers. In the end, experience matters.
“For OEMs, I would point them to what Harbor has been saying for decades: The contentions, barriers, seams and the points of friction in the market are perceived to be threatening to the OEMs, who in many cases respond with a ‘go it alone’ strategy. They believe they understand the market, but this is extremely risky. The present-day market is very complex. Before you know it, you’re in the connectivity business, and there’s no margin in the connectivity business. There’s only hell when the stuff doesn’t work. That’s not something an equipment manufacturer should want to get involved with because that game costs millions of dollars to play. But the good news is: That’s not what differentiates them or us.”
This essay is supported by our Technology Insight “Supply Chain Growth Opportunities.”
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