OnSite Waste Technologies says the high costs and inefficiencies of medical waste disposal services makes the industry ripe for disruption. Just earlier this month, the Newport Beach, California-based OnSite closed a $3.5 million seed funding round, led by Mark IV Capital and UCI Applied Innovation’s Cove Fund II.

The worldwide medical waste market is large and growing: Mordor Intelligence sees CAGR growing by 5.4% to 2024, and Research&Markets, another market analyst, suggests the global market will go from just about $15 billion in 2018 to just under $19 billion in 2024.

It’s also a highly inefficient machine. In the U.S., large firms like TerraCycle, Stericycle, Waste Management, and Clean Harbors enjoy cartel-like control of pricing. Typically, they dispatch trucks to pick up and dispose of medical waste, then take the waste to an incinerator; a very carbon-intensive system. It’s a system that leaves medical waste generators little option but to pay. The companies’ pricing power is so great that the largest player in the U.S., Stericycle, agreed in late 2017 to settle a class action lawsuit over predatory practices for $295 million.

The industry also is full of regulatory challenges. For instance, at the U.S. federal level alone, five agencies may assert jurisdiction. State regulators, and in some cases, county and municipal officials, also can step in.  

OnSite CEO Brad Barnes says his company will use the new funding to follow up on the first commercial deployments of its TE-5000 device, which enables clinics, hospitals and other medical practices to more efficiently handle their waste in a cost-effective manner. Barnes spoke with Karma’s Contributing Editor Michael Moran.

Michael Moran: Brad, let’s start with a description of the TE-5000, which I understand has been deployed commercially in Orange County, California, this month. What does it do, and how was it developed?

Brad Barnes: We’ve designed and developed a desktop device that allows the facility to process all of their waste as they generate it right within their facility. The device destroys anything that would be considered bacteria or any other infectious disease. It kills all of that – neutralizes it – and renders the waste so that it can be disposed of legally in a household or office trash bin. And all of it is captured for audit and compliance purposes.

We founded the company in 2013, but the product had been around for a number of years and just hadn’t been leveraged and commercialized.

We released prototypes in September to start raising some money, and now after our seed round has finished, we’ve been building out the team and getting ready to go to market.

Michael Moran: Everyone who has been to a U.S. doctor’s office has seen the milk box-like receptacles used to discard regulated waste. These have never struck me as particularly secure – I sometimes see them out in front of doctor’s offices, presumably waiting for a pickup. What would your product change in this picture?

Barnes: The medical-waste market, highly regulated, is divided into two separate customers: industries and communities. One is the large-quantity generator which is primarily the hospital world, not just different in quantity but different types of waste. Then there’s a constellation of small generators, and this is our market, the retail, clinics, dentists and doctors offices, physicians, retail pharmacies — anywhere where there are injections, anywhere where there’s what’s known as regulated waste or “red bag” waste, which are generally fluids, blood and other secretions.

There are about 2 million of those waste generators in the U.S., and 99% of all waste generated at, for instance, an allergy clinic, is stored in the facility in town until they fill enough of their containers to be worth having a pickup. So then a truck will drive down the highway to come to the location and they’ll go in and they’ll pick up the stored waste that’s been sitting creating liability and safety issues in the office environment and they haul away stuff and they take it to a transfer station, where it’s stored again until another truck transports it to an incinerator somewhere to destroy it. It’s a lengthy process. It’s an expensive proposition. You’ve got trucks and people and and an incinerator.

Michael Moran: And you disrupt that how, exactly?

Barnes: We deploy a desktop device, the TE-5000, that allows the facility to process all of their waste as they generate it right within their facility. So the idea now is to insert technology into a very cumbersome process and allow all of our technology to manage the regulatory and compliance processes. The product can fit into a small footprint office environment. We have a unique, proprietary collection container that actually now replaces the way in which they’re collecting the waste. So now that container is inserted into our device in our unit. After the waste is processed the entire container gets burned into the waste stream. So it’s a disposable container, single-use container. The device itself is just managing the heat and pressure of the disposal process.

Michael Moran: Anything touching the medical profession is highly regulated, obviously, and now you’re adding toxic materials to the mix – another highly regulated space. How much of an obstacle has that been? Your website says you’ve engaged with 75 different agencies.

Barnes: Yeah, it is cumbersome, it is state-by-state in some cases it’s county-by-county. Sometimes OSHA wants to be involved, sometimes the FDA, and sometimes there are state regulatory areas. We spent the better part of two years going to all of the different regulatory and getting the approvals done. We had to prove that we could change the material to eliminate any infectious diseases and, with “sharps” like needles or other containers, render it non-recognizable and unusable. It was a very lengthy process for all 50 states and the federal level. We were able to meet are kinds of requirements and we’re now just finishing up with [state regulators] in New York and New Jersey. Once that’s done, we’ll have approval across the board.

Michael Moran: I hate to mention it, but you’ll have to run this gauntlet in every country in the world, too. Have you tested the international waters?  

Barnes: We haven’t yet. We know there’s a big opportunity there. YThe U.S. is our market right now and we know that the U.S. market is massive. Canada is another big market that we’re getting acquainted with, so we’re going through the regulatory process with Canada. Outside of that, I’ve received a number of inquiries but I’m not interested in really pursuing that until we can really launch the product and company in the U.S.

Michael Moran: So you’ve just completed a $3.5 million funding round. What will that buy you and what’s the path to profitability?

Barnes: So this round will take us through the early part of 2020. Now we are really going out to market and getting product-market fit. We know that there’s a big market, we know that technology meets a need, so I just hired a CMO and a chief revenue officer. We’re building out our sales model and we’re executing on our outbound. We’ve got call-center activity, we’ve got a direct-sales force.  When you look at the economics of the industry over the last 10 years, there have been a couple of large companies that have gone out and bought and acquired routes of the ‘mom and pops’ around the nation. You’ve got big players in the market that they’ve escalated the pricing out to their customers over the last 10 years. Stericycle, the largest of those players, recently lost a class-action lawsuit for over $250 million over pricing. So that’s a lot of unhappy customers.

Michael Moran: Explain the customer proposition for me. I’m a doctor, I generate waste and there are expensive pickups a few times a month. My attorney worries that I’m storing it on site and something could go wrong. And, of course, it’s expensive. Where will you improve this?

Barnes: We’re seeing anywhere between 50% and 75% cost reduction compared with current practices. The second thing is really their ability to have control over when they process their waste. One of the biggest challenges is having to store all of this waste in their own facility until their pickup comes, and high costs are the reason they limit pickups and store onsite. Now, with our approach, they can process it every night before they leave the office if they choose.

The way we handle all of the regulatory requirements is another big piece. All the manifesting of everything, which is done (usually) by hand today, is done within our technology and our machines. So when they process waste we keep all the required information needed in case they do get audited but that proves that hey’ve completed everything they need to do and they’ve done that right within their facility. So that’s a dramatic piece for them to be able to know that they are not liable for it, that they’re able to keep it and they don’t have to manage the paper trail and the audit trail.