Over the past month, gold has seen a considerable decrease in price, dropping almost 15% since the beginning of May. If this trend continues, gold will have its first losing year since 2000. This has led many investors, from the housewives of China to the bankers on Wall Street, looking for a bargain in gold prices.

However, what they don't realize is that there is already a bargain available – in uranium. Despite being the source of 20% of electricity in the United States and 35% in the EU, its price remains at multiyear lows.

Yes, gold has dropped a lot in the past month, but an ounce of gold can still buy almost 35 pounds of uranium at today's prices – that's much more than the historical average of 22 pounds. In fact, back in 2007, an ounce of gold would only net you about five pounds of uranium.

What does this mean? If you consider paper fiat money to be worthless and gold as real money, then the fact that you can buy more of uranium with gold means that uranium is cheap. Right now, we are clearly in the territory of "uranium is cheap relative to gold." Since these types of ratios have a way of going back to their historical averages, this means that in a gold bull environment, uranium is set to increase even more.

Still not convinced about uranium? Join us in our free online video event, The Myth of American Energy Independence, to learn more about the future of nuclear power, energy security in the US, and the uranium sector as a whole. To set the record straight, we have invited some of the most knowledgeable experts in the field, including:

• Spencer Abraham, former US Secretary of Energy
• Lady Barbara Judge, chairman emeritus of the UK Atomic Energy Authority
• Herb Dhaliwal, the former Canadian Minister of Natural Resources
• Rick Rule, CEO of Sprott US Holdings; and
• Amir Adnani, CEO of Uranium Energy Corp.

Additional Links and Reads

EU Taps Top Oil Traders for Help in Price-Fixing Probe (Globe and Mail)

The price-fixing investigation continues, this time with the focus shifting to the top commodity trading houses of Europe. This is good news for Statoil and Shell, as it appears that they are not suspects in the investigation. It will be interesting to see what transpires, and to see how deep the wormhole goes.

Oil Pumping Suspended as a Result of Attack on Iraqi-Turkish Pipeline (Hydrocarbon Processing)

While oil transportation has now resumed, it is important to note that terrorist attacks or attempts on this pipeline are almost a monthly event. Now that ExxonMobil and other international majors are in Kurdistan, let's see what kind of security and diplomacy they can add to the area. A foreign oil company in Iraq at this point may actually be a good thing.

German Minister Calls EU Move on Chinese Solar a "Grave Mistake" (The Nation)

On April 2^nd, 2013, U.S. President Barack Obama unveiled the “BRAIN” Initiative, which is short for Brain Research through Advancing InnovativeNeurotechnologies. 

The initiative will launch with approximately $100 million in the President’s Fiscal Year 2014 budget allocated to brain research – to accelerate the development and application of new technologies that will enable researchers to produce a clearer and more dynamic picture of the brain and how the mind works. It will also look to show how individual brain cells and complex neural circuits interact at the speed of thought.  These technologies will explore how the brain records, processes, uses, stores, and retrieves vast quantities of information and shed light on the complex links between brain function and behavior.

This builds on the momentum set forth by the agenda set by the President’s State of the Union address, a call for significant investments in research and development to fuel innovation, and expand our understanding of the human brain and uncover new ways to treat, prevent and cure brain disorders such as Alzheimer’s, schizophrenia, autism, epilepsy, and traumatic brain injuries.

Despite optimism surrounding a strong pledge to funding innovation in our space, the commitment will raise significant questions; most importantly, about how the funds will be spent and how will it drive economic activity. Is this a drop in the bucket that will ultimately lead to a drive in the bioscience industry? Will this initiative complement the efforts of scientific understanding, much the same as the Human Genome Project did when it started nearly 25 years ago in 1989? How will bureaucracy and science co-exist, to avoid the pitfalls of the sluggish Human Genome Project?

The Money Trail

The BRAIN Initiative may be known as the spiritual successor to the Human Genome Project, not only for its desire to understand a mysterious place known to medical science, but for taking its cues from the initial success of the HGP.

The project is certainly as massive – mapping 100 trillion connections made by 85 billion neurons make up the human brain represents a gargantuan task, much in the same way the challenge of mapping the 20,000-25,000 individual genes that made up the bulk of the Human Genome Project.   But the comparison runs deeper – both in economics and scope.

Despite the general conclusion that the HGP did not move as quickly as the scientific community had hoped for, President Obama reminded us that every $1 invested in the Human Genome Project returned $140 to the economy.

Where does the money come from?

The BRAIN initiative in actuality will allocate $110 million to ‘start-ups,’ pledged from various government agencies: the National Institutes of Health ($40 million); the National Science Foundation ($20 million); and the Defense Advanced Research Projects Agency, DARPA ($50 million).

In addition private groups will match a significant portion of funds. The four major research partners for the BRAIN Initiative are: the Allen Institute for Brain Science ($60 million); the Howard Hughes Medical Institute ($30 million); the Salk Institute ($28 million); and the Kavli Foundation ($4 million), for a total of $232 million total for Fiscal Year 2014.

Yet, over the past 3 years biotech has operated under the threat of losing significant federal funding over the entire sector. In 2011 and 2012, we saw several DoD-supported studies frozen for lack of funds.

So how real are these pledges? The National Institutes of Health, for example, is taking a $1.6 billion dollar hit due to current sequestration cuts; whether or not the pace of funding pledged will be maintained with the next administration is unknown.

The U.S. Admits What the Rest of the World Has Said for Quite Some Time

Still, the good news for the industry: in addition to the United States’ pledge, many international hotbeds of innovation have joined in the cause.

The numbers put up from the U.S. coincide with the efforts from the (Switzerland-based) European Union Human Brain Project. The European Commission has deemed the Human Brain Project as a “Flagship Project,” and has earmarked $1.3 billion over 10 years towards research that will utilize supercomputers to simulate a neural network and to investigate how and which genes are expressed by neural activity.

China’s Brainetome Project, supported by the Ministry of Science and Technology of China, the National Nature Science Foundation of China and the Chinese Academy of Sciences, and in operation since 2004, has received some €80 million Euros in funding, focusing especially on diffusion Magnetic Resonance Imaging (dMRI), along with developments utilized from Cuba based on neurotechnology (as part of a project that has lasted about a decade).

The Cuban project combines a stratified active screening program for brain disorders at the population level by utilizing databases, analysis tools, and theoretical models to craft tools and treatments for early diagnosis and management.  Starting nearly a decade ago, this project has enjoyed success in accelerating the progress of neuroimaging and neuroinformatics technology, which opens promising paths to understanding what role each region of the brain plays in mental activity, along with the role of genetic and environmental variables in brain formation and activity, critical areas that the BRAIN Initiative will also seek to address. (this comes from comments by Dr. Pedro Valdés Sosa, Deputy Director for the Cuban Neurosciences Center.

A Re-Commitment to Incubating Innovation

The most tangible commercial opportunity is lowering the cost and effectiveness of brain treatments, the same way that the Human Genome Project brought down the cost of genetic mapping.

So, is there a chance that the BRAIN Initiative will make an immediate impact upon the market?

“The BRAIN Initiative sends a signal that this is an area that we need to be invested in, because if we don’t we’re going to pay for it one way or another,” said Gerald E. Commissiong, CEO of Amarantus Bioscience (AMBS) in an interview with OneMedPlace. Amarantus is currently undergoing preclinical testing for its headlining MANF therapy, designed to address Alzheimer’s, Parkinson’s and Traumatic Brain Injuries.

Commissiong went on to describe his view of the role that the initial infusion of funding will take, saying “More likely than not this will be more of a catalyst than in and of itself an important investment.”

His view may also be tempered by the fact that Amarantus’s MANF therapy was once developed at the NIH, and Amarantus’ CSO ran a division of the NIH. Amarantus may be an interesting case study in spinning out successful technologies into the private sector.

Political Agenda, or Re-Commitment to Innovation?

Traditional funding for early stage companies (grants, angel and venture) is drying up, and there exists a funding gap for emerging growth companies. Earlier in the process, grants to independent researchers are off significantly. Many people are having a tough time keeping their labs afloat, and the resulting attrition is affecting employment and growth on the private side. The United States is seeing more innovation (and state support) beyond its borders, and for the first time may lose its position as the world leader in medical advancement.

This Legislative Branch certainly hasn’t helped, as evidenced by the Affordable Care Act of 2010, specifically a $30 billion annual tax on medical devices.

According to an Op-Ed piece in the Wall Street Journal by Gregory Sorensen, CEO of Siemens Healthcare North America and former professor of Radiology at Harvard Medical School, since the tax went into effect on January 1^st, 2013 manufacturers have already paid an estimated $450 million in new taxes, redirecting funds that could otherwise be used for innovation and other endeavors.

Sorensen also quoted figures put out by two libertarian free market think tanks, claiming the health law’s medical-device tax will reduce American medical research and development by an estimated $2 billion a year, and cost some 146,000 American jobs.

These underlying factors become all the more important as the decision of where to allocate BRAIN funds becomes real. When the debate begins as to whom is the main beneficiary of these efforts will be, will we discover a covert political agenda to prop up employment figures and “sector growth”, or a true commitment to furthering the science through commitment to the ‘best’ companies?

Before we look too jaded, it is important to note federal funding tends to align with companies indeed possessing top-notch valuations as well as groundbreaking applications in orphan or underserved market (such as Amarantus’ connection with the NIH), and companies such as CytoSorbents (CYSO) or ExThera Medical’s work in the sepsis arena with DARPA – previously covered by OneMedPlace. We simply want to make sure the BRAIN Initiative follows in this trend.

Still, the funding structures have indeed changed, and it would be logical to guess that the development structures (especially in light of the recently passed JOBS Act) would change. Hence, it should be anticipated that regulatory and commercialization paths would change as well to foster the information done at the R&D level.

Reactions & Criticisms: How do We Judge Success?

Dr. Sorensen is not the only one who sees the government tripping under its own feet in trying to help our sector.  Many are worried that this is just another handout to bigger companies to display growth at the shallowest of levels. In actuality, these funds should be and claim to be intended for researchers and PH.D candidates.

Moreover, many are worried that the funding for these initiatives will be cut. It is difficult to justify such a staunch commitment to brain research when significant dollars fueling virus, immune disorder, cancer, and regenerative medicine are scarcer with each passing month.

David Hovda Ph.D, Director of the Brain Research Center at UCLA, has expressed misgivings at the fact that the BRAIN Initiative, despite its lofty goals, really does not have a major, tangible endpoint.  When combined with the lack of information and details about the project, Hovda added, with significant brain research done without a substantial public commitment from the government, what or who is all this really for?

Still, there exists a healthy number of supporters. Society for Neuroscience (SFN) President Larry Swanson, a neurobiologist at the University of Southern California in Los Angeles, wrote on behalf of the SFN executive committee, calling the BRAIN Initiative “tremendously positive” for neuroscience.

Swanson has cautioned that critics should not rush to judgment, noting that  “It is my continuing hope that we all reserve judgment on the merits of the broader project until we first learn more about what it will prioritize and fund, and that is going to take some time.”

A main question in the medical community remains: to what extent will funds be allocated to innovation, vs. for patient care and efficiency?

Alvaro Fernandez, the CEO of SharpBrains.com, a leading independent market research and think tank tracking health and productivity applications of neuroscience, cautioned in a presupposition in “Venture Beat” in April, 2013 that the Initiative should focus as much on research and goals as it does on encouraging the development of cost-efficient diagnostic tools, and programs distributed over the Internet/Cloud.  Fernandez argued that these developments  can generate valuable data to expand the understanding of cognitive functioning, which, coupled with the Big Data analysis of the U.S./E.U./China, can yield amazing insights that have immediate applications.

At the core, the BRAIN Initiative must commit to building commercial applications and fostering the relationship between the private and public sector, and it must do so with the same fervency as it certainly will in fueling politically-charged talking-points related to employment and “remaining competitive.”

The Human Genome Project’s biggest win was the facilitation of incubating early-stage and publicly funded technology for spin out into the private sector. The result is a massive paradigm shift in how we approach treatment – away from normative medicine, and toward personalized medicine.

The BRAIN Initiative has a chance to be as scientifically relevant, and consequently to become a catalyst in true industry growth.

The Human Genome Project, a collaborative effort to sequence the entire human genome, took thirteen years and three billion dollars to complete. This project began in 1990, and, by modern standards, is already considered slow and dated. Today, the human genome can be sequenced in a single day, for only a few thousand dollars.

As sequencing technologies develop, the amount of genomic data that researchers have at their disposal is growing exponentially. To date, 4,327 different species have fully sequenced genomes.

At the intersection of biology and computer science, the field of Bioinformatics has emerged as an important means to process and meaningfully manipulate the wealth of biological data that is available.

Bioinformatics is the field of science involved with using computational methods to convert raw biological data into meaningful biological paradigms. For example, by analyzing sequence and microarray expression data in breast cancer patients, researchers discovered a mutation in the BRCA1 gene associated with a high risk of breast cancer. This bioinformatics study gave researchers a specific target, and studies have since determined exactly how mutated BRCA1 causes breast cancer.

Part I of this article will discuss how bioinformatics data is generated. It will focus on the methods used to collect this data, and the companies that support this collection. Part II will look at how this data is manipulated, discussing the government’s role in archiving and distributing this information. Finally, Part III will explore the real-life applications of bioinformatics, discussing the role of the private sector in applying this data to therapeutic development.

Where does the data come from?

To fully understand the scope of bioinformatics projects, it is important to know how this data originates. Several laboratory methods were recently created to study properties of the cell on a genome-wide scale. In this section, we will focus on three particular methods: Microarrays, Chromatin Immunoprecipitation (ChIP), and DNA Sequencing.

Microarrays

Microarray technology is used to determine the relative expression of a large subset of genes in an organism’s genome. In doing so, a researcher can determine which genes are active in an experimental condition (i.e. disease).

The microarray is a small chip, approximately the size of a standard camera memory card. Thousands of short DNA molecules, called probes, are hybridized to the surface of the chip.

These probes are specifically designed, such that they will adhere to naturally occurring DNA sequences in the cell. A sample of DNA is taken from the cell and added to the chip. When the sample DNA adheres to the probe DNA, a fluorescent signal is emitted. The sum of fluorescent signals comprises the gene expression profile for the cell.

Under different conditions, cells will express different genes. For example, a cell with limited nutrient availability will activate genes involved in breaking down inherent cell components for energy. When nutrients are available, the cell will turn off these genes. When a gene is activated, enzymes first convert the DNA sequence into messenger RNA (mRNA). In microarray experiments, the mRNA from a cell is collected, chemically converted into DNA, and added to microarray chips.

With this technology, a researcher can manipulate a cell, collect the DNA of genes expressed under the new conditions, directly visualize how those manipulations affect the cell’s gene expression profile, and in turn understand what expressions occur under particular conditions.

The concept of a gene chip was conceived in the 1980’s. However, microarray technology, in its modern form, was first introduced in 1997, and its role in the biological sciences continues to grow. Microarrays can now be used to detect a wide array of molecules beyond DNA, including proteins, tissues, carbohydrates, micro-RNAs, and organic chemical compounds (such as drugs).

Several companies, including Affymetrix (AFFX), Illumina (ILMN), and Agilent (A), specialize in the manufacture of DNA microarray chips. These companies have increased a chip’s processing power and simultaneously decreased the amount of a chip’s background noise. Affymetrix’s product, GeneChip, can be used for thousands of simultaneous experiments, for the purpose of direct comparison.

ChIP

Chromatin Immunoprecipitation is a technique used to determine where, specifically, proteins bind onto DNA. DNA-binding proteins are critical to regulation, a fundamental paradigm for pharmaceutical development. Thus, it is becoming increasingly important to precisely understand how these systems function.

In ChIP, cells are initially treated with formaldehyde. Formaldehyde is a crosslinking agent, which stabilizes any chemical interactions in the cell, including protein-DNA interactions. Subsequently, the DNA is extracted from the cell and fragmented mechanically. To isolate the regions of DNA containing the protein of interest, antibody selection is used. Antibodies are designed to interact with a specific protein, and these can be used to filter out any unwanted DNA fragments.

Several companies, such as Abcam (ABC.L), Cell Signaling Technology, and Upstate, specialize in the production of highly specific “ChIP-grade” antibodies. At this stage, the researcher has a collection of the DNA sequences where the protein of interest is bound. Heating the sample separates the DNA and protein.

ChIP can be used to determine local DNA-protein interactions, or it can be paired with DNA microarrays to determine the genome-wide binding profile for a protein of interest. The latter technique, called ChIP-on-chip, Illuminates the array of genes to which the protein of interest binds. Since these microarrays have a different function than those for gene expression profiling, a different set of probes must be used. This is because proteins typically bind to regulatory regions, such as promoters or enhancers, which are often found outside of a gene’s coding region. As such, different companies, including NimbleGen and Invitrogen – merged into Life Technologies (LIFE) – manufacture the ChIP-on-chip microarrays.

Sequencing

DNA sequencing is the process of determining the linear order of nucleotide bases within a sample molecule of DNA. Sequencing has innumerable applications in biological sciences, including the identification of mutations, diagnosis of illness, gene therapy, and forensic sciences. By the comparison of DNA sequences, researchers are able to elucidate the molecular mechanisms of potential genetic diseases.

In 1977, Frederick Sanger and colleagues published their Chain-Termination method for sequencing, the first reliable method to sequence long fragments of DNA. Sanger was awarded the Nobel Prize in Chemistry in 1980, and the method is now generally referred to as Sanger sequencing. While technologies have since improved, Sanger sequencing is widely regarded as the breakthrough that allowed DNA sequencing to flourish. Sanger sequencing is the gold standard for first generation sequencing technologies, and was the predominant method used in the Human Genome Project.

DNA is a double-helix comprised of individual units called nucleotides, of which there are four varieties (adenine, thymine, cytosine, and guanine – the A, T, C, and G – that spell out the title of the 1997 science fiction thriller GATTACA). These nucleotides connect to one another vertically, to create single helices, and across, to connect the two helices.

In Sanger sequencing and most second-generation sequencing methods, a single-helix DNA molecule is used as a template, as nucleotides are added across the single-helix to form a double-helix. In Sanger sequencing, a mixture of individual nucleotides and chemically-modified nucleotides are added to the template. The chemical modification prevents further vertical stacking, and, by this approach, researchers can slowly build upon the template and deduce the composition of the sequence.

One decade after the completion of the Human Genome Project, sequencing techniques remain a vital component to laboratory research. While Sanger sequencing laid the foundation, it is, by modern standards, inefficient for larger projects. The method can only sequence up to 800 nucleotides at a time, and the human genome contains roughly four million times that amount. Therefore, it is no surprise that several companies are actively developing new methods to streamline this process.

Pyrosequencing, licensed by 454 Life Sciences, detects a small molecule called pyrophosphate, which is released in the chemical reaction of vertical nucleotide stacking.  Illumina has developed their own method of sequencing, involving fluorescently labeled nucleotides and high-powered cameras to capture which nucleotide is added. Ion Torrent Systems, a subsidiary of Life Technologies, has developed a semiconductor capable of detecting each added nucleotide.

Other companies that are developing DNA sequencing strategies include Oxford Nanopore Technologies (nanopore sequencing), Affymetrix (microarray sequencing), Complete Genomics (DNA nanoball sequencing), Applied Biosystems (SOLiD sequencing), Helicos Biosciences (Heliscope single molecule sequencing), and Pacific Biosciences (single molecule real time sequencing).

With microarrays, ChIP, and DNA sequencing, researchers can accumulate a wealth of biological data. Microarrays depict the genes actively expressed under various conditions. ChIP determines the DNA-binding profile for a protein of interest. Sequencing determines the physical arrangement of nucleotides along the DNA molecule. These techniques are the foundation of bioinformatics.

Bioinformatic researchers (OneMedPlace has coined the term ‘bioinformaticians’) develop complex algorithms to analyze these data, searching for meaningful patterns within this vast stream of information. Ultimately, these findings lead to experiments, discovery, and the development of pharmaceuticals and other therapeutics for debilitating disease. Studies in bioinformatics have already increased our understanding of cancer biology. Only time will demonstrate the full therapeutic potential for bioinformatics.

ISTO Chief Financial Officer Says Proprietary Growth Expansion Technology Yields 5,000 Cartilage Grafts from Just One Donor

ISTO Technologies grows living cartilage in the lab, and can use it to heal a damaged knee and a weakened spine. Chronic pain once considered a permanence may now be neutralized with a minimally-invasive regenerative procedure — and that therapy may reach consumers far sooner than expected.

Further, the company’s unique pipeline that has demonstrated both clinical progress and market success. The privately-held orthobiologics company is focused on developing differentiated products for spinal therapy, sports medicine, and trauma.

With one commercialized product — a bone graft extender and substitute — and two late-stage clinical programs focusing in engineering cartilage tissue for knee and back, respectively, the company is poised to capture an opportunistic yet untapped market.

According to the company, ISTO’s InQu bone graft product brought in $13M in 2012, and the company projects $18M in 2013. ISTO relies largely on this cash-flow to drive clinical development for the company’s cartilage regeneration programs — DeNovo ET (Phase III), engineered cartilage tissue for knee injuries — and NuQu (Phase II), minimally invasive treatment for chronic lower back pain.

CFO Scott Gill points to two major unique factors for optimism in a a market in which several companies have struggled to reach the finish line. The company has demonstrated success in growing living cartilage in a lab setting — something Gill believes ISTO is alone in producing — through juvenile cartilage cells. The company’s proprietary expansion process allows for growth of just a single donor tissue into  3000 to 5000 cartilage grafts.

There currently exists just one major regenerative cartilage graft product available, and no therapies for regeneration of disk nucleus. With the company already recording profits with one commercialized product, investors have a reason to be optimistic about ISTO’s next milestones.

Still, in a notoriously unfriendly space, with many case studies serving as pessimistic precedent, questions remain. OneMedRadio spoke with ISTO Technologies CFO Scott Gill about the company’s unique technology, market opportunity, and next steps.

Click to listen to the interview, and view the transcript below.

Brett Johnson:             Welcome. This is Brett Johnson with OneMedRadio in New York City. Today, I am with Scott Gill. Scott is the Chief Financial Officer of ISTO Technologies, a St. Louis based firm that develops innovative products around cartilage repair and regeneration. Thanks for joining us today, Scott.

Scott Gill:             Well thank you, Brett, for having us. It’s a pleasure to speak with you.

Brett Johnson:             So Scott, can you give us just a general overview? What is ISTO? What do you guys do?

Scott Gill:             We are an advanced stage regenerative medicine company that has really – we have two programs that are cell based cartilage regeneration programs that are in clinical trials and one biologic product that’s commercialized that focuses on bone regeneration primarily for use in spinal effusions. The cartilage technology was a technology that came out of Barnes-Jewish Hospital here in St. Louis and we’ve spent the last ten to fifteen years really focusing on expanding, growing, developing those cells that we work with.

To our knowledge, we’re the only company in the world that can grow living cartilage in a lab setting. The two programs that we have under that are, a program called DeNovo ET. It’s an engineered cartilage tissue for knee injuries. And the second is a program called NuQU. That’s a minimally invasive treatment for people with chronic low back pain. The DeNovo ET program it’s currently in phase III human clinical trials and the NuQu program is in the phase II human clinical trials. So we’re very pleased with the progress that both of these programs have shown on the clinical front.

Now, what makes us different from a cartilage standpoint is that we work with juvenile cartilage cells with cadaveric tissue that we procure from tissue procurement organizations around the US. The work that was done at Barnes-Jewish showed that these cells were much more active in terms of forming and growing new cartilage, up to a hundredfold more potent than the cells of an adult. Also, what we’ve done with our research is shown that cartilage is an immune privileged tissue, so it’s something that can be transferred from one person to another.

What’s unique about us, however, is not just this discovery in the fact that we work with juvenile cartilage cells. It’s the proprietary expansion process that we’ve developed over the last several years in terms of being able to take the donor tissue, grow that, expand it, and out of a single donor come up with 3000 to 5000 either knee grafts that we use for the DeNovo ET program or 3000 to 5000 doses for the NuQu program.

I mean that expansion technology really offers us a scalable technology that makes it for a great business model. It also creates a platform technology that could be used anywhere you have a need for cartilage whether it’s the hip, the knee, the shoulder, the ankle. Fundamentally, we’re able to address any type of joint disease that involves cartilage deterioration over the time, over the age, aging process.

To our knowledge, we’re the only company that has this ability to grow this cartilage and develop these as an off-the-shelf solution. Everybody we know that’s working on knee programs uses an autologous approach that requires two procedures. Ours is a one-step solution for the knee but also for the back as well. Like I said before, clinical results we’ve seen in our initial human clinical trials for both products has been fantastic. So that’s the cartilage side of our business.

The other side of our business that we feel kind of distinguishes us in this community is the fact that we have a successful bone graft extender and substitute that we launched back in 2008. It’s a unique biomaterial. It’s a synthetic that is used to promote bone growth where there’s a need for bone grafting materials primarily in spinal effusion opportunities. We feel that this mix of a commercialized product with our high growth opportunity clinical stage programs really makes us unique in the orthobiologics space, in the regenerative medicine space, but the fact that we have revenues to go along with the high opportunities that we see in the cartilage side.

BJ:             Can you talk a little bit about what your revenues have been and where they’re going?

SG:             With our bone product, we did about $13M last year and we’re projecting to do around $18M this year. One of the things that we’ve had to do in light of the economic conditions over the last couple of years is really focus on driving the value of our business with both sides. We couldn’t afford to be a bone growth extender company only, and go out and higher 50, 60 direct reps and really try to grow that revenue. We’ve tried to manage this on a profitability basis, so that it pays for itself. It’s something that we could have grown a lot more, but we’re very pleased with our 30%-40% growth because it’s given us the cash to drive our clinical programs on this well without diluting our shareholders by trying to raise capitals during difficult economic conditions.

BJ:             Interesting. Now you talked about 3000 to 5000 doses. How many doses does a typical patient need?

SG:             Typically, for the knee program, once. For the NuQu program, if you’re doing a single level deteriorated disc, the protocol right now is treatment of one level, so that’s what we’re focusing on. Ultimately, could you be treating multiple levels, but typically it’s one to two doses of the NuQu I would imagine would satisfy those patients. On the knee side, the graft that we actually grow is about is about 6 cm² so we’re really focused on large defect sizes for the knee.

BJ:             Now your expansion technology really is going to give you plenty of product. You’re not going to have a supply issue for these products?

SG:             No. I mean unfortunately, the donor tissue it comes from tragic situations with the death of a child in terms of what we’re working with, but our expansion technology really alleviates that need for multiple donors. I think that’s something that is really the secret to our kind of growth opportunity that our company is the fact that we can grow this cartilage but have it still maintain those characteristics of regeneration that get lost as we age.

BJ:             So what is the size of the market for let’s just say the knee product? Do you have a sense of how big that market is?

SG:             Just in the US our estimate is there are probably about at least a half million arthroscopic procedures each year for treatment of knee problems. No, we’re not saying that there’s necessarily a half million people that would fit in, but I think that somewhere probably in the 300,000 to 500,000 patients per year could benefit from our therapy just in the US. Outside the US, it’s probably just as big, but we focus strictly on the US markets at this point in time with all our products.

BJ:             And what is the economics? What’s your expected economics on the cost of the treatment?

SG:             Right now we still have to go through the reimbursement process. If you look at the only approved knee therapy that’s out there right now, it’s really Genzyme’s ACI or Carticel product and our understanding is that that product for the product alone is costing $25,000-$35,000 per procedure. We think that we can provide this graft in the $5000-$10,000 range and still have very attractive margins.

On the NuQu side, you know, there is no therapy right for regeneration of disk nucleus. The therapies right now people are doing like I said along the continuum of care being passed along. The next step, if they’re not working for under the conservative therapy, is a surgical option. So we look at this as kind of the last step of conservative care a doctor can present and say you know, here’s one more alternative before you proceed down this surgical option. Let’s try this MIS approach.  Basically, it’s a very simple procedure. Somebody comes in, just treat it through an MIS approach and then goes home a couple of hours later.

So I think that especially in this environment that we’re seeing today, where insurance payers are reluctant to approve spinal fusion surgeries, we think this fits in nicely with this current payer environment in terms of being able to potentially solve and regenerate a disk nucleus, without having to go through that surgical option, at a much lower cost for the patient and much safer for the patient as well.

BJ:             And what is sort of the typical cost now for a surgical procedure?

SG:             For a fusion, I mean it depends upon how many levels, the type of how complex but I think you’re looking from what I understand anywhere between $25,000, $75,000.

BJL:             And what’s your guess on what your service or your treatment may cost?

SG:             You know, again we’ll need to go through the reimbursement process but I think that based on our cost of manufacturing the doses, I think we could be very successful with something under $10,000 per dose.

BJ:             So there’s a lot of savings you think you can bring. I’ve talked to [some of our readers] about the cartilage and regeneration and knee treatment. They’ve indicated that [a number of technologies] have tried that, and everything has failed. What’s the response to those guys?

SG:             I guess we have solution: we got the clinical data. If we look at what we see from our phase I results from the ET program, first of all I guess you go back, you look at the cells that we’re working with. The cartilage approach is the people, everybody else is working with typically are autologous approaches. So they’re starting with cells that are inferior to the cells that we’re working with.

Secondly, what we’re seeing right now because of the nature of our phase I, we’re out over I guess almost five years with our phase I patients and we’re seeing significant improvements in our two scores, and also our IKDC scores which with the pain scores.

Then I guess the other thing that we would use is that if you look at the prevailing treatment right now in microfracture, when we look at our MR results for the patients that have been treated, we’re seeing superior cell rates. Which means we’re not only growing better cartilage, because we’re growing true hyaline cartilage rather than the fibrocartilage the microfracture generates, we’re putting more of it into where the defect does.

On NuQu side, the results that we’re seeing out there, we’re two years now with our phase I patients and we’re seeing significant declines in both their pain scores but also their activities, their improvements in their activities of daily living. We had people that before were on extended disability that are now back to work. We got people that before couldn’t do things like pick up their child, play games with their children that are now able to participate in activities that before they couldn’t do because of the chronic pain that they felt in their back. I think at the end of the day, our answers to those critics would be that look at our data and see what you think. We feel very strongly that our data supports the efficacy of these programs.

BJ:             Well it sounds very impressive. Congratulations on your success and progress.

SG:             We’re very proud of where we are today and we realize that there’s a lot more work that we have to do. I think our philosophy is let’s keep our head down and continue to make progress and hopefully bring these promising therapies to the market so people can benefit from it very soon.

BJ:             That was Scott Gill. Scott is the CFO for ISTO Technologies based in St. Louis, Missouri. Thank you for joining us today. This is Brett Johnson, OneMedRadio signing off. Good day.

Atossa Genetics [ATOS] believes it can prevent breast cancer by 2020 — and in the meantime, capture a unique market opportunity — with their novel cellular and molecular diagnostic risk assessment products for early detection.

Yet in a burgeoning diagnostics space, and rapid advancement in cancer therapeutics, will this company find a niche?

The company ran a soft launch for two cleared tests in 2012, and has an additional test ready for initial launch. The national launch for these products is expected in the second half of 2013. This national launch — coupled with a dedication to developing personalized and preventative medicine — may yield strong investment opportunity.

Atossa’s Approach — A Rundown

The Atossa system uses three tests, MASCT, ForeCYTE, and ArgusCYTE to properly assess risk and scope at various stages of detection.

“Stratifying all 110 million at risk women is the job of the first test [MASCT],” said Atossa Genetics CEO Steven Quay, MD, Ph.D. in an interview with OneMedPlace. “FullCYTE is for assessing high-risk, and ArgusCYTE for the 2.5 million breast cancer survivors.”

The majority of breast cancers are initially found in cells that line the inside of the milk ducts in the breast. The changes in these cells (mammary epithelial cells) have been associated with an increased risk of breast cancer.

Atossa’s approach is to monitor the changes in these mammary epithelial cells; the company is exclusively focused in the analysis of Nipple Aspirate Fluid (NAF), which carries a rich source of information about an individual women’s breast health.

Nipple aspiration uses gentle suction to collect fluid from the nipple. The procedure involves a similar device to breast pumps used by nursing women, and can be obtained from about 75% of women. The NAF collected contains cells from the lining of the milk ducts and lobules. These are the types of cells from which 99% of breast cancers originate. The NAF sample is then sent to the National Reference Laboratory for Breast Health in Atossa Genetics for analysis.

This analysis uses a patented process to look for the presence or absence of specific proteins that are known to be associated with pre-malignant or malignant cells, key indicators for breast cancer detection. In addition, information on the number of pre-malignant or malignant cells and the amount of specific proteins present on these cells is used to calculate a lifetime breast cancer risk profile. Once the test and analysis is complete, the patients and their doctors will receive a five-page report detailing the findings of the analysis and providing a lifetime risk profile.

“Shareholder value is created by providing products and services that satisfy medical need,” Dr. Quay said. “Each of our products is addressing an unmet medical need, and we are achieving high-quality revenue in markets that are in billions of dollars.”

MASCT — What You Should Already Know

Atossa’s first FDA-cleared product is the MASCT System: Mammary Aspiration Specimen Cytology Test System. This system is used to collect nipple aspirate fluid for cytological evaluation. The evaluation determines and/or differentiates normal cells versus pre-malignant cells versus malignant cells. The entire MASCT system is simple, yet proven to be reliable for NAF collection.

The system uses a hydrophilic (water loving) membrane in contact with the nipples to “wick” fluid from the orifice of the ducts via capillary action during the cycles of negative pressure, thereby increasing the frequency of obtaining NAF in women.

To date, the MASCT system has been awarded 14 US and international patents for its design and utility. When clinically tested, NAF was successfully collected from 97% of women to be analyzed.

The NAF analysis can detect early cellular changes in the ducts, regular assessment and tracking of cellular changes in the milk ducts, where most breast cancer begins.

For clinicians, the MASCT System provides a new assessment of breast health, NAF cytology, and molecular diagnostic biomarkers. The routine use of MASCT Systems during annual physical exams such as mammograms increases the range and depth of documentation for breast health. Over extended time periods, this will allow clinicians to observe any changes or trends in the NAF analysis as a form of the earliest detection of breast cancer.

ForeCYTE — Earlier Detection is Key

The ForeCYTE Breast Health Test is Atossa’s second commercialized product. ForeCYTE is a non-invasive test that can detect breast cancer cells at the earliest stages of disease.

The question remains: why is ForeCYTE different, or better than, a typical mammography?

The standard mammography can only detect masses at the minimum of 100 million cells. On the other hand, ForeCYTE can detect cancer with as little as 10 abnormal cells — this will enable intervention at much earlier stages of the disease than detection through mammogram.

Further, cells can be analyzed to determine if they are normal, atypical, or malignant (cancerous).  By determining the number and type of pre-malignant or atypical cells in a patient’s sample, ForeCYTE provides information about the risk of developing cancer in the future.

If a woman has atypical findings, she may choose to adjust her lifestyle or consult her physician about additional screenings and potential treatment options.

According to a company survey, prior to using ForeCYTE, only 19% of physicians included in a recent survey knew their patient’s lifetime risk of breast cancer. After administering ForeCYTE, 99% of physicians surveyed had the information they needed to know their patient’s lifetime breast cancer risk.

Currently, the ForeCYTE Breast Health Test is the only test available that provides amplitude of critical information on lifetime breast cancer risk.

ForeCYTE is intended as a complementary to the mammogram for middle-aged women, and is also intended as a vital tool for women between the ages of 18 to 49, for whom screening mammography is not yet recommended due to age.

ArgusCYTE — An Untapped Market

ArgusCYTE, Atossa’s third product (initial launch estimated in late 2013), is an early detection system warning patients about the presence of circulating breast cancer tumor cells (CTC) and molecular profiling of treatment target expression in a simple liquid biopsy specimen.

Finding breast cancer tumor cells before they metastasize throughout the body affords early treatment options. The ArgusCYTE has the ability to identify CTC at the levels of less than 10cemms/5mL of whole blood. The test can be applied at the time of diagnosis/biopsy or as a form of monitoring throughout therapy.

Next Steps

Despite the saturation of oncology treatment in the past decade, Atossa Genetics believes it is operating in a unique space.

“The competition is very thin,” Dr. Quay said. “We are trying to prevent breast cancer by identifying pre-cursors in breast cancer.  Everything in the medical community is designed to detect breast cancer. Available technologies are not designed to find pre-cancer lesions because it involves sampling a much smaller cell [segment].”

The company’s closest competitor thus far has been Myriad Genetics, with a blood cancer test to identify specific mutated genes. Dr. Quay notes this test only covers 10% of all breast cancers, and can overlook cell abnormalities.

To date, the company has 178 issued patents with 50 pending in application. Evidence of efficacy is available from data with over 20,000 women, and publications of more than 140 peer-reviewed papers. Atossa’s future plans are to combine all these research studies to further their progress and develop molecular diagnostic biomarkers.

In the United States, breast cancer has become an epidemic. About 1 in 8 women will develop breast cancer over the course of her lifetime. In 2011, over 230,000 new cases of invasive breast cancer were diagnosed in women in the US, along with over 57,000 new cases of non-invasive breast cancer. A woman’s risk of breast cancer approximately doubles if she has a first-degree relative who has been diagnosed with breast cancer, and about 15% of women who with breast cancer have a family member already diagnosed.

As one can see, detecting initial symptoms and understanding risk-factors are of paramount importance. So too, is the prevention of cancer from fully developing in high-risk patients. Atossa will next tackle this platform, by developing treatments containing tamoxifen or raloxifene, and exploring diagnostic biomarkers.

 Actium Cancer Treatment (ACT) platform’s controlled heat (hyperthermia) has the potential to substantially increase the efficacy of chemotherapy and radiation First application: non-muscle-invasive bladder cancer (NMIBC)

BOULDER, Colo., April 29, 2013—Actium Biosystems announced today that it has appointed distinguished pharmaceutical scientist Jessie L.-S. Au, Pharm.D., Ph.D., to its Scientific Advisory Board (SAB). Dr. Au recently resigned her position as Distinguished Professor in the School of Pharmacy at The Ohio State University and is currently an independent cancer research scientist and consultant.  Dr. Au performed some of the definitive work on the optimization of mytomycin C chemotherapy for the treatment of NMIBC and is considered a senior authority on the pharmacology of drug action and distribution within cancer tumors. During her career she has been one of the top recipients of NIH grants with a career total of $140 million and is currently the Principle Investigator for over $5 million in NIH grants on various cancer research topics.  Dr. Au is widely published with 153 peer-reviewed articles.

In addition to Dr. Au, Actium’s Scientific Advisory Board includes:  Bruce F. Mackler, Ph.D.; Edward M. Messing, M.D.; Michael O’Donnell, M.D.; Craig S. Rosenfeld, M.D.; and Richard Willson, Ph.D.

“We are extremely pleased to have Dr. Au join the Actium SAB.  Her credentials are extraordinary.  Dr. Au has served on numerous NIH and FDA Committees, is on the Editorial Board of Pharmaceutical Research, and is scientific advisor to several leading academic cancer centers,” said Joe Tondu, CEO of Actium Biosystems.

“There is a significant unmet clinical need for treating bladder cancer, which recurs in about three out of five patients within two years and has not had an improvement in treatment in over 30 years,” added Tondu.  “Since the 1990s studies have demonstrated that adding hyperthermia to standard intravesical chemotherapy treatment of NMIBC, the most common form of bladder cancer, significantly reduces the recurrence rate.  The problem has been the lack of an acceptable technology to deliver hyperthermia. Our ACT System has been designed to solve that problem. Using advanced nanotechnology and electromagnetics, the ACT System is designed to deliver the highly controlled and precise temperature needed to boost the efficacy of traditional cancer treatments.”

Actium’s novel system platform, Actium Cancer Treatment or ACT, for selectively delivering controlled hyperthermia, has been validated via in vivo studies by two independent authorities, including Duke University Medical Center and a contract research facility. Actium is in the midst of preparing for safety and pharmacokinetic studies to support an application to the FDA for permission to commence Phase I First-in-Human clinical studies as soon as possible.

About Hyperthermia and Actium Cancer Treatment (ACT) System

Hyperthermia is the targeted application of elevated temperatures in cancerous regions to improve the efficacy of traditional treatments including chemotherapy. While hyperthermia is applicable to many cancer types, the first indication being developed by Actium is non-muscle invasive bladder cancer.  In concert with standard chemotherapy, the ACT System is designed to elevate the cancerous region temperature a few degrees above body ambient temperature. The ACT System generates safe hyperthermia by first delivering Iron oxide nanoparticles in a ferrofluid solution combined with a standard chemotherapeutic drug via a catheter to the bladder.  The bladder is then exposed to a harmless externally generated alternating current magnetic field that excites the nanoparticles, causing particle rotation and magnetic domain realignment, both generating heat. A proprietary computer program using a real time temperature control feedback loop precisely regulates the heat. Heating the bladder by only a few degrees Centigrade opens up pathways that increase the delivery of drugs to the tumor.  Studies have shown the addition of hyperthermia with standard intravesical chemotherapy increases drug delivery to bladder cancer by as much as 400% with no toxic systemic impact.

CAUTION: The ACT System is not approved for sale in the United States.

The following piece comes to us from a OneMedPlace contributor. DelMar will be presenting atOneMedForumNY 2013, June 26-27 at the Metropolitan Club in New York City. View the original story onSeeking Alpha.

DelMar Pharmaceuticals (DMPI.OB) started 2013 with a revealing corporate update on January 8th. In the update, president and CEO Jeffrey Bacha outlined his goals with an exciting year ahead for the company and its employees. Mr. Bacha focused primarily on the company’s lead product candidate, VAL-083, a small molecule (chemotherapy) agent that DelMar is developing in a dose escalation trial for recurrent glioblastoma multiforme (GBM). Readers casually perusing through the press release, formatted as a two page letter, may not even make it to page two, for despite all the promise and excitement in the letter with regard to DelMar’s progress in 2012 and upcoming catalysts in 2013, the company was privately held and not traded on the public markets. However, the second page of the letter noted the company’s plan of a reverse merger with a public company, a cheaper and effective means of becoming a publicly-traded entity than a typical initial public offering (IPO). In a subsequent January 25th announcement, DelMar announced the first closing of an associated private placement. This closing plus subsequent closings netted gross proceeds of about $10.5 million and notified the public that it would begin trading on the OTCBB. Trading commenced shortly thereafter for the company as (OTCQB: DMPI).

VAL-083′s History

DelMar’s adventure with VAL-083 started with its October 2010 purchase of the chemotherapy agent from Valent Technologies, LLC, as noted in an October 2010 corporate update. DelMar went to work developing VAL-083 with an IND (investigation new drug) filing to the FDA to garner permission to initiate clinicals. On September 6, 2011 the company received the IND approval, and quickly went to work, announcing patient enrollment initiation in a dose-escalation phase I/II trial on October 25th for refractory (recurring) GBM. While the drug has no approval in the U.S., it does have marketing approval in China for the treatment of chronic myelogenous leukemia (CML) and lung cancer. Since DelMar’s 2010 acquisition of VAL-083, it has also obtained exclusive marketing rights to the drug in China. While monetary terms have not been disclosed as the company was not public at the time of the acquisition, revenue generation as a result of the deal not only helps to offset costs associated with clinicals here in the U.S., but the approval itself in China helps to validate the drug’s potential in the U.S. for lung cancer and CML and helps confirm the safety profile of the drug for the currently-attempted GBM indication. DelMar’s collaborator in China, Guangxi Wuzhou Pharmaceuticals, will be helping the company further develop the drug in China for other indications by providing the drug itself for clinicals and commercialization, while DelMar will be responsible for its development and marketing.

Of particular note in the collaboration announcement was the statement “DelMar is conducting research aimed at demonstrating the utility of DAG (Chinese marketed name for VAL-083) for injection in cancers refractory to current therapies”. In the purchasing agreement of the U.S. rights to VAL-083, DelMar obtained access to the company’s unique and proprietary ChemState™ bioinformatics tools which is used to screen and identify potential candidates and additional targeted indication. This technology will be used to further develop VAL-083 in China and the U.S., and is likely the source of the initial targeted indication here in the U.S. for GBM. Much cheaper than “trial and error” preclinicals to validate proof of concept, the tools will help the company rapidly identify and advance potential drug candidates and indications without significant investment in “wet lab” infrastructure and with fewer wasted preclinicals.

Developed by one of the company’s founders, current science officer Dr. Dennis M. Brown, ChemState™ was behind the development and subsequent FDA-approval of ChemGenex Pharmaceuticals’ Synribo for the treatment of CML. Dr. Brown was the founder of ChemGenex Therapeutics in 1999 which underwent a reverse merger with an Australian publicly traded company in 2004 to become ChemGenex Pharmaceuticals only to be later bought out by Frazer, Pennsylvania-based Cephalon for $231 million. In 2011, Jerusalem-based Teva Pharmaceuticals (TEVA), paid $6.8 billion for Cephalon. It seems that ChemState™ helped to develop Synribo as well as sealed the company’s fate with the profitable drug garnering not one but two subsequent buyouts. Has the cycle started once again with DelMar with the same technology utilized to develop drugs there and with the same innovative science officer? While I never invest based on “buyout potential”, the possibility certainly deserves some attention and gives the investment some additional speculative thoughts for consideration.

Catalysts Ahead

While promising therapies can certainly drive share price as the companies develop them through clinicals, a lack of updates and other catalysts can often make the investment appear lackluster and keep the share price depressed until later stages of development when share price can quickly drive the company’s market capitalization up as a result of strong late-stage data and regulatory filings. DelMar looks to have an exciting year ahead with multiple catalysts to keep investor interest strong, once it actually does garner investor interest. The company has been faithfully providing quarterly investor updates via the same type of “letter to shareholders” format over the last two years.

According to the January update, the company should complete dose escalation trials in 2013 for VAL-083 and prepare the drug to advance to registration directed clinical trials this year (although it did not state that the trials would initiate this year). As pertaining to the Chinese license, DelMar will continue to develop VAL-083 there, and plans to establish marketing relationships that will position it to generate revenue through product sales or royalties for the approved indications. Updates on the royalties and partnerships should be forthcoming and could be solid share price drivers moving forward. Interested investors should review the company’s first quarterly financials once released in order to ascertain the current revenue levels DelMar has been generating with regard to the partnership, a very telling number moving forward.

DelMar’s VAL-083 acquisition should position the company well with the drug being approved for some indications in China, while research on other indications to target in the near future in China due to the highly utilitarian ChemState™ bioinformatics tools is still progressing. Here in the U.S., DelMar benefits from the collaboration additionally as Guangxi Wuzhou will be providing the drug here for all clinicals as well. This eliminates the need for the company to produce the drug on its own or to validate other suppliers – saving valuable time and money. On April 10th, DelMar released an update on its GBM trialhere in the U.S. The company presented data at the American Association for Cancer Research (AACR) annual meeting in Washington, D.C. during a clinical poster session entitled, “A Phase I/II Study of VAL-083 in Patients with Recurrent Malignant Glioma or Progressive Secondary Brain Tumor”. Data were promising with all three dose cohorts not reaching dose-limiting toxicity (DLT), with no adverse events detected. The fact that the DLT was not reached is highly significant. With most drugs, and chemotherapy drugs in particular, there is an ever present tradeoff of efficacy versus safety with regard to dosage levels. Higher dosages typically yield better efficacy values with less tolerable safety profiles, while lower dosages often better safety profiles but with less efficacy.

Although the Phase I/II data should be considered as preliminary in nature, Mr. Bacha noted that the response rate was 33%, meaning that 33% of patients had tumors that either stabilized or regressed (shrank). Remember, this response is in a very difficult to treat patient set that the company is tackling with VAL-083: GBM patients who have failed standard care treatment temozolomide (Temodar®), marketed by Merck (MRK) and its subsidiary Schering-Plough Corporation as a front-line treatment. The patient set also includes a more dire set, those who have failed other treatments and then subsequently failed bevacizumab (Avastin®) marketed by Roche Holdings’ Genentech (RHHBY.OB) for recurrent GBM. Of particular note with regard to efficacy was that the proposed doses to be utilized in future registration trials as a result of this dose-escalation trial thus far yielded response rates as high as 40% in historical GBM trials sponsored by the U.S. National Cancer Institute (NCI). Without the DLT yet reached, the drug is already showing signs of efficacy. As dose escalation continues, DLT levels also rise as likely does the efficacy, garnering more attention from healthcare oncology, larger pharmaceuticals and investors. With the highly-acclaimed ASCO in Chicago approaching from May 31st-June 4th, an announcement by DelMar that the company is attending could be forthcoming and gives yet another high-profile venue for the next corporate update.

Targeted Patient Group

VAL-083′s efficacy mechanism is a bit different than other chemotherapy drugs used to treat GBM. The mechanism is independent of O6-methylguanine-DNA methyltransferase (MGMT) repair, the repair enzyme responsible for resistance to Temodar® and other alkylating agents approved for GBM such as the nitrosoureas (BCNU, CCNU). According to data released at ASCO 2011, high expression of MGMT is associated with a 10% survival two years after diagnosis, while the lack of the enzyme correlates to a 50% survival at two years. With VAL-083′s activity not likely to be affected by the presence of MGMT, it could fill a significant need for the recurrent GBM indication after Temodar® or Avastin® treatments, and could be developed for newly-diagnosed GBM in the future, particularly in patients having a high expression of the MGMT enzyme.

With about 15,000 patients dying from GBM annually in the U.S., the disease is certainly not epidemic in incidence relative to other cancers. However, the number is a bit misleading as its median survival rate is about 15 months with only about 4% of patients still living at 5 years – a horrifying statistic striking fear into patients and loved ones. VAL-083 has earned Orphan Drug designations for both the U.S. andEuropean markets. The designation is intended to provide incentives for developing therapies for diseases with fewer than 200,000 patients affected in order to make such approvals profitable and worthy of the required research and capital expenditure. It provides for reduced filing fees and other regulatory expenses and provides for a period of exclusivity in which the respective regulatory agencies would not approve similar drugs for the same indications for 7 years in the U.S. and up to 10 years in the European markets after regulatory approvals. Not only do these designations provide for maximized gains for the research put into such drugs, but they also make the company a bit more appealing to larger pharmaceuticals in search of drugs to replace the ones they have that may be coming off patent protection in the near future.

Financials: Show Me the Money

All SEC filings reported before the January reverse merger for DMPI were of the reverse merger public company with the ticker symbol BRRY.OB, so I do not yet have an indication as to DelMar’s financials up to that point, but its first quarterly filing should be imminent. However, since the company’s introduction to the investor public, the company has raised funds which should fund its operations for at least 2013. The private placement announced in conjunction with the January 25th reverse merger netted DelMar$10.5 million in gross proceeds through a series of closings in a private placement, which was oversubscribed (apparently lots of interest by the buyers). These funds were from investors that likely have first-hand interaction with the company, its financials and VAL-083 data, with each providing funds for the company to advance its pipeline at least through the year.

Looking Ahead

Interested investors should carefully glean through each of DelMar’s “updates” via its website to get a better feel for the company’s clinical progression, quality of management and plans for the future. DelMar’s first SEC filings with regard to financials should be forthcoming and will likely be very revealing with regard to the revenue from its Chinese marketing of VAL-083 for lung cancer and CML. Investors should consider that revenue, the company’s cash burn rate and the $10.5 million it has obtained via private placements since its public debut in January in order to get a better feel of its cash position. With a revenue generating product in China for two indications, the downside for the investment should be less than that of many development-phase pharmaceuticals. Although the company is a bit risky currently having only one product in development for one indication in the U.S., the already marketed indications in China along with the ongoing work for developing other indications beginning with ChemState™ recommendations could bring other indications into development in the near future.

Nonetheless, I do feel certain that this competent management team is likely using ChemState™ to find additional products to develop with more partnerships also possibly on the way, giving current and potential investors an exciting future ahead, with this company keeping a long-term position in their portfolios or their pharmaceutical company watch lists.

Amarantus Bioscience has posted a White Paper exploring the company’s LymPro Alzheimer’s Disease diagnostic, prepared by a member of the company’s Board of Advisors.

The Paper discusses the increasing prevalence of Alzheimer’s disease, the clinical and economic advantages of early detection, and why the LymPro Test is poised to potentially become the market leading diagnostic product in the Alzheimer’s space. Adam J. Simon, Ph.D., the preparer of the White Paper, is regarded as an expert in working with Alzheimer’s disease biomarkers, and also has significant expertise in the development of in-vitro diagnostics.

Amarantus built a diagnostics platform through the late-2012 acquisition of the Lympro test and NuroPro, a blood test for Parkinson’s Disease detection.

LymPro will be evaluated for commercial use in early detection of Alzheimer’s, as well as a companion diagnostic and use in clinical development. The LymPro trial has enrolled more than 160 patients, and Commissiong noted in the company’s shareholder update call in April that the company plans to verify previous published studies in the coming months. The company will also initiate a third study at the same independent laboratory to support worldwide sales, which will help to secure certification in the US.

Amarantus believes that LymPro could be a $900 million market opportunity approved as a companion diagnostic product, in addition to a commercial diagnostic which could be valued in the $10BNs. LymPro could also move the diagnostic paradigm, as the test may also yield the diagnosis of mild cognitive impairment and pre-dementia Alzheimer’s.

The White Paper explores the scientific underpinnings of the LymPro test.

**Click to view the White Paper**

Amarantus Bioscience has posted a White Paper exploring the company’s LymPro Alzheimer’s Disease diagnostic, prepared by a member of the company’s Board of Advisors.

The Paper discusses the increasing prevalence of Alzheimer’s disease, the clinical and economic advantages of early detection, and why the LymPro Test is poised to potentially become the market leading diagnostic product in the Alzheimer’s space. Adam J. Simon, Ph.D., the preparer of the White Paper, is regarded as an expert in working with Alzheimer’s disease biomarkers, and also has significant expertise in the development of in-vitro diagnostics.

Amarantus built a diagnostics platform through the late-2012 acquisition of the Lympro test and NuroPro, a blood test for Parkinson’s Disease detection.

LymPro will be evaluated for commercial use in early detection of Alzheimer’s, as well as a companion diagnostic and use in clinical development. The LymPro trial has enrolled more than 160 patients, and Commissiong noted in the company’s shareholder update call in April that the company plans to verify previous published studies in the coming months. The company will also initiate a third study at the same independent laboratory to support worldwide sales, which will help to secure certification in the US.

Amarantus believes that LymPro could be a $900 million market opportunity approved as a companion diagnostic product, in addition to a commercial diagnostic which could be valued in the $10BNs. LymPro could also move the diagnostic paradigm, as the test may also yield the diagnosis of mild cognitive impairment and pre-dementia Alzheimer’s.

The White Paper explores the scientific underpinnings of the LymPro test.

**Click to view the White Paper**

Huntington Beach, April 23, 2013  – Steele C. Smith, III and Medical Director Mark S. Wagner M.D. to exhibit at the Rx for Wealth Network Symposium this Weekend April 27th at the Huntington Beach Hilton.

“We are excited to offer physicians in the concierge field a new tool to bring personal and financial success.  Idrasil, Cannabis in a pill and specifically our physician referral website www.Idrasilrx.com  offers the Dr.’s in the concierge business the ability to raise their visibility and increase patients in their regional markets.” Steele C. Smith, III Founder and Chairman, Idrasil.

Rx for Wealth Network (RXW) is committed to helping doctors offer the best evidence based medicine while keeping up to date with all of the newest technologies and products in today’s growing medical market.

“We are thrilled to have Idrasil as an exhibitor at the symposium, showing once again how the RX Symposium is on the cutting edge of the newest medicine and technologies available to concierge physicians.” Kathy Marks, President, RX for Wealth Network.

RXW prides itself on acting as the conduit, bringing world experts to Physicians to help uncover hidden obstacles that inhibit revenue growth while establishing new ideas to help the practice prosper.

“Idrasil is on the cutting edge of the use of cannabinoids in the prevention of cancer and providing a solution to the over-prescription of opioid pain medication.” Mark S. Wagner M.D.

We are thrilled to join this wonderful symposium as a presenting sponsor, for more information or to be listed on our physician referral website, please visit www.idrasilrx.com or call 855-IDRASIL.

So far, 18 states, as well as the District of Columbia, have legalized the use of medical cannabis and there are several bills currently pending in Congress.

Contact:

MEDIA:             George Joyce       831-419-7967
INVESTMENT: Jason Pitkin       714-659-6385

California-based C3 International [the holding company of not-for-profit C3 Patients Association] has brought to market the first medical marijuana pill, known as Idrasil. Now, the company is looking to enter the pain market, pitching the pill as an all-natural pain relieving neutraceutical with the potential to accomplish in medical marijuana what morphine did to opium a century ago.

Idrasil is through regulatory: now, the next step is increasing awareness both for the product itself, and the potential for cannabinoid pills as a legitimate therapeutic opportunity.

Cannabis contains over 85 cannabinoids, a class of diverse chemical compounds which activate 2 cannabinoid receptors, believed to be responsible for the anti-inflammatory, anti-convulsive, and pain relieving effects of cannabis. Marinol, which has been on the market for over two decades, is a synthetic form of just a single cannabinoid (THC). Idrasil, on the other hand, is an all natural cannabis plant extract containing the full spectrum of naturally occurring cannabinoids.

OneMedRadio spoke with C3 International Chairman Steele Clarke Smith III about the unique delivery technology behind Idrasil, and trends in the sector related to market opportunity, necessity for non-inhaled delivery and dialogue in the medical community.

Click to listen to the audio, and view the transcript below.

Matthew Margolis:        OneMedRadio welcomes Steele Clarke Smith, Chairman of C3 International, the holding company for C3 Patients Association developing Idrasil, the first legal medical cannabis pill. C3 Patients Association is a not-for-profit entity operating legally in California to serve medical cannabis patients. Thank you from joining us, Steele.

Steele Clarke Smith:        Thank you, Matt.

Matthew Margolis:        I want to start with a snapshot of Idrasil. Give us an overview.

Steele Clarke Smith:        Idrasil is the first all-natural extracted cannabis pill. It contains all natural phytocannabinoids containing THC and CBD in a sterile, standardized and consistent pill. This pill is a form that physicians can feel comfortable writing on their prescription pad. That prescription can be reimbursed by most insurance companies except for Medicare and Medicaid in California. All private insurance is reimbursable.

Matthew Margolis:        Go into some detail about how cannabinoid receptors connect with pain relief.

Steele Clarke Smith:        Active THC in combination with CBD works to mitigate pain in the same way opioids work on opioid receptors to mitigate pain. We have endocannabinoid receptors naturally occurring in or bodies just like we have endo-opioid receptors naturally occurring. It’s the reason why opiates work so well for pain relief, particularly musculoskeletal pain. And cannabinoids work very well with neuropathic pain. It’s just part of our physiology as humans.

MM:        What is the difference between Idrasil and Marinol, which has been available for decades?

SCS:        Marinol is synthetic THC. It’s considered a delta-9-tetrahydrocannabinol molecule that replicates THC in its active form. Marinol contains no natural cannabinoids, no CBD, CBN, or CBG, or any of the other important phytocannabinoids that we recognize as having therapeutic benefits. Marinol is simply a single molecule, that after 25 years most physicians will tell you patients have reported that it does not work.

MM:       Why is important for THC to be available in the pill form?

SCS:        For many years, particularly in California for 20 years since cannabis has been legal [there], the medical community recognizes the anecdotal therapeutic benefit of cannabis. Too many patients for too many years have reported therapeutic benefits for a variety, a wide variety of ailments. As such, the medical community knows and is aware that cannabinoids are valuable in medicine. The problem is that cannabinoids are only available in dispensaries. Dispensaries only offer those cannabinoids typically in their raw or concentrated form, raw being the flower. These are concentrated forms that need to be smoked, and that’s the big problem with the medical community writing cannabinoid [scripts] is the lack of desire for cannabinoids to be readily ingested via the lungs. So a much safer form of ingestion already accepted by the medical community is the pill or oral ingestion, through the stomach and first pass metabolism.

As such, Idrasil is the first form of all the natural cannabinoids with active THC in a pill that’s standardized and consistent. The next point would be that consistency. When a patient goes to a dispensary and buys a bud from that dispensary ,they only know the name of that bud. They don’t know where it came from, how it was manufactured, and they certainly don’t know batch to batch, lot to lot, if that medicine is consistent. Idrasil’s production is derived from mother genetics that are cloned, and those clones maintain the genetic integrity batch to batch, lot to lot. With our proprietary extraction and conversion process, we’re able to maintain that consistency and standardization through the physician to the patient.

MM:        You touched on it earlier, but go into some more detail about reimbursement.

SCS:        We use a set of codes known as ABC codes or alternative billing codes. We have successfully acquired and registered for a set of codes that cover the various strengths of Idrasil. We have submitted through our third party billing provider a claim for reimbursement and have had that claim successfully adjudicated. We are replicating that process. The only gap between us and that process now is the world knowing about Idrasil. Our stage 2 funding is wholly for advertising and sales and marketing, TV ads and our new website. We are very proud of what we feel is a world-class portal for science and cannabinoid therapeutic information.

MM:        So while we’re on the subject, can you give us some history of the company’s financial structure?

SCS:        We’re in our second round of funding. Our first round was completed the end of 2012. We raised $2M plus a $0.5M contribution from myself personally. $2.5M got us to proof of concept, build out of our manufacturing facilities, our website, our marketing, plan, and currently we have a sales rep team.

MM:        I want to shift gears and talk about market opportunity. Firstly, what are the initial consumer therapeutic markets you’re going to enter?

SCS:        The primary markets we’re going after are pain, nausea, [and] nausea in oncology markets related to chemotherapy. Third would be insomnia, and fourth would be the psychological issues markets, depression and anxiety patients.

MM:        What data can you highlight from these indications?

SCS:        At our website under the doctors information section at www.idrasilrx.com we feel we have world-class information, both anecdotal and links to recent studies for a variety of ailments in which cannabis can be beneficial.

MM:        How is the consumer market here growing?

SCS:        In California, the [cannabis] market is currently $2B. We have a large baby boomer population that is realizing that cannabis actually has value, and if their doctor is willing to write it in a form that they can get it reimbursed by their insurance most baby boomers are comfortable with cannabis in a pill.

MM:        In the medical community, there’s obviously some significant debate over this therapeutic option.

SCS:        There’s a new debate about cannabis. There is a new indication called clinical endocannabinoid deficiency, CECD. Now what that basically says is that since cannabinoids were removed from the human condition in about the 1920s, prior to the ‘20s humans used cannabis, primarily hemp in many forms, in oils, food, the seed, rope, paper, medicine. Cannabis was integral to the human condition. Now the clinical endocannabinoid deficiency theory further goes on to state that cannabinoids are the fuel to the immunodeficiency system.

Now if cannabinoids are removed from the human condition in the ‘20s and we have now 2, 3, 4 generations of humans who are clinically endocannabinoid deficient, one can now see how potentially these ailments that are effectively a ghost in the system. Like fibromyalgia, Parkinson’s, multiple sclerosis, cancer, these are diseases that the medical community is putting labels on conditions that could potentially be clinical endocannabinoid deficiencies first. Many of the ailments that I just named are at least maintained, if not helped in some way by cannabis. This is too exciting. This is too revolutionary to ignore and this is where I believe the future frontier for cannabis discussion truly resides.

MM:        So lastly, what are your opinions about recent legislation making medical marijuana more accessible?

SCS:        These are exciting times. Our President Obama, I am convinced, is not going to leave office in his second term without having freed and liberated the cannabis plant. He will have worked with congress to successfully reschedule cannabis for one to a three ideally for purposes for a pill that can be distributed to patients in need. The science is there. Cannabis is good medicine. I believe that medicine, the investment community, and the political world all understand this. It’s just going to take some fleshing out of the issues in order for all of the entities to find that sought after common ground.

MM:        That was a company snapshot of C3 International with Chairman Steele Clarke Smith. To learn more, visit www.idrasilrx.com or call 855-Idrasil to receive patient, doctor, and investor information. With OneMedRadio, this is Matt Margolis signing off.

Tekmira’s (TKMR) story over the last few years has largely been focused on its siRNA delivery technology, lipid nanoparticles (LNPs), and the ability of the platform to be used in broader RNAi applications. But the focus of investors is shifting as Tekmira brings a new therapy into the clinic this year and moves out of early-stage clinical development and into proof-of-concept studies. With that should come greater visibility as investors pick up on the therapeutic development facet of the Tekmira story, and the capital markets should begin to allot more value to the company’s in-house pipeline than they currently do. Tekmira has an enterprise value (EV) of just $20M, markedly low for a company with multiple therapies in human clinical trials, a strong balance sheet, and robust economic agreements in place with larger drug companies.

Tekmira simply isn’t getting credit for its pipeline, and as the arguable leader in RNAi delivery technology, Tekmira’s valuation fails to capture the full potential of its and platform and its own LNP products. With soon-to-be six clinical-stage pipeline assets, several catalysts this year for both proprietary and partnered product candidates, and an EV of around $20M, TKMR is remarkably cheap to own. So much to offer and so inexpensive makes TKMR attractive to investors based on the company’s long-term prospects, however, drug companies may also be interested in scooping up this “on-sale” platform and pipeline. We believe TKMR will not stay this cheap for long.

Mini version of Alnylam that trades near cash. Alnylam (ALNY) is Tekmira’s bigger, well-known cousin in RNAi therapeutics, a drug developer valued at more than $1.4B by the markets, despite that the company’s pipeline is still in early- and mid-stage development. Alnylam has done a nice job of focusing the investment community on its “5 x 15” strategy, whereby it expects to have five candidates in late-stage development by 2015, that much closer to a fully validated (FDA approved) RNAi therapeutic. But more importantly, three of Alnylam’s leading candidates — ALN-TTR02, ALN-PSC, and ALN-VSP — utilize Tekmira’s lipid nanoparticle (LNP)-enabling technology, and the smaller company collects royalties and milestones on these treatment opportunities — by owning TKMR, investors can participate in the ALNY story, while still owning one of the leading, yet undervalued, RNAi delivery developers.

Financially, Tekmira is solid, an important component to owning development-stage biotech. The company came into a large, non-dilutive source of capital last year when it and Alnylam settled long-standing litigation regarding Tekmira’s LNP technology. That settlement netted Tekmira roughly $46.3M, enough capital, the company says, to continue funding operations into 2015. Tekmira ended 2012 with $46.8M in cash & equivalents and guides for a balance of $35M at the end of 2013: a cash burn of just over $11M after factoring in expected revenues and milestone payments from partnerships in 2013. On a per share basis, TKMR is worth almost $3.27 (based on end of 2012 figures) and closed the day on Monday at $4.70; essentially, investors can own Tekmira’s entire pipeline for ~$1.50 per share. Even if TKMR remains flat through 2013, which we don’t expect, the company expects to end the year with $2.44 in cash per share, still a robust backdrop to its current share price.

Overall, the company’s EV of ~$20M (market capitalization of $65M) is remarkably low for five assets that have progressed into human trials, some of which are advancing into mid-stage trials under partner, Alnylam. The two companies are closely tied in terms of success and failure, and positive read-outs at Alnylam should be read as successes for Tekmira, given associated milestone payments, further validation of Tekmira’s LNP-technology, and the long-term financial benefits of potential commercialization.

Tekmira has economics on several key assets from Alnylam, some featuring 2013 catalysts and cash milestones. As mentioned above, Tekmira has a financial stake in several of Alnylam’s clinical products that utilize Tekmira’s LNP delivery technology. Most notably, TKMR has a royalty and milestone agreement with ALNY for TTR02, Alnylam’s most advanced clinical product (details below). Anlylam expects Phase II data for TTR02 by mid-2013 and will then advance the therapeutic (assuming positive results) into a Phase III trial, resulting in a $5M milestone payment to Tekmira. Given the strong results seen in Phase I, it’s widely expected that the data will be positive and that ALNY will commence a Phase III study in 2H13. Tekmira is entitled to royalties in the single digits on TTR02 sales. Tekmira is also entitled to receive a $5M milestone payment when a Phase II trial for ALN-VSP begins in China; that’s expected in the second half of this year, and both the TTR-02 and VSP milestone payments ($5M each) have been factored into Tekmira’s 2013 guidance. In addition, Tekmira collects royalties (low single digits) on both VSP and PCS, the latter of which was partnered with the Medicines Company (MDCO) earlier this year, a validation of both the product and the technology behind the product. Seeing a mid-tier drug developer step into siRNA for a large indication like hypercholesterolemia is suggestive of broader industry acceptance of RNAi as a therapeutic pathway.

It’s also important to note the unique economics of the TKM-Ebola program. The therapy is being developed cost-free for Tekmira, as the U.S Department of Defense (DoD) pays for up to $34.7M of development costs through Phase I trials, although the contract could be extended to $140M for TKM-Ebola to achieve FDA approval. Tekmira is preparing for a Phase I trial to begin this year with a newer formulation of the Ebola therapy, and the therapy, if successful, would be approved under the FDA’s “Animal Rule” (no requirement to treat humans inflicted with Ebola, only human safety must be proven).

Finally, and important to Tekmira’s long-term story, Tekmira has broad access to Alnylam’s siRNA payload technology. TKMR can access 13 targets from ALNY and has currently used 8, leaving five targets that TKMR can still tackle, combining ALNY’s core technology with its LNP delivery platform. These targets can be developed internally or out-licensed, and Tekmira’s ability to access ALNY’s payload technology negates any immediate need for an in-house discovery program, allowing for a strong focus on LNPs while still building an internal pipeline. The company will, of course, pay low royalties to Alnylam if any of these assets are commercialized.

More than just RNAi delivery. Tekmira owns the most clinically researched and arguably most advanced delivery technology in RNAi therapeutics — lipid nanoparticles (formerly called stable nucleic acid-lipid particles, or SNALP). Delivery is key in RNAi. Unlike small molecule drugs, RNA molecules in the bloodstream tend to be unstable and are unable to access cells to carry out their gene-silencing capabilities. Preclinical work has demonstrated that LNP technology, which essentially “encapsulates” short interfering RNA (siRNA) in a deliverable package, is overcoming these limitations. Already in Tekmira’s preclinical and early clinical studies, LNP has shown an ability to “knock down” (reduce) target gene expression. Importantly, after a recent litigation settlement with Alnylam (ALNY), all intellectual property for LNP delivery now resides with Tekmira, strengthening the developer’s position as a delivery enabler and creating the sole LNP-enabled partner in the world of RNAi development.

But while technology delivery is certainly a compelling angle to Tekmira’s story, we believe that the market has neglected to build in value for Tekmira’s in-house pipeline; the company is shifting its positioning from one of delivery technology alone to also more strongly encompass therapeutic development, and should be valued as such. In 2013, Tekmira will identify a third in-house asset to move into the clinic, in addition to the three assets already being developed through its partnership with Alynylam. The Alnylam partnership, while accretive to Tekmira, may be more important as validation of the LNP platform than as key long-term value drivers. Nevertheless, with an EV of just $20M, each pipeline asset has the ability to significantly increase the value of TKMR shares. Below, we describe the first two candidates in the company’s pipeline that are being developed in-house, followed by Alnylam’s products partnered with Tekmira.

TKM-PLK1 - is Tekmira’s proprietary PLK1 (polo-like kinase 1) inhibitor, which is moving into a Phase II trial for the treatment of gastrointestinal carcinoid tumors later this year. TKM-PLK1 created some stir at the American Association for Cancer Research meeting earlier this month with promising results from a Phase I 24-patient dose-finding study in a variety of cancers. The Phase II trial will begin in 2H13.

TKM-Ebola - is an RNAi therapeutic utilizing Tekmira’s LNP technology to protect patients from the Ebola virus. Pre-clinical data were published in the Lancet in 2010, and the therapy should be moving into a Phase I safety study in healthy patients yet this year.

ALN-TTR02 - Alnylam’s treatment for transthyretin-mediated amyloidosis (ATTR), ALN-TTR02 also uses Tekmira’s LNP-delivery technology. A Phase I trial demonstrated that TTR02 is well-tolerated and led to a knockdown of serum TTR protein levels of up to 94% (p<0.00001). Following a single dose of TTR02, the reduction was rapid, dose dependent, and durable; and suppression was sustained almost entirely (80%) at one month after a single dose. Alnylam will have Phase II data by the middle of 2013 and plans to move TTR02 into a pivotal trial after.

ALV-PCS  - Alnylam develops ALV-PCS as a treatment for hypercholesterolemia. It targets the PCSK9 gene, resulting in higher LDL receptor levels in the liver and subsequently lower LDL cholesterol in the bloodstream. A Phase I trial wrapped up early in 2012, and we’re waiting for details on a development path forward, which we assume will include a Phase II trial beginning in 2013.

ALN-VSP - is a kinesin spindle protein (KSP) and vascular endothelial growth factor (VEGF) inhibitor indicated for advanced solid cancers with liver involvement. Alnylam partnered the product with Ascletis Pharmaceuticals for development in parts of Asia, and a Phase II Chinese trial should begin in 2013.

Business activity is robust and certainly worth more than the current EV. Tekmira is entitled to single-digit royalties on net sales of the recently approved chemotherapeutic Marqibo (vinCRIStine sulfate LIPOSOME injection). The product, owned by Talon Therapeutics (TLON), was approved in 2H12 for 2^nd-line Philadelphia chromosome negative (Ph-) acute lymphoblastic leukemia (ALL). Tekmira receives mid-single digit royalties on Marqibo sales (estimates for that drug are ~$100M at peak), so Marqibo alone could be worth around $5M annually to Tekmira. Also in oncology, Tekmira is moving its TKM-PLK1 into a Phase II trial in gastrointestinal carcinoid tumors, a relatively small indication but one with limited treatment options; the U.S. incidence of GIC tumors is approximately 10-15,000 annually. Considering this advancement, TKM-PLK1 has arguably taken the title of lead RNAi oncology candidate in clinical development.

U.S.DoD development contracts for Ebola treatments were originally given to both Sarepta (SRPT) and Tekmira, but in September 2012 the DoD moved forward with Tekmira’s program alone, indicating that Tekmira now has the leading and only RNAi-based Ebola program in the U.S. The agency has demonstrated not only a willingness to test the RNAi possibility, but to back the program in full, an unexpected substantiation of RNAi from the U.S. government. As alluded to earlier, Tekmira and Alnylam settled a lawsuit in November of last year in which Tekmira had sued Alnylam for patent infringement regarding its LNP technology. The original lawsuit was for $1B, and it seemed Tekmira was willing to go down fighting (capital dipped dangerously low before the settlement). The settlement, however, has been largely favorable to Tekmira, which retains a financial stake in Alnylam’s clinical products (small milestones and royalties) and has access to 13 of Alnylam’s product licenses for in- or out-licensing. While not the billion dollar win that the company hoped for, Tekmira shored up its balance sheet and kept relations in order with its largest partner.

A very attractive valuation; one that either investors or pharma are likely to appreciate. Tekmira has collaborations and/or licenses in place with Alnylam, Merck (MRK), and Bristol Myers Squibb (BMY). The company hasn’t announced a new collaboration in over two years, we believe due to the 20 months spent on litigation with Alnylam. With that litigation out of the way and the patent situation regarding LNP clearly defined, we expect that Tekmira will once again become a sought after partner for companies looking for RNAi delivery.

We see three key reasons to be involved in Tekmira: 1) Cash per share of more than $3.00 and an EV of ~$20M means very limited downside; 2) Upcoming catalysts in Phase II data for ALN-TTR02, and trial initiations for VSP, PCS, Ebola, and PLK1; 3) A new pathway announcement this year that could pique the interests of investors, particularly if TKMR goes after an orphan indication; and 4) Possibility for partnerships with additional major drug companies now that the LNP litigation is out of the way. We expect that TKMR’s ~$20M EV will not last as investors focus on the value and potential value that this company has to offer. Alternatively, if the stock remains this cheap, perhaps a strategic investor will go after TKMR. For example, ALNY itself could simply acquire TKMR and never have to pay royalties or milestones to the company again, in addition to keeping its payload technology all to itself. TKMR has put in a strong support base around $4.20 (200D MA at $4.22), and we’re looking for a breakout back above $5.00 in the near-term as ALNY’s Phase II TTR02 top-line readout approaches.

Montreal-based Caprion has established itself as a leader in the proteomic biomarker discovery field, using its proteomics discovery platform CellCarta® to develop pharmacodynamic biomarkers, disease markers and predictive biomarkers.

In one decade (since the company’s inception in 2002), Caprion has serviced over 20 major pharmaceutical clients, and has received multiple biodefense contracts.

In 2009, the company has entered the in-vitro diagnostics space, developing an in-house pipeline in the areas of infectious disease, oncology, diabetes. Caprion has secured over $25MM in non-dilutive funding, and is moving to reach diagnostic candidate validation through partnerships with peers, academia, and other research/awareness houses.

Personalized medicine has been one of the lone bright spots across the entire healthcare space during and following the recession. Innovation in the space is rapidly moving and emerging from the bench-top level, and as such investor activity has grown. Further, medicine is experiencing a paradigm shift toward preventative care as well as away from the concept of “normative’” medicine, with proteomic biomarkers at the forefront.

Regulatory, legislative and financial entities now must provide the infrastructure to foster this rapidly advancing sector. Much continues to be debated: from the ethical dilemmas surrounding the state of patent rights to ‘natural processes’, to the proper method of reaching investor liquidity, the conversation continues to be centered on making these new innovations a reality — and reaching a patient population in need.

OneMedRadio spoke with Caprion President and CEO Martin Leblanc about these industry trends, and how Caprion has positioned itself as a leader in the space.

Click to listen to the audio, and view the transcript below.

Matthew Margolis:     OneMedRadio welcomes Martin Leblanc, president and CEO of Caprion, which provides proteomics biomarker and target identification services. Caprion has performed 50 large-scale biomarker discovery and validation projects for over 20 major pharmaceutical industry clients internationally. The company offers biomarker services, in vitro diagnostics, and drug targets across various indications. So Martin, thank you for joining us today.

Martin Leblanc:     Thanks for having me.

MM:     Let’s start with a snapshot of the company.

ML:     Caprion’s mission is really to work in collaboration with major pharmaceutical companies, biotech companies, and leading government agencies to help advance the field of personalized medicine by helping in the discovery, the verification, and validation of novel biomarkers, protein-based biomarkers and diagnostic tools that will enable more precise prediction of who will respond or won’t respond to a particular therapy, or even diagnosing diseases that lack proper diagnosis today.

We do so by leveraging two main technology platforms. One is our leading proteomics technology, what we call CellCarta, that is able to profile thousands of proteins in blood or tissues from humans to find what are the proteins that are differentially expressed or uniquely expressed in a certain disease versus other states, or in a responder population versus nonresponder populations to particular drug treatments. The technology we use in partnerships with pharmaceutical companies that actually are conducting clinical trials on humans.

Another technology that we leverage, we call ImmuneCarta. That leverages a flow cytometry based platform to also detect protein antigens in a single cell to be able to track immune-related phenomenon and monitor the immune response of patients to certain biological therapies or vaccine therapies.

Those two technology platforms are commonly used with pharmaceutical companies, so our revenue model and our platform aims at providing services, making these two technologies available to pharmaceutical companies to pay us to perform certain biomarker discovery or immune monitoring project as part of their clinical development effort. So we are what I would call a very niche contract research organization with proprietary technologies that are increasingly in high demand for development of novel pharmaceutical compounds. We’ve been around for over 12 years serving pharmaceutical companies and have been profitable for the last 5 to 6 years and achieving pretty significant revenue growth from these partnerships with pharmaceutical companies. We’ve been growing at about 30% to 35% a year annually in terms of revenues for the last four to five years.

MM:     Talk a little bit about your in vitro diagnostics platform.

ML:     We at first decided that we were going to solely make the platform available to partners and we were going to be a service provider. But along the way we discovered that we could also perhaps develop a second stream to our business model, which was to try and invest in our own development of in vitro diagnostics. We tried to do it in a way that was a little more compatible with the fact that we were a service provider, and had a motive to be profitable for our investors. So we decided to link up with major academic and clinical research institutes to come up with some projects that we’ve been able to fund by major government contracts and major industry consortia that have allowed us to now develop a pipeline of novel diagnostic candidates for tuberculosis, hepatitis C, other infectious diseases, lung cancer and diabetes.

So we have a pretty interesting and exciting pipeline of novel and in vitro diagnostic products that we are developing. They’re currently at the validation stage. We are maybe about 12 to 18 months from initiating commercialization on some of these and a little further out maybe 24 to 36 months from commercialization on a few other earlier stage projects that we have. But those have progressed very well over the last four years and we’re quite bullish about expanding Caprion’s reach into the market by being more than a service provider for R&D efforts of pharma but eventually becoming a clinical diagnostic company leveraging the power of mass spectrometry and our proteomics platform to provide novel diagnostics for patients.

MM:     What is the market opportunity here? It’s been said that infectious disease has been growing at a rapid rate far beyond any other markets. What’s inspired you to enter these fields, and do you view these fields to be crowded?

ML:     What inspired us to get into these fields was at first the opportunity. I think there was an era in the mid-2000 period where biodefense funding was easier to come by for companies like ours and became an attractive place for us to try and tap into some interesting, non-dilutive funding. We were fortunate enough to win a contract from The National Institute of Allergy and Infectious Disease that has enabled us to develop diagnostics for tuberculosis for brucellosis and for influenza H5N1, all of which have interesting biodefense dimensions to them but represents very high unmet need for better clinical diagnosis.

Now we’ve that there’s definitely a need and of course an increasing incidence of these infectious diseases in the world and that comes from globalization and also the fact that as people travel throughout the world, more populations become exposed to transmission of these infectious diseases, whereas they were once perhaps more limited to certain geographic areas. We also see the advent of multistrain resistant forms of infection that are causing problems, in that they used to be treatable, but now they actually get more resistant to antibiotic therapy. So that’s also causing a need for better diagnosis, for better treatments for these diseases as well.

So we don’t see the space as being too crowded because there are many, many areas of unmet need. We believe that our platform and proteomics addresses novel approaches for detecting proteins that are related to the infection whether at the pathogen level, but more importantly sometimes as a response of how the host reacts to the infection. We believe [this] Caprion and other technologies like ours in our novel ways of detecting and diagnosing these diseases. So I think right now there’s probably not enough research going on in these areas, but certainly with the advent of the Gates Foundation and other types of funding we feel like there’ll be more and more opportunities for bringing these novel diagnostics to market.

MM:     I want to shift gears a little bit and talk about industry trends. Firstly, how did the rulings in Prometheus versus Mayo affect your company growth strategy?

ML:     So far, we were fortunate enough to have discovered our markers in the last three to four years, and the patents that we have filed on our inventions have been in the last two years and have taken into account some of the issues and potential obstacles that the Prometheus case has surfaced up. So we were able to really benefit from being what I would call sort of a post Prometheus generation set of patents where we are able to write our claims in a way that are not necessarily as exposed to the issues that are involved in the Prometheus case. I think some people who have longer-standing patent applications that predated this juris prudence and these litigations have perhaps a harder time struggling with how this will actually unfold. As for us, we believe that we’ve successfully addressed the issues in the way we wrote our claims.

MM:     And so in your opinion, do you foresee a forthcoming chilling effect?

ML:     It’s an issue. It’s out there. I think every field that deals with life sciences always has these types of, what I would call, issues of concerns to address when from an investor point of view. I would say that in diagnostics there is a prevailing sense that equilibrium and common sense will prevail in these types of litigations, and that true innovations in the diagnostic field will be recognized as being novel and proprietary, and that intellectual property protection will be granted to those truly innovative solutions. So I don’t see that as being necessarily a chilling effect. But it is certainly one area that when you’re dealing with investors, you have to absolutely have addressed and have a good strategy and a good set of defensible reasons why you believe that your product will have an intellectual property position if you’re going to convince investors to make the leap.

MM:     Do you think we’re moving away from the concept of normative medicine? What ethical implications might arise from such a paradigm shift?

ML:     I think that frankly we’re moving towards an area of more stratified and personalized medicine and I think that it’s more of a good evolution that conjures up mainly I would say positive developments for the allocation of resources to patients. You know, making sure that patients get treatments that are adapted to the diseases they have and that we don’t take a one-size-fits-all model to drug prescriptions, which we know today results in about a 40% or less effectiveness rate of drugs that are prescribed. We want to buy personalized medicine and buy finding diagnostics that can enrich for those responder populations get to more stratified drugs that actually have an impact on 80%, 90%, or 100% of the populations that are taking those drugs. That to me is far more in the greater interest of delivering cost efficient and effective healthcare than steering away from these types of stratification strategies.

Now one must also always worry about and be mindful of potential ethical considerations of making sure that this information is used solely for the purposes of providing better treatments, and not to be used or made accessible for other purposes to the detriment of those patients. But I think that we are as an industry making great strides and making sure that we erect the right regulations.

MM:     That was a company snapshot with Caprion President and CEO Martin Leblanc. Caprion provides proteomics biomarker and target identification services as well as developing in vitro diagnostics pipeline across various indications. This is Matthew Margolis signing off.

**The following comes to us from a special contributor industry insider, specializing in private equity.**

The landscape of healthcare is changing and whoever is smart will watch closely. With the introduction of Obamacare in 2013, the US stands to see a substantial increase in the number of insured individuals. And because the correlation between time and age has always been positive, Uncle Sam will be attending to millions of North Americans turning 65 yearly, their growing healthcare bill in tow.

While the US moves towards a government dominated system, familiar in Europe and Canada, the latter are beginning to loosen the reigns, creating an interesting effect where the two systems shall meet in the middle.

After reading Bain and Company’s 2013 Global Healthcare Private Equity Report, I became interested in acquisition targets in the healthcare services field. One such target, Greenestone Healthcare Corp. is positioned well for growth, trading in the US while operating in Canada, where supplementary care is attractive and in high demand. The company could quite possibly be a diamond in the rough, easy to miss if you are not watching.

In total, $21 billion worth of private equity capital was invested in healthcare companies in 2012. The shape of deal activity shifted in 2012, with fewer mega-deals and more middle market deals. Interest in the healthcare provider and services sector outstripped other sectors in 2012.

Top 10 healthcare private equity buyout deals announced in 2012

The provider and services sector leads North American buyouts, while activity is more evenly distributed in Europe and Asia-Pacific.

Macro Environment North America

Healthcare private equity buyout activity in North America is dominated by the US  where both cost pressures and incentives to contain costs are robust. US-based employers, especially the larger employers that typically subsidize healthcare insurance for employees, have long been trying to contain their costs for pragmatic reasons. Legislative reforms—namely the Patient Protection and Affordable Care Act (PPACA)—are expected to accelerate the trend by creating more incentives for healthcare organizations and insurance companies to reduce costs themselves while improving outcomes.

For the most part, private equity investors in the US are looking to ride the trends that have been set in motion or accelerated by healthcare reform, such as cost containment, payment reform, new care-delivery models and hospital-physician alignment, without getting ensnared in the uncertainty about future reimbursement levels.

That theme has led to meaningful increases in the number of deals within the provider and services categories with more limited or indirect reimbursement risk, such as retail health, healthcare-related IT and outsourced services; however, an influx of new entrants in these “healthcare light” sectors is leading to increased valuations and trickier return equations.

Looking ahead, there is no question that healthcare investing remains attractive, thanks to the unique combination of stability and innovation it offers.  Fortunately, some of the major drivers of themarket are trending in investors’ favor. Debt is cheap, making it easier to finance deals, and the hunting ground is large. At the same time, the stock market is rebounding and the appetite of strategic buyers remains strong, portending more and bigger exits. These are ripe conditions for investors with healthcare expertise to achieve excellent returns if they choose the right opportunities.

Within the provider and services sector that was so popular in 2012, consolidation opportunities should remain plentiful. Healthcare reform in multiple countries is intensifying the drive toward better outcomes at lower costs, such as in Canada, as more providers aim to get smarter about their operations, both in terms of supply chains and treatment outcomes.

Healthcare continues to be an attractive area not only for private equity investment, but also for private investors alike, thanks to its historically strong returns and low default rates.

The following three companies could be interesting acquisition targets going forward.

Vanguard Health Systems 

Vanguard Health Systems, Inc. (VHS) is an operator of healthcare delivery networks with a presence in various urban and suburban markets. The company had 28 acute care and specialty hospitals with 6424 licensed beds with outpatient facilities and related businesses, which allow it to provide a range of inpatient and outpatient services in the communities it serves.

The company has about $6 billion in revenue and management. Blackstone, Morgan Stanley, and Capital Partners own 60% of the company.  The stock trades around $15, with price targets between $15 and $18. Most analysts consider the company a BUY.

LifePoint Hospitals

LifePoint Hospitals (LPNT) was founded in 1999 and has grown to a leading hospital company with more than $3.5 billion in revenues and nearly 60 hospital campuses in 20 states.

The company’s fourth quarter revenues from continuing operations grew to $893 million, up 14% from the same period last year. EBITDA was $135 million, up 3.8% over last year and EPS was $0.76, exceeding the high end of the adjusted guidance range. And for the year, revenues from continuing operations were up 12% compared to 2011. EBITDA increased 1.8% over the prior year and EPS was $3.14.

During 2012, LifePoint completed three hospital acquisitions with over $400 million in annualized revenues. Management indicates that their acquisition pipeline remains very active.

During the past several years the company has taken a deliberate approach to invest in growth opportunities and maintaining a balanced capital deployment strategy.  Since 2010, approximately $470 million was spent to acquire nine hospitals with approximately $700 million in annual revenues.

During this same time, the company invested $600 million in CapEx to support organic growth and quality initiatives and the company repurchased $400 million in stock, representing approximately 20% of LifePoint’s outstanding common shares.

Given LifePoint’s strong cash flow, the company can invest more going forward  without increasing leverage.The stock trades around $45, with price targets between $36 and $48. Most analysts consider the company a HOLD.

GreeneStone Healthcare Corp.

GreeneStone Healthcare Corp.(GRST) is a Canadian healthcare company listed in the US focusing on mental health and behavioral treatment. The company is an attractive candidate to play the role of the next big healthcare sector private equity buyout target. The company has had early success building and operating a residential treatment facility, along with an outpatient and aftercare facility. With their 2013 expansion plans, GreeneStone is poised for its next major phase of revenue growth.

The company operates in a highly underserviced sub-sector of the healthcare space that has been undergoing consolidation in the recent past. Private equity and strategic buyers have scooped up many of the available facilities in the US at valuations averaging $800K – $900K per bed. With many niche service areas still untouched (such as eating disorders), GreeneStone is capitalizing on this opportunity by opening complementary practice areas through a ‘buy and build’ growth strategy.

On April 2, 2013 the company released their 2012 results. For the twelve months ending Dec. 31, 2012, the company reported total revenues increase of 230% to $5,540,909, as compared to $1,678,804 for the same period in 2011. For the same twelve-month period, the company reported total net loss of ($1,553,797), or ($0.08) EPS, compared to ($2,462,288), or ($0.34) EPS for the same period ending in 2011.

This increase in revenue was mainly attributable to a steady increase in business volume since the company began operations. The company believes that revenue growth will continue to increase steadily and the company will become more profitable as most of its costs, such as rent and salaries and wages are relatively fixed, and therefore will reduce, as a percentage, as business and bed capacity volume grows.

Shawn Leon, President and Chief Executive Officer of GreeneStone Healthcare Corporation, commented, “The Company expected these operational results for the fiscal year 2012, and we anticipate even stronger growth in 2013 where we have all the reasons to believe that by the end of our second quarter the Company will be profitable.”

The ‘buy and build’growth strategy will lead to expansion in their current addiction treatment capacity to 184 beds from 36 beds through strategic acquisitions and internal growth.

Final Note

Healthcare in Canada is delivered through a publicly funded system that covers all “medically necessary” hospital and physician care, as well as prescription drugs for seniors, and curbs the role of private medicine.

While the system has widespread public and political support, costs have soared well above the rate of inflation and are expected to climb further as the baby-boom generation ages.

It is often stated that Canadian healthcare costs much less than American healthcare. This is of course a myth. Canadian costs are set per procedure. Hidden healthcare costs are high in Canada because of excessive wait times. The costs of under or non-performance at work due to these longer wait times are huge costs on employers and the economy, not to mention the individual patients who are laid up. These are the hidden factors that hide the massive cost of universal healthcare in Canada.

Changes are needed include more treatment of patients outside of hospitals – GreeneStone’s medical clinics are a great opportunity to play the healthcare field in Canada.

From a valuation point of view,  Healthcare provides the most upside potential. GreeneStone currently trades at an implied per bed valuation of $160,000, a discount of 68% to the very conservative rate for facilities acquisitions of ~$500,000. The current valuation of $0.21 looks absurd and I think with the coming expansion plans  the stock price could see a nice short term rebound to levels above $1.00. Current analysts target prices are around $5.

Private investors can still jump on the bandwagon before private equity steps in.

Montreal-based Caprion has established itself as a leader in the proteomic biomarker discovery field, using its proteomics discovery platform CellCarta® to develop pharmacodynamic biomarkers, disease markers and predictive biomarkers.

In one decade (since the company’s inception in 2002), Caprion has serviced over 20 major pharmaceutical clients, and has received multiple biodefense contracts.

In 2009, the company has entered the in-vitro diagnostics space, developing an in-house pipeline in the areas of infectious disease, oncology, diabetes. Caprion has secured over $25MM in non-dilutive funding, and is moving to reach diagnostic candidate validation through partnerships with peers, academia, and other research/awareness houses.

Personalized medicine has been one of the lone bright spots across the entire healthcare space during and following the recession. Innovation in the space is rapidly moving and emerging from the bench-top level, and as such investor activity has grown. Further, medicine is experiencing a paradigm shift toward preventative care as well as away from the concept of “normative’” medicine, with proteomic biomarkers at the forefront.

Regulatory, legislative and financial entities now must provide the infrastructure to foster this rapidly advancing sector. Much continues to be debated: from the ethical dilemmas surrounding the state of patent rights to ‘natural processes’, to the proper method of reaching investor liquidity, the conversation continues to be centered on making these new innovations a reality — and reaching a patient population in need.

OneMedRadio spoke with Caprion President and CEO Martin Leblanc about these industry trends, and how Caprion has positioned itself as a leader in the space.

Click to listen to the audio, and view the transcript below.

Matthew Margolis:     OneMedRadio welcomes Martin Leblanc, president and CEO of Caprion, which provides proteomics biomarker and target identification services. Caprion has performed 50 large-scale biomarker discovery and validation projects for over 20 major pharmaceutical industry clients internationally. The company offers biomarker services, in vitro diagnostics, and drug targets across various indications. So Martin, thank you for joining us today.

Martin Leblanc:     Thanks for having me.

MM:     Let’s start with a snapshot of the company.

ML:     Caprion’s mission is really to work in collaboration with major pharmaceutical companies, biotech companies, and leading government agencies to help advance the field of personalized medicine by helping in the discovery, the verification, and validation of novel biomarkers, protein-based biomarkers and diagnostic tools that will enable more precise prediction of who will respond or won’t respond to a particular therapy, or even diagnosing diseases that lack proper diagnosis today.

We do so by leveraging two main technology platforms. One is our leading proteomics technology, what we call CellCarta, that is able to profile thousands of proteins in blood or tissues from humans to find what are the proteins that are differentially expressed or uniquely expressed in a certain disease versus other states, or in a responder population versus nonresponder populations to particular drug treatments. The technology we use in partnerships with pharmaceutical companies that actually are conducting clinical trials on humans.

Another technology that we leverage, we call ImmuneCarta. That leverages a flow cytometry based platform to also detect protein antigens in a single cell to be able to track immune-related phenomenon and monitor the immune response of patients to certain biological therapies or vaccine therapies.

Those two technology platforms are commonly used with pharmaceutical companies, so our revenue model and our platform aims at providing services, making these two technologies available to pharmaceutical companies to pay us to perform certain biomarker discovery or immune monitoring project as part of their clinical development effort. So we are what I would call a very niche contract research organization with proprietary technologies that are increasingly in high demand for development of novel pharmaceutical compounds. We’ve been around for over 12 years serving pharmaceutical companies and have been profitable for the last 5 to 6 years and achieving pretty significant revenue growth from these partnerships with pharmaceutical companies. We’ve been growing at about 30% to 35% a year annually in terms of revenues for the last four to five years.

MM:     Talk a little bit about your in vitro diagnostics platform.

ML:     We at first decided that we were going to solely make the platform available to partners and we were going to be a service provider. But along the way we discovered that we could also perhaps develop a second stream to our business model, which was to try and invest in our own development of in vitro diagnostics. We tried to do it in a way that was a little more compatible with the fact that we were a service provider, and had a motive to be profitable for our investors. So we decided to link up with major academic and clinical research institutes to come up with some projects that we’ve been able to fund by major government contracts and major industry consortia that have allowed us to now develop a pipeline of novel diagnostic candidates for tuberculosis, hepatitis C, other infectious diseases, lung cancer and diabetes.

So we have a pretty interesting and exciting pipeline of novel and in vitro diagnostic products that we are developing. They’re currently at the validation stage. We are maybe about 12 to 18 months from initiating commercialization on some of these and a little further out maybe 24 to 36 months from commercialization on a few other earlier stage projects that we have. But those have progressed very well over the last four years and we’re quite bullish about expanding Caprion’s reach into the market by being more than a service provider for R&D efforts of pharma but eventually becoming a clinical diagnostic company leveraging the power of mass spectrometry and our proteomics platform to provide novel diagnostics for patients.

MM:     What is the market opportunity here? It’s been said that infectious disease has been growing at a rapid rate far beyond any other markets. What’s inspired you to enter these fields, and do you view these fields to be crowded?

ML:     What inspired us to get into these fields was at first the opportunity. I think there was an era in the mid-2000 period where biodefense funding was easier to come by for companies like ours and became an attractive place for us to try and tap into some interesting, non-dilutive funding. We were fortunate enough to win a contract from The National Institute of Allergy and Infectious Disease that has enabled us to develop diagnostics for tuberculosis for brucellosis and for influenza H5N1, all of which have interesting biodefense dimensions to them but represents very high unmet need for better clinical diagnosis.

Now we’ve that there’s definitely a need and of course an increasing incidence of these infectious diseases in the world and that comes from globalization and also the fact that as people travel throughout the world, more populations become exposed to transmission of these infectious diseases, whereas they were once perhaps more limited to certain geographic areas. We also see the advent of multistrain resistant forms of infection that are causing problems, in that they used to be treatable, but now they actually get more resistant to antibiotic therapy. So that’s also causing a need for better diagnosis, for better treatments for these diseases as well.

So we don’t see the space as being too crowded because there are many, many areas of unmet need. We believe that our platform and proteomics addresses novel approaches for detecting proteins that are related to the infection whether at the pathogen level, but more importantly sometimes as a response of how the host reacts to the infection. We believe [this] Caprion and other technologies like ours in our novel ways of detecting and diagnosing these diseases. So I think right now there’s probably not enough research going on in these areas, but certainly with the advent of the Gates Foundation and other types of funding we feel like there’ll be more and more opportunities for bringing these novel diagnostics to market.

MM:     I want to shift gears a little bit and talk about industry trends. Firstly, how did the rulings in Prometheus versus Mayo affect your company growth strategy?

ML:     So far, we were fortunate enough to have discovered our markers in the last three to four years, and the patents that we have filed on our inventions have been in the last two years and have taken into account some of the issues and potential obstacles that the Prometheus case has surfaced up. So we were able to really benefit from being what I would call sort of a post Prometheus generation set of patents where we are able to write our claims in a way that are not necessarily as exposed to the issues that are involved in the Prometheus case. I think some people who have longer-standing patent applications that predated this juris prudence and these litigations have perhaps a harder time struggling with how this will actually unfold. As for us, we believe that we’ve successfully addressed the issues in the way we wrote our claims.

MM:     And so in your opinion, do you foresee a forthcoming chilling effect?

ML:     It’s an issue. It’s out there. I think every field that deals with life sciences always has these types of, what I would call, issues of concerns to address when from an investor point of view. I would say that in diagnostics there is a prevailing sense that equilibrium and common sense will prevail in these types of litigations, and that true innovations in the diagnostic field will be recognized as being novel and proprietary, and that intellectual property protection will be granted to those truly innovative solutions. So I don’t see that as being necessarily a chilling effect. But it is certainly one area that when you’re dealing with investors, you have to absolutely have addressed and have a good strategy and a good set of defensible reasons why you believe that your product will have an intellectual property position if you’re going to convince investors to make the leap.

MM:     Do you think we’re moving away from the concept of normative medicine? What ethical implications might arise from such a paradigm shift?

ML:     I think that frankly we’re moving towards an area of more stratified and personalized medicine and I think that it’s more of a good evolution that conjures up mainly I would say positive developments for the allocation of resources to patients. You know, making sure that patients get treatments that are adapted to the diseases they have and that we don’t take a one-size-fits-all model to drug prescriptions, which we know today results in about a 40% or less effectiveness rate of drugs that are prescribed. We want to buy personalized medicine and buy finding diagnostics that can enrich for those responder populations get to more stratified drugs that actually have an impact on 80%, 90%, or 100% of the populations that are taking those drugs. That to me is far more in the greater interest of delivering cost efficient and effective healthcare than steering away from these types of stratification strategies.

Now one must also always worry about and be mindful of potential ethical considerations of making sure that this information is used solely for the purposes of providing better treatments, and not to be used or made accessible for other purposes to the detriment of those patients. But I think that we are as an industry making great strides and making sure that we erect the right regulations.

MM:     That was a company snapshot with Caprion President and CEO Martin Leblanc. Caprion provides proteomics biomarker and target identification services as well as developing in vitro diagnostics pipeline across various indications. This is Matthew Margolis signing off.

The discovery of microRNA is an interesting story intimately related to C. Elegans, an animal model used for investigation of animal development.

C. Elegans is a very small nematode which lives in garden soil, feeding on bacteria. The number of papers published utilizing this creature as an animal model for human biology has increased substantially after 1990. They are easy to grow, small, transparent and have a short life cycle. Individuals within the species are invariant, with less than 1000 total cells.

Drs. Victor Ambros and Gary Ruvkun, with Harvard University and Massachusetts General Hospital, originally discovered microRNA’s using C. Elegans while studying abnormalities in early development.  Dr. Ambros and Dr. Ruvkun received the 2012 Dr. Paul Janssen Award for Biomedical Research for their contributions.

MicroRNA’s and Disease States

The main function of microRNA’s is to translationally inhibit an mRNA transcript. MicroRNA’s are very small endogenous, non-coding, oligonucleotides. They are implicated in regulating a broad range of biological processes. They serve to bind via base complementarity rules to coding mRNA transcripts (which display the ‘sense’ sequence) either by inhibiting them or increasing their likelihood of degradation (most anti-sense therapeutics induce RNAase H cleavage, essentially a non-specific endonuclease). MicroRNA’s can drive gene expression and ultimately changes in concentration of a particular protein of interest.

These are molecules which are involved in important regulation of biological processes, and the potential of using these molecules as targets for treatment is becoming ever more apparent. Theoretically, microRNA’s can target a variety of molecules composed of a natural RNA framework. Oligonucleotides can be designed to target and inhibit miRNA’s; in some instances, miRNA’s can actually act as translational activators.  The premise behind which technology is useful is entirely dependent on the mechanism of action in relation to the disease.

If an miRNA of interest is overexpressed in a particular disease state, targeting that miRNA via exogenous delivery of synthetic antagonistic molecules (anti-miRNA’s) may prove to be a powerful therapeutic approach. Different anti-miRNA’s are defined by specific modifications which allow higher affinity and functionality.

Overcoming Hurdles

Delivering these molecules efficiently and effectively (high affinity to their RNA target) remains a challenge, but recent advances in the laboratory suggest that RNA-based therapeutics may become an effective form of treatment.

In 2002, the medical community reported a connection between microRNA and cancer; as research ensued in regards to their regulatory roles, microRNA’s were found to be a useful tool for developing biomarkers. Mir-132, for example, was shown to be elevated in patients with osteoarthritis. Other specific miRNA’s were shown to be elevated in breast cancer. In fact, previously reported data has shown 29 distinct miRNA’s differentially expressed between normal mammary tissue and primary breast carcinomas. A little searching reveals a host of other documented aberrant expression profiles in relation to different diseases.

Theorectical Evolves Into Reality

Breast cancer is the most common form of cancer in women within the U.S.  Approximately 1 woman out of 8 is at risk to develop breast cancer during the course of her lifetime. Breast cancer rates are substantially high, even in females who have no familial history.
MiRNA’s can act as either tumor suppressors or oncogenes, depending on which biological pathway they regulate. Experimental data has shown that small miRNA’s which act as oncogenes (called ‘oncomirs’) do exist. Synthetic oligonucleotides which are capable of binding and thus inhibiting these molecules can represent a feasible and novel therapeutic approach to downregulate oncogene expression.

Particular microRNA’s, such as mir-10b, have been shown to be highly expressed only in metastatic breast cancer cells, both in mice and human models. Collaboration between research labs at MIT and Sloan Kettering detailed how the miRNA mir-10b plays a role in metastasis. Results showed that overexpression of mir-10b in otherwise non-metastatic cells initiates cell migration and invasion. A transcription factor (called Twist) causes increases expression of mir-10b, and in turn this miRNA inhibits the translation of a homeobox gene. Consequently, this increases the expression of a documented pro-metastatic gene, RHOC.

Later research published showed that therapeutic treatment with antagonistic (chemically modified) mir-10b oligonucleotides prevented metastasis. Interestingly, this has also shown that antagomirs were capable of being efficiently delivered after being chemically modified. It was previously reported that unmodified anti-sense oligonucleotides were quickly degraded after administration. The authors noted that a single miRNA targets many transcripts, and thus this entire network needs to be explored.

From the Lab to Market

Myocardial Ischemia, typically due to atherosclerosis of the coronary arteries, affects approximately 5 million people nationwide and is the leading cause of death in the United States. An article published in Circulation by Division of Cardiology at Stanford University in 2010 used a mouse model to show over-expression of mir-210 in cardiac muscle cells. This specific microRNA has been previously shown to upregulate the development of new blood vessels and prevent apoptosis.

After undergoing intramyocardial injections with non-viral vectors containing a mir-210 precursor, improvements in left-ventricular pump function were seen after 8 weeks of treatment. In addition, histological analyses showed decreased cell death and increased neovascularization. This study provides a model, based on a particular microRNA, for a novel therapeutic approach in regards to treating myocardial infarctions.

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Each year, several million people are affected by Hepatitis C, with the highest infection rates in African and eastern Mediterranean regions.  The Hepatitis C Virus (HCV) primarily effects the liver. Current treatments for HCV, involving Pegasys and Ribavirin, are able to sustain clearance in 50% of patients, but the side effects are far too great.

Previously, it has been shown that miR-122 (a highly miRNA expressed in the liver) binds to two required sites (in a non-coding region) of the HCV genome, resulting in the up regulation and subsequent accumulation of HCV.

Research published in 2010 out of the National Primate Research Center in San Antonio, Texas, details a promising approach utilizing miR-122 as a target. Researchers utilized ‘SPC3649’, an LNA antagonist (provided by Santaris A/S) to miR-122 in chronically infected chimpanzees. Subjects were treated with intravenous injections every week for 12 weeks, with a subsequent treatment-free duration of 17 weeks; the study consisted of a high dose group and a low dose group.

Data shows SPC3649 decreased HCV levels in the serum and liver in the high dose group after 2 weeks, and the low dose group experienced decreased HC levels in one animal and fluctuations in another. Northern blotting detected a shifted band depicting miR-122 in a bound state with SPC3649. Liver biopsies displayed improvement of HCV-induced liver disease.  Recent phase-1 clinical trials were undertaken by Santaris with ‘SPC3649’ in healthy patients to assess toxicity. It is the first drug mRNA antagonist to enter clinical trials and it showed a well-tolerated profile with dose-dependent pharmacology.

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The technology is now moving from the lab and into the clinical development space. Companies leading the miRNA industry include Sarepta, Mirna Therapeutics, Regulus Therapeutics, Miragen Therapeutics and Moderna Messenger Therapeutics.

At one point, Big Pharma relied entirely on its own assets and intellectual property to further their research endeavors and/or interests. Now, Big Pharma instead has increased strategic relationships with these and other sector-focused companies to develop technology. These alliances allow for both parties to benefit from each other.  Miragen, for example, has formed a strategic alliance with Santaris so it can utilize the pharma giant’s proprietary LNA (Locked Nucleic Acid) drug delivery technology. LNA technology increases the drug’s affinity to the RNA target.

Anti-sense pharmacology is not only limited by possibly toxicity, but also the chance of uptake. As mentioned before, they are quickly degraded if they are composed of Ribose or Deoxy-Ribose sugar-phosphate backbone. Chemical modifications can create an escape from degradation and create a more stable bond with the transcript. Toxicity can become an issue with this approach, however, and thus some technologies use a vector delivery mechanism which involves a lot of variables and thus low efficacy in most cases.

The future of microRNA is vast, and the potential to meet significant medical needs are profound. As the technology moves out of the benchtop and into the clinical space, it seems both big pharma and specialized biotech companies are actively working to turn this technology into a reality. The next step will be larger scale studies with tangible, monetizing indications, and in turn, the development of a regulatory environment to support this innovation.

As the Vatican prepares to host the Second International Conference on Regenerative Medicine, stem cells have been pushed once again into the international spotlight. In the medical community, tangible progress in the last six months has sparked much conversation of the next steps in bringing therapies to the public.

Of particular note is a study published in the December 2012 edition ofNature out of Columbia University and the New York Stem Cell Foundation exploring the transfer of the nuclear genome in human oocytes to eliminate mitochondrial DNA variants.

This study is now extremely important, after the UK’s Human Fertilisation & Embryology Authority (HFEA) revealed in March the broad public support for pronuclear transfer — an IVF-based technique to enable couples with mitochondrial disease risk to “re-home” IVF-created embryos in a healthy donor egg.

Variants of the ‘HFEA method’ involve fertilization of two eggs — a parent egg and donor egg — with the same sperm, and the removal of nucleus from the parent embryo into the donor embryo, replacing the donor nucleus. To the contrary, the study completed by Columbia and the NYSCF has taken the opposite approach — performing a pronuclear transfer of a donor egg’s mitochondrial DNA with that of the embryo carrying mother in hopes to remove mitochondrial disease carrying nuclei and any related variants.

This is now colloquially referred to as “The Three Parent Method” — and the practices, implementation, and ethics of which the HFEA will now be advising law-makers on. Certainly, there are questions to be addressed concerning the ethical implications of producing a child from three different people’s zygotes surround the concept of ‘manipulating’ DNA and the slippery slope that could follow.

Further, the Columbia/NYSCF study raises significant questions concerning logistics, success and potential consequences of such processes. Despite promising results that suggest a scientific breakthrough soon upon us, questions well beyond the scope of ethical dilemma still remain.

The following is a summary of the problem faced, the promising conclusions of the Columbia/NYSCF study, and the challenges faced.

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Stem cell research has greatly affected the research industry since its debut in the early 1900’s, and we are now on the cusp of reaching major milestones — and for this technology to reach patients.

These sophisticated biological cells contain the ability to differentiate into diverse specialized cells and self-renew in order to produce more stem cells. With the proper utilization, stem cells have the potential to revolutionize the healthcare industry.

These possibilities first crystalized in 1968, when physicians successfully transplanted human bone marrow cells in a pair of twins, one of whom had leukemia. Since the 1960’s, stem cell research has innovatively transitioned from successful disease treatment in bone marrow to the idea of disease prevention in the mitochondria.

The mitochondria are cellular organelle that play a vital role in several biochemical pathways released for energy production. Mitochondrial diseases are the result of either inherited or spontaneous mutations in mutant DNA or nuclear DNA which lead to altered functions of the proteins or RNA molecules that normally reside in mitochondria, according to the United Mitochondrial Disease Foundation. Since mitochondrial activity spans across various tissues in the cell, there exist hundreds of different mitochondrial diseases.

What has served as a challenge for physicians in the past is the ability to detect this disease early in its progression.  In addition, each disorder creates different abnormalities because of the complex and unpredictable interactions between the hundreds of genes and cells to keep the metabolic machinery running smoothly. The hallmark and thus the challenge in preventing mitochondrial diseases is that patients may display similar mutational genotypes, but the clinical presentations greatly vary. Common symptoms of a patient affected by a mitochondrial disease include poor growth, loss of muscle contraction, neurological problems, developmental delays and much more.

To date, no “cures” have been discovered for mitochondrial diseases. However, based on the various symptoms and different sicknesses associated with this disease, numerous treatments have been developed. Common treatments include: dietary therapy; supportive therapies; avoidance of toxins (alcohol and cigarette smoking); supplementary vitamin and cofactors; prescribed medications, and the avoidance of physiological stress.

While these alternatives may be respected as proven therapies, they only aid in alleviating symptoms and slowing the progression of the disease, not in its elimination. Furthermore, the effect of the therapy varies on a patient-to-patient basis. Mild cases tend to benefit to the therapy moreso than to the severe diagnoses. Overall, many challenges are presented to patients who have to live with these diseases.

But what if inheriting this disease was avoidable all together? Has stem cell research become so advanced that scientists can prevent a mitochondrial disease in a child if the mother is a carrier? The answer is yes.

A team of physicians from Columbia University in collaboration with the New York Stem Cell Foundation has successfully transferred the nuclear genome in human oocytes to eliminate mitochondrial DNA variants.

In this study, researchers removed the nucleus of an unfertilized egg cell and replaced it with the nucleus of another donor’s egg cell. The resultant egg cell contained the genome of the donor, but not her mitochondrial DNA. Therefore, the genetic make up of the offspring would be of his mother’s, but the mitochondrial DNA from the donor would eliminate the mutational DNA traits, and thus prevent the potential development of a mitochondrial disease.

The team’s development of a unique and novel technique for cell transfer required overcoming several challenges. During the exchange, low levels of heteroplasmy were detected. If levels of heteroplasmy reach a minimal threshold than mitochondrial mutations may appear. However, after clonal expansion and cellular differentiation heteroplasmy levels remained low, eliminating any chance of a clinical presentation.

Manipulation of the intact spindle chromosome presented the biggest challenge: this manipulation frequently resulted in premature activation of the oocyte and in turn karyotypes abnormalities. The prevention of the premature activation and karyotype abnormalities was a key component in the success of this study in a clinical setting. The research team overcame this obstacle by exposing the karyoplast (but not the cytoplast) to low temperatures to delay the induced activation. When the spindle chromosome complexes are placed in a below room temperature setting, they show a decrease in the rate of their alignment. Afterward, when complexes were placed in room temperature, the microtubule alignment would finish, allowing polar body extension, normal pre-implantation development, and ultimately karyotypically normal cells.

To account for their results, the research team carried out their developed technique in a controlled setting of solely room temperature. The results in the control experiment resulted in the loss of half of the oocytes, a failure in polar body extension, and the formation of karyotypically abnormal embryos. Still, the procedure yielded a number of successful results, suggesting this method may justify refinement going forward.

The final challenge that has risen during this study is whether transferring portions of the maternal genome between oocytes will introduce epigenetic changes. Based on trials conducted in this study, there were no significant differences in gene expressions between the genomes exchanged and unmanipulated cells. The maternal nuclear genome transferred did not relay any adverse effects or consequences to the embryo. Whether the chromosomes segregating in meiosis II are safe and accurate will need to be determined next by an increase in the number of trials.

In the initial levels of this breakthrough study, it is clear that the research team is on the brink of revolutionizing our approach to mitochondrial disease, and potentially accellerating medicine on the whole. A child is born with a mitochondrial disease every 30 seconds, and 1 in 200 individuals carry mutant mitochondrial DNA. With the progression of CUMC and NYSCF’s study, the healthcare industry can guide those numbers closer to zero.

Still, Nature concludes that before the study is officially approved to conduct human clinical trials on the transfer of the maternal genome, some issues are left unresolved. Nature says patient needs, ethical considerations, and appropriate guidelines for the use of oocyte nuclear genome transfer in assisted reproduction need to be established.

In late March 2013, DARA Bio (DARA) filed its Form 10K annual report highlighting both the business and financial updates from 2012. Below we discuss the key drivers at DARA, and why we believe the company is a vastly undervalued emerging specialty pharmaceutical story.

…Driving Awareness of Soltamox…

DARA Bio launched its leading product, Soltamox, in October 2012. Soltamox is a U.S. FDA approved (in 2006) oral liquid formulation of tamoxifen citrate primarily used to treat breast cancer. Soltamox is the only FDA approved oral liquid formulation of tamoxifen available for sale in the U.S. According to data from the American Cancer Society, some 230,000 women were diagnosed with breast cancer in 2011. An estimated 40,000 died from the disease. Tamoxifen is an antagonist of the estrogen receptor in breast tissue, and used as part of the standard of care for hormone receptor-positive breast cancer in per-menopausal women.

Over the past several months, DARA has been conducting market research to identify the market opportunity for Soltamox; which is used when the patient either prefers or requires a liquid formulation due to difficulty swallowing (dysphagia). Dysphagia may be caused by oral mucositis, a common side effect of chemotherapy and radiation treatment. Data shows the liquid formulation provides ease of administration and convenience of dose. Post-menopausal women with hormone positive breast cancer may be on a number of oral medications. Soltamox provides differentiation from solid dose medications, and thus may lead to improved compliance.

And the data clearly shows that compliance is the key to survival. Current clinical practice guidelines from the American Society of Clinical Oncology recommend women with estrogen receptor positive (ER+) breast cancer stay on tamoxifen for five years. In November 2013, at the San Antonio Breast Cancer Symposium, data from the ATLAS (n=12,894) study, recently published in The Lancet, show that women taking tamoxifen for 10 years cut their risk of mortality by 29% when compared to women stopping treatment after five years. Unfortunately, compliance for even five years of tamoxifen therapy is low. We can only guess as to the reason why, but point to the fact that oral liquid formulations of cold and cough medications are preferred nearly 2:1 over tablets. We believe as high as 10% of female tamoxifen patients may prefer Soltamox over the generic tablet.

DARA’s goal over the next few quarters will be to drive awareness of Soltamox. To do this, the company is enrolling patients in a registry called CAPTURE (Compliance and Preference for Tamoxifen Registry) with three key goals: 1) To identify the rate of dysphagia in hormone receptor-positive breast cancer women, 2) To quantify the percent of women that prefer a liquid formulation versus a tablet formulation, and 3) To better understand the compliance of women on tamoxifen. CAPTURE will seek to enroll 600 women at 25 leading cancer-treatment centers around the U.S., with the ultimate plan to publish the data in a medical journal in 2014. However, CAPTURE is a brilliant strategy in our opinion – it’s both market research and marketing. Through CAPTURE, DARA will have the opportunity to introduce Soltamox directly to patients, and hopefully pull through prescriptions at the clinic.

DARA is also targeting high-prescribing tamoxifen oncologists and oncology nurses. The company recently published an educational brochure in the Oncology Nurse Society (ONS) journal, and will distribute marketing information to oncologists and nurses at both ASCO and ONS-Congress in the next few months. A high-prescribing oncologist may write as many as 2,000 prescriptions for tamoxifen a year. DARA’s goal is to educate doctors and nurses on the rate of dysphagia and preference for liquid medications, and introduce Soltamox as the solution.

Soltamox reported sales in the fourth quarter 2012 totaled roughly $54,000. However, we note the company deferred recognition of an additional $150,000 in revenues shipped to wholesalers. We expect the ramp to be slow in the first and second quarter of 2013, then gaining steam later in the year following key educational events and market research publications at both ASCO and ONS. DARA officially made Soltamox available in October 2012 to correspond with breast cancer awareness month; however, promotional activity really did not kick off until December, following the San Antonio Breast Cancer Symposium.

Soltamox has approximately 1.5% of the tamoxifen market in the UK and Ireland. We see the opportunity as similar, perhaps a tad bigger, in the U.S. With an estimate 2% share of the U.S. tamoxifen market, we see peak sales of Soltamox at roughly $20 million. We forecast sales in 2013 at $1.65 million, growing to near $20 million by the time of the patent expiration in 2018. The benefit to DARA is that patients starting on Soltamox will most likely continue on the drug for up to five years. We think sales will build slowly, but as awareness grows each patient turns into an annuity stream for the company, eventually leading to a highly profitable venture for DARA.

…Launching Gelclair Soon… 

DARA plans to launch Gelclair in April 2013. We see a meaningful opportunity for Gelclair, as the product is an excellent complement to Soltamox. Gelclair is a hyaluronate sodium FDA approved for the treatment of oral mucositis. Oral mucositis is a common side effect of most cancer treatments. We have seen estimates ranging from 10% to as high as 30% of all cancer patients develop mucositis, nearly half of which may be grade 3 or 4. In grade 3 oral mucositis, the patient is unable to eat solid food, and in grade 4, the patient is unable to consume liquids as well. A recent study (Elting et al. Cancer 2008; 113:2704-13) reported that 87% of patients with severe mucositis used analgesics regularly during radiotherapy, 70% of which required opioid treatment. Over 400,000 patients per year will develop oral mucositis, representing a very large market opportunity for Gelclair.

Mucositis is most common in patients receiving radiotherapy for head and neck cancer. Data published in the Annals of Oncology in 2009 (20(supp4):174-7) cited almost 100% incidence for these patients, over 50% grade 3-4. Data in published in the Journal of Supportive Oncology in 2007 (2(2 Suppl 1):13-21) cited a similar near 100% incidence for patients undergoing high-dose chemotherapy with hematopoietic stem cell transplant (HSCT). Oral mucositis is particularly profound and prolonged among HSCT recipients who receive total-body irradiation.

The idea of DARA distributing Gelclair marries well with the concept of Soltamox and Bionect, DARA’s low-molecular weight hyaluronic acid for radiation burns. We see Gelclair as a potential $5 million opportunity in the U.S. The product has somewhat of a rocky past. Gelclair was approved by the U.S. FDA in January 2002 at UK-based Sinclair Pharmaceuticals. Sinclair licensed the product to Cell Pathways, and the product was launched in June 2002. In October 2002, Cell Pathways signed a co-promotion agreement with Celegene for the U.S. marketing and distribution of Gelclair. At that time, management at Cell Pathways stated that Gelclair was a potential $25 million product in the U.S., and the backing of Celegene seemed to validate that estimate. However, Cell Pathways, Inc. was acquired by OSI Pharmaceuticals in June 2003, and OSI Pharma terminated their co-promotion agreement with Celegene shortly after the deal closed. Meanwhile, Sinclair sold the global rights to Gelclair to Helsinn Group in August 2003. Gelclair struggled at OSI Pharmaceuticals, as OSI focused on the launch of Tarceva at Genentech and the later failed merger with Eyetech Pharmaceuticals. Gelclair posted U.S. sales of only $1.2 million in 2004, down from $1.6 million in 2003.

Following the merger with Eyetech Pharmaceuticals, OSI Pharma returned the U.S. rights of Gelclair to Helsinn in 2006. Helsinn licensed the rights to EKR Therapeutics in October 2006. EKR brought in ProStrakan Group to co-promote the product in April 2009. In 2009, we estimate Gelclair sales were around $4 million. However, EKR Therapeutics shifted focus in 2009 to the cardiovascular market and rights were returned to Helsinn. The product has been off the market since that time.

Despite being off the market since 2009, awareness of Gelclair remains high. DARA has been conducting market research over the past several months in anticipation of the launch domestically in April 2013. Management found that both awareness and interest in using the product is high. We suspect there may even be some pent-up demand for the product from high Gelclair prescribers back in 2009 excited to see the product return to the market. For 2013, we see Gelclair sales at $0.5 million, growing to $6.0 million by 2018.

…Bionect Slow Going…

In June 2012, DARA announced that it has launched Bionect for the treatment of skin irritation and burns associated with radiation therapy. There are an estimated 4,300 radiation oncologists in the U.S. DARA is targeting the top decile with its small dedicated specialty oncology and oncology supportive care sales team. Skin irritation is a common side effect associated with chemotherapy and radiation. Roughly two-thirds of cancer patients receive radiation therapy. Nearly all (87% according to DARA) will develop moderate to severe radio-dermatitis. Skin irritation is one of the primary side effects of radiation therapy, and a chief reason why patients discontinue treatment before a full cycle completes.

There is evidence (Radiotherapy and Oncology Vol.42(1997)155-161) that prophylactic use of hyaluronic acid cream during radiation treatment reduces the incidence of high grade radio-epithelitis, and may be used as a supportive treatment to improve compliance and quality of life in patients undergoing radiation therapy.

According to industry prescription tracking, there are an estimated 150,000 prescriptions for radiation dermatitis annually in the U.S. Remedy includes everything from A&D ointment, to aloe vera gel, to both low and high molecular weight hyaluronic acid. Studies show that high molecular weight hyaluronic acid does not penetrate into the dermis, and thus is ineffective in relieving symptoms of severe skin irritation caused by radiation. There is little active promotion of any pharmaceutical product for radiation-induced dermatitis. We believe that DARA could capture 5% to 10% market share with effective promotion.

Thus, sales reported to date have been negligible. DARA licensed the oncology rights to Bionect from privately-held Inncoutis Holdings, LLC. Inncoutis promotes the product into the dermatology market. Being a private company, we do not have a sales history on Bionect, but our best guess is that the product does around $3 million in revenues per year. Ultimately we see the sales potential into the oncology and radiation oncology market as a similar opportunity. We note that DARA will collect a tiered royalty (co-promotion payment) on each Bionect prescription it sells. Unfortunately, reimbursement around Bionect is poor and the product is primarily cash-pay. We suspect that DARA will spend the next few quarters ironing out the reimbursement issue with Bionect. By 2014 we believe the company will be able to start recording these co-promotion payments on the product. To DARA, we see Bionect as a $500,000 to $1.0 million revenue opportunity.

…KRN5500 Remains The Key Wildcard…

In November 2012, DARA Bio announced it has submitted an application to the U.S. FDA requesting Orphan Drug Status (ODS) for KRN5500 for the treatment of chronic chemotherapy-induced peripheral neuropathy (CCIPN). The U.S. FDA established the Orphan Drug Act in January 1983, with the ultimate goal of encouraging pharmaceutical and biotechnology companies to develop drugs for rare diseases that may have a small market. Under the law, companies that develop such a drug (a drug for a disorder affecting fewer than 200,000 people in the United States) may sell it without competition for seven years, as well as receiving waivers for regulatory fees and obtaining certain clinical trial tax incentives.

CCIPN is a type of pain that results from nerve damage and is characterized by an abnormal hypersensitivity to innocuous, as well as noxious stimuli. This type of pain is extremely difficult to manage, fails to respond to standard analgesic interventions including opioids, and often worsens over time. There are currently no FDA approved treatments for CCIPN. We remind investors that the U.S. FDA has previously granted DARA “Fast Track” status for KRN5500 in this indication.

We see the CCIPN market as highly attractive to DARA. There are an estimated 12 million Americans living with active cancer and some 1.6 million new cases each year. We found during our research that neuropathic pain occurs in 30% of cancer patients, with up to 90% in patients with advanced cancer. The incidence and severity of CCIPN vary considerably for each neurotoxic agent, administered alone or in combination, but for vincristine, cisplatin, oxaliplatin, and paclitaxel, estimates are as high as 70% to 90%. As many as 60% of patients treated with docetaxel and 40% treated with carboplatin develop CCIPN.

Conservatively, if we assume that 30% of 12 million cancer patients develop neuropathic pain, the market stands at approximately 3.6 million patients. Of that 3.6 million patients, we estimate that one-third, or around 1.2 million patients have developed chronic pain – i.e. pain that persists for at least three months after all chemotherapy has been stopped or completed. Standard of care for these patients includes gabapentin, pregabalin, and opioids. DARA is seeking an orphan indication from the FDA for those patients that are refractory to standard of care. Given the maximum allowable population of 200,000, we believe that DARA has carved out a subset of the 1.2 million cancer patients with chronic neuropathic pain, or perhaps 10-15% of this group.

DARA is currently engaged in dialogue with the agency on ODS. At this point, it’s difficult to say whether or not DARA receives ODS on KRN5500. The chronic neuropathic pain in cancer patient market is clearly larger than 200,000. We see KRN5500 has having a significant market opportunity clearly beyond the subset of a subset of patients identified for the application. Obtaining ODS might make KRN5500 an attractive asset for a larger pharmaceutical company given the seven year exclusivity and waiver or PDUFA fees. However, other partners may only be interested in developing KRN5500 if they can target the larger 1.2 million or entire 3.6 million population identified above. We believe the data on KRN5500 is impressive enough to warrant moving forward regardless of ODS or not, and we encourage investors to view our previous piece from November 2012 that highlights the data and market opportunity.

…Financial Review…

Net loss for the fourth quarter 2012 totaled $1.9 million, or $0.10 per share. Loss was driven by $2.1 million in SG&A and $1.5 million in R&D. R&D included an annual PDUFA fee of $650,000 for Soltamox. DARA is attempting to have the fee reimbursed by the FDA given that it is the company’s first wholly-owned commercial product. For the full year 2012, DARA reported a net loss of $7.3 million, or $0.60 per share.

DARA exited 2012 with $6.5 million in cash and investments, with around $5.0 million in positive net working capital. In January 2013, the company received approximately $2.5 million in net proceeds from issuance of Series B-3 and B-4 convertible preferred stock. Also, during the first quarter 2013, DARA had investors in the B-2 preferred stock exercise roughly 1.2 million warrants at $0.80 per share for proceeds of approximately $971,000 and 250,000 warrants at $1.00 per share for proceeds of approximately $250,000. We model an operating burn of roughly $2.0 million in the first quarter 2013. Therefore, we suspect that DARA held over $7.5 million in cash as of March 31, 2013. We find this to be sufficient to fund operations into 2014 given our modeled burn of around $2.0 million per quarter for the second, third, and fourth quarters of 2013.

Conclusion

Based on our DCF modeling, we see $2.00 per share as fair-value for the company. We see the company as well financed, with enough cash to fund operations into 2014. We see potential sources for non-dilutive capital by partnering KRN-5500.

An interesting specialty pharmaceutical story has emerged. DARA is focusing on oncology and oncology supportive care products with Soltamox, Bionect, and Gelclair. We expect many of the same patients will be users of DARA’s three core products, and that marketing and promoting the suite to oncology centers can be achieved in an efficient and profitable manner.

There are just over 15,000 oncologists in the country. The three largest areas include medical oncology, hematology, and radiation oncology. DARA is focusing on the top decile of physicians with a small sales force. The company is also looking to supplement or partner with other small specialty pharmaceutical companies, as well as with wholesalers or specialty oncology providers.

For example, in early April 2013, the company entered into a distribution agreement with Prime Therapeutics Specialty Pharmacy, LLC for distribution of both Soltamox and Gelclair. Prime Therapeutics is a pharmacy benefit manager serving nearly 20 million lives with roots into the Blue Cross and Blue Shield network. It’s a deal that makes excellent sense for DARA as they seek to build out the network and drive sales of Soltamox and Gelclair in 2013. We note the company already had a previous deal in place with Onco360 Specialty Pharmacy.

We have conducted a discounted cash flow (DCF) analysis of DARA which incorporates Soltamox, Bionect, Gelclair, and KRN5500. Our model has factored in the dilution from the recent registered direct and public offerings of preferred stock. We find fair-value to be above $2.00 per share. We think DARA is starting to look very interesting for long-term investors. The company is well financed, and Soltamox and Gelclair should be posting meaningful revenues by the end of the year. The big wildcard remains KRN5500, which could be worth many multiples of the current valuation once validated in a pivotal program. Nevertheless, we see the current market value as vastly under-valuing this opportunity. From here on, it’s all execution.

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How SanuWave’s Novel Technology DermaPACE Spearheads a New Wave of Investigative Device Evaluation (IDE) Treatments, and the Impact on the Medical Device Companies

Investors and company executives may be “shocked” to learn that the chronic wound market size is estimated at $20 billion,  according to the Advanced Medical Technology Association (“AdvaMed”).  This figure stems from the cost of management and treatment of chronic and complex wounds just in the United States alone.
Further, AdvaMed estimates that 1.5 million diabetic foot ulcers occur annually, leading to over 82,000 amputations, at a direct and indirect cost ranging from $20,000 to $60,000 per patient. Chronic leg wounds (ulcers) account for the loss of two million workdays per year, at a cost of approximately $300 million in lost productivity.

Alpharetta, Ga.-based SanuWave (SNWV) looks to reduce that sticker shock.  The company is developing potentially game-changing extracorp real shock wave technology for chronic wound care, cardiovascular, neurological and orthopedic conditions: its portfolio of shock wave therapies that sends ‘shockwaves’ through damaged cells, an action that stimulates the healing process. Through its Pulsed Acoustic Cellular Expression (PACE), the most advanced among these shockwave therapies is the DermaPACE, used in the treatment of the aforementioned chronic foot ulcers.

Significant trial data indicates DermaPACE was effective in healing diabetic foot ulcers. The main hurdle to clear will be hitting the 100% wound closure threshold. While not attained in the initial pivotal study, this may very well be able to be done with additional DermaPACE treatments.  SanuWave aims for 100% wound closure by week-12.  Assuming success in the trial, FDA approval may be possible before the end of 2014 going into 2015, serving what Zacks Small Cap Research describes as an “underserved” $2 billion market, which has seen more coverage and activity recently.

SanuWave is up over 101% in 1 yr, over 400% this year.  Zacks Small Cap Research has a price target of $1.30 for the stock, which may be a very conservative estimate.

SanuWave has positioned itself, upon receiving Investigational Device Exemption designation (a suggestion that the FDA has not ‘red-flagged’ past data), as a significantly undervalued plays in the medical device market.

Important clinical developments that have been made since Q4 2012 going into the first part of 2013 add to the company’s long-term investment potential: trial site selection; IRB approvals and a new CRO with specialization in wound trials for the supplemental dermaPACE clinical trial; a new CEO; additional financing raised; and the ongoing expansion of the company’s sales and distribution channels both in the U.S. and abroad.

Joseph Chiarelli, the new Chief Executive Officer of SANUWAVE, commented that “during 2012, we made progress in establishing SANUWAVE as the world leader in shock wave technology. Recently we refocused our business strategy with the goal of utilizing our non-invasive shock wave technology to address large market opportunities and to broaden the value potential of our patent portfolio to evaluate both medical and non-medical uses of our technology.”

As to this point, the potential and effectiveness of devices with the Investigational Device Exemption (IDE) designation and how they change the orphan medical device markets that they serve should position the company favorably upon entrance in trials, scheduled for mid-2013, according to the company.

An IDE permits use of a device in a clinical investigation to evaluate the safety and/or efficacy of the medical device. The IDE will be “considered approved” and used as part of trials in support of either a Pre-Market Approval (PMA) application or a Pre-Market Notification, code 510(k) submission to the FDA.

The regulatory path for IDE devices involves the formal approval process of the FDA of the safety and effectiveness of the medical device based on valid device-related scientific data and rational, rather than just comparison — as in the 510(k) process. This process mostly applies to Class III medical devices with the most novel and complex technologies and applications; hence they are subject to rigorous scrutiny and testing by the FDA.

Despite a longer investigation period than 510(k), companies in recent years have once again favored seeking PMA through IDE for the ability to gather more data for use at marketization, and for the clearer path to approval.

This strategy of bolstering pre-market data by pursuing non-510(k) approval routes have contributed to substantial growth for the medical device sector among both smaller and larger companies. Further, as the efforts of large companies to aggressively enter wound care show, SanuWave is well positioned to enjoy success at market. The following companies are case studies of the market responding well to companies that have recently adopted the PMA strategy and have actively entered the regenerative medicine medical device market.

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Smith & Nephew (SNN) has begun to make impressive strides in its pursuit of being a wound care market leader.  Its PICO system is designed for chronic, acute and traumatic wounds, along with sub acute and dehisced wounds, partial-thickness burns, ulcers (such as diabetic or pressure), flaps and grafts and closed surgical incisions.

A study presented by Lindsey Bullough and Diane Wilkinson of the Royal Albert Edward Infirmary in Wigan in the UK followed a group of 50 clinically obese patients who were deemed to be at higher risk of contracting an infection after having a C-section, and had their closed surgical incisions treated with a protocol including the PICO Negative Pressure Wound Therapy System.  The result showed no infections, along with zero re-admissions. This is among one of the more exciting developments in bioactives, the fastest growing segment of the wound care market.

Smith & Nephew has started to shift its focus to its advanced wound management franchise, away from its traditional orthopedic market, which has become quite crowded.  The acquisition of Healthpoint (a privately held company focused on the development and commercialization of novel, cost-effective bioactive solutions for debridement, dermal repair and regeneration) for $782 million in November of 2012 has allowed the company to take advantage of such growth. This acquisition has been one of the drivers of Smith & Nephew’s stock taking off this year, as with the rest of the regenerative medicine sector.

HealthPoint’s flagship product is Collagenase SANTYL® Ointment (“SANTYL”), an enzymatic debrider used for dermal ulcers and burns.  Healthpoint’s portfolio also includes the OASIS® family of leading acellular skin substitutes for venous leg ulcers and diabetic foot ulcers and REGRANEX®, a growth factor for treating diabetic foot ulcers. The HealthPoint acquisition is forecast to generate around $190 million in sales in 2012 from its existing range of products, driven by SANTYL.  Healthpoint has a strong R&D portfolio with its lead product candidate entering Phase 3 trials for the treatment of leg ulcers, a large potential opportunity in the same vein (no pun intended) as SanuWave.

“We are committed to innovation that helps reduce the human and economic cost of wounds,” said Tom Dugan, President of North American Advanced Wound Management division at Smith & Nephew.  “PICO, OPSITE and ACTICOAT are examples of Smith & Nephew’s unique ability to provide a spectrum of wound care options that together give clinicians the flexibility to exercise their best judgment and to develop better ways to serve patients.”

One of the main drivers behind Smith & Nephew’s 15% stock price increase so far this year has been its expansion into the wound care market.  As the HealthPoint acquisition has shown, Smith & Nephew may also choose to join the chorus of larger companies that may look to acquire smaller companies to further cement new lines of revenue in the space. It is not unreasonable to think at least one of these prime candidates may be SanuWave.

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Medtronic (MDT) submitted Investigational Device Exemption (IDE) to the U.S. Food and Drug Administration (FDA) to support the study of the Symplicity renal denervation system for the treatment of uncontrolled hypertension in patients with systolic blood pressure between 140-160 mm Hg, despite treatment with numerous anti-hypertensive medications of different classes. Currently the Symplicity renal denervation system is only available for investigational use in the United States.

Metronic tapped into the potential of the renal denervation market when they acquired California-based Ardian for $800 million in 2010. Ardian developed the Symplicity renal denervation system after completing animal studies and after a completed proof-of-concept in a 45-patient first-in-man trial.  The company believes it will receive approval for the Symplicity device by 2015.
Medtronic’s global renal denervation clinical program include more than 250 patients already enrolled in the Symplicity HTN-1 and Symplicity HTN-2 studies, 530 patients being enrolled in the Symplicity HTN-3 study, and 5,000 patients being enrolled in the Global Symplicity Registry.

The success of this venture certainly has contributed to the stock’s 20% rise since last year, although some believe that the Ardian acquisition was overpriced, given that company executives acknowledge that the Symplicity system is still in its infancy.  This surmises the notion that Medtronic may join the bustling M&A activity in medicine with an eye towards another acquisition.

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InVivo Therapeutics (NVIV) recently passed one of the company’s two proposals under review with the FDA.  InVivo announced this month it had received the Humanitarian Use Device (HUD) designation in April, 2013 for the company’s potentially revolutionary biocompatible polymer scaffolding (BPS) device to treat acute spinal cord injuries. HUD designation covers devices that treat rare, ‘orphan’ diseases or conditions.

The National Spinal Cord Injury Statistical Center (NSCISC) estimates some 12,000 individuals will become fully or partially paralyzed each year due to spinal cord injury. InVivo’s data from the company’s previously completed primate studies from 2008 have been published in the Journal of Neuroscience Methods, and the company won the prestigious 2011 Apple Award from the American Spinal Injury Association recognizing excellence in spinal cord injury research.

Frank Reynolds, InVivo CEO, spoke of the success of the HUD designation as “important not only for speed-to-market, but it represents a benchmark in InVivo’s commitment to patients with SCI.”

InVivo is also esxploring IDE designation for its drug delivery hydrogel for both spinal cord injury and peripheral nerve pain. Hydrogel would be regulated as a device by the FDA, allowing InVivo to move into an IDE program in spinal cord injury and peripheral nerve pain in late 2013 or 2014 and file for approval under the PMA pathway, potentially in 2016 or 2017. InVivo plans to file an IDE application to the FDA to start the first-in-human studies before the end of the year.

InVivo’s opportunity is through its injectable hydrogel to complement the polymer scaffolding   Methylprednisolone, which is FDA-approved, and is currently used to treat spinal cord injuries and is used to treat peripheral nerve injuries. However, high-dose intravenous administration of the drug can result in harmful side effects, including the increase in the risk of pneumonia, sepsis and mortality. InVivo believes that by precisely controlling the release of methylprednisolone at the site of injury, dosage can be delivered to the point of inflammation while mitigating the risk of harmful systemic side effects while being therapeutically effective
InVivo has been a sleeper hit for 2013, with the stock up over 60% this year; some 15% of that comes off the HUD designation announcement.

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The FDA’s 510(k) policy is being called into question as a “broken” system, most notably in 2011 by Dr. David R. Challoner,  Chair of the Committee on the Public Health Effectiveness of the FDA 510(k) Clearance Process Board on Population Health and Public Health Practice at the Institute of Medicine of The National Academies. This unease gives rise to the notion of IDE as an alternative to the 510(k), especially when it comes to testing the effectiveness of sophisticated and orphan medical devices.

Not only have these four companies shown an alternative path to 510(k), but they have shown themselves to be quite successful with IDE, giving the medical device industry a new avenue in which to prosper.

Vancouver-based DelMar Pharmaceuticals [DMPI] is developing new drug candidates targeting orphan cancer indications representing market opportunities in the $100s of millions in North America and potentially billions of dollars worldwide. The company’s lead candidate, VAL-083, is a “first in class” small-molecule chemotherapeutic in Phase I/II, targeted for refractory glioblastoma multiforme. Approved in China for chronic myelogenous leukemia (CML) and lung cancer, Del Mar obtained the rights to develop VAL-083 after promising NCI-sponsored Phase I studies.

Promising data announced in 2012 with follow ups scheduled at various healthcare conferences this year coincided with the company’s recent listing on the OTCQB, which commenced Q1-2013.

OneMedRadio spoke with Del Mar Co-Founder, President and CEO Jeffery Bacha, about this recent company milestone, and what lies ahead in the advancement of VAL-083. Bacha also mused on trends in the industry related to re-positioning promising data for the international markets, and the opportunities out of achieving orphan drug status.

Click to listen, and view the transcript below.

Matthew Margolis:      OneMedRadio welcomes Jeffrey Bacha, Co-Founder, President and CEO of Del Mar Pharmaceuticals. Del Mar is developing and commercializing proven anti cancer therapies in new high impact often cancer indications for patients who have failed modern biological target therapies. The company recently commenced public trading, listing under the symbol DMPI. Jeffrey, thank you for joining us.

Jeffrey Bacha:             Thank you Matthew. It’s a pleasure to be here.

MM:                Let’s start with the company snapshot. Give us Del Mar’s brief history.

JB:                   We started the company in 2010 around the initial asset that we pulled out of the National Cancer Institute here in the United States. This is a drug that had been widely studied in what we would call the original war on cancer a few years ago. We saw some promising activity in the candidate, which we called VAL-083, particularly in central nervous system or tumors attached to brain cancer. In particularly, the form of brain cancer called glioblastoma, which is the most common and aggressive form of brain cancer. It affects about 1,500 patients a year in the United States.

We decided that we would move the drug back into clinical trials in glioblastoma. We began treating patients in 2011 and have been recently pleased with the results so far. Our business plan is essentially to take a [chemotherapeutic] that has some history around it, wrap new and intellectual property around it, new patent filings, for example, [that offers] drug protection where its available. [Then] to look at the mechanism of action and move it forward into a clinical indication where we believe it can have the most impact and be able to move it forward very quickly.

Our team has actually done this before. Our clinical group is responsible for the development of a drug called Synribo, which was again another older candidate which was taken through clinical trials of the FDA and that company was acquired in 2011 for $235 Million. So, a nice history of success within the team, success with the business model, and being told very attractive exit for investors.

MM:                Talk about the technology behind VAL-083 and the clinical progress.

JB:                   It is a small molecule drug. [VAL-083] is a cytotoxic, so it’s a classic cancer drug. One of the things that intrigued us was that it crossed the blood brain area – a mechanism that the body has to keep most things outside of the brain. This drug actually gets there. It’s one of the few things that does. The other thing that we found interesting was that it works differently in terms of how it impacts the tumor compared to other chemotherapies that have had some level so success in glioblastoma. The problem with those other therapies is that they don’t work for everybody. We now understand why they don’t work. This drug, VAL-083, meets that need and having activity for other therapies fail, which really represent half of the patients that are diagnosed with the disease in a $1 BN market.

MM:                Is glioblastoma considered an area of unmet medical need, and are you pursuing orphan drug status?

JB:                   It is definitely an area of unmet medical need. As I said, 60% or 70% of the patients who are diagnosed won’t respond to the current therapies and there is nothing for these patients unfortunately. If a patient is in that group that doesn’t respond to the current therapies, the likelihood of surviving for two years from diagnosis is less than 10%. So it is a huge unmet need, and we are very pleased and hopeful that we are developing something that will have an impact in those patients.

This is an orphan drug indication. We do have orphan drug protection in the United States and in Europe. What that means is that it helps to move things forward in a more rapid manner as well as provide some market protection for us in terms of market exclusivity following approval. We have also filed new patents but in the event that we end up without any new patent claims, we would have seven years of market exclusivity from approval by the FDA and the United States, and 10 years from approval in Europe, where we would be able to market the product without competition.

MM:                VAL-083 is approved in China for the treatment of chronic myelogenous leukemia and lung cancer. So what are the next steps here?

JB:                   When we started out, we weren’t looking for a Chinese drug. We were interested in the drug based on data from the National Cancer Institute in the United States. We learned that the drug was approved in China when we were looking for collaborator to help manufacture the product for us. We found the Chinese approval interesting and in studying it, believe that there are ways to re-position the drug in those two indications. The nice thing is that we can create that new data – we can re-position the drug in the current market place with a partner to generate revenue.

Then we can use that data to expand the global opportunity for the product. So we are in the process of doing that in parallel with what we are doing in glioblastoma here in the United States.

MM:                I want to shift gears a little bit, talk about recent news. Give us a summary of the company’s public listing, the steps that were taking to reach this milestone for example.

JB:                   We had accomplished what we consider two major milestones in 2012. One being [the acquisition of] the commercial rights of the product overseas and globally in fact. Two, moving forward in our glioblastoma clinical trial in the United States and actually presenting some initial data demonstrating the drug had activity in patients failing other therapies after the Society for Neuro-Oncology meeting last November.

So based on those two milestones, we decided that it would be possible to test the public markets…We are very pleased that we were able to in very short order upon launching a financing in January, complete that in just a few weeks and raised $10.5 million – the transaction was actually originally seven and a half, but they were so oversubscribed that we expanded it up to ten and a half. We are very pleased with how that went.

So now we are publicly listed, the stock has been trading for several weeks and we are very excited to have a capital now to move the project forward in a timely manner. Hopefully as we go forward and hit our milestones the market will continue to respond in a favorable manner.

MM:                Talk about some of that data that you presented, as well as how that positions you for a regulatory path in the US.

JB:                   The data that we presented at the Society for Neuro-Oncology meeting was interim data, the first couple of cohorts or patients. What we are doing is modernizing the dosing regimen initially. We have noted what worked in terms of treatment of glioblastoma [which coincides] with the National Cancer Institute several years ago. But we’ve taken advantage of learning more about the mechanism of action of the drug and the disease itself.

So we are treating the patients more often and trying to push to a higher dose than they had done 20 years ago, and we hope to achieve an even better outcome than what was attracted activity from that original National Cancer Institute work. So we presented the first data to Society for Neuro-Oncology meeting last year, which demonstrates that the drug even at lower doses appears to have activity in some patients who have failed the front line therapy in glioblastoma, which is called temozolomide, and also have failed the second line therapy which is a drug called Avastin. That population in both first and second line therapy represent about half of the patients who were diagnosed.

That was exciting news for us, because it was lower doses than had been shown before, which suggest that maybe our modernizing dose regimen is having an impact. We have been continuing to move the product forward in clinical trials and anticipate presenting further data at the American Association for Chemotherapy Research in Washington DC in April, and ASCO in June. As well as again the Society for Neuro-Oncology meeting later in the fall. As we go forward in complete the dose modernization course of the study, we will be positioned at least in the refractory disease to move nearly directly into registration trials with the product.

The interesting thing in terms of refractory disease, whether there is no other therapy, typically approval is sought based on an open-label Phase II design, and often in less than 100 patients. There had been several other examples of these recently, including Avastin’s approval in second line therapy in glioblastoma in 2009. So this positions us to be able to move forward in a streamline manner with a study design that is capital effective, in terms of the number of patients and the cost of the study, and in terms of timing because we can move forward much more quickly to be able to bring the product to market and to help patients in the most timely manner possible.

MM:                That was Jeffrey Bacha Co-Founder, president and CEO of Del Mar Pharmaceutical. Del Mar trades under the symbol DMPI. For OneMedRadio this is Matthew Margolis signing off.

The following piece comes to us from PropThink, as part of an on-going contributor’s agreement. Stay tuned for multiple postings each week from the publication’s respected industry writers and analysts.

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Since Propthink’s last report on ViroPharma (VPHM), shares of the Exton, Pennsylvania-based company have risen by just under 11%. While positive returns are always welcome, ViroPharma has noticeably underperformed the NASDAQ Biotechnology Index, which has risen by over 17% in the same time frame. VPHM’s lagging performance stems from concerns regarding generic competition to Cinryze, ViroPharma’s treatment for hereditary angioedema (HAE). Given what happened to Vancocin, ViroPharma’s drug for the treatment of clostridium difficile when generic versions launched, it these concerns are understandable. But, PropThink believes that ViroPharma’s past isn’t likely to repeat. Cinryze has multiple barriers to generic competition, and ViroPharma is making meaningful progress in commercializing its other drugs, as well as in moving its pipeline through the development process. At just over $25, shares of ViroPharma offer ample upside for long-term investors.

Q4 Review & 2013 Guidance: Highlighting ViroPharma’s Progress, Reminding Investors of the Impact of Generics

For Q4 2012, ViroPharma posted earnings of 10 cents per share on revenues of $106.49 million. While ViroPharma missed consensus earnings estimates by 2 cents, it beat on revenues by $3.44 million. Sales of Cinryze grew by 45% in Q4 2012, driven by continued demand. However, total revenues of $106.49 million fell by 26.85% from the year-ago quarter, due to a 93.57% plunge in sales of Vancocin, to just $5 million. Generic versions of Vancocin launched in 2012, and the impact is clearly visible. Pro forma EPS at ViroPharma fell from $2.09 in 2011 to $0.64 in 2012, as revenues fell by 21.39%. However,  we expect that ViroPharma’s past will remain its past, not its future. For 2013, the company is forecasting $462.5 million in revenue at the midpoint of guidance, representing consolidated revenue growth of 8.08%. Sales of Cinryze in North America are set to reach $395 million at the midpoint of guidance, representing growth of 20.76% relative to the $327.1 million in Cinryze sales that ViroPharma saw in 2012. And despite a sharp fall in revenues and income, ViroPharma remained cash flow positive in 2012 and ended the year with $246.856 million in cash & investments, and debt of $161.793 million (more on ViroPharma’s finances later).

In Q4 2012, ViroPharma continued to execute on its commercialization goals, particularly in meeting its projection of $600 million in peak North American Cinryze sales. ViroPharma is working to launch Cinryze in Europe, and has secured reimbursement in Italy, France, Germany, and the United Kingdom. CEO Vincent Milano has pledged that by Q3 2013, Cinryze will be available in the 5 largest European markets. The European Union currently contributes less than 2% of total Cinryze sales, and presents a meaningful opportunity for the company. Attitudes in Europe have shifted favorably towards Cinryze in recent years. ViroPharma COO Daniel Soland noted on ViroPharma’s Q4 call that several years ago, virtually no physicians were believed there was a place for C1 esterase inhibitors such as Cinryze. Now, physicians are saying that as many as 10% of their patients should be on drugs such as Cinryze. The trend in opinion regarding HAE in Europe favors Cinryze, and as ViroPharma continues its investments in its salesforce and awareness initiatives, opinion regarding Cinryze is likely to become more positive. In Europe, 30-60% of HAE patients are treated via prevention strategies. But, aside from Cinryze, the only HAE prophylactic treatments that are available are androgens and tranexamic acid, treatments that are not suitable for all patients and that have a number of side effects, such as increased cardiovascular risks, voice changes, and prostate cancer, and the possibility of these side effects can increase alongside dosages. Despite continued macroeconomic stress in Europe, ViroPharma has not shied away from the continent, and 2013 will likely see a number of catalysts for the company. ViroPharma is in the process of finalizing reimbursement for Buccolam (for the treatment of seizures) in France and Spain, and by the 2^nd half of the year, Buccolam should be available in all 5 key European markets. ViroPharma is in the process of rolling out Plenadren (for the treatment of adrenal insufficiency) in Europe. The drug was launched in 4 countries before the end of the year, and its launch in Italy and Spain is underway. The company is capturing additional data to support reimbursement in a variety of other European Union territories, with CEO Vincent Milano forecasting a substantial number of negotiations to take place in the second half of this year. Mr. Milano believes that for these negations, a 2014 launch is more likely. That being said, 2013 will be a year of growth for Plenadren and Buccolam, even if it is back-end loaded. Consensus forecasts for 2013 call for ViroPharma to post just 8 cents in EPS for the first 2 quarters of 2013, but then call for a combined 19 cents in the last 2 quarters of the year.

Cinryze: Addressing Competitive Concerns

Given the effects that the destruction of its Vancocin franchise had on ViroPharma, many investors are understandably nervous about the potential for generic competition to Cinryze, with many thinking that the company cannot survive the destruction of a 2^nd franchise. However, Cinryze is a far different drug than Vancocin, and there are multiple barriers to generic competition.

1. Exclusivity: Cinryze is protected by its orphan drug exclusivity until October 2015, giving ViroPharma more than 2 years of “worry-free” sales, which will fortify the company’s balance sheet and give it time to expand sales of Plenadren and Buccolam, as well as invest in its pipeline.

2. Affordable Care Act: The Affordable Care Act overhauled many parts of America’s healthcare system, and it included changes to drug development as well. The law grants biologics 12 years of data exclusivity after securing FDA approval, meaning that Cinryze’s clinical data is protected until October 2020. What this means is that potential competitors who wish to develop generic versions of Cinryze cannot simply base their approval filings on Cinryze’s data. They will have to recreate their own clinical trials.

3. Higher approval standards: When Cinryze was first approved in 2008, the drug represented a solution to the unmet medical need (one of the factors behind giving it orphan drug status) of a prophylactic approach to treating HAE. In 2013, that unmet medical need no longer exists, and the bar for approving alternative treatments is higher. The company was told by the FDA that the hurdles for approving its subcutaneous formulation of Cinryze would be higher than the current intravenous formulation. Any subcutaneous formulation of a C1 inhibitor is unlikely to enter the market until 2016 or 2017, making the threat of direct competition to ViroPharma’s own plans for developing a subcutaneous version of Cinryze less of a threat than it appears on the surface.

It is true that Cinryze is not the only treatment option within the broader HAE market. Shire’s (SHPG) Firazyr (icatibant injection), Dyax’s (DYAX) Kalbitor (ecallantide), and CSL Behring’s Berinert (C1 inhibitor) are all designed to treat HAE attacks. However, there is a crucial difference between Cinryze and these therapies: Cinryze is the only approved prophylactic HAE drug. These 4 therapies are all designed to treat acute episodes of HAE, and while Kalbitor and Firazyr are subcutaneous drugs, Kalbitor is not approved for in-home injection, and must be administered by a medical professional (Cinryze is approved for both professional and in-home injection). The benefits of utilizing Cinryze versus an acute treatment option increase proportionally alongside the frequency and severity of HAE attacks that a patient has. While it is true that Cinryze is not the only treatment option for HAE, it is the only prophylactic option approved, and ViroPharma is working on securing approval for Cinryze in subcutaneous form. As we noted in our prior report, ViroPharma has partnered with Halozyme Therapeutics (HALO) to utilize Halozyme’s Enhanze technology in delivering Cinryze subcutaneously. Phase IIb trials began in December 2012. In addition, in January ViroPharma released clinical data from its study of Cinryze in pediatric HAE patients. The study found that children (ages 2-17) in the routing prophylaxis study had almost 2x less HAE attacks (7 attacks in the control arm relative to 13 in the placebo arm) when taking Cinryze relative to placebo. Within the open-label extension of the study, the median number of HAE attacks per patient per month fell to 0.39, versus a rate of 3 attacks per month prior to enrollment. Within the prophylactic study, 1 patient out of 4 total patients experienced an adverse event related to Cinryze, and in the open-label prophylactic study, 2 patients out of 23 experienced adverse events determined to be related to Cinryze. Safety data in the acute arms of the study was also positive, with no adverse events reported in the acute study, and no events related to Cinryze reported in the open-label acute study (9 out of 24 patients experienced adverse events). However, no patient discontinued treatment due to adverse events, and the efficacy of Cinryze within the prophylactic arm was consistent with its published efficacy data in the broader HAE patient population.

Other Pipeline Assets: Continuing Incremental Progress

While the continued growth of Cinryze, as well as progress in commercializing Buccolam and Plenadren in Europe, will be the key drivers for ViroPharma in 2013, the company should see incremental progress on its pipeline as well. ViroPharma expects to move VP20629 [for the treatment of Friedreich’s Ataxia (FA)] into Phase II trials within the 2^nd half of the year, and plans on filing for orphan drug status once Phase II data is available. The company also expects to have full Phase II data for VP20621 (for the treatment of Clostridium difficile in patients that have been previously treated for the disease but relapsed) this year. Data for maribavir, designed to treat CMV infections, will also be available in 2013. ViroPharma will begin studies of recombinant formulations of Cinryze, and the company is likely to provide more color on this program on its Q1 2013 earnings call. However, ViroPharma announced in early March that the FDA has told the company that the data it used to secure approval of Plenadren in Europe will not be enough for approval in the United States, and that additional Phase III trials will be needed. ViroPharma is currently in discussions about designing a Phase III study, and details should materialize in Q1 2013 earnings call. As we noted in our last report on ViroPharma, 2013 is a year of both commercial and pipeline investment. ViroPharma is making meaningful progress in expanding its business both here in the United States and in Europe, while continuing to invest in its pipeline.

Financials: Continuing the Buyback Debate

On ViroPharma’s Q4 earrings call, the issue of buybacks once again took center stage. Many observers expect that because of the erosion of the company’s Vancocin franchise, ViroPharma would be hoarding cash. ViroPharma spent over $180 million on share buybacks in 2012, up from around $170 million in 2011. This has brought ViroPharma’s balance of cash & investments down from $459.83 million at the end of 2011 to $246.856 million at the end of 2012. Analysts once again pressed ViroPharma’s executives about whether or not this is truly the best way to deploy capital, with the underlying suggestion being that ViroPharma should acquire new pipeline assets. Milano responded to these concerns by noting that ViroPharma continues to actively look at new assets to determine whether or not they are valuable enough to license and/or acquire. However, he also noted that ViroPharma’s “screen” for new assets takes into account the need for positive operating cash flow and earnings, and that while the company is looking at new assets, those assets would have to be superior to what ViroPharma currently has in its pipeline to have the company consider the addition. Milano further stated, “And with our current share price where it is, we’re always looking at sort of the return of investing in our stock. So I have to say that we have an authorization outstanding for $200 million, and it’s still one of the things that we look at on a daily basis.” While it is certainly true that ViroPharma could utilize this capital to acquire new assets, the issue is not as material as it seems. ViroPharma isn’t suffering from a shortage of pipeline assets, nor does its pipeline depend solely on Cinryze. ViroPharma pipeline assets across a variety of indications, and despite spending close to $200 million on buybacks in 2012, this has not slowed the pace of ViroPharma’s clinical development, as the company will see multiple clinical data readouts in 2013.

The question of pipeline assets vs. buybacks isn’t the only element to the debate over ViroPharma’s capital use. With $161.973 million in debt, the company’s net cash position stands at just $84.883 million, a level that some analysts see as too low. Milano said on the subject, “The more sincere answer to your question [from Piper Jaffray analyst Edward Tenthoff regarding optimal cash balances] is that we do have a threshold in our minds that we would never want to go below. I don’t know that it’s good for us to share that exact number, but we do have a model in our head…” However, as in the debate of buybacks vs. pipeline assets, the debate over ViroPharma’s optimal cash balances is somewhat overblown. ViroPharma’s debt is in the form of convertible notes due March 2017, giving the company 4 years until the debt is due (the notes can be converted into shares of ViroPharma at a price of $18.87 per share after December 15, 2016). And assuming that ViroPharma is able to execute on its commercialization goals, the company should have cash balances that are meaningfully higher by the time this debt is due. Consensus forecasts call for ViroPharma’s EPS to climb to $2.19 in 2016, above its record $2.09 in 2011. And the buybacks that ViroPharma has undertaken have produced meaningful results. Over the past year, ViroPharma’s share count has fallen from 70,726,378 to 65,208,957, a decrease of 7.8%. When the buybacks are combined with those from 2011, ViroPharma has repurchased over 16% of its outstanding shares in the past 2 years alone. If ViroPharma’s buybacks were imperiling either its R&D efforts or its financial viability (as measured by its cash balances), then they certainly need to be halted. But so far, neither scenario seems to be playing out. ViroPharma continues to actively invest in its pipeline, and the company has made clear that it has a level of cash it will not dip below. And with income (and operating cash flow) set to rebound meaningfully in the near-term, ViroPharma will be able to continue what is a fairly aggressive buyback pace, one that has produced tangible results.

Conclusions

Near $25, shares of ViroPharma have room to climb (for investors who put stock in the value of consensus price targets, the average price target for ViroPharma currently stands at $33.75, implying upside of over 34% from current levels) as the company continues to expand the market for its existing products and invests in its pipeline. A buyback program that has reduced the company’s share count by over 16% in 2 years is a clear benefit. While the ViroPharma “story” will take some time to play out, it’s a story that investors should consider, as the company is seeing progress on a number of fronts, progress that has yet to materialize in its stock price.

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Vijay Aggarwal is an expert in navigating investment strategy while the industry faces changes in reimbursement and product development practices. In this exclusive 2-part radio interview, Dr. Aggarwal takes the temperature of the sector, and outlines important trends to watch in 2013.

In Part II of our interview with Vijay Aggarwal, Managing Partner of the Channel Group, we explore trends in the space, reimbursement issues, and the state of equity financing. Dr. Aggarwal also discusses changing investment strategy with regards to evaluating risk factors, a more sophisticated level of proof, and an evolving emphasis on the achieving and maintaining revenue during early financing rounds.

Listen to Part I of this exclusive interview here.

Matt Margolis:            So Vijay, let’s talk reimbursement, what trends and changes have you seen in the last few years?

Vijay Aggarwal:          The general trend line in overall unit cost in diagnostics unfortunately has been a negative trend line for decades. And that trend line continues: the unit reimbursements continue to come down, via a variety of mechanisms; I would say that this 2012-2013 has been frankly some of the most unsettling and uncertain period of time in reimbursement.

We’ve seen a dramatic cut in one of the main pathology codes which is troubling many people. 2013 represents a year where insurance companies will be doing a significant upgrade or change to the way the molecular diagnostic tests are coded and paid for. There’s significant uncertainty right now as to how those new codes will be applied, how those new codes will be paid and whether the impact on reimbursement will be negative or positive. My own view is that the trend line of negative reimbursement will continue, maybe with a different flavor as a result of the recoding of molecular diagnostics. But I think we all need to be prepared for the unit price coming down, which I think puts pressure on the diagnostics industry to maintain an innovative posture to really be self critical in developing diagnostic tests that have a meaningful impact on medical management, as opposed to just providing interesting nice to know information. And I think that the industry has responded in some ways to do that, but I think that necessity is going to continue to increase over the coming years.

My own view on this is that the recoding will be done with less than some of the Draconian changes that some people are predicting. There are some people that say that the reimbursement from molecular diagnostics may drop by 20 or 25 percent this year. I suspect that’s not going to be the case, but even if it is I think the types of tests that we’re developing, the clinical utility of some of the ones that are out there, is going to continue to drive utilization. And frankly, if the market forces are such that some tests end up not making it, well that’s the American form of capitalism and there’s nothing wrong with that.

MM:                            I want to talk a little bit about the diversity of [revenues streams in] the space. In your opinion, does the majority of revenue still come from research lab use as opposed to commercial use?

VA:                               Well, I guess it depends on how you categorize revenue, or what type of business you’re looking at. Certainly many companies that are providing instrument platforms and specialized reagents for molecular diagnostics still find the vast majority of their revenues coming from research and development activities as opposed to ongoing commercial use. For every lab that commercially uses molecular diagnostic reagents, there’s eight or ten that are using it in development mode either academic or industry research.

From the service perspective, however, people who are using these reagents to provide a diagnostic testing service, I think the majority of those revenues are still from a commercial world. There are significant number of companies now who have been in business for many years, have a very bright future of going forward, have used these technologies to great success, and I think will continue to be commercially successful. So I think that picture of reagent utilization in the research lab versus commercial will continue for a fair number of years because I think that’s actually where a lot of the innovation and future growth in this industry will come from. But I also think that you’re going to see a growing number of companies that are commercially viable and really start to transform the commercial landscape by using molecular diagnostic technologies.

I think that some of the tests that we currently perform at relatively high volumes, some of the esoteric tests and some of the tests that are used to diagnose and monitor infectious disease, some of the other tests in cardiovascular and obesity and other areas, I think will slowly and surely be transformed from conventional laboratory technology to more specific, more sensitive molecular diagnostic assays going forward. So I think the commercial applications of molecular diagnostics, for the right companies, will continue to grow with time.

MM:                            Lastly I want to talk a little bit about the funding gaps for early stage and emerging growth company, and especially in diagnostics. Do you see more or less venture capital flowing towards this sector as compared to before the recession?

VA:                               I guess what’s happened since the recession in diagnostics is not dissimilar to what’s happened in other sectors of healthcare investment, like pharmaceuticals and specialty pharmaceutical development. I think there is increasing amount of venture interest in the diagnostic space, however the barrier of entry, or the level of proof required, becomes higher and higher. So the analogy I make is if you have a pharmaceutical company that’s looking to partner with a large pharma company or get a next round of funding, everyone wants to have phase 2 data or even phase 3 data before they make an investment.

So the burden of proof and the level of validation in pharmaceutical industry has increased over the years since the recession. And the same is true for the diagnostics industry. And in the case of the diagnostics industry, I think there’s money to be invested in the space, but investors are looking for further development of the company than they may have invested in previously.

In past years there [existed a] fair number of investors that would invest in early stage diagnostic companies. Now what we’re seeing is most investors are looking for a company that has pursued a regulatory path — it may not be necessarily an FDA approved test, but at least it has the regulatory framework for the company going forward. And, occasionally, are looking for companies that have actually gone to market with a lead product as opposed to investing [in] companies at pre-revenue. So the money is there, the investments are being made. But the burden of proof and the level of development is a little bit higher than it had been prior to the recession.

And I’m not sure frankly if it’s just driven by the recession — I think there’s a rotation if you will of levels of interest in the venture community. [The community] used to be totally focused on pharmaceutical development; a couple of years ago there was a growing emphasis on investing in diagnostic companies. I think that that interest has waned a little bit in favor of some other sectors. So the investors who are still remaining in the diagnostic field are really looking for a better burden of proof a little bit further development than they had been in the past.

But as an optimist in the field I think there are still places to go for funding. Certainly the venture capital route is one that many companies still have been successful in pursuing, there are also a growing number of investment channels from strategic investors, instrument manufacturers and even pharmaceutical companies that have investment arms where people have been successful in attracting funding and sometimes at an earlier stage than the venture capital route.

MM:                            That was Vijay Aggarwal, Managing Partner of the Channel Group discussing trends, challenges and opportunities in the diagnostics field. With OneMedRadio this is Matt Margolis signing off.

Earlier in the quarter, OneMedRadio published a Diagnostics Trends interview with Vijay Aggarwal, Managing Partner of the Channel Group, in which Dr. Aggarwal provided his views on investment and growth strategy within our rapidly changing and still uncertain healthcare ecosystem as it pertains to diagnostics.

The “elephant in the room” is the shifting, uncertain complexity of our regulatory and legislative environment. Exactly to that point, on Wednesday, March 27^th Dr. Scott Gottlieb, a Forbes contributor focusing on policy, regulation, and public health posted an article entitled “Medicare Has Stopped Paying Bills For Medical Diagnostic Tests. Patients Will Feel”, which instantly caused a collective shiver among some diagnostics-focused investors and advisory groups.

Rick Pierce, founder of FEP Capital Advisors, an advisory firm in Boston with an extensive background in start-up companies through to profitable exits, IPO’s, market capitalization, and capital markets shared his views on the Forbes article and its implications with us.

“While the article is far too reaching in its generalities and misconstrued facts - even to the point of being misleading, it will serve as fodder to make investing in molecular diagnostics surely more risky in the short term and sideline more conservative investors. Aggressive strategic and professional investors will assess the newly imposed reimbursement risks and uncertainty, impose what they deem an appropriate valuation discount on development stage diagnostic companies, likely greater than the inherent or perceived risk and  be well rewarded in the long run. The losers are young companies and US job creation.”

Rick continued…

“Professional investors are trained to manage risk as it relates to reward and adjust the prices they are willing pay for assets accordingly. Hence, getting to yes with professional investors is all about fulfilling a series of risk parameters balanced with price and probability. The risk list of most diagnostics investors is composed of three major areas: science/technical risk, development/regulatory risk and commercialization/launch risk. Forgetting the first two areas of risk, the Forbes article simply injects a level of uncertainty into commercial/launch risk that makes most professional investors stop their decision making process before even considering technical and development risks. We invest in companies to make money. If companies can’t get paid/reimbursed for goods and services – the investment thesis is broken.

“Reimbursement strategy, from both private and governmental payors if not #1, is high on the commercialization risk list for any diagnostics company or its investors. Therefore, any negative change along the reimbursement continuum equals uncertainty or reduction in valuation. It will surely stifle investments from more conservative strategic or professional investors.

“By passing the buck from the Federal level to the State level and letting a cadre of private reimbursement companies (like Palmetto) set an uneven national standard likely bodes as a harbinger of more broad based cuts in diagnostics in general. Borrowing a NASCAR term, this situation lowers the caution flag for investing in molecular diagnostics companies until these critical issues are resolved.

“However, of greater interest and concern is Government and CMS’ implicit silence in the matter to begin with. Inaction and silence will beget procrastination on the part of the states. This serves to damage the competitiveness of the nation’s diagnostics industry, likely driving more jobs off shore to regain gross margin. Both Democrats and Republicans are on the hook while American’s lose out on so many levels.”

Allison DeMell, President and Founder of Great Lakes Healthcare Innovations, a Meaningful Use, Revenue Cycle, EMR Implementation, and ICD-10 expert advisory group in Ohio added:

“The problem is that they (CMS) never had a clear cut methodology to pay these claims, and that encourages fraud and abuse. We went through the same thing some years ago when physicians were being paid based on a percent of charges instead of a fixed rate per procedure…they’ll (CMS) drag their heels developing a ‘fair’ payment structure, and meanwhile, cancers will go undetected and end up costing us more to treat when the patient actually becomes symptomatic.”

Hopefully investors in the healthcare space and diagnostics in particular will embrace a more optimistic growth perspective, and like the rest of us, continue with business as usual a little lighter on their feet.

In case you missed it, Monday featured a number of interesting developments in the world of healthcare and life sciences. Most notably, a seemingly rare patent defeat may harm Novartis’ bottom line in India, but helps secure a mass population to a popular leukemia drug. India has emerged as a leading market for drug innovation, yet faces a crossroads — as legislation now protects what has become the largest generic drug market in the world.

Additionally, we’re interested in some new developments in Chinese bird flu, sleep apnea, and sexual health in adolescents.

Enjoy these stories, and stay tuned for a more substantive look at the state of drug development in India.

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Patent’s Defeat in India is Key Victory for Generic Drugs

Monday was a notable day for the Indian Supreme Court as Swiss drug maker Novartis’ patent request for a cancer drug was rejected.  This ruling permits those that make generic drugs in India to resume the production of ‘copycat versions’ of the Norvatis drug, otherwise known as Gleevec, or Glivec as it’s often termed in Europe, which is a well-known drug used to treat leukemia. India has been labeled as the pharmacy capital of the world, and as such, the significance of this issue in this particular location will have far-reaching effects.

The yearly cost of Gleevec is approximately $70,000, while the yearly rate of an Indian generic version would cost around $2,500. This recent Supreme Court decision has been viewed as a victory for patients internationally, as India is able to continue their production of high-quality and cost-effective medicines. India has in recent years emerged as a leader in drug development as many companies have been inspired by the country’s friendly regulatory environment and diverse patient population to engage in clinical trials and invest in drug development.

However, it has been argued that the ruling will have a negative effect in years to come. India also has the most developed generic drug market in the world; until recently, India had no IP protection for pharmaceutical products. In theory, such a practice is appropriate for such a large population susceptible to epidemics — of which a significant percentage live in poverty. Still, according to GlaxoSmithKline, access to many needed treatments — specifically major AIDS drugs, for example — remains lower than in other markets, including Africa.

The vice chairman of Novartis’ Indian subsidiary, Ranjit Shahani, intimated that companies similar to Novartis are now much less likely to invest money in research in India.

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Bird Flu Deaths Has China On Edge

In Shanghai, the bird flu, known as H7N9, has been the cause of two deaths in the last month. As yet there is official news on whether or not this new flu can be transmitted from human to human, but the uncertainty is causing an international upset. Different bird flu outbreaks have been documented in Cambodia, India, Indonesia and various places around the world.

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Sleep Apnea in Kids Linked to Behavioral Problems

This study found that children with sleep apnea were more likely to receive lower grades in school and seven times more likely to have learning and behavioral issues. Research led by Michelle Perfect, PHD, who stresses the importance of school personnel being keenly aware of Sleep-Disordered Breathing (SBD) and the effect that this has on students within the classroom. The sleep apnea market may be as large as $32BN and is considered a life threatening condition; many in the medical community regard the most popular treatment options as coming up short.

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Study: Sexual Activity is Rare Among Young Adolescents

The study discussed in the article found that contrary to popular belief, the majority of young adolescents are not sexually active. Further, studies show that the incidents that do occur among adolescents ages 10-12 are often involuntary. Over 62% of girls who have had sex by the age of 10 attribute it to a second party who coerced them into it. The report cited in the article also shows that teens are now more likely to use contraceptives. Overall the outlook is positive, as it seems teens are becoming more sexually health-conscious.

**Interested in contributing to our special report on the State of Drug Development in India? Have a story idea or a news lead we missed? Give us a call and let us know at 212.734.1008**

The following piece comes to us from PropThink, as part of an on-going contributor’s agreement. Stay tuned for multiple postings each week from the publication’s respected industry writers and analysts.

Chatter on the specialty pharma front is that Endo Health’s (ENDP) newly hired CEO will be shaking hands with shareholders in a multi-city road show over the next two weeks. We expect clarity from the new helmsman on how he plans to create shareholder value at Endo, whose stock and business have struggled over the last year. As we wrote in our last article, Rajiv De Silva replaced David Holveck in late February as President and CEO of Endo, approximately a year-and-a-half ahead of Holveck’s initial contract expiration as major shareholders clamored for new management to take the reigns and reposition the company. De Silva is a former Valeant (VRX) executive, which has led many, including ourselves, to speculate that De Silva is either: A) Acting as a trojan horse to facilitate a takeover by Valeant, which is known for its aggressive acquisition strategy, or B) that De Silva will begin his own aggressive divest-and-acquire strategy at Endo to pull the company out of a long-term rut. Our bet is that De Silva is a long-term player and has been interested in taking the helm for a while. While this takes some of the luster off of the acquisition chatter, there’s potential for long-term value creation at Endo. We’ve heard that De Silva is hoping to act quickly at Endo, with major moves right out of the gate — perhaps an acquisition, divestiture, or both within six months. Either way, it’s encouraging to see an experienced player coming into the weakened name. The market certainly noted De Silva’s robust history in February; on announcing the hiring, shares rose 8% in a single trading session and have hovered just over $30 since, stability that ENDP hasn’t seen in a long time.

What we liked about the story prior to De Silva’s entrance was that negative analysts were still hung up on issues with the current business; they’re missing that De Silva will likely give Endo a complete makeover, similar to what was done at Valeant over the past several years. One example is the acquisition of BioVail (which we called a double-reverse merger), which significantly lowered Valeant’s tax rate and was a major driver of that story. These analysts will be forced to play catch up, as their mindsets are stuck in what’s current, not what’s coming.

Through early April as De Silva hits the road to speak with shareholders (beginning in New York), there are three key topics that investors should be paying attention to:

1. The state of the existing business
2. De Silva’s vision for the company
3. How he plans to minimize risk (see below), by either downsizing or eliminating them entirely

The primary concerns for the business revolve around the long-acting opioid Opana ER, for which sales haven’t materialized as fast as expected, and Endo’s implantable vaginal mesh products. Opana ER faces a new generic entrant as of this year, and although Endo contests the tamper-proof comparability of the generic, analysts have been walking down expectations for sales accordingly. In addition, Endo and its subsidiary American Medical Systems (AMS) face lawsuits claiming complications with AMS’ marketed transvaginal mesh products. The space has come under fire since 2008 (J&J (JNJ) faces similar issues) and divesting of the asset may make sense given the issues surrounding a core part of the business. Investors have been waiting to hear details from the new CEO, and clarity on these overhangs should relieve some pressure on the stock. Further, De Silva’s vision for the company will be telling: Will he emulate the vigorous acquisition strategy that he helped cultivate at Valeant? Or will he pursue a sale of the company (many shareholders had been hopeful of a sale prior to De Silva coming in)? We expect further clarity on these issues as De Silva meets with investors country-wide, and we will update readers accordingly as we hear how the meetings are going. De Silva joining Endo is a breath of fresh air regardless, and with clarity in the near-term, now is the time to be involved. See why we believe he can turn ENDP around in our prior coverage.

As we approach mid-year, many questions raised in the past year surrounding the state of healthcare company growth development have yet to be answered. The diagnostics industry, one of the fastest growing subsectors of healthcare in terms of market opportunity and technological advancement, will face significant issues concerning reimbursement, regulatory, and legislative mandates spawning from healthcare reform acts. Further, M&A activity is evolving, as larger companies in this space are entering the acquisition phase earlier and with more fervency.

Following this movement, investment strategy in the space is changing. Diagnostic platforms remain cost-effective and diverse revenue opportunities, and as the point of care market becomes more intelligent, products are expanding from solely clinical use to a wider-rage of patient care use.

Yet, for all the optimism, the elephant in the room remains the battle against the healthcare complex, and the subsequent regulatory and legislative issues to follow. Some fear these questions will soon become punitive realities, and lead to a stymieing of an industry on the cusp of significant growth.

Vijay Aggarwal, Managing Partner of the Channel Group, is an expert in navigating investment strategy while staring at reimbursement and product development issues. In this exclusive 2-part radio interview, Dr. Aggarwal takes the temperature of the sector, and outlines important trends to watch in 2013.

In part I, Dr. Aggarwal discusses diagnostics company exit strategy, growing market opportunity in infectious disease and oncology, and assesses the important yet ethically complicated paradigm shift away from normative medicine.

Click for Part I of the radio interview, and view the transcript below.

Matt Margolis: OneMedRadio welcomes Vijay Aggarwal, Managing Partner of the Channel Group and a sage in the diagnostics space. Today we’ll be discussing trends in the field of diagnostics and recent legislative, regulatory, and reimbursement developments. So thank you for joining us Vijay.

Vijay Aggarwal: Alright, great to be here, Matt.

MM: Let’s start a little broad, what in your opinion seems to be the exit strategy for diagnostics companies these days?

VA: Well, I think the situation has emerged quite a bit over the last couple of years. I mean, obviously there are still opportunities in selective cases for IPOs, but I think more often now diagnostic companies are looking to new players in addition to the existing consolidators of technology like Quest,  Lab Corp and some of the other larger reference laboratories, you’re seeing the entry of new players into the diagnostics space, not just pharma players, but other device manufacturers recognizing the value of diagnostic companies.

That said, I think that the appetite of big pharma for M&A in this space is fairly limited in spite of the growth of companion diagnostics and the increasing use of diagnostic testing to inform and direct clinical development and clinical trials. I think most pharma companies still look at diagnostics as being a service that they like to participate in and work with as opposed to own. There are, however, growing numbers of companies from outside the traditional diagnostic space that look at diagnostic companies as viable acquisition targets. In addition, we’re seeing a lot of diagnostic service businesses being acquired by some of the larger diagnostic equipment and reagent manufacturers. So the trend in the diagnostic space both for investment and M&A continues to look very good and I would say has picked up even since the recession.

MM: Take a look into some market opportunities. Do you agree that the largest molecular diagnostics market is in fact infectious diseases, and how are emerging growth companies tackling this space?

VA: I think that molecular diagnostics is certainly been applied in infectious disease for a couple of reasons. There’s a growing move to try to get testing closer and closer to the patient and some of the new molecular diagnostic technologies are available to allow that to occur, so not to take away from the growth in oncology diagnostics using molecular diagnostics, but certainly over the last several years some of the most rapid growth has been in the infectious disease area. I anticipate that trend line would probably continue again with the ever greater move to [bring] testing closer to the patient, closer to the point of care. I think those activities will continue to increase both in terms of absolute number but also in terms of the types of agents that can actually be tested using  molecular diagnostic reagents.

MM: What additional markets are you seeing the most growth and why?

VA: There’s still continued growth in oncology and I think that will always be a hallmark of molecular diagnostic technologies. There is, in addition to the trend lines that we mentioned in infectious disease, a growing set of applications in cardiovascular disease, not just for prediction of events and monitoring of post MI events, but also for improved prediction of who may be at risk for a cardiovascular event.

So that whole area is increasing and in fact I think it’s fair to say that over the last four, five years molecular techniques have been penetrating many of the traditional bastions of diagnostic testing. For example, even now there are molecular diagnostic technologies replacing tissue typing and other types of assays that have been traditionally done by other methodologies. So I see the molecular diagnostics space continuing to expand both in depth within some of the traditional verticals like infectious disease and oncology, but also expanding into virtually every arm of diagnostic laboratory testing.

MM: You’ve touched on oncology diagnostics, so in your opinion why does it remain so important when we’ve seen such advancement in treatment? Does that field remain crowded?

VA: Well, it’s a great question, Matt. I guess rather than crowded I would characterize the oncology space as really becoming a more mature market for molecular diagnostics. We’re now at the point that many of us have predicted for years, which is that it’s becoming increasingly rare for patients to be prescribed some of the especially targeted therapies without a diagnostic test to validate that therapy will be effective for that individual. Not to say that there are not continued off label treatments being done, that there are still many physicians and patients who don’t have advantage of a molecular test prior to chemotherapy or targeted immunotherapy. But that trend line is continuing to increase and as a result of that we’re seeing a lot more players coming into this field.

So now KRAS and BRAF testing are almost routine as opposed to four, five years ago where they were still considered to be a very esoteric test and only applied in the rarest of cases, and in the most advanced medical centers that continues to be a hallmark of oncology management. And the other markers that are being developed over the last several years are also continuing to have an increased place in both clinical development as well as in routine clinical care.

Recently the former commissioner of the FDA went on record as saying that the FDA needs to revamp its view on phase III pivotal trials in oncology because of the opportunity of using biomarkers to risk stratify patients and qualify patients and use diagnostics as inclusion exclusion criteria for clinical trials. I think that kind of a statement is significant because it shows how far we’ve come in the use of diagnostics in oncology, and I think there’s now a recognition both in development of oncology agents but also in a clinical use that there’s a significant place for diagnostic testing.

I think that trend line will continue, it will cause more and more companies to come into this space, it will make the base technologies that we use in oncology more available in the broader marketplace and that will then further facilitate the growth of molecular diagnostics in other areas of clinical medicine.

MM: Generally are we moving away from the concept of normative medicine?

VA: I think so. And not just using molecular diagnostic techniques, but I think the mindset has been to say we need to sub-segment disease and we need to really understand the molecular bases or the individual characteristics of each individual patient that we’re facing. So the one size fits all medicine is disappearing not just with molecular techniques but with others. I think that’s as I said earlier reflected in the way that pharmaceutical companies are facing or looking at clinical development and the way they’re constructing trials, I think it’s also frankly become a more well accepted thought in a majority of patients. I think patients are increasingly sophisticated in these types of measurements that are out there and are increasingly expecting to have advanced testing done prior to initiation of medical treatment.

So I think there’s a significant groundswell in this area which is actually going to be accelerated as we see further penetration of next generation sequencing. We’re at the end of the beginning, I tell people, we’re at the end of the phase where being able to measure and qualify patients for particular therapies is a novelty, and has now moved into the area of being somewhat of an expectation. But I also think that we’re on the threshold of a radical expansion of information about individual patients.  Not that this is going to transform the practice of medicine in the next three, four, five years, but in the long run the ready availability of whole genome sequencing will show us another wave of personalized medicine, in another significant movement away from one size fits all.

As a side note, I don’t know that that next generation sequencing is something that I would look at as being a routine clinical practice with a fully blown set of correlates to human disease for many years. But the early trend lines are there, the early indicators of widespread adoption are there, the technology is rapidly catching up. The development of the clinical correlates of all that information may take some time, in fact will take some time. But I think the early warning signs or the early signs of progression in this area are clearly in place.  Although we’ve come a long way from normative to personalized medicine I think we have a huge quantum leap ahead of us as well.

Stay tuned for Part II of our OneMedRadio Interview with Vijay Aggarwal, covering trends in reimbursement, achieving diverse revenue arms, and changing investment strategy in early stage ventures.

Glysure, a UK-based company developing a glucose monitoring system for use in hospital and intensive care, recently announced a significant company milestone with the achievement of ISO 13485 certification. The certification is an important step in securing CE Mark, and in turn entrance into a market that is said to be valued at nearly $1.5 BN.

As part of our expert series on the state of the industry, OneMedRadio spoke with Glysure CEO Chris Jones to discuss this recent news and learn about this unique technology. Jones also discussed trends in the industry affecting company growth and investment strategy, including reimbursement issues, evolving exit strategy, and the move away from normative medicine.

Click for the interview, and view the transcript below.

Matthew Margolis: OneMedRadio welcomes Chris Jones, CEO of GlySure, a UK-based company developing a glucose monitoring system for use in hospital and intensive care. Today, we’ll be discussing the company’s recent ISO 13485 certification, as well as the market opportunity in this space. So thank you for joining us, Chris.

Chris Jones: Good morning.

MM: Chris, can you give us a snapshot of GlySure? Give us the company mission, lead technology, brief history?

CJ: GlySure was founded to help ICU solve a couple of competing conflicting demands. It starts with the fact that insulin is one of the most dangerous drugs used in hospitals today. It has been number one on [the] Medmarx list of harmful medication errors in hospitals for over a decade now. At the same time, there has been a phenomenal amount of research on the subject of tight glycemic control, which was kicked off by a study by Greet Van Den Berghe that showed if you used intensive insulin therapy to tightly control glucose in intensive care, you get these phenomenal outcomes: 34% reduction in mortality, nearly 50% reduction in morbidity including rates of sepsis. So you now have this situation where hospitals have compelling data that says they should be using more insulin in ICU and yet the risks of doing that can be quite catastrophic.

The only way to do it safely is by frequently monitoring for glucose on an average of once an hour or more. The problem hospitals have and in particular intensive care, is that they don’t have the nursing resources to do a blood glucose measurement every hour on every patient in a ten-bed ICU. So they’re looking actively for better ways to safely implement intensive insulin therapy and to more easily and effectively monitor glucose. What we’ve done is we’ve developed a continuous intravascular glucose sensor that goes into the patient via their central venous catheter and gives the clinicians exactly what they want. Which is continuous glucose monitoring through the length of that patient’s stay in intensive care.

MM: So, catch us up on some recent news, of course this ISO 13485 certification? How does this fit in to your overall strategy?

CJ: This is a big step for us. It marks the completion of our quality management systems, and puts in place a key regulatory step that we need to have in order to begin our CE trial. We’ve been doing development testing in the ICU for the last two years now and we’ve tested over 120 patients. We’re just wrapping up those development trials right now and we’re expecting to begin our CE trial in the next quarter here. The ISO lays the foundation for us to be able to start those CE trials.

MM: So what was required of you? What did you have to demonstrate to achieve the ISO certification?

CJ: Fundamentally, it revolves around your quality management system and so we had five days of audits looking at not only the system but also how well we were following it and executing on it. That is looking at everything from our quality management systems to microbiology to product development. So it really cut across the entire organization.

MM: What is your immediate next step and do you have a timetable to achieving CE mark?

CJ: Right now, we are wrapping up the final V&V testing on the commercial versions of sensor and our hardware. We expect that to wrap up at the end of this month and then we’ll be looking to start our CE trials most likely sometime in May.

MM: Let’s shift gears and talk a little bit about market opportunity. In your opinion, is the blood glucose monitoring market crowded?

CJ: Our particular market is not crowded at all. There are a lot of technologies out there for doing intermittent measurements, but there is no technology on the market today that provides a continuous intravascular blood glucose measurement. So if you want to go and draw blood; send it down to the lab and wait 45 minutes, an hour, two hours for that data to come back- you can get a very accurate measurement. But what doesn’t exist today is at the bedside without requiring any additional nurse labor, the ability just to look up at a screen and see what the glucose value is. So this is in essence a brand new market in intensive care and looking at 8 to 10 million patients annually worldwide, adult ICU patients, we see this as a new $1.5B market opportunity.

The challenge is that if you look at survival rates in the ICU and if you compare them to blood glucose levels, average blood glucose, you see this U-shaped survival curve. What that means is that if blood glucose levels are very elevated then a patient has a higher risk of dying in the ICU. That risk comes down as you lower glucose levels and you bring them to normal. But the problem is, if you give too much insulin, and patient’s blood glucose goes too low; then all of a sudden that mortality and morbidity risk shoots up again. So you’ve got a very narrow sweet spot you’re trying to hit at a very high risk to the patient if they end up going too low in glucose. You’ve got to titrate the therapy very, very specifically to get the patient into the optimal range.

Today, the only way to do that is for the nurse to manually draw blood; run it on an analyzer, look at that result and then adjust the insulin. It takes a lot of time and they are very few hospitals that have the labor and the capacity to effectively implement the tight glycemic control targets.

MM: What data can you highlight from recent studies and relevant trials?

CJ: We’ve spent a lot of time testing this product in intensive care. A year ago, we published our first data at the Brussels Intensive Care Congress in March that showed summary from some of our pilot trials. We’re just now finalizing a trial on cardiac surgery patients, and we expect to be publishing that in the next couple of months. We’ve seen some fantastic data, the ability to monitor accurately across three to five days of a patient’s stay in intensive care to the standard that clinicians are looking for to be able to care for patients in the ICU. So we’re really excited about the data and looking forward to like getting out for people to look at.

MM: Can you give us some history of the financial structure of the company? Who you are your principal investors, and how was early round financing achieved?

CJ: The company was founded in 2006. It was founded by a technical team that had deep experience in developing continuous intravascular blood gas sensors. Sensors that were used in intensive care to monitor pH, PO2, and PCO2 continuously. The founder was able to go out and find the chemistry that he believed would be perfect for use in continuous glucose monitoring. The first round of financing, in 2006, was led by Amadeus Capital and Delta partners. Since then in the series C round, we were joined by Morning Side Ventures out of Boston. To date we’ve raised about 13 and a half million pounds total in funding.

MM: What seems to be the exit strategy for companies in your space?

CJ: I think that it probably is the same across almost everybody in medical devices these days. It’s no secret that the IPO market has really been closed for pre-revenue companies and in fact you know, almost requires 10 to 20 million in revenue to think about it significantly. More and more I think you’re seeing companies do corporate deals. There’s still a possibility that in a market like hours, which is a billion and a half dollars fundamentally untapped. I could see this being a very successful commercialization and the opportunity to do an IPO off of a nice attractive revenue base with a lot of growth behind it. Fundamentally, I think the statistics say probably 80% of exits these days are going through corporate acquisition as opposed to IPO.

MM: So talk a little bit about what trends you’re seeing in reimbursement for this market segment and how has that affected how you value and limit the cost to good sold?

CJ: For us we think that in the US in particular, this is likely to be included in the DRG. We don’t anticipate separate funding for continuous glucose monitoring in intensive care. So what we’ve been focusing on is the strong existing cost savings data. There’s data that shows from two prospective outcomes trials that the reduction in morbidity,  the reduction in the rates of sepsis and the reduction in the length of stay can save people between $1500 and $3000 per patient. So, I think when you look at those patient savings, compared to the expected cost of a sensor around $180 for the length of stay in ICU, you see the opportunity to drive a business really quite profitable and yet at the same time be able to offer hospitals not only improvements in quality, but also the ability to reduce their overall cost of care per patient. I think that’s really one of the things that makes this a unique opportunity and it’s what attracted me to the company, got me to leave California to come over to England was this unique opportunity to offer hospitals something that will benefit the patient, that will make the nurses lives easier in the ICU and will help the hospitals save cost as well.

MM: So last question, in your opinion, are we moving away from the concept of normative medicine and what applications may arise from this paradigm shift?

CJ: I’d agree absolutely that we’re moving away from that and if you look at glycemic control in intensive care, you’re seeing a lot of publications and a lot of debate over what the correct, or ideal levels of glucose control are. In fact, there’s published data that suggested depending upon whether you’re diabetic or not and also whether you’re a well controlled or an uncontrolled diabetic, you should vary the level of glucose that you’re targeting for that individual patient.

So I think we’re seeing more and more a move towards customized medicine where individual patient characteristics whether it’s the disease state that brings them in or whether it’s an underlying medical condition like diabetes or not, that is going to result in customizing and fine tuning a treatment that ultimately should improve outcomes for everybody overall.

I know that, you know, in some spaces particularly when you get into genetic testing, it can raise ethical implications. I think that they’re less significant when you’re looking at something like glucose and the intensive insulin therapy. But fundamentally, you know, my hope is that the move away from normative medicine and being able to better target therapies and treatments will help us improve the quality of care while also maintaining and managing the costs that are out there. Because one of the big challenges we’ve got, is that we’re in an age of incredible development and success in improving healthcare but along with that we’ve created incredible cost pressures on the developed world. So my hope is that as we move away from normative medicine, we get to more target individualized medicine, we can more customize care and more effectively use the healthcare dollars that we’ve got.

MM: That was a company snapshot with Chris Jones, CEO of GlySure, a UK-based company developing a glucose monitoring system for use in hospital and intensive care. With OneMed Radio, this is Matthew Margolis signing off.

The following piece comes to us from PropThink, as part of an on-going contributor’s agreement. Stay tuned for multiple postings each week from the publication’s respected industry writers and analysts.

Amedisys, Inc. (AMED) reported 4Q and year-end earnings Tuesday, March 12, and the key highlight was the company’s 2013 EPS guidance range of $0.60-$0.70, substantially below the Street’s $0.77 estimate. Analysts EPS estimates were lowered when the company reported its third quarter 2012 earnings miss (2013 EPS forecasts back then called for $0.93 a share), hence, the business continues to deteriorate and the earnings trough has not yet been reached. Interestingly, analysts have revised forward EPS down three times since October, so it’s worth questioning if the Street really understands what’s happening here. The EPS guidance may serve as a wake-up call and is consistent with our thesis and prior articles, including our thoughts that EPS for 2013 would be right in this range (here and here). Amedysis remains under pressure from sequestration, Medicare “rebasing”, and other pricing pressures, and investigation by a number of regulatory bodies bring additional risk to the story and potential for steep fines. Importantly, financials reported in 4Q show AMED’s sales, margins, and earnings per share all in decline; a business like this should trade at a discounted multiple, not a premium. Here are some details from the company’s press release.

• Net service revenue of $362.9 million compared to $370.3 million in 2011, a decrease of $7.4 million or 2.0%.
• Net income from continuing operations attributable to Amedisys, Inc., of $7.2 million compared to $14.5 million in 2011, a decrease of 50.5%.
• Net income from continuing operations attributable to Amedisys, Inc. per diluted share of $0.23 compared to $0.49 per diluted share in 2011, a decrease of 53.1%.
• Earnings before interest, taxes, depreciation and amortization attributable to continuing operations (“EBITDA”) of $23.3 million compared to $35.9 million in 2011, a decrease of 35.1%.

Ironically, we note that even after the share price decline on Tuesday, AMED still trades at 17 times the mid-point of the company’s 2013 guidance range, or $0.65. Even if one applies a generous 10x multiple to these declining EPS expectations, this indicates that the stock should trade in the $6-$7 range. As a result, shares of AMED still have a long way to fall, and we suggest shareholders sell the stock and look to re-enter at a much lower valuation. Should the bull market turn sour, companies with vulnerable businesses and high valuations like AMED are the first stocks that short-sellers turn to in order to protect portfolios on the downside. Expect negative analyst notes and downward earnings revisions to pressure shares of AMED further in the short-run. Technically, a break-down below $9.50 is the gateway to our $6-$7 valuation estimate. Upside risk for shorts seems minimal, with significant resistance at the $12.25 level.

Despite lowered estimates, new guidance still falls short. Last year, analysts lowered their earnings estimates following disappointing 3Q12 results from Amedisys, nevertheless, projections still remained too optimistic. The consensus revenue estimate for 4Q12 of $372.4M going into Tuesday’s earnings release overestimated the company’s reported $362.9M. This is interesting, as analysts had been lowering estimates on a continuous basis since the third quarter 2012 earnings report (see here); still more revisions need to take place. According to Yahoo Finance, the average of analyst estimates for 2013 EPS calls for $0.77 (revised down from $0.93 since last October), yet Amedisys has now guided for EPS this year of between $0.60 and $0.70. As a result, analysts are likely to begin adjusting EPS estimates downward and are also likely to bring down price targets; shares will react as revisions or downgrades materialize. It’s hard to see the upside in this stock given the financial picture over the last several quarters, but there is the chance, of course, that after a tough period Amedisys is guiding down significantly in hopes of a full-year EPS beat. Regardless, these slashed numbers, even at the high end, don’t support AMED’s current share price, as we discuss below.

Valuation is unjustifiable. AMED to correct while investors wait for any signs of a turnaround. With the 3 major public home health providers all missing earnings and providing disappointing guidance, it remains clear that the macro environment for company’s like AMED is under pressure. Perhaps the business will bottom at some point, but so far, there is no evidence that the earnings trough has been reached. So while investors wait for earnings to find their bottom and begin to grow again, shares of AMED are expected to remain weak. And certainly the company’s P/E multiple of 17 times 2013 earnings guidance (mid-point of the company’s range) is a huge price to pay for the hope that this business is finally going to turn around. As a result, we expect AMED shares to fall to a more reasonable level, with typical P/E multiples for “in decline” healthcare companies of about 8x forward earnings estimates. To be conservative, even using a generous 10x multiple on the midpoint of the company’s 2013 guidance range, this calculation suggests that AMED should trade down to the $6-$7 range, and at that point, perhaps, the stock becomes interesting from a turn-around perspective. With the industry trends continuing to be “challenging” in the company’s own words, seeing AMED slide into the single-digit range would be unsurprising.

Business remains an uphill battle for AMED. In July 2013, the Centers for Medicare and Medicaid Services (CMS) will release details about its 4-year reimbursement rate “rebasing,” as mandated by ongoing healthcare reform. Analysts expect the changes will result in annual rate cuts from 2014-2017, and while the size of the upcoming rebasing is still unclear, this uncertainty adds additional risk to the AMED story. Of course, clarity on this issue will give investors an idea of the material impact to earnings over the coming years, but in the last two years, home healthcare providers absorbed reimbursement declines of 11.5%; Amedisys’ margins declined on a 4% Medicare cut last year. Notably, Medicare reimbursement accounts for roughly 82% of AMED’s business, a huge portion with obvious consequences, and there’s little doubt that CMS changes will impact the bottom line. Management noted on Tuesday’s conference call that the Medicare cuts to home health could be anywhere from 1% to 3%. On top of that, sequestration cuts will reduce Medicare reimbursement by 2% across the board.

The restructured deal with Humana (HUM), the company’s largest relationship in the managed care segment, now means that Amedisys gets reimbursed on a “per-visit” basis, rather than on an “episodic” basis. AMED expects that the new HUM contract will result in half of the revenues that it was previously receiving under this agreement, which also encompasses fewer markets, so AMED is losing market share. These pressures were apparent in management’s comments on its 4Q earnings call and play a role in the 2013 guidance, as we expected.

Ironically, because the company has been significantly cutting costs (including sizable staff reductions) to offset earnings headwinds, there have been impacts to the revenue side of the business. The layoffs and stricter care guidelines have reduced billable care-per-patient, and according to management, the cost reductions may have swung too far. Notably, Amedisys’ recertification rate is down to roughly 20%, as noted on Tuesday’s conference call. Recertification increases the number of visits per patient, so this negative trend is costing AMED important business, and analysts are likely to write about this factor.

Finally, AMED continues to be the subject of several investigations with regards to billing practices. Currently, there are open investigations on the company by CMS, the Office of the Inspector General (OIG), the SEC, and the Department of Justice (DoJ). The DoJ investigation involves documents and information relating to AMED’s business operations, including reimbursement and billing claims.

For now, these are overhanging risks that should further contract AMED’s P/E multiple. 17x forward EPS is simply unsustainable, particularly given the business outlook and risks. We see fair value for AMED in the mid-single digits.

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About PropThink. PropThink is an intelligence service that delivers long and short trading ideas to investors in the healthcare and life sciences sectors. Our focus is on identifying and analyzing technically-complicated companies and equities that are grossly over or under-valued. We offer daily market coverage, weekly feature stories, and a newsletter to investors who subscribe on PropThink.com. To learn more, follow us on Twitter or visit us at http://www.propthink.com. In addition, PropThink is offering investors 30 days of free access to a premium intelligence service designed to empower individual investors by providing actionable, timely, and accurate research on companies and investment opportunities in the healthcare sector.

The following piece comes to us from PropThink, as part of an on-going contributor’s agreement. Stay tuned for multiple postings each week from the publication’s respected industry writers and analysts.

About PropThink. PropThink is an intelligence service that delivers long and short trading ideas to investors in the healthcare and life sciences sectors. Our focus is on identifying and analyzing technically-complicated companies and equities that are grossly over or under-valued. We offer daily market coverage, weekly feature stories, and a newsletter to investors who subscribe on PropThink.com. To learn more, follow us on Twitter or visit us at http://www.propthink.com. In addition, PropThink is offering investors 30 days of free access to a premium intelligence service designed to empower individual investors by providing actionable, timely, and accurate research on companies and investment opportunities in the healthcare sector.

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On March 12, 2013, Acadia Pharmaceuticals (ACAD) reported financial results for the fourth quarter and full year 2012. Total revenues in the quarter were $0.4 million, essentially in-line with our estimate of $0.3 million. Revenues consisted of collaborative payments from Allergan, Inc. (AGN) and other collaboration partners. For the full year 2012, total revenues were $4.9 million. Revenues consisted of collaborative payments from Allergan and full recognition of the remaining payments from Meiji Seika Pharma Co., Ltd after discontinuation of the development agreement to discover new pro-cognitive antipsychotic (PCAP) drugs to treat patients with schizophrenia and related disorders in July 2012.

Net loss for the fourth quarter 2012 totaled $6.8 million, or $0.11 per share. Loss was driven by $4.9 million in R&D expense and $2.3 million in SG&A expense. Both were generally in-line with our expectations. Net loss for the full year 2012 totaled $20.8 million, or $0.38 per share. Loss was driven by $18.8 million in R&D expense and $7.0 million in SG&A expense.

Acadia exited 2012 with approximately $108.0 million in cash, cash equivalents, and short-term investments. The cash position was strengthened by an $80.5 million equity raise in December 2012. The significant cash war chest allows Acadia management to do two things, both push forward into the confirmatory phase 3 program with pimavanserin in Parkinson’s disease psychosis (PDP) on an expeditious timeline and branch out with the molecule into new potential indications, specifically Alzheimer’s disease psychosis (ADP), a disease we see being roughly five times the size of PDP.

We find the existing cash balance to be sufficient to fund operations for the foreseeable future. Acadia management has indicated that it expects to use between $26 million and $30 million of its cash resources to fund its operations in 2013.

Moving Forward With Pimavanserin

We remind investors that in late November 2012, Acadia announced the successful results from its pivotal phase 3 trial evaluating the efficacy, tolerability and safety of pimavanserin in patients with Parkinson’s disease psychosis (PDP). Although only top-line results, the data looks like a “homerun” for management.

Full data from the -020 study is coming next week, on March 20, 2013, in poster form, at the American Academy of Neurology (AAN) Annual Meeting in San Diego. Acadia will have Dr. Jeffrey Cummings, M.D., Sc.D., Director of Cleveland Clinic Lou Ruvo Center for Brain Health, present the poster during the “late breaker” Emerging Science Session. We look forward to seeing that data on the 20th, which we suspect will include additional analysis of the secondary endpoints.

Confirmatory Phase 3 To Begin Shortly

Acadia is currently in the final planning stages to begin a confirmatory phase 3 study, dubbed-021, to start during April 2013. Now that the results from the -020 trial are out and positive, we suspect that management will have little trouble enrolling patients in -021. With respect to the -021 study, we expect many of the same sites will be used from -020. Management may look to expand more in Canada for -021, but we do not expect any significant enrollment outside of North America. Executive Vice President of Development, Roger G. Mills, M.D. noted on the most recent conference call, “We don’t plan to mess with a winning team.”

That’s smart. Now is not the time to get cute. The trial worked because Acadia enrolled PDP patients with severe psychosis and found ways to mitigate placebo response. Things like enrollment criteria, dosing, timing of the efficacy read-outs, and the primary and secondary endpoints will mirror -020. If the product is eventually approved, we expect sizable use in earlier-stage PDP patients with significantly longer durations of therapy.

After the data came out, we had an opportunity to speak with Dr. Stuart Isaacson, M.D., Associate Professor of Neurology, FIU College of Medicine, Miami, FL and Director of the Parkinson’s Disease and Movement Disorders Center of Boca Raton, FL. Dr. Isaacson called the results a “game changer.” He also that he would not wait for symptoms to materialize in severe form before using the drug. We suspect most caregivers will agree, and use pimavanserin far earlier in the real world setting than the strict entry criteria instituted in the -020 study. In this regard, we think the Caregiver Burden Scale secondary endpoint management assessed in the -020 study was brilliant – pure marketing ammunition.

Label Expansion Key To Sales Upside

Beyond the initial indication in PDP, we believe pimavanserin has potential utility in Alzheimer’s disease psychosis (ADP), a disease with similar manifestations to PDP. The ADP market plays out in similar fashion to PDP, only potentially five times as large. Statistics show the number of American’s living with Alzheimer’s disease to be roughly 5.4 million, roughly 50% of which will develop some form of psychosis as the disease progresses.

In July 2012, management reported promising mechanistic data with pimavanserin in a preclinical rodent model of the disease. This data was published in Behavioral Pharmacology (Price et al., “Pimavanserin, a 5-HT2A Receptor Inverse Agonist, Reverses Psychosis-like Behaviors in a Rodent Model of Alzheimer’s Disease,”) in July 2012. If pimavanserin is a $400 million drug in the U.S. for PDP, with similar data in ADP, it’s a blockbuster drug. Management plans to conduct a phase 2 study, dubbed -019, in ADP during the second half of 2013.

Partnering Offers Upside

Acadia is pushing forward with the confirmatory phase 3 study without a development and commercialization partner. This is not a concern considering the company was able to secure greater than $80 million in cash in December 2012 on the heels of the strong -020 top-line results. This affords management significant flexibility. As such, on the most recent conference call, CEO Uli Hacksell noted the company’s efforts are focused squarely on moving pimavanserin forward. A partnership can wait. That only maximizes the value to shareholders.That being said, ultimately, we think Acadia will partner pimavanserin for commercialization. The drug and market opportunity are too big to go alone and investors would benefit from having a big pharma partner help Acadia navigate the new drug application (NDA) filing process and potential FDA curve balls around chemistry, manufacturing and controls (CMC). Plus, Acadia is focusing only on North American right now with pimavanserin. There is obviously meaningful sales opportunity for the drug in Europe and Asia. Acadia needs a partners help to enter these markets.We remind investors that Acadia did previously have a deal to commercialize pimavanserin with Biovail. Biovail paid Acadia $30 million upfront with the potential for $365 million and 15-20% royalties on sales back in May 2009 pre-phase 3. It’s clearly worth a lot more now.Raising Target To $7.50 Pre-data, we believed the stock was worth around $2.50 per share. We’ve now made some pretty significant changes to our DCF model post-data. We’ve dramatically reduced the discount rate (risk) in our model and are now using a rate of 13.8% (risk free of 2.00% + equity risk premium of 5.90% x 100% firm adjustment). We have also adjusted up slightly our peak sales estimate for pimavanserin in PDP, from $312 million in the U.S. based on 25% penetration to $378 million in the U.S. based on 33% penetration. The data from -020 are that good. On a global basis, with positive data in ADP that matches the outcome in PDP, pimavanserin is a $2+ billion drug. We also assume that Acadia does partner the drug in 2015, and lands $50 million upfront and up to $500 million backend potential with 20% royalty on sales.

Our model is telling us the stock is worth $7.50. Although we would not chase the stock here, this is clearly a stock we like. The single biggest catalyst for the shares is the signing of a commercialization deal in 2013 or 2014 – ahead of our expectations. We recommend using pullbacks to establish a position prior to that event.

Metastasized breast cancer now has a new therapy on the market, though it remains to be seen whether noticeably dangerous side effects may prevent widespread use.

Trastuzumab emtansine (T-DM1) or Kadcyla, produced by ImmunoGen [Nasdaq: IMGN], is an antibody-drug conjugate that targets the HER2 protein. This is the protein involved in normal cell growth and when observed in an increased amount, contributes to cancer cell survival. Approximately 20% of all breast cancers are HER2-positive, a particularly aggressive form of the disease associated with increased early-stage mortality and metastases. The FDA approved the drug in late February, but slapped on it a ‘black box’ warning due to links to liver toxicity, heart toxicity, and death.

ImmunoGen is the originator and current holder of Kadcyla. The company  conceived of the idea of attaching the Company’s DM1 maytansinoid cell-killing agent to Genentech’s trastuzumab antibody to achieve a highly effective, HER2-targeted anticancer agent. In 2000, Genentech licensed from ImmunoGen exclusive rights to use the Company’s maytansinoid TAP technology to develop anticancer products targeting HER2.

In 2006, Genentech advanced the compound that became known as Kadcyla into clinical testing. Genentech has implemented a broad Kadcyla clinical development program that has continued to expand subsequent to Genentech’s acquisition by Roche.

“Kadcyla delivers the drug to the cancer site to shrink the tumor, slow disease progression, and prolong survival. It is the fourth approved drug that targets the HER2 protein,” Richard Pazdur, MD, director of the Office of Hematology and Oncology Products in the FDA’s Center for Drug Evaluation and Research, said.

Trials for Kadcyla showed promise in the summer of the 2012, demonstrating an extremely successful rate of improvement. However, trials also demonstrated a low rate of adverse events for T-DM1 relative to systemic chemotherapies. The results of the study were published by the Journal of Clinical Oncology. Involved in that study very early was Javier Cortes, MD of the Vall d’Hebron University Hospital and Institute of Oncology, Barcelona, Spain. Dr. Cortes was very impressed with the nearly 6-month improvement in survival.

“I do not remember any paper in metastatic breast cancer with an improvement of 6 months. T-DM1 is clearly better than previous drugs for survival. This will benefit thousands of women.”

He also said that the cardiac safety data suggest that T-DM1 may be a favorablei option for patients who cannot receive trastuzumab due to cardiac problems.

In addition to trastuzumab, lapatinib, and pertuzumab, T-DM1 is the fourth anti-HER2 drug to be approved by the FDA. This treatment adds another option for physicians who treat breast cancer, which is the second leading cause of cancer-related death among women, according to the FDA.

As we approach mid-year, many questions raised in the past year surrounding the state of healthcare company growth development have yet to be answered. The diagnostics industry, one of the fastest growing subsectors of healthcare in terms of market opportunity and technological advancement, will face significant issues concerning reimbursement, regulatory, and legislative mandates spawning from healthcare reform acts. Further, M&A activity is evolving, as larger companies in this space are entering the acquisition phase earlier and with more fervency.

Following this movement, investment strategy in the space is changing. Diagnostic platforms remain cost-effective and diverse revenue opportunities, and as the point of care market becomes more intelligent, products are expanding from solely clinical use to a wider-rage of patient care use.

Yet, for all the optimism, the elephant in the room remains the battle against the healthcare complex, and the subsequent regulatory and legislative issues to follow. Some fear these questions will soon become punitive realities, and lead to a stymieing of an industry on the cusp of significant growth.

Vijay Aggarwal, Managing Partner of the Channel Group, is an expert in navigating investment strategy while staring at reimbursement and product development issues. In this exclusive 2-part radio interview, Dr. Aggarwal takes the temperature of the sector, and outlines important trends to watch in 2013.

In part I, Dr. Aggarwal discusses diagnostics company exit strategy, growing market opportunity in infectious disease and oncology, and assesses the important yet ethically complicated paradigm shift away from normative medicine.

Click for Part I of the radio interview, and view the transcript below.

Matt Margolis: OneMedRadio welcomes Vijay Aggarwal, Managing Partner of the Channel Group and a sage in the diagnostics space. Today we’ll be discussing trends in the field of diagnostics and recent legislative, regulatory, and reimbursement developments. So thank you for joining us Vijay.

Vijay Aggarwal: Alright, great to be here, Matt.

MM: Let’s start a little broad, what in your opinion seems to be the exit strategy for diagnostics companies these days?

VA: Well, I think the situation has emerged quite a bit over the last couple of years. I mean, obviously there are still opportunities in selective cases for IPOs, but I think more often now diagnostic companies are looking to new players in addition to the existing consolidators of technology like Quest,  Lab Corp and some of the other larger reference laboratories, you’re seeing the entry of new players into the diagnostics space, not just pharma players, but other device manufacturers recognizing the value of diagnostic companies.

That said, I think that the appetite of big pharma for M&A in this space is fairly limited in spite of the growth of companion diagnostics and the increasing use of diagnostic testing to inform and direct clinical development and clinical trials. I think most pharma companies still look at diagnostics as being a service that they like to participate in and work with as opposed to own. There are, however, growing numbers of companies from outside the traditional diagnostic space that look at diagnostic companies as viable acquisition targets. In addition, we’re seeing a lot of diagnostic service businesses being acquired by some of the larger diagnostic equipment and reagent manufacturers. So the trend in the diagnostic space both for investment and M&A continues to look very good and I would say has picked up even since the recession.

MM: Take a look into some market opportunities. Do you agree that the largest molecular diagnostics market is in fact infectious diseases, and how are emerging growth companies tackling this space?

VA: I think that molecular diagnostics is certainly been applied in infectious disease for a couple of reasons. There’s a growing move to try to get testing closer and closer to the patient and some of the new molecular diagnostic technologies are available to allow that to occur, so not to take away from the growth in oncology diagnostics using molecular diagnostics, but certainly over the last several years some of the most rapid growth has been in the infectious disease area. I anticipate that trend line would probably continue again with the ever greater move to [bring] testing closer to the patient, closer to the point of care. I think those activities will continue to increase both in terms of absolute number but also in terms of the types of agents that can actually be tested using  molecular diagnostic reagents.

MM: What additional markets are you seeing the most growth and why?

VA: There’s still continued growth in oncology and I think that will always be a hallmark of molecular diagnostic technologies. There is, in addition to the trend lines that we mentioned in infectious disease, a growing set of applications in cardiovascular disease, not just for prediction of events and monitoring of post MI events, but also for improved prediction of who may be at risk for a cardiovascular event.

So that whole area is increasing and in fact I think it’s fair to say that over the last four, five years molecular techniques have been penetrating many of the traditional bastions of diagnostic testing. For example, even now there are molecular diagnostic technologies replacing tissue typing and other types of assays that have been traditionally done by other methodologies. So I see the molecular diagnostics space continuing to expand both in depth within some of the traditional verticals like infectious disease and oncology, but also expanding into virtually every arm of diagnostic laboratory testing.

MM: You’ve touched on oncology diagnostics, so in your opinion why does it remain so important when we’ve seen such advancement in treatment? Does that field remain crowded?

VA: Well, it’s a great question, Matt. I guess rather than crowded I would characterize the oncology space as really becoming a more mature market for molecular diagnostics. We’re now at the point that many of us have predicted for years, which is that it’s becoming increasingly rare for patients to be prescribed some of the especially targeted therapies without a diagnostic test to validate that therapy will be effective for that individual. Not to say that there are not continued off label treatments being done, that there are still many physicians and patients who don’t have advantage of a molecular test prior to chemotherapy or targeted immunotherapy. But that trend line is continuing to increase and as a result of that we’re seeing a lot more players coming into this field.

So now KRAS and BRAF testing are almost routine as opposed to four, five years ago where they were still considered to be a very esoteric test and only applied in the rarest of cases, and in the most advanced medical centers that continues to be a hallmark of oncology management. And the other markers that are being developed over the last several years are also continuing to have an increased place in both clinical development as well as in routine clinical care.

Recently the former commissioner of the FDA went on record as saying that the FDA needs to revamp its view on phase III pivotal trials in oncology because of the opportunity of using biomarkers to risk stratify patients and qualify patients and use diagnostics as inclusion exclusion criteria for clinical trials. I think that kind of a statement is significant because it shows how far we’ve come in the use of diagnostics in oncology, and I think there’s now a recognition both in development of oncology agents but also in a clinical use that there’s a significant place for diagnostic testing.

I think that trend line will continue, it will cause more and more companies to come into this space, it will make the base technologies that we use in oncology more available in the broader marketplace and that will then further facilitate the growth of molecular diagnostics in other areas of clinical medicine.

MM: Generally are we moving away from the concept of normative medicine?

VA: I think so. And not just using molecular diagnostic techniques, but I think the mindset has been to say we need to sub-segment disease and we need to really understand the molecular bases or the individual characteristics of each individual patient that we’re facing. So the one size fits all medicine is disappearing not just with molecular techniques but with others. I think that’s as I said earlier reflected in the way that pharmaceutical companies are facing or looking at clinical development and the way they’re constructing trials, I think it’s also frankly become a more well accepted thought in a majority of patients. I think patients are increasingly sophisticated in these types of measurements that are out there and are increasingly expecting to have advanced testing done prior to initiation of medical treatment.

So I think there’s a significant groundswell in this area which is actually going to be accelerated as we see further penetration of next generation sequencing. We’re at the end of the beginning, I tell people, we’re at the end of the phase where being able to measure and qualify patients for particular therapies is a novelty, and has now moved into the area of being somewhat of an expectation. But I also think that we’re on the threshold of a radical expansion of information about individual patients.  Not that this is going to transform the practice of medicine in the next three, four, five years, but in the long run the ready availability of whole genome sequencing will show us another wave of personalized medicine, in another significant movement away from one size fits all.

As a side note, I don’t know that that next generation sequencing is something that I would look at as being a routine clinical practice with a fully blown set of correlates to human disease for many years. But the early trend lines are there, the early indicators of widespread adoption are there, the technology is rapidly catching up. The development of the clinical correlates of all that information may take some time, in fact will take some time. But I think the early warning signs or the early signs of progression in this area are clearly in place.  Although we’ve come a long way from normative to personalized medicine I think we have a huge quantum leap ahead of us as well.

Stay tuned for Part II of our OneMedRadio Interview with Vijay Aggarwal, covering trends in reimbursement, achieving diverse revenue arms, and changing investment strategy in early stage ventures.

The Healthcare ecosystem in the United States is changing dramatically due to significant regulations and legislation. Though Obamacare gets the most attention for its impact on patient care and healthcare coverage, legislation such as the Meaningful Use Regulations passed in 2009, followed by the passage of the Affordable Care Act in 2010, and the most recentSequestration may have a profound impact on the opportunities for developing medical devices and medical device investors.

The following series breaks down how these pieces of legislation may become catalysts – for better or worse – in disrupting the medical device industry. This introduction will outline major themes related to Meaningful Use, Affordable Care, and Sequestration, upon which our series will be based.

Meaningful Use Regulations for Providers:

Put very simply, ‘Meaningful Use’ is focused on comprehensive provider use of electronic healthcare records.  Diagnostic, monitoring, and treatment related devices must become integrated devices compatible with EMR/EHR systems if they are going to fit into the evolving front line.

Meaningful Use requires providers to utilize electronic medical records and communication systems in a structured, phased-in timeline achieving the following objectives:

• Higher accountability
• Efficiencies
  • Faster
  • Better
  • Cost verification related to outcomes
  • Patient satisfaction and engagement
  • Internal and external communications efficiencies
  • Overall Providing better quality of care

The Affordable Care Act

Medical device companies welcomed 2013 with a 2.3 percent device tax as part of a $20 billion tax included in The Affordable Care Act passed in 2010. While the 2.3 percent tax may not sound punitive, it is a tax levied on total revenues – regardless of whether the company is profitable or not. Some companies may actually end up owing more in taxes than they generate from operations.

On February 26, 2013 in Washington DC, Mark Leahey, President and CEO of the Medical Device Manufacturers Association (MDMA), issued a statement regarding the Senate Budget Committee hearing examining the impact of ACA on medical devices:

“While the medical device tax has only been in effect for two months, the devastating impact of a policy that thwarts innovation and patient care continues to mount.  More jobs have been lost in this high-tech, manufacturing-based industry, and sadly more will come until this policy is repealed.  In addition, companies are shelving plans to open new facilities and are moving manufacturing overseas to address this tax…”

AdvaMed’s  Infographic – The New Deficit Reduction – shows how repeated reimbursement and funding cuts, new taxes, and regulatory changes are affecting medical devices’ already thin profit margins.

Sequestration

The FDA stands to lose 5 percent of its 2013 budget five months into its fiscal year, making it feel more like 9 percent. Although the agency claims to have no plans for furloughs or lay-offs, slowing approval processes are likely at a time when the need for more efficient technologies is greater than ever.

Sequestration freezes the FDA’s access to an estimated $82 million in user fees paid to the FDA by companies when they submit their initialregulatory applications. A user fee is essentially revenue to the FDA that does not come from congressionally appropriated funding – i.e. tax dollars – thus furthering the concern of slowing approval efficiencies.

FDA user fees came about in 1992 when Congress passed The Prescription Drug User Fee Act (PDUFA)authorizing the FDA to collect fees from companies that produce certain human drug and biological products. Since the passage of PDUFA, user fees have played an important role in expediting the drug approval process primarily by paying for staff allowing more reviews and approvals of new drugs and medical devices. The inclusion of FDA user fees in Sequestration will make up $82 million of the estimated $209 million to hit the FDA according to Office of Management and budget figures.

Sequestration will also cut approximately $2.4 billion from the NIH’s budget this year, affecting 27 institutes and centers.

Adam Dion, GlobalData’s analyst covering Healthcare Industry Dynamics, explains NIH’s importance:

“Private companies typically won’t invest in research endeavors… the NIH supports roughly 432,000 jobs across the US and fuels about $60 billion in economic output each year… it’s been estimated that every $1 of NIH funding generates about $2.21 in local economic growth…”

So, despite this puzzling and troubling news, what growth opportunities remain?

1. Point of Care technologies

This sector expects an influx of 20-30 million new patients and a hammered frontline of paraprofessionals needing to triage patients and treatment more efficiently, and more swiftly. BBC Research predicts Point of Care diagnostics will grow from $13.8 billion in 2011 to $16.5 billion in 2016.

2.       Telemedicine, Medical Home devices

According to an American Medical News article  BCC Research predicted the global telehealth market is expected to grow from $11.6 billion in 2011 to about $27.3 billion in 2016.

3.       Disposable devices and accessories

In June of 2012 a new report released by Freedonia projects the US disposable medical supplies and devices to increase an estimated 4.3 percent annually to $46.7 billion in 2016. The same report predicts the demand for disposable medical devices and supplies will continue to increase as hospitals, outpatient and other healthcare facilities implement stricter infection prevention standards and safeguards on one side while reimbursement/costs pressures complete the squeeze on the other side.

Within every season of change are opportunities for growth…the challenge is to find the opportunities first!