The Life Sciences Report: Do you feel your background as a scientist and the published author of a handful of scientific papers gives you an advantage as an analyst in the biotech and medtech sectors?
Anita Dushyanth: Yes. Often, there is not a lot of publicly available information on small- and micro-cap medtech and biotech companies because they are in a nascent product development stage. Furthermore, these companies may not have substantial assets or revenue. We rely on information provided in publications to evaluate the science and the technology, which helps us understand how it may be important. We want to know if a company has a breakthrough or disruptive technology, and how well that technology fares in the medtech or biotech space.
TLSR: Is evaluating these companies with such little public exposure difficult?
AD: Yes, it's difficult, but it is also part of the process. We look at a company and its technology historicallyóhow it started and how the company has progressed thus far. At least that much information is available. Combined with a review of the literature, we can determine a valuation on a company and project where it might be in a few years.
"The healthcare industry is benefiting from innovation in technologies that are noninvasive, inexpensive and user-friendly."
TLSR: I've noticed that before you were an analyst you developed some enabling technologies, including one about reducing sedation time for pediatric MRI studies. Young children have to be still for some period of time to get these studies completed, and must therefore be sedated. When you're looking at a technology, do you evaluate it with an eye on convenience, facility and user friendliness? Is that a make-or-break point for a technology?
AD: The success of every technology depends on where it's being applied. The healthcare industry is benefiting from innovation in technologies that are noninvasive, inexpensive and user-friendly. Those are the goals.
TLSR: Are these factors, in your opinion, what make an innovation disruptive?
AD: I think any technology that can create a market for something new is disruptive. For instance, giving patients a technology they can self-administer at home is disruptive. Self-administering a drug or using a medical instrument at home versus at a healthcare or medical center is a big help to a lot of patients, particularly seniors, and it keeps costs down. That's disruptive. Another instance of a disruptive technology is having a cure for cancer that not only kills the cancer cells but also prevents recurrence.
TLSR: Anita, you have said you look for companies with good fundamentals. In the small-cap biotech or medtech space, access to capital can be a major problem at some point during the life cycle of the company. Is sufficient capital what you're talking about when you say you're looking for good fundamentals? What makes a small-cap company fundamentally sound?
AD: As far as fundamental analysis is concerned, we try to focus on the company's primary business and the different factors that directly affect it so we can determine the valuation. We study the company's income statement, particularly its cash flow and its balance sheet, to determine an intrinsic value of the company's shares. A solid cash balance is definitely a factor.
"An example of a disruptive technology is having a cure for cancer that not only kills the cancer cells but also prevents recurrence."
There are other factors as well. Is the company able to keep its debt under control? Can it raise the money it needs to continue operations? Will it be able to commercialize its product over time? We also look at the type of growth we can anticipate from a company's products, what type of sales figures we could expect, and whether the company is able to keep its costs down over time.
All these considerations provide an intrinsic value for the stock. If the company has strong management with a lot of experience and historical progress, we will be more accurate in forecasting revenues and what the growth potential might be for a product.
TLSR: Is the quality of investor sponsorship something that you pay close attention to when you're looking at a company?
AD: Definitely. We look at investors, and the ownership, and how the company is raising capital.
TLSR: Going back to the bioengineering theme, I'm thinking that drug delivery systems are conceived as engineering problems and solutions. A drug may work, but a different method of administration might be beneficial. I'm noting from your universe of coverage that you have an interest in this area. Would you address that?
AD: There are many ways to deliver drugs to the body. You could do it orally, it could be inhaled, or it could enter the body through an injection. Of all of these, the oral delivery method is what has been used the most, and is the most user-friendly and convenient.
I'm covering a company called Cynapsus Therapeutics Inc. (CYNA:NASDAQ; CTH:TSX; CYNAF:OTCQX), which is developing a sublingual form of a drug that has been used in Parkinson's disease in its injectable form. It is called APL-130277 (sublingual apomorphine strips). I think this company definitely has upside potential to it.
"We try to focus on the company's primary business and the different factors that directly affect it so we can determine the valuation."
Parkinson's disease is a chronic neurological disease that slowly destroys a patient's ability to make voluntary movements. When the disease progresses to the middle stages, patients can experience "off episodes," or hypomobility. These are motor-nerve disturbances with muscle stiffness and sluggish movement. The symptoms can be masked by dopamine agonists, such as apomorphine, which is rapid-acting, marketed as an injectable drug, and used as a rescue medication for Parkinson's disease patients during off episodes. The problem for the patient is that it is very difficult to self-administer or self-inject a drug when you can't move. Thus an oral, rapid-acting, sublingual form of apomorphine could be disruptive in Parkinson's care. Currently the company is conducting pivotal trials for safety and efficacy, and we are expecting results sometime next year.
TLSR: Do you feel the company is on track to file its new drug application (NDA) for APL-130277 by the end of 2016?
AD: I think so. Thus far, Cynapsus has been able to stick to its timelines, and it is making progress on its trials. If nothing unexpected comes up during the trial, the company is, so far, on track.
TLSR: Because this is a sublingual strip and not an injection, do you think that non-neurologists, perhaps internists, geriatricians or even family physicians, might feel comfortable in prescribing APL-130277 for patients if and when it's approved? Could that expand the market?
AD: I think that depends on whether it is being marketed to those other physicians. If it is marketed that way, and if APL-130277 is prescribed to patients by those physicians, then yes, that could expand the market.
TLSR: At the beginning of September, Cynapsus announced enrollment of the first patient in the CTH-301 trial, a pivotal Phase 3 studying safety. It has an efficacy trial going on as well. But isn't this kind of late in the game to be launching a safety trial? Hasn't safety been established by now?
AD: Yes, apomorphine's safety has been established. But this apomorphine sublingual strip is the first of its kind. I think following its meeting with the FDA, the company is doing the necessary steps so it can make the NDA filing next year.
TLSR: What is your target price on Cynapsus?
AD: It's US$30/share.
TLSR: Could you go to another name, please?
AD: I just started covering Spectral Medical Inc. (EDT:TSX; EDTXF:OTCQX). Like Cynapsus, this is a Canadian company. It is developing a device, the toraymyxin column, for the treatment of septic shock. With this outside-the-body device, through which the patient's blood flows, the company claims to reduce blood endotoxin levels. Thus far, there have been mixed results in developing treatments for sepsis. Earlier, a product developed by Eli Lilly and Co. (LLY:NYSE), Xigris, did not live up to expectations in clinical trials.
The toraymyxin column that Spectral is developing has been approved for use in Europe and Japan and has been used to treat more than 100,000 patients. Now Spectral is trying to get clearance to use it in the U.S. A trial is currently ongoing in 50 centers in the U.S. and Canada. I think this is the first trial that uses the measurement of blood endotoxin levels as part of the criteria for the patients.
TLSR: What is your target price on Spectral?
TLSR: Another name, please?
AD: I recently published an update on ChroMedX Corp. (MNLIF:OTCMKTS), another Canadian company. It is developing point-of-care testing devices. It has two technologies. One is called HemoPalm, which uses a cartridge that accepts blood from a finger prick or a syringe, and then performs blood sampling using spectroscopic biosensors. Basically, it's a handheld CO-oximeter, and allows quick measurement of the patient's blood oxygen and acid base status. It would be especially helpful to first responders in critical care situations.
ChroMedX also has an ultrafiltration technology, which uses cartridges and measures hormones that are not bound to protein. Instead of measuring the total drugs or hormones present, it's only measuring the free drugs or hormones present in the body.
ChroMedX is in a very nascent stage of development. It has been a little bit slow to grow, primarily because of funding issues, but it is chugging along. My target is $0.35/share.
TLSR: Do you have one more name?
AD: Yes. I follow Theralase Technologies Inc. (TLT:TSX.V). The company basically has two different platforms. It uses laser light for pain management, and its first-generation device, the TLC-1000, is already on the market and is currently the main source of revenue for the company. Theralase is awaiting clearance for its second-generation device, the TLC-2000, which will hit the market first in Canada, and then will probably be launched in the U.S. sometime next year.
TLSR: I note that the company also has an interesting cancer therapeutic. Could you address that?
AD: Theralase is developing photodynamic compounds. When you inject these compounds into cancer cells, they can be activated by light. The company says the cancer cells are then destroyed, and the rate of recurrence is very low. It is working on developing these compounds to address different types of cancer.
TLSR: Theralase's lead photodynamic candidate is called TLD-1433, and it is proposed for use in nonmuscle-invasive bladder cancer. Where is this therapy in the development timeline?
AD: The company is going to start human clinical trials probably at the end of this year.
TLSR: What is your target price for Theralase?
TLSR: Thank you, Anita.
Anita Dushyanth is a medical technology and devices analyst with Zacks Investment Research. Prior to joining Zacks, she has worked as a researcher in the field of bioengineering at the University of California, Los Angeles (UCLA) for more than 10 years. Her expertise includes research that delves into design and development of medical compliant devices, biomechanics of the human body, degenerative disease progression and quantitative image analysis and optimization. She has been a peer reviewer and editor for a number of journals in the field of biomedical engineering. Prior to that, Dushyanth worked as a researcher at the department of radiology and biomedical imaging at the University of California, San Francisco (UCSF). She has completed the research work for a doctorate in bioengineering from UCLA. She holds a master's degree in biomedical engineering from Wright State University in Ohio and a bachelor's degree in instrumentation engineering from the University of Madras, India.
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