Circadian Technologies (ASX: CIR) is an Australian biotechnology company developing innovative, biologics-based therapies for the treatment of cancer and other serious human illnesses.
Circadian owns an extensive portfolio of products and intellectual property related to Vascular Endothelial Growth Factors (VEGFs), a class of proteins that play a critical role in regulating tumour blood supply.
Circadian Technologies cash in bank, plus antibody products, provide strong growth potential
Circadian Technologies (ASX: CIR) is a developmental stage Australian biotech company mainly focused on the development of antibodies for the treatment of cancer and other illnesses.
In addition, Circadian’s partnerships and late stage diagnostic products offer potential for early revenue generation.
Background:
Circadian owns intellectual properties related to vascular endothelial growth factors (VEGFs), a class of proteins that regulate tumour blood supply.
Over the past decade, sales of antibody based products have grown exponentially, and a number of antibody technology and therapeutic companies have been acquired.
Circadian has developed a family of assets at development and clinical stage based on proprietary VEGF technology with novel applications in the treatment of cancer.
These are protected by a strong patent portfolio extending as far as 2025.
Potential of VEGF assets:
The market for VEGF is vast, with Avastin leading the way as a VEGF-A inhibitor with global annual sales of $4.6 billion (May 2009).
Drug resistance is almost always the reason why most of these drugs do not actually increase patient survival, hence most are already focusing on VEGF B, C, D.
Some investors and physicians know about VEGF based on the success of the Genentech/Roche’s (ROG.VX CHF 179.40) antibody, Avastin.
Circadian has positioned itself perfectly to capitalise on the ageing global population by securing the global intellectual property rights to vascular endothelial growth factors C, D and their receptor VEGFR-3 (VEGF) products.
Intellectual property rights are the life blood of biotechnology companies like Circadian.
By holding the rights a path has been cleared for product development, with Circadian already in talks with parties to develop products.
Circadian has developed a family of assets with novel applications for the treatment of cancer and other diseases, which are at development and clinical stage of development.
In addition, one aspect of Circadian’s technology relating to VEGF-D, is being utilised to develop a suite of diagnostics for a range of diseases, to generate early revenues.
The first product has recently been released to market, and a number of others are at ‘late stage clinical validation’, with ‘on market’ the following milestone.
Recent developments:
Circadian has recently become a biotech product developer with its first diagnostic, a blood test to diagnose a serious lung disease developed in partnership with the Cincinnati Children’s Hospital Medical Centre, now approved and being marketed in the US.
The company has the potential to build its first income stream in the short to medium term with this product which can diagnose the degenerative lung disease LAM (lymphangioleiomyomatosis).
LAM is a disease which is often misdiagnosed, and mainly affects women of child bearing age.
Underlying the credentials of this new product, it is offered as a laboratory test compliant with the CAP (College of American Pathologists) CLIA regulations.
With potentially 25,000 tests each year, at a cash value between US$200-400, Circadian can begin to build cash flows.
LAM is the first product to emerge from Circadian's extensive VEGF-D technology portfolio and a pointer to potential further deals.
Circadian owns a global portfolio of intellectual properties related to its VEGF technology with patents extending as far as 2025.
Diagnostics are an important part of Circadian’s business in parallel with its drug discovery activity.
Circadian received more world-wide support in early 2011 from major biopharmaceutical player Chugai Pharmaceutical, with the granting of the global VEGF-D intellectual property rights.
Chugai is part of the Roche Group of companies, 52% owned by Hoffman La-Roche.
With the deal, Circadian effectively cemented its position as a world leader in VEGF-D development.
Significantly, the agreement allows Circadian to sub-licence which will enable the company to expand work in utilising the VEGF-D intellectual property estate through selective partnerships.
Another is Circadian’s partner Healthscope, which has developed a diagnostic for Cancers of Unknown Primary using Circadian’s technology.
This test is expected to be available for sale in the second half of 2011, providing Circadian with royalties on sales.
A major plus with the partnership is Circadian retains the right to market the test in Europe, USA and Japan, providing a substantial opportunity for further revenue streams through licensing deals in these territories.
Circadian is therefore very likely to see a rising trend in revenues over the next one to two years, helped by the strong relationship with Imclone/Eli Lily which continues to generate revenue, along with the potential royalty growth from Ark.
Added to this Circadian is currently in discussions with a number of major diagnostics companies to assist in developing a VEGF-C clinical diagnostic test for a patient response to cancer therapies, which if successful, will result in further up-front licence fees and ongoing royalties.
Cash backed:
The fascinating conclusion to the emerging Circadian story is just how much cash the company has relative to market valuation.
Circadian has $27 million cash on hand, against a market valuation of $31 million.
With 46.4 million shares on issue, each share is effectively worth $0.59 in cash.
However, when the value of listed investments held by Circadian are factored in, this lifts the cash plus listed assets to $0.62 each share versus a share price of just $0.70.
The market has only placed a value of $0.08 on the intellectual property portfolio and development work and partnerships.
To put it another way, shareholders currently hold all of Circadians assets, excluding cash plus listed assets, for around $4 million, which is why investors need to keep a close eye on this stock.
An investment in the biotech sector is suitable for investors willing to be patient and withstand volatility.
The top 10 shareholders own 54.5% of Circadian, while the top 20 shareholders own 60.5%.
This affords relatively strong "leverage" to news flow, another plus point.
Given an extensive intellectual property position in a sector with growing M&A transactions and high cash plus listed assets position, the market capitalisation for Circadian at $31 million is modest.
