Pacific Edge Ltd is a NZX listed [PEB.NZX], New Zealand based biotechnology firm, specialising in the field of bladder cancer detection, through their primary product suite called ‘CX-Bladder’. The technology has been derived from the University of Otago and was established in 2001. The primary competitive advantage of the CX-Bladder product suite; is the non-invasive (urine) testing and their market leading diagnostic accuracy, compared to other urine based testing. The incumbent diagnostic tool is cystoscopy, which involves having a narrow tube inserted into the urethra in-order for a physician to be able to view the internal wall of the bladder; to detect for abnormalities. Clearly, having a non-invasive test such as urine sampling (which looks for the biomarkers of superficial lesions) will have beneficial patient outcomes and lower complications than cystoscopy. Being able to conduct the tests ‘out of practice’, provides advantages to patients unable to attend traditional facilities or patients who are monitoring for any reoccurrences. Lower barriers to testing will increase the amount of testing conducted, assisting in early detection and preventative treatment.
Pacific Edge has two primary hurdles in-order to execute their current strategy of a product roll-out in to America. The US market is Pacific Edges primary focus as they has over 10,000 urologists and provides the possibility of millions of tests. Whilst Pacific Edge has attained FDA approval for their products to be used in the highly regulated US market, unfortunately the medical profession is still preferring the traditional cytology approach; due to having a higher accuracy rate than Urine based testing.
The second primary issue facing Pacific Edge is the sheer amount of capital required to commercialise medical products of this nature. PEB’s current cash burn is in excess of NZD $1m per month, given the current strength of the company’s balance sheet, this will give PEB two and a half years of breathing room in-order to execute their strategy. Given PEB’s history of capital raisings, investors will need to have one eye on the balance sheet and one hand on their wallet if the company’s bank account begins to run dry.
Given the difficulties Pacific Edge is having in replacing the incumbent cystoscopy examination; what actions could PEB use to market their products?
PEB has used three distinct strategies to gain traction in the US. Firstly, they continue to develop new products and continue to improve CXBladder’s effectiveness. The basic long term goal is to be the primary provider of bladder cancer analysis is the US. This has not changed, however, the product needs to be improved in order to meet the strict Urologists standards, through these iterations in product improvement an emergent strategy has appeared. This strategy is that ‘perhaps Urologist aren’t the only channel through which to market CXBladder?’ A second distribution channel has been signed through an agreement with the Veterans Administration (VA) in the US, this compliments earlier supply agreements announced by the company. The VA has 8.8m members which could translate into between US$30m - $60m in sales. Further announcements on strategic partnerships could see the stock rerated.
Thirdly, PEB has recently announcement a ‘world first’ with the Canterbury District Health Board in which CXBladder (after a 12 month probationary period) would replace cystoscopy. The announcement sighted:
Pacific Edge Enters Commercial Agreement with Canterbury District Health Board
Posted on March 9th, 2016
‘World-first as CXBladder moves to replace cytology in clinical guidelines’.
Cancer diagnostics company, Pacific Edge Limited (NZX:PEB) has entered into a commercial agreement to provide its innovative CXBladder diagnostic technology to the Canterbury District Health Board (CDHB) for primary care referral in the evaluation of haematuria. Haematuria (blood in the urine) is a key indicator of bladder cancer and established clinical guidelines are that all patients with haematuria receive a urological assessment to establish the cause. The 12 month agreement will, after an initial 200 tests, see the replacement of cytology in Canterbury’s HealthPathway for patients with haematuria being assessed for the possibility of bladder cancer”
CEO of Pacific Edge, David Darling, commented: “We have a long working relationship with both Canterbury District Health Board and Urology Associates and are delighted to be working with them to enable ready access to CXBladder for patients in the South Island. This is a comprehensive process involving the whole healthcare community and represents a first for Pacific Edge in the formal provision of CXBladder technology to replace cytology.”
If successful, the example being led by Canterbury District Health Board will set a precedent for other Heath Boards around the country, that PEB has a viable, low cost solution to the traditional method of cystoscopy. Health Boards are under continuous budget constraints, given the lower price point and simplicity of application, CXBladder and PEB have one foot in the door to become the mainstay in bladder cancer detection. The market for which is enormous.
The realisable potential market for Pacific Edge (PEB) is considerably larger than the current market value of the company would imply. If PEB can execute either product improvements, in-order to attain US urologist approval, or manage to convince the industry that the cost savings out way the disadvantages, the company will be worth significantly more than it is today. Investors need to keep an eye on the company’s cash burn and be aware that future capital raisings are a real possibility. Investors with a high tolerance for risk could be handsomely rewarded.
This article is written by Jeremy Sullivan, Investment Advisor at Hamilton Hindin Greene Limited. This article represents general information provided by Hamilton Hindin Greene, who may hold an interest in the security. It does not constitute investment advice. Disclosure documents are available by request and free of charge through www.hhg.co.nz.