Dr Boreham’s Crucible: Cyclopharm

Small Caps | Oct 09 2023

FDA approval for Cyclopharm’s device-as-a-drug is welcome news, Tim Boreham reports.

By Tim Boreham

ASX code: ((CYC))

Share price: $2.57

Market cap: $270.4 million

Shares on issue: 93,896,326

Chief executive officer: James McBrayer

Board: David Heaney (chair), Mr McBrayer, Kevin Barrow, Dianne Argus, Professor Gregory King

Financials (half year to June 30, 2023): revenue $16.5 million (up 44%), sales revenue $15.7 million (up 37%), net loss of $2.89 million ($2.56 million deficit previously), interim dividend per share 0.5c (steady), cash balance $18 million (down 11%)

Identifiable major shareholders: Anglo Australian Christian and Charitable Fund 14.2%, Barings Acceptance 12.3%, Chemical Overseas Ltd 8.6%, CVC Ltd 7.1%, Mr McBrayer 5.5%

Many Aussie biotechs have endured a long wait for the US Food and Drug Administration (FDA) to approve - or reject - their drugs and devices, but Cyclopharm’s three-decade quest for the agency’s imprimatur surely must set the record.

At 12.39 am last Saturday, Sydney time, CEO James McBrayer’s mobile phone chirped with the news that the agency had approved his company’s tool for three-dimensional imaging of pulmonary embolisms and other lung diseases, called Technegas.

This was consistent with the Friday deadline (Washington time) under the FDA’s protocol, which allows the gatekeeper 180 days to accept or reject an application.

In response to an earlier entreaty, the FDA issued a “complete response letter” in June 2021. This required Cyclopharm to satisfy the agency on aspects of manufacturing the product, which the company duly fulfilled.

“I was half awake, half asleep, which has been the case for several weeks,” Mr McBrayer says of the magic moment.

“When they [the FDA] asks you a question they don’t give you too much time to respond, so I was like a fire engine ready to go at any time of the day or night.”

Cyclopharm’s attempts at gaining approval in the world’s biggest nuclear medicine market dates to 1991. But this time around, a further rejection would have been quite a shock given the FDA was emitting more warm signals than a bucket of plutonium.

“We knew that we went above and beyond what they were looking for, just to be sure that we didn’t leave anything to chance,” Mr McBrayer says.

Cyclopharm’s case is strengthened by the fact that Technegas is approved and used in 64 countries - including Canada where it has been deployed for two decades.

FDA consent would open a market for pulmonary embolism diagnosis worth $US180m a year, while its tool can also be used for other lung ailments (see below).

Cooking with Technegas

Cyclopharm’s patented Technegas currently is used to detect pulmonary embolisms - lung clots - and has been used on 4.5 million patients.

The FDA approval is for “visualisation of pulmonary ventilation”, which covers common conditions including chronic obstructive pulmonary diseases (COPD), asthma and - if anyone still cares - covid.

The assent also covers kids six years or older, without the requirement to do more trials.

As with elsewhere, Cyclopharm’s remit is to encroach into the imaging market dominated by computer tomography (CT), as well as older two-dimensional nuclear techniques.

Manufactured at the bedside, Technegas consists of teeny-tiny, dry-carbon nanoparticles irradiated with the isotope Technetium-99 (which is produced from decaying molybdenum-99).

The particles are 150 nanometres and to put that in context a sheet of paper is about 100,000 nanometres thick.

The gas-like substance is freshly brewed by heating a carbon crucible to 2,700 degrees Celsius and inhaled by the patient via tubing. Only three to four breaths are required.

The gas works as an imaging agent, allowing three-dimensional viewing with a gamma or single photon emission CT camera. The nanoparticles have a six-hour radioactive life, after which they are eventually dispersed through breathing.

Sounds like our cup of tea

Technegas was invented in the 1980s by Australian University biomedical engineer Prof Bill Burch. Over a cup of tea, he partnered with industrialist Ian Tetley to form Tetley Medical.

Technegas was commercialized after being approved in Europe in 1988. Cyclopharm was incorporated in 2005 and listed in January 2007, after raising $11m at 30 cents apiece.

Technegas was approved in Australia in 1986 - when Bob Hawke still presided over the land - and in Europe since the early 1990s.

A pharmacist, Mr McBrayer joined in June 2008, taking over from John Sharman who went on to head up Medical Developments and then Universal Biosensors.

Mr McBrayer headed the nuclear medicine mob Syncor Australia, as well as Lipa Pharmaceuticals.

Sizing up the US market

The company hopes to emulate the experience of Technegas in Canada, where it has snared close to 100% of the nuclear medical ventilation market.

The company estimates the US pulmonary embolism market at $US180m per annum, with four million procedures a year.

Currently, about 85% of patients are imaged with computed tomography pulmonary angiography, or CTPA, with nuclear imaging confined to patients unsuited for this imaging (they may be pregnant, have poor renal function or are allergic to the imaging agents).

Initially, the company will target this 15% of the market, which accounts for 600,000 procedures annually and is valued at $US90m.

Based on Cyclopharm’s experience in the Canadian market and globally, the company reiterates expectations it can achieve a 50% share over the next two to three years, rising to more than an 80% over a three-to-five-year period.

If the company can then help to double the share of nuclear imaging to 30%, the addressable market rises to $US180m.

Anticipating approval, the company has been assembling 200 Technegas generators at its facility at Kingsgrove in inner Sydney.

Initially, the company expects to have rolled out 20 generators at high-volume sites by the end of 2023, expanding to 300 by the end of 2024.

These units give rise to ongoing revenue from consumables such as the carbon billets, single-use tubing and the crucibles which disintegrate in the mini nuclear reactor as part of the process.

Crucially, Technegas is subject to an existing reimbursement code for pulmonary embolism imaging procedures, which is “agnostic” in terms of the diagnosis method used.

Broker Bell Potter assumes revenue of $US140 per exam across 480,000 procedures, equating to initial total revenue $US103m.

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