Midkine and COVID 19, page-12

The possible relationship between midkine and COVID-19 was discussed on the CDY forum in March last year when the first test-kit supply agreement was announced, noting that the relevant research at the time had been undertaken in Guangzhou. This mini review article shows that the scientific community has taken that possibility seriously since then.

Cellmid purchased 12,000 tests of which 1,500 were immediately sold. Others were necessarily supplied to the Doherty Institute to obtain TGA regularity approval, but the Company also stated that it would use some of the kits to undertake further research of its own. This was evidenced by requests on its website for the remainder of the year for volunteers who had tested positive to the virus to agree to participate.

With this in mind I found the following statement of interest in the half-year Director’s Report in reference to the Lyramid divestment:

“The Group has been preparing a novel research program as part of the divestment program, in addition to research undertaken by collaborators on aspects of midkine biology critical to drug development.”

I read this as implying that the results of this ‘novel program’ are expected to add value to partnering negotiations.

My analysis of the 2020 annual financials gives a cost of around $355K for the 12,000 tests purchased (a little less than $30 each) and income of around $94K from the 1,500 sold (ca $63 each), for an overall net cost of ca $260K (assuming no further sales). Looking at inventory statements it appears that about 8,000 tests remained unused in June and around 7,000 in December.

So a value add of ca $260K would represent break even.

The point made by @poorinvestor above is an important one. If Cellmid retains ownership of its extensive midkine patent IP, then Lyramid becomes a royalties-paying partner similar to Pacific Edge. With the most important patent coverage in place to 2035 the arrangement announced would extend royalty payments to 2040.

A partner would not wish to pay for IP that it does not intend to use, so any divestment arrangement is likely to be IP selective. If so, then this would allow Cellmid to come to additional future agreements for uncommitted components of its patent portfolio. Alternatively, a future change in management attitude could see the Company undertaking further developmental research, provided there also was a more supportive change in shareholder attitude to meet the associated financial requirements.