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Page 1 ? Copyright ? 2010 RM Research ? www.rmresearch.com.au - Please read the disclaimer for terms.
Investment Highlights
? HealthLinx Limited (HealthLinx) is commercialising the 5 biomarker ovarian
cancer diagnostic OvPlex?. The diagnostic is a blood test which aids in the
diagnosis of ovarian cancer in symptomatic women. Phase 2 biomarker trial results
were positive, highlighting superior diagnostic efficiency for all stages as well as
earlier stage ovarian cancer in comparison to the current standard CA-125 blood
test alone. We like the robust distribution model for OvPlex? and note that first
sales have recently commenced in Australia, U.K and Singapore.
? HealthLinx has finalised research agreements with partners in South Korea to
initiate a 220 patient study which is a requisite for South Korean Food and Drug
Administration (KFDA). The trial is being conducted by Professor Byoung-Gie Kim
of Samsung Medical Centre and Sungkyunkwan University School of Medicine.
Other institutions participating in the clinical study include Asan Medical Centre
and Seoul National University Hospital. The three hospitals have over 12,000 beds
and assist the three leading gynaecological cancer research centres across South
Korea. The approval is encouraging and will strengthen scientific validity of
OvPlex? whilst providing access to a growing market for ovarian cancer
diagnosis.
? The official launch of OvPlex? in Singapore took place in early September where
it is distributed by INEX Innovation Exchange Pte Ltd. We anticipate that
Singapore will serve as a platform for subsequent launch into India, Malaysia,
Thailand, Indonesia and Vietnam. The product is being distributed for SGD$300
per test with an attractive royalty of A$24 to HealthLinx Limited.
? The holy-grail for distributing OvPlex ? remains the United States. HealthLinx has
indicated that dialogue continues with U.S based parties to license the technology
for use in the U.S. and will include a trial of OvPlex?, which will meet FDA
requirements and is mandatory to secure product approval by the FDA.
? European distribution of OvPlex? has commenced with European Certification
received. The diagnostic is sold in the United Kingdom where it is distributed by
Intus and Spire Healthcare, the second largest hospital group in the U.K.
? Additional studies are being undertaken to fortify clinical validity of the product. A
multi-national multi-centre study will utilise 1150 samples where the sensitivity and
specificity of OvPlex? and CA-125 will be compared. Collaborations have been
secured with key clinicians in Australia, United Kingdom and Singapore for this
important study.
Outlook
? OvPlex? is currently sold for A$200 in Australia, the United Kingdom royalties are
averaging $67 (due to the strong exchange rate) and in South East Asia the
company collects A$24 royalty for each unit sold. Assuming a standard royalty rate
of A$45 for each unit sold globally, 50,000 sales of OxPlex? would equate to
$2,250,000 in free cash flows. The royalty distribution model for OxPlex? is robust
and we consider licensing deals can provide significant leverage for the product.
? The likes of Vermillion Inc in the U.S provide an indication of potential value uplift
for HealthLinx. Both company?s product offerings are addressing markets with
unmet need; Vermillion is listed on the NASDAQ with a market capitalisation of U.S
$65M, developing OVA1? in addition to an ovarian cancer high-risk triage test and
an ovarian cancer prognosis test.
? Considering sales have already commenced in the U.K and South East Asia,
combined with the knowledge that the company has a clear strategy for U.S
market approvals we consider OvPlex? to be a potential company maker for
HealthLinx. We rate HealthLinx a Speculative buy.
Capital Structure
Sector Biotech & Life Sciences
Share Price A$0.072
Fully Paid Ordinary Shares (m) 150.54
Options (ex $0.18) (m) 2.93
Options (ex $0.10) (m) 14.75
Options unlisted (m) 12.13
Market Capitalisation (undil) (m) 10.8
12 Month Share Price (High) A$0.063-$0.225
Directors
Prof Gregory Rice Non Exec Chairman
Mr Nick Gatsios Managing Director
Mr Stephen Copulos Non Exec. Director
Mr John Richard Evans Non Exec. Director
Dr Stewart Washer Non Exec. Director
Major Shareholders
Copulos Group 22.76%
Supermax Pty Ltd 4.61%
Mr Nick Gatsios 4.39%
Analyst
Dennis Trlin +61-8-9321-3277
Share Price
18th October 2010
ASX Code: HTX
Speculative Buy
HealthLinx Limited
OvPlex? leads the Pack
Page 2 ? Copyright ? 2010 RM Research ? www.rmresearch.com.au
COMPANY OVERVIEW
HealthLinx is a biomarker and diagnostic company with a core focus of developing novel
blood based diagnostics for targeted diseases with unmet market need. The core product of
HealthLinx is OvPlex? a 5 biomarker, ovarian cancer diagnostic. The Company?s strategy
is to develop new and increasingly accurate next generation diagnostics and then utilise
license partners for global sales. HealthLinx also has a strong pipeline targeting prostate
cancer, colorectal cancer among others.
CORE STORY
OvPlex? is the world?s first early stage ovarian
cancer diagnostic test for symptomatic women
with a 92% diagnostic efficiency and is currently
distributed in Singapore, Australia, and the
United Kingdom.
Binding terms sheets have been executed for the
product to be launched in Israel and other
countries are under negotiation.
HealthLinx has established a comprehensive commercial strategy for OxPlex?,
involving
i. Securing significant institutional support to provide independent scientific data on
the performance of the test;
ii. Increase the number of global jurisdictions where OvPlex? has been validated by
senior healthcare professionals and utilised in the healthcare system;
iii. Increase commercial outcomes through increased sale revenue.
Phase 2 Biomarker Trial Successful
The Phase 2 trial was completed successfully and independently reviewed and published in
an international peer-reviewed scientific journal (Edgell et al. Cancer Res Clin Oncology
(2010) 136: 1079-1088. The retrospective case-control study was based on 362 plasma
samples taken from women with ovarian cancer (n=150) and healthy control (n=212).
A classification model was built and made up of five biomarkers of ovarian cancer, CA-125,
C-reactive protein, serum amyloid A, interleukin and interleukin 8. Results showed that the
Ovplex? is a superior performing test than CA-125 alone in terms of diagnostic efficiency
and in early stage detection of the disease.
In addition, a published report by biostatistics group Emphron Informatics used a bootstrap
test for equality of AUCs in regards to all testing cases and early testing cases- a positive
value implied superiority of the HealthLinx diagnostic. In summary the report concluded
that;
i. That the HealthLinx diagnostic clearly outperformed the referenced diagnosticstatistically
higher ROC AUCs were achieved.
ii. The HealthLinx diagnostic is demonstrably able to detect early stage ovarian
cancer.
The road to clinical acceptance
Whilst initial Phase 2 results showed potential, we point out that further clinical studies are
currently being advanced to validate the product internationally. HealthLinx has established
a solid scientific strategy for product approval and this has resulted in the commencement
of a multi-centre multinational study involving 1150 samples. The design of this study is
sound and will allow direct determination of sensitivity and specificity of OvPlex?. In
addition, the study will aim to test whether the addition of two new biomarkers AGR2 and
HTX010 are expected to improve the sensitivity and specificity to greater than 97%.
Collaborative partnerships for this study have been secured with key clinical opinion leaders
in the U.K and Singapore. Ethics approvals have been obtained in South Korea for the
commencement of a 220 patient study for KFDA and HIRA registration, allowing products
sales in Korea on completion.
Better health outcomes through
early diagnosis
Phase 2 trial was completed
successfully...
Page 3 ? Copyright ? 2010 RM Research ? www.rmresearch.com.au
The trial in South Korea will be conducted by Professor Byoung-Gie Kim of Samsung
Medical Centre and Sungkyunkwan University School of Medicine. Professor Kim has also
assisted in securing other institutions for participations in the trial which include Asan
Medical Centre, Seol National University Hospital. The study in Korea will take
approximately 12- 14 months to complete before submissions are forwarded to the KFDA.
Securing a fourth jurisdiction of South Korea will increase the market potential to
approximately 250,000 tests for OxPlex?. Ovarian cancer has grown exponentially in Asia
and in South Korea alone there has been an increase of 10% growth rate in newly
diagnosed ovarian cancer case in the past four years.
Key points
i. OvPlex? performed well in Phase 2 biomarker trials demonstrating superior
performance to CA-125. OvPlex? is addressing a market with a large unmet market
need; it is estimated that the ovarian cancer diagnostic market is worth in excess of US
$270m pa.
ii. Options for ovarian cancer diagnosis are limited for symptomatic women and we
consider that alternative options for diagnosis would be highly regarded.
iii. Vermillion Inc provides an indication of the potential uplift in valuation of the HealthLinx
product offering. Vermillion Inc is listed on the NASDAQ with a market cap of U.S $65m.
Two of the company?s three ovarian cancer products include OVA1? which utilises five
biomarkers to evaluate an anneal mass prior to a surgery to identify cancer so that
patients can be referred to a specialist for initial surgery. In addition a high risk triage
test is being developed by Vermillion Inc as a biomarker technology for high risk
individuals. The third product in their offering is an ovarian cancer prognosis test which
is utilising their own biomarker panel to assist practitioners to assist in the diagnosis of
ovarian cancer.
iv. We believe a larger institutional placement for HealthLinx in the order of A$10m + is
necessary for future development and assume that this could happen in the current FY.
The SpringTree facility is convertible at an average monthly discount to the market and
we consider that replacing this type of facility would provide a better outcome for
stakeholders.
v. OvPlex? is already starting to gain international recognition. Recently OvPlex? was
awarded BioSpectrums Asia?s Product of the year award for 2010. The independent
panel of judges included sciences veteran and industry analyst and financier Dr Steven
Burrill and Industrial Technology Research Institute Vice-President Dr Chungcheng Liu.
vi. Lab based diagnostics are of high value in detecting diseases at an early stage. In 2003
it was estimated that the IVD market was worth US$23 billion. It is predicted that the
market will experience significant growth in coming years due to increased trends of
decentralised and miniaturised diagnostic procedures. HealthLinx is in a good position
to capitalise on these trends through its suite of non-invasive multimarker diagnostics.
vii. To date there is no evidence that proves that OvPlex? will save lives in the long term;
however the clinical study indicated that OvPlex? correctly classified 10 women out of
29 women that were misdiagnosed by using CA 125 alone in the study. We also point
out that OvPlex? is not a therapeutic drug but a diagnostic tool used to provide data
that informs clinical decisions.
viii. OvPlex? is not marketed as a test that should be used in isolation. It is a test which
can be used by clinicians in assisting investigations when women present with ovarian
cancer symptoms. In addition the OvPlex? test utilises CA-125 in its suite of
biomarkers and therefore results can be compared to the CA-125 result assisting in
preliminary investigation.
ix. We believe that ovarian cancer diagnosis is at the crossroads and physicians and
patients seek greater options for diagnosis and testing. Thus an affordable test which is
more accurate than CA-125, potentially has the ability to grow exponentially in coming
years.
Prostate Cancer Diagnostic
Progress is being made on the company?s prostate cancer diagnostic. We understand that
newly released data may be the foundation for development of a new and more accurate
diagnostic for prostate cancer.
PSA is the current standard biomarker used for diagnosis of prostate cancer and is the most
widely used prostate cancer screening tool with 63.1% specificity and low sensitivity of
34.9%. The performance to date of PSA has been regarded as poor and suggests that
opportunities exist for a more effective method for the detection of prostate cancer.
IVD market worth in excess of
US $23 billion
FIGURE 2: Plasma CM1
(source: HealthLinx)
Promising initial data on
prostate cancer diagnostic
Early detection saves lives
Distribution underway in robust
markets
Page 4 ? Copyright ? 2010 RM Research ? www.rmresearch.com.au
Prostate cancer is the ninth most common
cancer in the world. Worldwide there are
more than 679,000 new cases of prostate
cancer identified in 2002 and in excess of
221,000 deaths.
HealthLinx has named the biomarker in
question CM1 and new patent
applications have been lodged.
Figure 1 shows plasma concentrations of
CM1 In patients with prostate cancer, 30
samples of well defined prostate cancer
plasma were used with 14 male controls.
Plasma concentrations of CM1 were far
below the limit of detection in the control
male population which was tested and
only three samples registered with
substantial CM1. In comparison 27 out 30
prostate cancer plasma samples showed
measurable and elevated concentration of
CM1. The data is currently being reviewed with a group of clinicians and it is expected that a
study will be designed to validate the utility of such a technology.
FUNDING
The company is well funded for future clinical trials. HealthLinx has $6.25 million dollars (as
at 6 October 2010) in its drawdown facility with New York based Springtree opportunity fund in
addition to a convertible note with a major shareholder the Copulos Group that will not be
drawn down on. There is approximately 10 months of available funds for future cash
requirements.
HealthLinx has secured a $750,000 grant under the Victorian Science Agenda Investment
Fund from the Department of Innovation, Industry and Regional Development, Victorian
Government to assist in costs of the second study.
In June 2010, the company secured $0.75m in a private placement of 7,500,000 ordinary
shares at 10 cents with free attaching options.
DISTRIBUTION OF OvPlex?
U.K
HealthLinx has established several distributions points for OvPlex? in Australia and
overseas. Intus Healthcare its U.K distributor distributes OvPlex? through its partner Spire
Healthcare. Spire is the UK?s second largest private hospital group providing pathology and
outpatient services for OvPlex? in 18 hospitals throughout the U.K.
Australia
OvPlex? is distributed through Healthscope Limited, which has in excess of 340 collection
centres throughout Australia. The cost of OvPlex? in Australia is $200 and is made available
through GP referral.
Singapore
OvPlex? is distributed in Singapore by INEX which has rights to distribute OvPlex? in
Singapore, Thailand Vietnam, Malaysia, Indonesia and India. We believe that the South East
markets present a significant market opportunity for HealthLinx considering that collectively
these regions have a market size of approx. 1.5 million tests, royalties received by HealthLinx
equate to A$24 per unit sold. OvPlex? is sold through Quest laboratories at a cost of
SGD$300 per test. HealthLinx expects the product to be available throughout Singapore at
major hospitals and clinics by end of this calendar year.
Quest laboratories is the largest independent non-hospital based laboratory in Singapore,
employing over 200 staff and more than 38 couriers who visit clinics twice or three times a day
collecting samples as well as the distributing reports and consumables throughout Singapore.
FIGURE 1: Plasma CM1: Con
vs Prostate Ca
HealthLinx remains well funded
Several distribution points have
already been established for
the company
Page 5 ? Copyright ? 2010 RM Research ? www.rmresearch.com.au
Israel
An exclusive agreement has been signed with Medison Pharma Limited, an Israeli marketing
company which distributes pharmaceuticals, medical devices and diagnostics. The terms of
the agreement comprise of Medison Pharma commercialising OvPlex? in Israel. The
diagnostic division of Medison is active in personalised medicine and is an exclusive
marketer for Cepheid?s GeneXpert and AutoGeonomics Infiniti used for personalised
molecular tests in the fields for cancer, genetics, pharmacogenomics and infectious
diseases. Under the agreement Medison has been contracted exclusive rights for 10 years to
market distribute and sell OvPlex? in Israel. The Israeli population has a high rate of
prevalence of ovarian cancer, more than double the incidence of ovarian cancer than
Australia. HealthLinx will entertain double digit royalties from sales by Medison in Israel.
TARGET MARKETS
Growing affluent markets of Asia are a key target for HealthLinx and include China, Taiwan
and also the Middle East, which are some of the fastest growing economies where we
envisage that OvPlex? could gain market share amongst the growing middle class. It is
estimated by 2015 that China will have a middle class population which succeeds that of the
United States.
U.S Distribution on the horizon
The holy-grail for OvPlex? is the United States, a country where over eight million CA-125
tests are sold every year. HealthLinx has set out a detailed strategic plan for entering this
market. We understand that the company is currently in discussions with various U.S parties
to secure local trials for this jurisdiction.
HealthLinx is targeting distribution partners which meet the following criteria;
? Long established distribution channels in the U.S;
? In house clinical trial capability;
? A track record of partnering on diagnostics;
? Production capacity of antibody and ELISA to meet sale demands;
The U.S accounts for 50% of the current target market for ovarian cancer, consequently the
success of OvPlex? will largely be linked to successful FDA approval.
HTX Vision > > >
RISKS
? Whilst the diagnostic has previously received regulatory approval in certain jurisdictions,
there are no assertions that FDA approval will be granted for the product. We also point
out that confirmatory trials on a larger scale may not bear promising results as that of the
recent Phase 2 trials.
Exclusive agreement has been
signed with Medison Pharma
FIGURE 2: A new vision for
ovarian cancer diagnostics
(source: RM Research)
Regulatory risks remain
Ovarian cancer
diagnosis
Limited options
available ???
Changes:
? OvPlex? used globally
through central distribution
points.
? HealthLinx recognised as a
leader in the development
of biomarkers for the early
detection and intervention
of ovarian cancer.
Page 6 ? Copyright ? 2010 RM Research ? www.rmresearch.com.au
? Further capital raisings are required to fund the current burn rate as the company has
sufficient funds for another ten months of clinical development.
? Product uptake may fall short of expectations as a consequence of clinical results that do
not validate the performance of the product.
? New diagnostics can be introduced by competitors, which would be detrimental for
OvPlex? sales.
DIRECTORS AND MANAGEMENT
We highly regard the management team which has a mix of both solid commercial and
scientific acumen.
Dr Gregory E Rice Non Executive Chairman
Dr Rice is a NMMRC Principal Research Fellow at the Baker-IDI Heart and Diabetes Institute
and Chief Scientist at the Mercy Perinatal Research Centre at the Mercy Hospital for Women.
Dr Rice is highly regarded in the fields of reproductive biology. He holds a BSc (hons), PhD,
and a Grad Dip Management and Master of Health Administration.
Stephen Copulos Non-Executive Director
Mr Copulus is a director of The Copulos group which is the single largest shareholder in
HealthLinx. His career includes 15 years in high level management roles. Mr Copulos is
currently the chairman of QSR Pty Ltd, the largest independent KFC franchise in Australia and
a Non-Executive Director of listed company Medivac Ltd.
Nick Gatsios Managing Director
Mr Gatsios is a co-founder of HealthLinx. Previously Mr Gatsios was the co-founder of
Teraform advisory that was established in 2001 for the advice on the commercialisation of
intellectual property sourced from universities and research institutes in Australia. Mr Gatsios
has an extensive network of Australian and International financial institutions in particular the
US.
UNDERSTANDING OVARIAN CANCER
? Ovarian cancer can be defined as cancerous growth which originates from the ovary.
? 1 in 77 women in Australia will develop cancer before 85 years of age.
? More than 12,000 women are diagnosed with ovarian cancer in Australia every year and
800 die from the disease.
? In the United States it is estimated that 21,880 cases of ovarian cancer will originate in
2010, with an estimated 13,850 deaths.
? 75% of cases of ovarian cancer are diagnosed at a late stage.
? 80% recovery can be achieved if detected early.
? In the united states it is estimated that in excess of 10 million women are at high risk of
developing ovarian cancer based on a number of factors
? Regular screening of the population is not endorsed by professional societies in the
United States. Current screening tests include CA-125 marker, CT scans and
transvaginal ultrasound.
Directors and Management are
highly regarded by RM
Research
1 in 77 women will develop
ovarian cancer
Page 7 ? Copyright ? 2010 RM Research ? www.rmresearch.com.au
Research Analysts
Guy Le Page Director +61 8 9321 3277 [email protected]
Robert Brierley Resources Analyst +61 8 9321 3277 [email protected]
Dennis Trlin Industrial Analyst +61 8 9321 3277 [email protected]
Registered Offices
Perth
1171 Hay Street
West Perth WA 6005
Phone: +61 8 9321 3277
Fax: +61 8 9321 8399
PO Box 154
West Perth WA 6872
Email / Website
[email protected]
www. rmresearch.com.au
RM Research Recommendation Categories
Care has been taken to define the level of risk to return associated with a particular company.
Our recommendation ranking system is as follows:
Buy Companies with ?Buy? recommendations have been cash flow positive for some time and have a moderate to
low risk profile. We expect these to outperform the broader market.
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broader market. These companies also carry a higher than normal level of risk.
Hold A sound well managed company that may achieve market performance or less, perhaps due to an
overvalued share price, broader sector issues, or internal challenges.
Sell Risk is high and upside low or very difficult to determine. We expect a strong underperformance relative to
the market and see better opportunities elsewhere.
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without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial
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DISCLOSURE: RM Research and/or its directors, associates, employees or representatives may not effect a transaction upon its or their own account in the investments
referred to in this report or any related investment until the expiry of 24 hours after the report has been published. Additionally, RM Research may have, within the previous
twelve months, provided advice or financial services to the companies mentioned in this report. As at the date of this report, the directors, associates, employees,
representatives or Authorised Representatives of RM Research and RM Corporate Finance may hold shares in HealthLinx Limited.