Yes, another LONG post, but I think it’s useful to look back on the various deals that POH have entered into over the past three years.
Phosphagenics, like every other biotech yet to seal a “company-making” deal, has its permanent skeptics, as well as its momentary doubters. It’s understandable that waiting tests patience. The wisdom of POH’s strategy is debated; occasionally, whether a real strategy even exists is questioned.
Phosphagenics’ core technology (TPM transdermal delivery) has determined which pathways the company has taken in order to add value. While its central focus has been on extracting maximum shareholder value, long-term, through the development of initially one potentially high value lead product (in this case, Oxycodone patch), the company has recognized the need to simultaneously accelerate revenue streams while minimizing expenditure.
From Phosphagenics’ website, the stated strategy is “The route to market for Phosphagenics’ products is through partnering at the appropriate stage in a product’s development, so as to maximise return on the Company’s R&D investment. Phosphagenics will however aim to manufacture and supply the active ingredients to its partners or distributors where commercially feasible. To maximise long-term shareholder returns, Phosphagenics is progressing towards a self-funding model. Cash generated from the ‘faster to market’ personal care products will assist in funding pharmaceutical opportunities to a stage where a rewarding partnership/licence agreement can be negotiated.”
As the company progresses down its main pathway towards product commercialization, it faces a fine balancing act between time-to-market pressures, risks, interdependencies and expected returns. In the course of balancing these competing pressures, the company has announced numerous “deals” and “collaborations” in the past three years. Some shareholders have questioned both the quality and number of deals.
Therefore it is pertinent to examine the deals entered into thus far, their nature and possible justification.
2009
• CSL – described as a “research and option agreement” and “an early stage research collaboration”. POH’S role was to develop new formulations using TPM with unidentified protein-based formulations provided by CSL. CSL’S role was to then assess these formulations in animal models. If CSL exercised its option to proceed, undisclosed milestones and royalties were payable. The company pipeline shows this collaboration to still be current. COMMENT: This should be viewed as a longer term pipeline project which, IF it is for transdermal vaccine delivery, has potential for very high returns if progressed to market. Agreement allows POH to outsource much of its R&D in this potentially highly lucrative leveraging of TPM. Adds attraction to pipeline portfolio for Big Pharma suitors keen on acquiring multiple developments.
• Le Métier de Beaute – in this agreement, high-end New York based beauty retailer LMDB was granted a licence to manufacture and sell a cosmetic range using TPM in the US. LMDB was to be responsible for manufacturing, packaging, marketing and distribution costs, with profits to be shared 50/50 with POH. COMMENT: A quick-to-market, shared risk, minimal cost way to leverage TPM for fast, albeit low returns. Continues to generate small revenues. Downside - that there was no building of TPM brand awareness in the US market as the technology was branded as Syntoc Actif by LMBD.
2010
• Phusion Laboratories – described as a “strategic joint venture” with Quigley Corporation to develop and market OTC products using TPM. 50% ownership deal with Phusion granted a “world-wide, exclusive, royalty-free licence.” Quigley was to pay US$1million and 1.44 million Quigley shares to POH. COMMENT: A shared risk, medium term project. Foot in the door to US pharma industry. Current status unclear – indefinitely delayed. Contributed a small payment to POH at little cost.
• Calzada – an in-licensing deal for POH. exercised by option after a 12 month collaboration in which POH reformulated Calzada’s oral anti-fat peptide into a cosmeceutical anti-cellulite cream. Undisclosed royalties to be paid on sales. COMMENT: A relatively low-cost, fast-to-market, low-risk to potentially high benefit ratio commercial application of TPM. Providing modest income stream to offset company cash burn. Revenues should rise with planned near-term entry into Asian, US and European markets. Additionally provides opportunity to build TPM brand awareness.
• Novartis – described as a “global agreement” for use of TPM/Insulin in companion animals. Novartis to pay costs. Option to proceed with upfront, milestones and royalties attached. COMMENT: First agreement with a major foreign pharma, providing important validation. No R & D cost to add this longer-term development to its pipeline and presumed substantial potential revenues. Deal highlights TPMs diverse application.
• 3M - described as a “consultancy agreement” in collaboration to develop a pain patch. Payment terms undisclosed. COMMENT: Probably expensive, but with great outcomes to date, this consultancy with the internationally renowned medical patch experts would appear a good choice. Provides access to 3M’s expertise in this specialist area, thus helping to derisk the project and provide exposure of TPM technology to both 3M and large US pharma players. Provides credibility .Choice of a US contractor probably also strategic in terms of future seeking of FDA approval.
2011
• Global Derma Company – described as a “collaboration” to develop a prescription anti-acne drug in “formulation development studies”. Derma company to pay all development costs. Commercial arrangements to be discussed upon completion of stability trials. COMMENT: Announcement of trial outcome is due. A longer-term deal derisked by derma bearing all R & D costs. Another no-cost entry into a potentially lucrative global market.
• MMA – described as a “partnership” with MMA licensing POH’s technology for a bovine mastitis formula for the Australian and New Zealand markets. COMMENT: Disappointing delay in announcing progress on this expected fast-to-market deal. Highlights versatility of TPM. Leaves opportunity to strike separate licence deal globally. Highly valuable market.
• Rodney Cutler – described as a “collaboration” to develop new hair care formulations with TPM. Under this “non-exclusive licence agreement”, Rodney Cutler is responsible for manufacturing, sale and distribution costs. If option is exercised, undisclosed royalties are to be paid. COMMENT: Another deal highlighting the versatility of TPM. High potential exposure given Cutler is a Brand Ambassador for Redken (L”Oreal). A no-cost, potentially fast-to-market development.
• US Private Derma – described as a “collaboration to develop a prescription drug for psoriasis”. Derma Co. has already received IND approval and has to pay Phase I clinical trial costs. Post-Phase I completion option to exercise, with undisclosed milestone and royalties attached. COMMENT: A longer-term deal, derisked by Derma Co. bearing all R & D costs. Low risk with high potential revenue benefit.
• Sungate – distribution agreement for Sungate to exclusively supply AS Watson with BioElixia products, first for Singapore market and then elsewhere in Asia. COMMENT: A major distribution agreement, given that AS Watson is the world’s largest health and beauty retailer. Great entry point into lucrative Asian beauty market. A fast revenue generator.
• Global Cosmetic Company – described as a “development deal” to conduct human studies on a new TPM cosmetic product. No other details. COMMENT: Opportunity to provide major validation of the TPM technology. Hopefully faster to market than the announcement of details has been. Positions TPM in the Mass Market space. Global reach.
• Themis – described as a “licensing deal” with Indian firm, Themis, to manufacture and sell TPM/Diclofenac gel in India. One year time limit to market. Undisclosed upfront and double-digit royalties. COMMENT: Exciting because the company finally provides some detail! Foothold in the high-growth Indian market with a fast-to-market product.
2012
• Nippon Zoki – described as a “pre-licensing agreement” for assessment of a topical prescription TPM/Diclofenac formulation for the US and Japanese markets. If tests are successful, the companies will enter into a licensing agreement, with terms to be negotiated. COMMENT: A longer-term development , with no costs attached at this stage. Foothold in pharmaceutical in a mature Asian market and chance for further US pharma exposure.
• Korean Drug Company – exclusive distribution agreement to sell BioElixia in Korea, subject to minimum volumes. COMMENT: Further expansion into a mature Asian market. Fast- to-market revenue generator.
• Intas – described as a “licence agreement for manufacture and sale” of three anti-ageing formulations for the Indian market. Intas to be responsible for manufacturing, sale and marketing. Undisclosed royalties. COMMENT: Further foothold in high-growth Indian market in collaboration with a top 20 Indian pharma. Unclear whether for prescription so difficult to judge time to market.
For a biotech such as POH, interdependency with other companies is important, as these alliances allow the company to repeatedly bring its technology to market whilst minimizing risk and spend and speeding up the development process.
INC, a global CRO for the drug development process, observes that many biopharmas are pursuing networked drug development alliances. “These alliances enable executives to bring more drugs to market while creating a risk management environment that avoids additional financial risk or disrupting other programs… To be successful in developing countries, biopharmas require local expertise in compound discovery, clinical testing, and commercialization in each of these countries.” http://www.incresearch.com/Campaigns/201103-Whitepaper/networked-drug-development.aspx
Thus multi-partnering can allow the simultaneous development of multiple products, faster time to market, provide access to capital, provide access to other companies’ specialist skills, provide access to foreign markets and local expertise, create exposure and validate technology. It allows leveraging of the core technology while reducing risk.
A principal concern of some, other than the high number of deals, is the lack of information provided. Placing a value on the company and its portfolio becomes increasingly difficult and it can cause lack of investor confidence in the quality of the deals. In the pharma world of “pathological secrecy” (as John le Carre described it), biotech companies must manage the competing tensions of shareholders’ desire/ right to information, management’s need for positive/ price boosting publicity and the partnering companies’ demand for strict commercial secrecy. The larger partnering company usually wins out and secrecy prevails. This outcome leaves shareholders at the mercy of management. It really comes down to a matter of trust.
Phosphagenics’ shareholders are not alone here. To provide just two recent examples – firstly, Chairman of small Australian biotech Phylogica, in the company’s March 2012 newsletter, ‘The alliance with Janssen… is our broadest and potentially most valuable partnership to-date. Many of you have asked us to disclose more details about the deal, particularly the financial terms. As I am sure you all appreciate, the specific terms of the contract are confidential for commercial reasons.”
Or take this recent release to the London stock exchange from biotech, Physiomics, “Physiomics plc… is pleased to announce that it has signed a new agreement with a major global pharmaceutical company… The project will be performed on a fee-for-service basis.” Predictably, shareholders reacted with frustration to the lack of information - “Which big pharma?”, “…poor pr…”
In my opinion, the deals struck by Phosphagenics’ management over the past three years are in line with the company’s stated strategy and represent an intelligent approach to leveraging POH’s core TPM technology, extracting maximum potential longer term value while managing shorter term capital requirements and risk. The stated aim is to grow the company to a stage where a “rewarding partnership/license agreement can be negotiated.” These multiple smaller deals for multiple products across multiple markets provide geographic reach and promote TPM's versatility without incurring major cost and without selling away too much of the company’s core value. That means, when the offer of that major, rewarding partnership does come, POH will hopefully present as an experienced and networked junior player with major potential value intact.
What’s your opinion?
POH Price at posting:
22.5¢ Sentiment: Buy Disclosure: Held
(20min delay)