The early diagnosis of diseases gives the best prognosis for patients suffering from cancers, infectious diseases, and hereditary diseases. Medical diagnostic kits often provide for accurate and quick results which may be used to pinpoint or narrow down the field of possibilities in patients suffering from disease or injury. While imaging techniques are widely used for a host of diseases, costs and side effects may outweigh the benefits of the convenience with a great deal of technical expertise required to interpret results. For example, radiographic imaging dyes injected to evaluate circulatory or cardiovascular issues by making blood flow visible via x-rays can cause Contrast Induced Nephropathy (CIN), permanent damage to the patient's kidneys, particularly those with pre-existing renal (kidney) problems. Roughly 15-20% of all patients undergoing imaging during radiology or cardiology treatments can suffer from CIN, with an estimated death rate of roughly 35% among those stricken. Computed tomography (CT) scans also present risk with the average radiation exposure ranging from 75-400 times as much as a traditional chest x-ray. Not to be understated are the costs associated with the instrumentation and professional interpretation of CT scans, giving a total cost of $300-$5000 depending on the facilities utilized. With the healthcare sector and insurers attempting to cut costs, the market is wide open to reliable, accurate and cheaper diagnostics to diagnose disease, screen patients and to track disease progression.
From an investment standpoint, companies developing and marketing medical diagnostics can be good investments with the right choices made. Although solid revenue generation is indeed possible, the field is getting a bit more crowded with patents covering varying kit types, technologies used to diagnose disease and other bits of proprietary information making profits more difficult to come by with competition around every corner. With this being noted, a recent press release by an emerging molecular diagnostic company caught my eye in February. As I more closely researched the company and its product line, I came to the conclusion that it may be a solid investment with solid near term and longer-term catalysts, potential solid revenue generation from a patent-protected pipeline and a good current cash position. Trovagene, Inc. (TROV) is an emerging medical diagnostics company that is just beginning to garner investor interest. With the validation of medical diagnostics' technologies and market potential already being evident in market leader Quest Diagnostics' (DGX) $8.9 billion market capitalization and 2012 adjusted operating income from continuing operations of $1.3 billion, Trovagene could be muscling into legitimacy with its own novel approach. While Quest and much of the rest of the diagnostics field relies on analyses on blood samples, Trovagene's novel approach utilizes urine samples for its diagnostics. The benefits for this type of sample matrix relative to blood are both evident and hidden with urine sampling being less invasive, requiring little specialized training for sampling, having more stability and able to be shipped at ambient (room) temperature, not construed as biohazards and having only the obvious limitations to sampling size and frequency.
The Basis for the Diagnostics Platform
So, how is it that Trovagene's platform can use urine as its sample media? In our bodies, billions of cells die, are broken down and excreted daily. These cell fragments contain genetic material in the form of DNA and RNA pieces that are filtered through our kidneys and excreted as transrenal DNA and RNA. It is this transrenal material in the form of short nucleic acid fragments that the company's product analyzes to look for biomarkers, gene mutations and abnormalities to diagnose various cancers, pathogens, transplant rejection and hereditary diseases (often in maternal urine as prenatal diagnostics).
A Validated Concept
Great concept in nucleic acid fragment analysis in urine samples, but is this only theoretical or has its use been validated? Trovagene has spent a great deal of time validating its technology through collaborations with multiple entities, predominantly in 2012. Clarification of timelines for additional studies and product launches were included in a February 12 press release with analytical and clinical validation in its CLIA Laboratory for in March as the first mentioned catalyst. This first catalyst is a diagnostic test for the human papillomavirus (HPV) which includes accurately identifying the presence or absence of 15 known high-risk HPV strains using proprietary DNA sequences. Additionally for 2013, the company plans to commercialize a test for the detection of a specific p53 mutation and a specific double mutation in the hepatitis B virus (HBV) and hepatocellular carcinoma (HCC), both huge market groups. Trovagene also anticipates commercialization of tests checking for the oncogene mutations BRAF and PIK3CA (the latter still needing validation) sometime in 2013 as well.
This is a development stage company. What guarantee is there that the company will be able to follow through with these plans and that commercialization of its product line will occur? Trovagene is already implementing its commercialization plan and appears to be ahead of schedule with its first 2013 commercial launch announced yesterday. Apparently clinical and analytical validation went well for the analysis of the 15 known HPV strains using the company's methodology as the press release announced the product is now validated and commercially available. The company's CEO, Antonius Schuh, Ph.D., announced "The launch of our urine-based HPV-HR DNA test represents an important milestone for Trovagene. Non-invasive carrier testing may help to increase awareness of HPV status and could reduce the incidence of HPV-related cervical cancer and other cancers worldwide."
Market Size Addressed
Commercial availability seems to be imminent for the diagnostic tests for multiple indications. What about the targeted market sizes? The best information I can find pertaining to the targeted market group for the cancer diagnostics are in Trovagene's corporate presentations. In the "Corporate Slide Deck," the company profiles its three initial targeted oncogene tests: KRAS, BRAF and PIK3CA. These three mutations occur in nearly 15% of all cancer patients with the expressions seen in 625,000, 729,000, and 989,000 patients, respectively. Remember, these are cancer patient sizes with the specified mutations/expressions, not the market size of the people who should be evaluated to allow for early detection. With preliminary diagnostic prices of $400 per test, revenue can grow rapidly with good marketing campaigns and market penetration. The just-commercialized HPV test itself targets a substantial patient size with 20 million people currently diagnosed with the disease, with 6 million new diagnoses annually. In 2012, the U.S. Preventative Task Force requested that HPV DNA testing should be a mandatory part of cervical cancer screening to enable an earlier diagnosis and thereby help reduce the risk of cervical cancer, a disease HPV has been implicated in.
Intellectual Property Protection a Necessity to Ward off Competition
Large targeted market groups can often indicate solid revenue as the markets are penetrated. However, competition must be fought off in order to protect long-term income for companies with novel products. Intellectual property (IP) protection via patents should be considered a must for companies hoping to secure its long-term competitiveness. With Trovagene's founders among the first to observe and report that free nucleic acids (DNA and RNA) in blood could cross the kidney barrier and be found in urine, the company's IP protection with regard to transrenal nucleic acid diagnostics is substantial. As of the company's January corporate presentation, it had over 42 issued and 51 pending patents globally. Issued patents include, but are not limited to, protection for tumor detection and monitoring, infectious diseases, transplantation monitoring, and prenatal diagnostics. Pending patents (these being issued should be construed as potential, significant upcoming catalyst) include protection for circulating cell-free nucleic acid isolation from body fluids, diagnostic applications of miRNA from urine and other body fluids, and methods for detection of "ultra short" DNA sequences and their applications.
Financials are often the bane of development phase or early commercialization stage pharmaceuticals/biotechs. Trovagene indicated in its Q3 2012 financials that the company had about $7.3 million in cash and equivalents, enough to fund the company through November of this year. However, a November 2012 stock offering shored up the company's financials additionally providing the company with an additional $3.76 million. According to the press release, "The Company now has cash in excess of $10 million, which we expect will be sufficient to fund our operations well into 2014." While Trovagene should still be construed as an early commercialization stage company, I believe any additional financing would not be necessary until late 2013 or early 2014. Even then, successful product launches may garner partnerships, product licensing agreements or at the very worst, favorable financing if necessary.
Putting it all Together
Trovagene is just beginning to show up on many investors' radars. As the company's potential revenue is more fully realized and more of its product line is validated and commercialized, the share price should benefit investors with the foresight or luck to have made opening positions well before it begins garnering more attention. With a current market capitalization of $94.4 million, I believe the company to be a highly-undervalued investment. Interested investors should perform additional research in competing companies to ascertain what they believe its value should be relative to its peers. With a 52-week trading range of $1.86-$8.96, I believe 52-week highs should be imminent if the company's product line progresses as stated in the February 12th timeline for 2013. As additional patents are likely granted, partnerships are announced and other positive catalysts ensue, the year may be promising for Trovagene and its investors. Although downside should always be considered, I believe there to be less risk here with solid near-term financials, one product launch already announced and others to likely follow once the tests are validated. As with any investment, I advise entry and exit plans before opening a position in this company with stop limits appropriately placed to help limit downside risks. With yesterday's closing price at $6.10, support is seen at $6.00 and then $5.70 with technical resistance at $6.70 and $7.00.