Given BioTime's history of over-promising and under-delivering, as we detailed in a prior article, we felt it would be wise to take a deep look at BioTime's pipeline of products and research and see if it could justify the company's $210 million market cap. While it is difficult to discern what exactly BioTime (BTX) is intending to focus on, given its myriad subsidiaries and frequent press releases, we have examined the highlights of BioTime's operations.
We'll start with PanC-Dx, which has generated much attention recently. The announcement of PanC-Dx snapped BioTime's shares out of their long slump last year, with shares surging more than 40% in a matter of days in December 2011 following the announcement. In the company's press release, it stated:
"[Panc-Dx is] a novel diagnostic device discovered at BioTime and OncoCyte to detect the presence of various human cancers, including cancers of the breast, lung, bladder, uterus, stomach, and colon, during routine check-ups. PanC-Dx would require only a simple antibody-based blood test similar to that commonly used to screen for prostate cancer. Initial studies performed by OncoCyte have indicated that PanC-Dx may be useful for detecting a much wider range of cancer types than that detected by blood tests currently available to clinicians. By facilitating early non-invasive detection, PanC-Dx could lead to more successful therapeutic outcomes while reducing the costs of cancer monitoring and increasing the availability of affordable cancer screening worldwide. BioTime's goal is to launch PanC-Dx in Europe in 2013."
Our research into PanC-Dx leaves us very skeptical that it will end up being worth anything close to the more than $100 million valuation that investors assigned to the product. For one thing, note that the company's press release includes vague language such as "Initial studies […] have indicated that PanC-Dx may be useful," and "PanC-Dx could lead to more successful therapeutic outcomes." This is very unclear language. There is no mention of any specific results of the company's "initial studies." It is very hard for investors to get a read on how effective PanC-Dx may end up being, and we would guess that if the company had more specific positive results, it would share them.
Yet despite the vacuum of data, the company is pushing ahead with sending this product to the European market. BioTime anticipates launching PanC-Dx "by 2014" according to its website. It will do so by utilizing the CE mark process to bring the product to market. While this would, at first blush, seem to be a good sign, on further reflection, it bodes poorly for PanC-Dx's prospects.
This is due to the fact that the CE mark is, as BioTime's press release itself states, a designation that companies can grant to their own products. As the EU's informational document about CE marking explains:
"CE marking is a key indicator of a product's compliance with EU legislation and enables the free movement of products within the European market. By affixing the CE marking on a product, a manufacturer is declaring, on his sole responsibility, conformity with all of the legal requirements to achieve CE marking and therefore ensuring validity for that product to be sold through the European Economic Area." (emphasis in original)
Yes, you read that correctly. For BioTime to be able to get the CE mark and begin selling its product in the European Economic Area, all it has to do is to declare that its product conforms to all the legal requirements of European law. This, as one can imagine, is a fairly low barrier to entry, and there is every reason to expect that BioTime will be able to achieve CE marking for PanC-DX by 2014 as it anticipates.
That stated, we question the utility of obtaining the CE mark rather than following the more traditional route to market. The CE mark is in no way a substitute for proper approval of the standard body that approves new medical products and drugs in the EU, The Committee for Human Medicinal Products (CHMP). The CE mark is not a widely-recognized or accepted standard of drug safety or efficacy and is unlikely to do anything to encourage other countries to approve usage of the product. Obtaining the CE mark is, in no way, comparable or equivalent to obtaining FDA approval.
We believe that if BioTime thought highly of the prospects for PanC-Dx, it would immediately begin seeking US approval for the product rather than delaying until at least 2014 when the CE mark designation process is expected to be completed. BioTime's strategy seemingly indicates that it expects fairly low uptake for its product from doctors.
This is only logical given that PanC-Dx is unproven and there is not much in the way of comparable products out there. The company states that PanC-Dx is a serologic screening test to detect many different types of tumors. They claim that it acts by detecting patterns of protein expression that are correlated with the presence of certain types of cancer. BioTime has not made it clear whether these proteins are true tumor antigens or non-specific proteins such as prostate-specific antigens (PSA).
As far as we know, prostate-specific antigens are the only type of antigens regularly used as a cancer screening test, and it remains controversial, as there has been little proven survival benefit from the PSA test. As the National Cancer Institute states:
"Detecting tumors does not always mean saving lives: When used in screening, the PSA test can detect small tumors. However, finding a small tumor does not necessarily reduce a man's chances of dying from prostate cancer."
Furthermore, the National Cancer Institute goes on to note that:
"Using the PSA test to screen men for prostate cancer is controversial because it is not yet known for certain whether this test actually saves lives. Moreover, it is not clear that the benefits of PSA screening outweigh the risks of follow-up diagnostic tests and cancer treatments."
As you can see, PanC-Dx is quite a long shot. BioTime has offered little evidence of what particular cancer antigens it can identify. Even in the one case, prostate cancer, where there is established science supporting the rationale behind the screening test, a survivability benefit has not been established and the test remains controversial. Without numerous expensive studies, it is hard to imagine the FDA approving PanC-Dx or many doctors wanting to prescribe it.
This is particularly true because scientists are quite skeptical that what BioTime suggests PanC-Dx can do is possible. For example, in response to a reader question about using CEA (Carcionembryonic Antigen) as a blood test to screen for colon cancer, Timothy Hoops, MD, and professor at University of Pennsylvania wrote:
"Your question, and the concept you are proposing, is excellent and has been the Holy Grail of cancer screening. A simple blood test that would reliably identify patients with early cancers and rule out those who don't have it would be the perfect screening exam. Unfortunately, no such test exists. CEA is a protein that is found in several tissues, but in particular, it is in the colon. With cancer, this protein can be made in increased amounts and shed into blood. It has been carefully studied as a screening test. Unfortunately, it is not very sensitive. It frequently is normal and would miss cancers. Additionally, other factors can raise the CEA level, such as smoking." (emphasis added)
While in some specific cases in high-risk patients, a blood test may be beneficial in terms of detecting cancer, in general we theorize that PanC-Dx is far too broad to have much use in catching cancer in average members of the populace. We eagerly anticipate seeing any specificity and sensitivity data that BioTime has for PanC-Dx, though we anticipate BioTime may be reluctant to release these data. We suspect that these data will reveal that BioTime has not, in fact, found the Holy Grail. While anything is possible, it is unlikely that a company with an R&D budget the size of a rounding error at many oncology firms has managed to find the Holy Grail of cancer screening.
Given the poor risk/reward profile of trying to get PanC-Dx approved in the traditional fashion, BioTime has decided to take the CE Mark route. This will allow the company to get a maximum number of press releases published for its buck, since the cost to bring a product to market via CE Mark is much lower than going through the FDA. This potentially allows the company to tout the prospects of PanC-Dx up until its European launch and then quietly drop it off the radar after revenues fall far short of expectations.
This would follow well in the footsteps of both Hextend and the company's more recent efforts to be the "picks and shovels" provider of stem cells and research tools to other researchers. Both of these efforts were highly anticipated, and then fell horribly flat. Remember, BioTime claimed that Hextend was supposed to address a market that produced $750 million of revenue a year, and yet Hextend produces only a million dollars a year of revenue. While BioTime happily forecasts that oncology diagnostics will be an $8 billion market by 2014, its product does not appear to be the correct one to capture much of that market.
There is another twist to the PanC-Dx story. BioTime is licensing the antibodies for PanC-Dx from an almost entirely unknown Chinese firm named USCN Life Science of China. USCN is a small Chinese firm that, according to its website, "mainly manufactures detection reagents used for life science research." In addition to licensing antibodies for PanC-Dx from USCN, BioTime will also be distributing USCN's ELISA and CLIA kits that purportedly detect a wide array of other proteins for the stem cell research market.
As of last year, USCN had an annual revenue run rate around 40-60 million RMB (~$6-$10 million). This is a rather small number, particularly given that the company has 59 distributors according to its website. Given the meager amounts of revenue USCN generates from its distributors on average, we are very skeptical that BioTime subsidiary LifeMap Sciences' deal to distribute USCN's ELISA and CLIA kits will generate much revenue either.
Our concerns are magnified by the fact that despite much hype, BioTime's stem cell research products division has produced a woefully tiny amount of revenue over the past several years. As can be seen in the 2011, 2010 and 2009 10Ks, BTX as a whole has generated than less than $2 million of revenue annually for the past five years, excluding grant income which merely refers to funding received by third parties for research and development as opposed to sustainable revenue from the sales of products or serv
It would be irrational to expect BioTime to achieve better results with its latest foray in the sector. In addition, BioTime is not an exclusive distributor for USCN's products in either the United States or its LifeMap subsidiary's headquarters, Israel. We doubt BioTime has much if any competitive advantage in marketing USCN's products in comparison to USCN's other 58 distributors.
As we have noted in our previous articles, BioTime has created many different subsidiaries and offered investors numerous different strategic initiatives that have failed to generate meaningful amounts of revenue. We view it as extremely likely that the strategic partnership with USCN will follow this same model, generating few tangible results for shareholders.
Finally, we will address two recent deals BioTime has participated in. The first of these is BioTime's partnership with Jade Therapeutics. BioTime announced on July 17 that they had formed a sublicensing and supply agreement in which Jade will use BioTime's Hystem hydrogels. Jade intends to use these to facilitate delivery of human growth hormone to repair eye legions. However, like many BioTime press releases, this one gives little expectation of any significant future revenues. For one, the press release states that "financial terms of the transaction were not disclosed." We believe that the amount of revenue coming to BioTime is not likely to be significant enough to be worth reporting.
In addition, a Google search for "Jade Therapeutics" shows very little other than its deal with BioTime. In fact, of the top 10 Google results for "Jade Therapeutics", seven are pages regarding Jade's agreement with BioTime. Also, Jade's website is extremely barebones in appearance, and a search of its domain registry shows that it was not launched until February of this year. Conclusion: there is little reason to expect this new and unheard of company to produce much revenue at all for BioTime.
BioTime also recently announced that its subsidiary LifeMap Sciences Inc. completed the acquisition of XenneX Inc., a company which markets GeneCards - a product that allows researchers to access data from a database of human genes. Again, the details are less than inspiring. LifeMap's CEO, David Warshawsky, founded XenneX back in 2003, and since then, XenneX has seemingly failed to develop a profitable business. According to BioTime's most recent 10-Q, there is no assurance that LifeMap "will be able to generate sufficient paid subscriptions for use of data base to allow us to recover our investment or earn a profit." In other words, BioTime paid several million dollars for a likely unprofitable business that does not appear to be accretive to earnings anytime soon.
We would additionally note the related party nature of the Xennex acquisition. Xennex's shareholders were David Warshawsky, Yaron Guan-Golan, Kenneth Elsner, Yeda Research and Development Company, Ltd., as disclosed here. Warshawsky was the CEO of BioTime's LifeMap prior to the Xennex acquisition, while Elsner is listed as one of the founding members of LifeMap (see here). As consideration for their shares in Xennex, shareholders Warshawsky, Guan-Golan, Elsner and Yeda received 1,362,589 shares of LifeMap stock and 448,430 shares of BTX (see here). The BioTime shares alone were valued at approximately $2 million.
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