Preview of AspenBio's Potentially Blockbuster Clinical Trials

Includes: BIOP, DNDN, GSK, NVS
by: Dan Weiss

When: Clinical trial results are anticipated to be released by AspenBio (APPY) for its appendicitis detector, AppyScore, anytime between May 4- May 18 according to a March 23 press release from the company.

What: The clinical trial was completed in late March at 12 hospitals throughout the United States to measure the effectiveness of AspenBio’s rapid blood test, AppyScore, in combination with other common blood tests to detect appendicitis. The current care of conduct for suspected appendicitis is a clinical diagnosis with an abdominal CT scan which can be very expensive and in the case of unnecessary CT’s can expose patients to potential risks from radiation.

The Trial: The clinical trial was administered at 12 hospitals with approximately 800 patients spread out throughout the United States. The three endpoints being analyzed in the clinical trial are the AppyScore test alone, AppyScore in combination with a white blood count and AppyScore with a neutrophil count.

The critical level to look for especially with the AppyScore in combination with either the white blood count or neutrophil count is a NPV of 90% or greater which all indications from prior clinical results show should be achievable (see my prior posts on AspenBio for more details). Strong clinical results from the trial would provide the company with a very high likelihood of FDA approval for the faster rapid test (expected in late 2010 or early 2011) as the key issue for the FDA is efficacy as safety should not be a major concern for a blood test.

Market Potential: Based upon a study conducted by Kalaroma Information, a major publisher of market research in the medical field, the potential U.S. market for AppyScore within the emergency room setting is approximately 5.6 million tests with a potential global penetration of upwards of 13 million tests per year.

Based upon prior conversations with hospitals as well as company representatives I anticipate an average selling price for AppyScore of roughly $100 (likely $80-150) which would give a potential global market of more than $1 billion per year once it reaches full commercialization. It is also possible that the potential market may be underestimated in the Kalaroma survey as according to a study conducted by the Centers for Disease Control of emergency room visits in 2004, patients complaining of stomach and abdominal pain, cramps and spasms were the #1 principal reason for visits with over 7.5 million or 7% of all emergency department trips in that year.

In addition, the figures do not include any potential sales from primary care or critical care physicians. AppyScore could also be assisted by recent FDA initiatives to reduce the amount of radiation from CT and other medical imaging brought on by unnecessary testing and by the relatively low cost as compared to CT scans which can cost several hundred dollars each.

As with any new medical device or drug, it will likely take a significant period of time for large market penetration of AppyScore to occur and therefore revenues in the first couple of years after commercialization may be significantly lower than the overall market potential. It is also very possible for the company to enter into a strategic partnership with a larger medical company to assist in marketing and distributing AppyScore. It’s also important to note that the clinical study is for an ELISA format which is a 45 minute test but the company anticipates having full approval for an even faster 15 minute test.

Potential Value: As of 3/5/10, AspenBio had 37.5 million shares outstanding with cash, cash equivalents and short term investments as of 12/31/09 of $13.8 million. AspenBio sold 5,155,000 shares of common stock in late 2009 and according to company statements they have enough cash on hand to fund operations for at least the next 12 months without an additional offering.

Nevertheless, due to issuance of stock options and any potential dilutive impact from additional stock issuance (which is unanticipated in the short-term) I have modeled in approximately 43 million shares for the end of 2010. If the clinical trials are successful and the company is able to gain full approval for the 15 minute test in early 2011, the shares could be valued in a range of $12-16 per share upon approval based upon $500 million in sales in 2013 with a ramp-up in sales from 2011-2013 with a more intermediate target of roughly $8 if clinical trials show statistically significant positive results.

If the clinical trial results do not meet the primary or secondary endpoints then the company’s value would be placed on its animal business where it has a partnership with Novartis. Note that any potential strategic partnerships could also have a major impact upon the ultimate valuation for the company.

For additional information on the company’s management team, history and other products please feel free review to review my prior write-ups here and here.

Disclosure: Author is long shares of APPY

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