Over the past couple of quarters, a small Massachusetts-based life sciences company named Pressure BioSciences (OTC: OTC:PBIO) has announced some significant advances in its nanoemulsion technology. With the development of its proprietary Ultra Shear Technology (UST), the company has now pioneered a process to create nanoemulsions using high pressure (and a minute amount of food-grade emulsifier) alone - a significant potential improvement over the possibly harmful chemical emulsifiers that dominate the food and cosmetics markets today. As such, although the company is quite small (with a market cap of just under $7M) and represents quite a risky investment, Pressure BioSciences and its UST technology are definitely worth watching for the long term.
Pressure BioSciences was initially just one division of a larger company called Boston Biomedica, which Pressure Biosciences' current CEO Richard Schumacher founded in 1986. After starting the company with $3,200 in his garage, Schumacher went public with Boston Biomedica in 1996. From there, he grew his company gradually and eventually built out four different reportable business segments which by 2002 accounted for more than $20M in annual revenue. In 2004, Boston Biomedica sold off the majority of its business for a total of around $30M; however, Richard Schumacher retained the intellectual property related to the company's pressure cycling technology (PCT) and Boston Biomedica's corporate structure, which he renamed to Pressure BioSciences. After issuing a tender offer in February 2005 at $3.50/share to reduce the number of issued and outstanding shares by 5,210,001 (decreasing issued and outstanding shares by nearly two thirds), Schumacher used the remainder of the capital received from selling Boston Biomedica to fund Pressure BioSciences' operations.
Currently, Pressure BioSciences bases its products and services on three proprietary pressure-based platforms/technologies:
Since Pressure BioSciences' inception, PCT has been the company's core business; indeed, Schumacher sold off the rest of Boston Biomedica to focus exclusively on the technology. The PCT platform uses alternating cycles of hydrostatic pressure between ambient and ultra-high levels to safely and reproducibly control bio-molecular interactions during sample extractions. Though PCT is more expensive than many other methods of sample extraction, Pressure BioSciences is confident that its PCT-based sample extraction instruments provide superior results to other methods of sample extraction, claiming that its instruments yield higher quality results and allow for safer, reproducible, and more precise sample extraction.
Currently, the company's primary focus is in producing and distributing its recently released PCT-based Barocycler EXTREME instrument (shown below). This sample extraction instrument, which is currently available globally to biopharmaceutical drug manufacturers, has various applications for use in the design, development, characterization and quality control of biotherapeutic drugs. The PCT platform is also used in such areas as biomarker and target discovery, soil & plant biology, anti-bioterror, and forensics.
Barocycler 2320EXT Instrument
Source: Pressure BioSciences
At present, the company currently has over 300 PCT instrument systems placed in approximately 175 academic, government, pharmaceutical, and biotech research laboratories worldwide. To this point, the majority of Pressure BioSciences' revenue has come from PCT platform sales.
In December 2017, Pressure BioSciences acquired all assets (including patents, equipment, and intellectual property) of Barofold, a biopharmaceutical company focused on protein refolding research. Notably, at the request of Barofold, the majority of the purchase price was paid in restricted common stock of Pressure BioSciences. Central to the acquisition was Barofold's PreEMT platform, which can be used to significantly impact and improve the quality of protein therapeutics. Furthermore, Pressure BioSciences claims that the technology can save drug manufacturers anywhere from $2-10M in annual production costs.
PreEMT technology employs high pressure for the disaggregation and controlled refolding of proteins to their native structures at yields and efficiencies not achievable using existing technologies. According to the company, the PreEMT platform has been shown to remove protein aggregates in biotherapeutic drug manufacturing, thereby improving product efficacy and safety for both new-drug entities and biosimilar products. The PreEMT platform can also help companies create novel protein therapeutics, accelerate therapeutic protein development, manufacture follow-on biologics, and enable life-cycle management of protein therapeutics. Finally, the platform is practical for standard manufacturing processes, and is purportedly highly scaleable.
Given that Pressure BioSciences only acquired Barofold's technology in December 2017, the company has not had much time to monetize the PreEMT platform, and 2018 revenue related to the PreEMT platform totaled just $100K. However, the PreEMT platform is compatible with the company's current PCT instrument, meaning that customers will be able to use that instrument for both pressure cycling and protein refolding work. Going forward through 2019, the company hopes that the addition of the PreEMT platform and protein refolding capabilities to its instrument will help boost instrument sales.
The UST platform is based on the use of intense shear forces from ultra-high pressure (greater than 20,000 psi) valve discharge. On a small, laboratory scale, UST has demonstrated an ability to turn hydrophobic extracts into stable, water-soluble formulations. More specifically, the UST platform offers the potential to produce stable nanoemulsions of oils and oil-like products in water.
Nanoemulsions are emulsions in which the diameter of the individual droplets of oil in the formulation is below 100 nm. Incredibly, these nanoparticles are actually below the wavelength of light, meaning that when light is shined through a nanoemulsion, the oil particles are too small to be seen, yielding a clear solution (unlike an ordinary emulsion).
Source: Pressure BioSciences
Given that numerous studies have shown that nanoemulsions can significantly improve absorption and bioavailability of oil-based cosmetics and drugs, UST could potentially present an enormous value proposition to manufacturers in a variety of different industries.
To successfully create stable nanoemulsions, the UST process first forces oil particles into the company's patented BaroShear valve, which contains a nano-sized gap at the end.
Source: Pressure BioSciences
Then, the BaroShear valve uses ultra-high pressure - up to 60,000 psi - to cut large particles of oil into nanoparticles (particles smaller than 100nm in diameter). Notably, the company achieves its nanoemulsions almost entirely via pressure alone - though UST does use trace amounts of food-grade emulsifier, the company asserts that its process uses much smaller amounts of emulsifiers and chemicals than other nanoemulsion processes currently available. Perhaps most importantly, the company claims that its technology is highly scaleable, and hopes to eventually be able to produce an instrument that can process up to two liters of liquid per minute.
Source: Pressure BioSciences
As shown in the diagram below, the BaroShear valve is just one component of the UST process. Pressure BioSciences has also developed patented isolators to keep the fluid being processed completely separated from the pressurizing fluid, adding another barrier to entry to potential competitors and strengthening its own competitive advantage. In the conference call providing Pressure BioSciences' last business update in December 2018, Richard Schumacher indicated that the company is currently in the process of turning the working prototype of the UST instrument into a final product.
These nanoemulsions could potentially have enormous success in many markets, including inks, paints, cosmetics, pharmaceuticals, and nutraceuticals. Within these markets, Pressure BioSciences believes UST could have a significant impact by making medically important plant oil extracts water soluble - for now, the company has identified CBD oil extractors/producers as a market segment it would like to target.
Source: Pressure BioSciences
Applications Outside of Nanoemulsions
Beyond its potential with regard to nanoemulsions, UST may also be applicable to the food industry. The company claims that its technology has the ability to "literally [tear] apart any microbial load" in the fluid being processed - this means that UST may have the ability to destroy bacteria in fluid that might cause spoilage, giving these fluids a much longer potential shelf life. If it functions as conceived, UST will ideally allow for the preparation of higher quality, homogenized, extended shelf-life or room temperature stable low-acid liquid foods that cannot be effectively preserved using existing non-thermal technologies, such as dairy products.
In July 2018, the company received $318,000 of grant money from Ohio State University to develop a technology to process liquid foods and beverages to have long-term shelf stability when held at room temperature (without the use of additives or preservatives). The company is using this money to develop the first UST benchtop instrument, as well as a prototype floor model; presumably, the company will, after developing these machines, begin exploring the potential of UST in food preservation. However, Schumacher has been clear that the food industry is more of a long-term focus for the company.
Though no instruments have been manufactured yet, Schumacher estimated in the December 2018 conference call that various models of the company's different UST instruments might eventually sell for anywhere from $50K-$250K+. The current plan is to sell lab-sized instruments directly to buyers in the life sciences industry, while licensing the technology for higher-capacity, plant-sized instruments to large food companies. At present, however, Pressure BioSciences will concentrate on working within the CBD oil industry.
In Pressure BioSciences' December 2018 conference call, Schumacher commented that CBD is "one of the hottest current areas both for deal-making and investment." According to research conducted by the Brightfield Group, a cannabis-focused market research firm, the hemp-CBD market alone could be worth as much as $22B by 2022. With FDA approval of the first CBD-based drug, Epidiolex, in June 2018, it is clear that the compound has powerful applications across both the nutriceutical and pharmaceutical industry.
Within the CBD market, Pressure BioSciences believes that its UST platform will be able to help CBD oil manufacturers create water-soluble CBD oil products of higher quality than any currently available on the market. In the company's last conference call, Chairman of the Board Jeff Peterson mentioned that the company has tested whether or not a large variety of currently available CBD products marketed as being water-soluble were fact water-soluble; however, he noted that not a single product tested was in fact a truly water-soluble nanoemulsion, and was only able to produce an ordinary emulsion (with decreased bioavailibility and absorption capability). However, after using its prototype UST instrument to process CBD oil, Pressure BioSciences was able to generate truly water-soluble CBD oil which yielded a nanoemulsion. To back up this claim, the company posted a video online demonstrating their tests - sure enough, the UST instrument generates a CBD oil which is truly water-soluble and generates a clear nanoemulsion within seconds.
Given the significant benefits to absorption and bioavailability associated with nanoemulsions, it is clear that UST could potentially bring significant value to CBD product manufacturers. Increased absorption of the end product means that less CBD extract will be needed to achieve the same dosage effects, which would translate into significant cost savings for manufacturers - a powerful selling point for Pressure BioSciences.
Unsurprisingly, there are other companies already working with CBD companies to produce nanoemulsions of CBD oil - however, Pressure BioSciences has several potential advantages over its competitors. First, the process is chemical-free, aside from using trace amounts of food-grade emulsifiers which are present, according to Schumacher, in hundreds of thousands of foods available today. This sets the company apart from the many competitors using chemicals - with often unknown or potentially harmful effects - to create nanoemulsions of CBD oil. Additionally, the company uses higher pressure than its competitors also using pressure-based processes; if, as the company believes, higher pressure allows for a superior nanoemulsion, this fact could prove to be a major advantage for the company over its competitors.
Pressure BioSciences also believes that its UST platform is much more scaleable than the technologies currently employed by many of its competitors in the nanoemulsion space. In the December 2018 business update, Schumacher mentioned that he had already spoken with four CBD companies experiencing issues scaling production using ultrasonic nanoemulsion technology. As such, if the company can achieve its goal of producing an instrument capable of processing two liters of liquid per minute, it will almost certainly gain a huge edge over the majority of its competitors - though one may exist, I have yet to discover a company which can claim to offer such a high flow rate for nanoemulsion processing. As the CBD industry continues to grow, scaleability of production will become key, and Pressure BioSciences has recognized this trend and is seeking to eventually become a leader in large-scale CBD nanoemulsion technology.
For now, the company is focused on CBD in the short-term as a means of driving revenue growth and setting up near-term deals. Though this market segment is just one of the many that Pressure BioSciences plans to eventually target, I think it is prudent that the company has decided to focus on first building out a business within the CBD space. Then, after establishing itself and securing a steady revenue stream, the company will be more able to safely pursue R&D expansion into other market segments without overextending itself.
As of the end of Q3 2018, Pressure BioSciences had just $6K in cash on its balance sheet; though this number appears quite low, the company secured both debt and equity funding after the close of Q3. However, the company does have a concerning amount of debt: a $3.5M revolving note payable and $1.4M of other long-term debt, along with nearly $8.3M of convertible debt. In the December 2018 business update, however, Schumacher addressed this issue, noting that the company had not added to its non-convertible debt balance for four months and stating that the company was focused on paying down its considerable debt in 2019. Going forward, the company plans on financing its operations via convertible debt or equity, and does not foresee any issues obtaining capital going forward.
Total revenue for 2017 was $2.2M, the company's highest annual total, while revenue for the first nine months of 2018 totaled just under $1.8M; additionally, new tariffs between the US and China caused lost sales opportunities in Q3. Schumacher noted in the December 2018 business update that the company appears to be poised to record its best Q4 yet, meaning that 2018 revenues may eclipse those from 2017, despite uncontrollable negative impacts from trade tensions between the US and China. Net loss for Q3 was $10.7M, including $6.1M of interest expense; total net loss for the first nine months of 2018 was $6.3M, but interest expense was only $3.0M, dropping from prior periods as a percentage of net loss.
Currently, Pressure BioSciences trades on the OTCQB tier of the OTC markets, and closed last Friday, March 8, at $3.82/share (market cap of $6.7M). Schumacher communicated to investors in December that, according to the SEC, FINRA, and NASDAQ, the company is NASDAQ-eligible. However, the company must first reach $4.00/share and lower its debt-to-equity ratio, which it is currently pursuing by either paying off or converting existing debt. The company's goal is to get listed on the NASDAQ exchange sometime in 2019.
Given that Pressure BioSciences is quite an early-stage company, there are significant risks associated with any potential equity investment. The greatest risk, as Schumacher himself articulated in an interview he gave in 2008 to a fellow Seeking Alpha contributor, is that Pressure BioSciences is unable to convince its target markets of the need for its potentially revolutionary technology. Though I personally believe that the company's various offerings, particularly UST, offer significant value to manufacturers in many different industries, success is never assured, and the company has a long way to go to conclusively prove the viability of its business model.
In addition, as I mentioned above, Pressure BioSciences has large amounts of debt. Though it appears that management is focused on paying down this debt and reducing the massive interest expense the company is forced to pay out, investors should nevertheless be well aware of the company's significant credit obligations.
Finally, there is the risk that Pressure BioSciences will be unable to secure enough financing to continue operations until it reaches profitability. Though I think it is unlikely that the company will lose access to further capital, given the strong support from current investors, it is not out of the question.
Going forward through 2019 and beyond, Pressure BioSciences will certainly be an interesting nano-cap to watch. Given its small size and the fact that it is still quite early-stage, the company's future is highly uncertain; although an investment now would represent an opportunity to acquire a stake in a potentially revolutionary technology for a low price, it is also hugely risky. However, I think that Pressure BioSciences (and particularly its UST technology) has potential for massive growth over the next few years. The company is slated to hopefully have an exciting year in 2019, and investors might do well to add this underfollowed stock to their watchlists.
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