Douglas MacLellan, the CEO of Radient Pharmaceuticals Corporation (AMEX:RPC) says the monoclonal antibody test that his company began working on twenty years ago and that the FDA and other international agencies have approved, may change how people screen for early cancer detection. Radient's Onko-Sure™ in vitro diagnostic test enables physicians and their patients to effectively monitor and/or detect solid tumor cancers and it is finally ready to enter a broad-reaching commercial phase. The test kit is unique because it detects cancer at the earliest stages and offers hope that more lives will be saved.
"We are currently spooling up a nationwide sales effort to labs around the country," explains MacLellan. "They should be available in major metropolitan areas by June. By year end, we expect to be in all the major labs in the United States. what we did when I took over the business about a year ago was to develop a strategy of utilizing third party pharmaceutical distributors that sell into the IVD cancer/oncology market. Now we have a dozen or more distributors throughout the planet who sell our test kits to laboratories.
"There is no question that we have a good business model now. The margins for manufacturers in our space are at approximately 85% gross margins. This year, along with a new testing service that we expect to introduce by mid-year, we're looking to do about $7.5 million on the top line and making about $3.2 million.
"It's a monoclonal antibody test that we started working on 20 years ago. It finally got approved in the last 24 months by the FDA and we were selling test kits outside the United States for research only. The test measures the amount of degradation of fibrin in your bloodstream. When you get any type of solid tumor cancer growing in your body, even when it's the size of a pin head, that starts generating the degradation of fibrin in your blood. So we're not actually measuring something that's hard to find. We're measuring something in your blood that's coming by like a psunami, so it's quite easy to see. So the question is: 'What is this test, really?' And the Answer is: 'It's a general cancer screening test, the problem is that the FDA does not approve 'general cancer screening tests.' So we had to then focus on what type of cancer do we focus on in order to get approval by the FDA? the first thing we had to do is find a predicate device (A device recently cleared under 510(k) is usually used as a predicate device) and that predicate device was the CEA test for the monitoring of colorectal cancer (Note: the Carcinoembryonic Antigen test looks for certain tumor markers. The CEA is also used as a detector for other forms of cancer, including cancers of the rectum, lung, breast, liver, pancreas, stomach, and ovary. Not all cancers produce CEA, and a positive CEA test is not always due to cancer. Therefore, CEA is not used for screening the general population.) That means that you've been diagnosed with colorectal cancer. you've likely had surgery and maybe chemo and you're determining whether the cancer is going away or staying away.
"So we had the predicate device and we filed the 510(k) so that we were equivalent to or better than the CEA test. Now, from a scoring standpoint, as far as accuracy, we're just a little bit better than they are. That is not the defining piece. The difference is that the CEA is a fairly accurate test for stage three cancer. So if it only picks up stage three or worse, then you've got a lot of cancer growing before it will trigger it. Our test captures it in stage one. We catch early stage cancer. The fact that we are approved for the monitoring of colorectal cancer in the United States is nice, but in reality our test is a general cancer screen and is used and approved as such in a variety of international markets, but not the United States.
"Now, in the U.S. we can, through a CLIA laboratory program, offer a general cancer screen; which we expect to be doing by mid-year, but when it comes to the commercialization and selling to laboratories, we have to continue to sell the FDA approved test, so you can look at it as two products. One is the testing service and the other is actually selling the test kits.
"So how big is the colorectal market? Well, the inventor of the CEA test has estimated that market to be $400-$450 million a year for CEA by itself. That test if manufactured by over fourty different companies now because it's off-patent. Tracking it for better accuracy, although we're trying to get it done, is an enormous amount of work. The cost of the CEA test is approximately $48, so we're pricing it in the same price range. Of course, we feel our test is much better and we're targeting about 25% of the market share that currently uses CEA, which gives us a $100 million a year business in the U.S. alone.
"If you look at our business model from an international standpoint, and in the United States from a CLIA lab environment, we have a general cancer screen that can be provided to patients as part of their annual exams, on a regular basis, at a low cost. What's important with that is that if you're a molecular diagnostics company that has a cancer specific breast cancer test that is really accurate, then combining our business model with theirs- where we are the front line of screening followed by the use of more expensive molecular tests or tools in order to specify the type of cancer, we think there is enormous opportunity- particularly given what we may be getting into under the Obama administration's health plans.
"This is not an on/off test It is not a yes or a no, it has a 'speedometer' on it. To give you an idea, our scale runs from one to a five, effectively and if you're below a one, then you have no cancer or at least nothing to worry about. If you go above that, then you've got to start worrying."
The Onko-Sure™ test kit is sold as a blood test for cancer in Europe (CE Mark certified), India, Taiwan, Korea, Vietnam, and in Chile (research use); approved in the U.S. for the monitoring of colorectal cancer (NYSEMKT:CRC); approved in Canada (by Health Canada) for lung cancer detection and lung cancer treatment monitoring; and in many key markets, has the significant potential to be used as a general cancer screening test.
Asked why the company's stock price is down where it is, MacLellan- who took over as CEO of the company a year ago- offers a logical explanation that sheds even more light on how undervalued the company really is.
"If you go back during the past four or five years," explains MacLellan, "You'll see that our stock profile was certainly in the $3 to $5 range, so what happened? Well, of course, the markets were way off over the last two years, but we also did some financings that were debt related and are now converting. That put some pressure on the stock. In additon, I think we had a confusing story. In 2006 we had purchased a Chinese pharmaceutical company and it was profitable. The reason we purchased that, which had nothing to do with what we were doing here in the United States with diagnostics, was to buy a profitable business. At that point, we still didn't have an FDA approved test. Through that pharmaceutical business, we had sales of approximately $28 million last year and we made money. The problem was that the business also needed a lot of capital to grow it and so the cost of consolidating that division was too costly. Owning that asset, as valuable as it was, was actually hurting us during a time when it was difficult to raise capital. So we announced in the fall of this past year that we were going to either let that part of the company go public on its own or we would sell it off to someone. For the last three years, the people who were in our stock were buying us because we were a Chinese pharmaceutical company that had an invitro diagnostic opportunity. Now we've turned ourselves back into a company with a diagnostics focus that has a Chinese special asset. I think the shareholders that were in our stock at that point were confused about the direction in which we were going, so they got out.
"We've had a transition here where we've really had to redefine ourselves and I think that was critical to a long term success. We believe the diagnostics business is our best and strongest opportunity and we're now fully focused on that with the idea that we will monetize the value of the Chinese pharmaceutical company. We can decide to either spin it off as it's own public company or we can decide to sell it at a slight discount or sell it for, say, a combination of cash and stock in another public company."
In fact, already there is at least one public company quite familiar to readers of BioMedReports, which is rumored to be looking at acquiring the property in just such a scenario.
Given all of these developments and the fact that investors have started to take notice, we would not be surprised to see Radient shares trading at a much higher price level in the very near term.
Disclosure: Long RPC