Following a stellar year hitting targets and milestones,
listed Dunedin bio-tech company Pacific Edge has been named
Otago Daily Times Business of The Year 2013. Business
reporter Simon Hartley profiles Pacific Edge's decade of
On task are (from left) Pacific Edge chief executive David
Darling, senior scientist Justin Harvey and chairman Chris
Swann, in the company's Dunedin laboratory at the
University of Otago's Centre for Innovation. Photo by Peter
Pacific Edge this year has established a presence in the
lucrative United States health market, where it is spending
millions of dollars marketing its non-invasive bladder cancer
diagnostic tool Cxbladder.
During the past year, the company has notched up massive
share price gains, signed up large US health organisations
and most recently completed an oversubscribed capital-raising
of almost $29 million, its second during the past two years.
For Pacific Edge's long-suffering shareholders, 2014 could be
the year of redemption, as research and development spending
to the year ended March 2014 is estimated at $46 million.
Dunedin businessman and accountant Chris Swann has been with
Pacific Edge since its inception, as a financial adviser from
the early 2000s, then as a director from 2005 before becoming
chairman in 2007.
He credits Pacific Edge's success back to its inception led
by Parry Guilford, the large skill-base within the University
of Otago and in its commercialising of ''raw'' intellectual
Prof Guilford is principal investigator at the university's
Cancer Genetics Laboratory in Dunedin and Pacific Edge's
chief scientific officer.
''We've used New Zealand, as the home market, to develop and
prove the research and the standard operating procedures for
lab work. It is the knowledge base,'' Mr Swann said.
Pacific Edge's Cxbladder, developed over the past decade,
uses a non-invasive urine sample for testing. Its certified
laboratories in Pennsylvania and Dunedin can process up to
260,000 and 35,000 tests respectively annually.
He estimated that while Pacific Edge spent $46 million on
research and development, had it been developed in the US it
would have cost $US400 million-$US500 million to achieve
similar breakthroughs and results.
''We've [also] been fortunate to have a very loyal and large
shareholder base, which has helped immensely in the longer
term,'' Mr Swann said. Shareholders are staying loyal, even
if the company has not yet posted a profit.
He reiterated earlier estimates, of achieving an annual
$US100 million turnover within five years, noting that was a
While Pacific Edge holds numerous patents in the US, Asia,
China, Singapore, Europe and Japan, ''the United States is
the sole focus for 2014, with all our energies going into
that'', Mr Swann said.
''Trying to commercialise in a lot of countries all at once
would be a recipe for disaster.''
The new Cxbladder diagnostic test costs around $NZ320, while
the conventional full, invasive clinical test in New Zealand
can cost $1750-$2200.
Cxbladder is being trialled and looked at by health boards
around New Zealand, and in Europe and Asia, but it is the
large US market which holds the most short- to medium-term
Mr Swann said the non-invasive urine Cxbladder test in the US
was about 80% cheaper for an initial test compared with
conventional and invasive tests, but if patients went on to
require ongoing cancer treatment, further Cxbladder tests
offered more than 80% in savings.
Bladder cancer treatment in the US for a patient's lifetime
is estimated to cost around $US200,000.
Pacific Edge has about 18 employees in Dunedin, including
management, administration and lab technicians, a further 10
in Pennsylvania, and an expanding US marketing team of six,
which is expected to grow to 25.
The Pennsylvania lab has the capacity to process 260,000
tests a year and Mr Swann is confident the company will
processing ''several tens of thousands of tests'' next year.
While the molecular science developed in Dunedin is closely
guarded, and a large number of patents are held and regularly
updated in countries around the world, price is a key selling
point for healthcare providers.
Mr Swann estimated that intellectual property rights, or
patents applications, and constant updating, had cost Pacific
Edge between $5 million and $6 million, but pointed out
patents were crucial for maintaining its competitive edge.
He was less concerned about the molecular science being
''copied'' by competitors in the future - because Pacific
Edge is always developing and updating it, which acted as
''buffer'' - than by the potential for a breakthrough
elsewhere in technology.
''This is why we are developing and want to have a broader
range of tests [eventually],'' Mr Swann said, referring to
expanding Cxbladder uses, and also applying more research
into other cancers, such as melanoma, bowel and colorectal.
Breaking into the US market, giving it access to customers
numbered in the tens of millions, meant a tough fight to gain
strict regulatory approvals.
However, that process is now complete and next year product
sales will not only provide much needed cashflow but will
probably see large pharmaceutical companies sitting up and
Following regulatory approvals to open its $4.5 million
Pennsylvania lab, which allowed its growing marketing team to
actually sell the product, Pacific Edge's shares began to
spike, followed by more news of US contracts with health
From a trading range within 40c-70c during most of the year,
its shares skyrocketed about 250% in early October to hit
$1.50 in following weeks, and have since eased to trade
around $1.30. As at December 24, Pacific Edge had a market
capitalisation of $413 million.
A recent agreement with the FedMed network encompasses 4000
hospitals, 550,000 physicians and 60,000 ancillary care
providers - to which about 40 million Americans have access.
The politically divisive ''Obamacare'' health plan in the US
also offers Pacific Edge the tantalising prospect of health
customers numbering in the tens of millions.
However, the next crucial step is Pacific Edge gaining
clearance from the Centre for Medicaid and Medicare Services
(CMS), which oversees and reimburses payments for the US
public health system.
Mr Swann welcomed Obamacare as ''an opportunity'', but the
legislative changes meant Pacific Edge had to wait longer and
make changes to gain CMS accreditation, but he hopes it will
be through early in 2014.
''Because Obamacare is orientated around health benefits, it
wants to see value gains through [our] tests,'' he said.
Pacific Edge's shareholders have poured more than $40 million
into product development since its listing in 2003, including
$20 million capital raising in 2012 and most recently a $29
million in a renounceable rights issue, while yet to come
close to booking a profit.
The latest capital raising leaves Pacific Edge about $30
million in the black, to underpin marketing, distribution and
testing costs of its mainstay Cxbladder product.
At its annual shareholder meeting in Dunedin in August, chief
executive David Darling, winner of the Otago Daily Times
Business Leader of the Year - 2012 award, had initially
batted away suggestions of a company sale to the large
pharmaceuticals, but conceded an offer could be expected.
Craigs Investment Partners broker Peter McIntyre said Pacific
Edge became the ''share market darling of the year'' with a
series of positive announcements which eventually saw its
market capitalisation rise from $100 million to more than
''Pacific Edge really created a buzz in the sector ... it
showed a global business really can be run from Dunedin,'' he
Investors had been impressed the company had come through
with results from being focused with a ''regimented
approach'' to planning, targeting markets, opening its
laboratory and setting goals in marketing Cxbladder to
organisations and urologists, Mr McIntyre said.
He said while the company operated in a fast-growing sector
with a lot of competition, it had protected its intellectual
property well and ''was likely several years ahead'' of
competitors catching up.
''A buy-out from a big pharmaceutical company could be an
option. There's every chance of that happening in the
future,'' he said.
Mr McIntyre said development of new products, some linked to
Cxbladder research and other cancer types, will likely be a
focus for Pacific Edge.
Forsyth Barr broker Haley Van Leeuwen noted Pacific Edge's
success during the year could see it included in the New
Zealand stock exchange's top 50 companies index early next
year, possibly displacing main street retailer Hallenstein
''Pacific Edge is lucky to have many supportive investors who
love the story behind their product and the `feel good'
factor behind what they do, especially those that have in
some way been affected by bladder cancer,'' she said.
Setting up in the US was done in a period of low interest
rates and the market was now looking for revenue from the new
contracts and a continuation of more urology practices being
signed up, she said.
''The new Obama-care healthcare reforms in United States pose
an opportunity with a greater number of people having access
to healthcare,'' Ms Van Leeuwen said.