Dunedin-based biotech company Pacific Edge, which has developed a successful diagnostic test for bladder cancer, has absorbed multi-million dollar losses during the past eight years to get its product to market. Business reporter Simon Hartley tracks the path to its recently stated traget of reaching $100 million revenue by the end of 2018.
Pacific Edge's Cxbladder product, almost a decade in the making, is a quick, non-invasive test measuring the activity of five genes from a small sample of urine to accurately diagnose bladder cancer.
While it maintains licensing contracts in New Zealand, Australia and Spain, the US market has been the prize target for Pacific Edge, as construction of a laboratory in Pennsylvania gains momentum for its scheduled opening late in the year.
Earlier this month, Pacific Edge posted its latest loss: $4.1 million for the year to March.
Since 2004-05, the company has booked consecutive losses totalling $21.34 million from its research and development of diagnostic tools.
However, Pacific Edge still holds $17.9 million cash in hand from successful capital raising totalling more than $20 million during the past year.
Since its shares hit a high of 28c in June last year, they declined to a low of 18c in late May, before retracing slightly to around 19c.
In its full-year report, chief executive David Darling said several major milestones had been achieved during the past year, in raising $20 million, licensing in Spain and Australia and US laboratory construction.
"The funding has allowed us to gas up faster and get [lab] construction well under way," Mr Darling said when contacted this week.
Combining this test with an extraordinary number of 1 million Americans likely to present to GPs with blood in the urine (a possible symptom of bladder cancer) each year, the US healthcare system may spend more than $US1 billion ($NZ1.32 billion) on tests, Pacific Edge has estimated.
"The US healthcare market is the healthcare market in the world," Mr Darling said.
"The company hopes to be in a position to achieve a throughput target for the US laboratory by the end of the fifth year of trading [late 2018] which would give the company the potential to generate gross revenue in excess of $100 million at that time," Mr Darling estimated.
The lab will have a capacity for up to 260,000 tests and by year five is targeting 200,000 annual tests.
There was potential for some key US staff to be trained in Dunedin before the lab in Pennsylvania opened, he said.
Forsyth Barr broker Haley Van Leeuwen said Pacific Edge had for the past 24 months focused on the commercialisation of Cxbladder, having secured significant partnership arrangements across the world, including Australia, Spain and Portugal.
"Their US laboratory will be focusing on the lucrative US healthcare market, which is easily the largest healthcare market in the world," she said.
Craigs Investment Partners broker Peter McIntyre said Pacific Edge had succeeded where other biotechs had fallen, in being able to raise extra capital from shareholders at key times.
"They were able to capture investors' imagination with an innovative product which has the potential to go global," he said.
Its first share issue was 12 million shares, priced at 25c, and yesterday Pacific Edge had more than 274 million shares on issue.
"[Shareholder support] is not about financial returns but the future earning ability ... they are about to 'moneytise' their product. They just need to establish a slice of the US market for that to happen," Mr McIntyre said.
Mr Darling said Pacific Edge had budgeted for a smaller full-year loss of $3.69 million, noting there had been a "significant" proportion of expenditure on commercial process development, including the launch of its Cxbladder test in the US, during the past year.
While bladder cancer has the ninth highest rate of incidence, and fourth highest for men, it incurs the highest total medical costs associated with any cancer. In the US, the cost is estimated at close to $US200,000 per person, from initial detection through to death.
Mr Darling said the US market had an advanced understanding of clinical applications, such as the advantages from diagnostic and prognostic tests.
He said of about 15,000 urologists in the US, about 10% were now involved in "large urology group practices", to boost their specialisation and to act as a leverage to increase buying power.
By early last September, Pacific Edge has raised a further $15 million to swell its overall US expansion coffers to $20.1 million.
Ms Van Leeuwen said while Pacific Edge's after-tax loss of $4.1 million was significantly above last year's loss, the Cxbladder was still relatively new in the market"Once Pacific Edge get their laboratory partnerships running to their full potential, plus their US business running, it would be expected to turn around their historical performance," Ms Van Leeuwen said.
In late July, Pacific Edge had already raised $5.1 million from a share placement before offering a 3:7 rights issue at 19c per share, garnering $11.4 million. This combined with a later shortfall book build totalled $15 million.
Pacific Edge said it wanted funding of at least $10 million, with $4.5 million required for the certified laboratory, $7.5 million for US staff recruitment and $8 million set aside for operational costs.
In early February, Pacific Edge announced it was setting up its US commercial laboratory and headquarters for its diagnostic bladder cancer test in Pennsylvania, within the Hershey Center for Applied Research, a university and technology research facility.
Pacific Edge will receive more than $NZ2.79 million in grants and incentives from the state of Pennsylvania's business division, the Economic Development Administration of the Department of Commerce, to build and outfit its lab.
Mr Darling said other products were in the development pipeline and patents had recently been issued for Europe, New Zealand and Australia for the company's tests for the detection of gastric cancer.
Mr Darling said Pacific Edge had to make a "significant annual investment" in intellectual property rights each year to underpin the commercial capability of its products.
Earlier this year, Pacific Edge and Labtests Ltd signed an agreement to market and sell Cxbladder diagnostic tests, with Labtests supplying overall pathology services to 1.5 million Aucklanders and Northlanders.
