Cyclopharm (ASX:CYC) CEO James McBrayer presenting at Meet the CEO 2022

James McBrayer, CEO of Cyclopharm (ASX:CYC), presented at our Meet the CEO event on 3 March 2022. James talked us through the exciting growth story of Cyclopharm’s Technegas and the US market opportunity that can be tapped into once FDA approval is received.

See full transcription below.

 

Disclosure: Stocks Down Under directors/staff own shares in CYC.

 

Transcription of our interview with James McBrayer

Stuart: Let’s turn to learn about life sciences. And I wanna start by introducing our first speaker of the day, James McBrayer. James, when you listen to him, has a funny accent. He’s from Georgia originally, but, you know, don’t hold that against him. They’re not just Americans from the south basically. But the reason why you wanna pay attention, get beyond the southern accent is this man has been involved in radiopharmaceuticals since way back in the 1980s with a firm that I could barely remember called Cinco. He brought that skill to Australia and then got involved in Cyclopharm when they were a relatively lowly provider of radiopharmaceuticals that had been seated originally by the folks at Lucas Heights. But he’s taken it from there into something truly amazing.

If you look at the Technegas product, which we’ve written a fair bit about in stocks down under, that’s going all the way through the relevant clinical stages and it’s now sitting with the FDA as the next big thing in imaging in the lung, not just pulmonary embolism but for a whole pipeline that’s beyond that. Now, all we need to do is get the FDA to see the world in the same way as Cyclopharm. When that comes, the stocks are headed for bigger and better things. Here to tell us all about it, please welcome James McBrayer.

James: Well, thanks, Stuart. And thanks for the opportunity, everyone. Let’s see if this technology works for me. I wanna thank Opentraders for the opportunity to present today in stocks down under. They’ve just initiated some coverage on us earlier a couple of days ago, so thank you for that coverage. This presentation has a lot of information in it. It’s actually designed for you to take away and review at your leisure. Any statement that I make is usually referenced with a clinical reference point in the footer. So, you know, CEOs love their own products. We’ve got the clinical backing and the hundreds of peer-reviewed articles to substantiate my claims.

Technegas, as Stuart said, we’re a product that’s well known throughout the world. We’re in 60 countries. It’s an Australian company that it’s taken the product throughout the world. We’ve had over 4.4 million patient studies done with our products. It’s very well understood and it has probably one of the best safety profiles that you’ll ever find with any product whatsoever. We are the gold standard in lung ventilation imaging, particularly in diagnosing pulmonary embolisms, but, as Stuart just referenced before I got up here, that the pipeline opportunity beyond pulmonary embolism is something that we’re been diligently working on and actually being used anecdotally in clinical practices throughout the world. Our revenue is based on a consumable, a single patient consumable that is recurring. It’s almost like an annuity stream. When you strip back some of the investments that we’re doing in gaining USFDA approval and some of our regulatory upgrades that we’re doing to comply with the ever-increasing regulatory frameworks throughout the world, we’re a profitable and growing company. And again, the opportunity beyond pulmonary embolism, what we’re best known for, is really the accelerator for this organization.

The presentation highlights. We just published our financials. Last week, we had a record revenue for the company, 17.7 million. That was driven predominantly by, you know, some increases in a new revenue stream from third-party products. We’re cash flow positive when you look beyond the investments that we’re doing and USFDA investments. And we have a very strong balance sheet at the close of December, which is our calendar year. We had over 29 million in the bank, combined with that our cash flow that we get from our regular sales and an additional 2.3 million that we received in January from our Aus industry, where we’re very well funded to continue our USFDA objectives as well as continue to fund our pilot clinical trials in developing the pipeline beyond pulmonary embolism.

I usually have a little bit of technology. We’re going low-tech today. I’m just gonna explain how Technegas actually works. You place a small amount of radioactive material in a carbon crucible. This means probably not a lot to you. But through that process, you place that into a Technegas generator. It’s a capital piece of equipment. You heat that crucible up to about 2700 degrees Celsius. And the small nano-sized particles are produced, the patient inhales those, it only takes about three or four breaths, they feel nothing really. And what happens is those particles are so small that they go anywhere that oxygen goes within the lungs. So, we are a functional ventilation imaging agent. And through that, through a gamma camera that’s already installed in the nuclear medicine department, they can take images of the lung in three-dimensional forms or add a small amount of CT that can provide a structural view as well as function, giving you the best of both worlds.

This is an overview of the Technegas product. We have a capital piece of equipment, a Technegas generator. We’ve got some out in the field that’s 15, 20 years old. It’s a very robust set of technology. There’s a revenue stream that fits on top of that as a service and annual service. But the real moneymaker for us, for Technegas, is the consumable single-patient consumables that we sell in boxes of 50. It’s a patient-delivery administration set that they hook up to the generator and inhale the Technegas particles, the carbon crucible that actually creates the Technegas particles in a set of context.

This slide tells you a little bit of an overview, 60 countries. Even though we’re an Australian invention and we manufacture here in Australia just past the airport in Kingsgrove, we’re really a European company from the point of view of 66% of our revenue is generated in Europe. Canada is our largest single-country market. And we see that as an indicator. And there’s a slide later on that we talk about our growth in the Canadian market and why we see that as an indicator of what we would expect when we enter the U.S. market. Our revenues are very stable. I’m having a bit of technology problem there.

Woman: No. It’s just gonna make them a little bit bigger.

James: Okay. That’s right. We have… And our recurring revenue streams, as you’ll see from a historical point of view, because it is like an annuity. Once our technology is in place in a department, it never leaves. A couple of snapshot. I’ll refer you back to our announcement last week for more of the detail. It was a record revenue for us last year, up 20.6% primarily driven from this new revenue stream for third-party products. And again, our cash position, we’re not gonna be raising any cash. There’s no necessary… There’s no need for that. We’re fully funded for our objectives going forward. And I think we’re a pretty rare company in our space in that we actually provide modest dividends to our shareholders.

Operating highlights. Again, record revenues. We’re in the final stages of U.S. FDA approval. And I’ll have more to say about that in detail. And our beyond PE is really going to be the growth accelerator for the company. Most importantly, you know, whilst we have all of these objectives in growing the business, we have to keep the doors open. And one of those significant things that we achieved last year was the renewal of our CE mark in the European Union. The European Union has gone through a massive change in their regulatory framework, what’s called MDR. And so as of December last year, we’ve recertified under our CE mark which is a major, major advancement given the fact that 66% of our revenue is from that market.

USFDA. We submitted our new drug application. And last year in June we received what’s called a complete response letter. And what that is, is the FDA says, “We reviewed your massive submission and we want you to still provide some additional information.” And ever since then we’ve been putting together the response to that. We submitted a request for a meeting for clarification last year and just in late January. I just got back from the U.S. a few weeks ago where we met with the FDA, had some 16 people with the FDA involved in that 2-hour meeting over 3 hours. And we got the clarification that we needed. So, we’re off and running, finalizing some of the things that we’d already started on addressing.

We’ve already had an audit by the FDA. Last year they sent an inspector out going through the quarantine procedures to come in and evaluate our… Again, we had some things that we’re working on and we’re getting very close to finishing those off. We expect to be able to respond to the complete response letter in the coming months. The FDA has about six months to review that response. So, we’re looking at mid-next year for USFDA approval. But while we’re doing all of the responses to the FDA, we’re not sitting on our hands. We’re still preparing ourselves for U.S. launch. The rate limiting factor is the generator. It’s a capital piece of equipment. We have to build those. And this is a little bit of a scene I quite like. This is at our facility down in Kingsgrove. It’s a fleet of generators that we’re preparing. We wanna launch with 200 and we’ve already developed a number of those and getting ready for that glorious day.

I’m not gonna go in too much depth as far as the benefits of Technegas. I mean, we are the gold standard when you talk about nuclear medicine and nuclear medicine imaging. It’s easy to use, it only needs a few breaths. And most recently we’ve seen a benefit with patients in this pandemic where the risk of contamination is dramatically reduced compared to the competitive products. And I’ll speak to that in a moment. But we’re best known for pulmonary embolism, blood clots in the lung. And that’s something that you would say if you remember some of the issues with acute respiratory distress syndromes with COVID that pulmonary embolism or blood clots was a symptom or a byproduct or a condition that was associated with that disease.

So, our product was seen as head and shoulders above the competitors in those particular patients. Again, I say CEOs love their product more than anybody else. You can believe what I say, but go to the guidelines. Guidelines are clinical Bibles, if you will, on how to treat certain disease states. Technegas is actually referenced by name in the European guidelines as well as the Canadian guidelines. And we have hundreds of peer-reviewed articles about how they use our technology in not only pulmonary embolism, but a host of new and other applications. Some of these, it’s better than the best aerosols. All liquid aerosols, that’s a competitive product, are inferior to our product. So, I encourage you to have a look at that particular slide.

When we enter into the U.S. market, it’s much like what we saw in Canada, there’s two products that we compete with in nuclear medicine. Xenon, which is a true gas, and DTPA, which is a liquid aerosol. Now, liquid aerosol, you put a liquid into a nebulizer and you inhale those. The droplets are very big. They’re hydrophilic. So, they’re water. And what we saw and what people were concerned about was the size of the droplets could actually be a carrier for COVID. But really, the thing that our customers were intrigued about our product compared to the others is that ours is very fast to administer. It only takes a few breaths. The patient even doesn’t even know that they’re actually inhaling it. Xenon takes 15 minutes to administer and it’s during the entire procedure. DTPA takes three to five minutes. And actually, bronchospasms or coughing is a byproduct and listed in their information for use. So, ours is head and shoulders, again, above the competitive products there.

But our real competitive technology is CT. And again, Technegas ticks the box on that. We have no contraindications, nuclear medicine has no contraindications when doing a procedure for diagnosing pulmonary embolism. CT has a host of others if you’re renal compromised. If you’ve had a reaction to the iodinated contrast media, you can actually get acute kidney injury from CT. If you’re pregnant, you should not be having a CT. You should always go for the lower radiation dose. And then speaking of radiation dose, a CT is 27 times higher than breast dose than from a nuclear medicine scan.

This is a snapshot of what happened in Canada when we first introduced Technegas. Again, it was that same competitive landscape that we have in the U.S., Xenon and DTPA. In the first few years that Technegas was available in Canada, Xenon was totally displaced. In fact, Xenon is really only available in the U.S. because Technegas isn’t there yet. So, we expect that that will be a quick conversion once we get into the marketplace. DTPA, we started to gradually bringing all of the other addressable markets on, customers on in Canada year on year on year. So, we thought we saturated the market until COVID came. Just last in January we’ve had nine new generators sent to Canada and placed in that marketplace because people have converted over from DTPA because of this issue of COVID.

Coming to America. Well, there’s a lot of information on here. I encourage you to look at it. The U.S. market for pulmonary embolisms is about 90 million U.S. dollars, significantly bigger than we’re doing with the rest of the world. But we only see that as just the start of the market. When we look at what we’ve been able to accomplish in Canada displacing the competitive products, we think that that’s gonna take, you know, that three to five years to tackle that marketplace. But it’s only, in nuclear medicine, only 15%. And the reason for that is because Technegas hasn’t been there. They haven’t had a strong nuclear medicine ventilation imaging agent that could take on the CT market. So, when we say that the entry point in the U.S. is $90 million, we believe that we can convert another 15%, 30% in total where we see the U.S. market is $180 million just in pulmonary embolism. But the real opportunity is beyond PD, but we’re getting the U.S. addressed first. The demand is already there. Even during the new drug application process, we had at least four different overtures from nuclear medicine physicians and even the Society of Nuclear Medicine encouraging the FDA for an expedited review. And they were driving it not only from the clinical point of view, but because of what COVID was doing in those markets.

One more point on the U.S. too is that the nuclear medicine scan for lung ventilation imaging is agnostic to the agent. So, we have reimbursements sorted out in advance. I think a lot of people when they first bring a drug onto the market reimbursement if people have to dip into their pockets, it’s very difficult to get established. We already have that in place. We’re gonna enter the U.S. market in a very different business model. To rapidly penetrate that market, we’re gonna place generators because that is the rate limiting factor. We won’t have to go through the capital expenditure committee. We’re gonna place the generators, we’re gonna have that revenue stream of servicing, as well as better control too over the education and the use of our product when we launch in that market.

But really, the expanding indications is where we see the growth. And this is not just our hope. Even in our clinical trial that we finished up in the U.S., there were 14 different indications that they were using. Pulmonary hypertension was one of those. These are the pipeline clinical trials that are underway as we speak right now. And we’re expecting, we had a little bit of a slowdown with COVID with patient recruitment. But in this first half, we know that there’s at least two publications coming out with the expansion of beyond PE applications and we’re looking forward to those in the marketplace.

So, what does the market actually look for us? We see that initial stage is that 15% that I was talking about, that $90 million. We expect to get the majority of that when we first enter into the U.S. market. But we see that extra CT market as an opportunity. So, that’s that $180 million total potential. But really, when we look at what’s beyond PE, there’s half a billion people suffering from chronic obstructive pulmonary disease or asthma. That if you think about what our product at its very basic can do, where we show how ventilation is occurring within the patient’s lung, we can see with the analytical software that supports our product that it’s not only used as a diagnostic procedure but also as a monitoring procedure over the life of some of these conditions.

So, what you can look for in the next couple of years, well, we’re looking for FDA approval in mid ’23. Our shopping list, we’re ticking those boxes off as we speak. And we’ve made great progress there. First sales will come immediately because, you know, we’ll have generators on the ground. There’s already nine sites that have generators already in place from our clinical trial. And reimbursements are already in place. So, we believe that that’s not going to be an obstruction when we get approval. You’ll see guidelines and you’ll see additional clinical papers beyond PE coming out over the next two years or so. So, in summary, you know, we’re an established company. We’re in 60 countries around the world. We’re profitable and growing. We’re first in class in what we do and you don’t have to look any further than what we’ve been able to accomplish in Canada. And look at the guidelines for supporting that. We have a recurring revenue stream. It’s not just about capital piece of equipment and you’re looking for the next sale. We have an annuity stream from our consumable base. USFDA is our nearest-term major growth opportunity, but really, the beyond PE, the applications in these chronic conditions is where we see the real growth in the organization. And that’s about it.

Man: Thanks, James. There’s a question that’s come through from Bill just in relation to the FDA approval process. How rigorous is that? And how likely is that to get the green light? And then also, are there any MOUs that have been entered on the premise of successful FDA approval being granted that are already in place?

James: Right. So, the first part of that is about USFDA approval. USFDA approval is extremely difficult. I mean, we’re in 60 countries around the world. We get audited I think since 2017. I think our facility has been audited 27 times. I mean, people understand this product. And some of the things that we’ve had to be asked to do for the USFDA has never been asked before. So, yes, it’s a very difficult process. But I would emphasize. There’s no question about the clinical aspects about our product. That’s not been put in question by the FDA. Usually, people fall foul at the very end about the efficacy or the safety of their product. That’s off the table. We have proven that time and time again. But where we’re at is documentation in process. That’s where we’re at with the FDA. And we’re ticking those boxes off. So, we’re very confident that we’ll get there. Now, the other thing about MOUs. So, as far as MOUs goes, I’m assuming they’re talking about sales and placement.

Man: Correct. Yeah, that’s my understanding. Yeah.

James: Yeah. So, I’ll give you an example. We had… In one of the overtures to the FDA, we had 140 key opinion leaders sign a document to the FDA. So, we’ve got an amazing number of sites already ready to go. Do we have signed MOUs? No. But, you know, we never actually enter a market with signed MOUs. The technology actually is so, so compelling that it’s taken up immediately.

Man: Yeah, that’s exactly right. Just open to the floor as well, like, anybody have any questions for James as well?

Man: If you’re placing those machines free, what’s actually the payback period on those? Can you indicate the profitability?

James: Yeah, yeah. So, that’s a good question. So, the reimbursement for our product is more than double anywhere else in the world. And we’re benchmarking that with existing reimbursement for products that we’re competing against. The payback on the generator itself is less than two years.

Man: I have a question.

James: Yes.

Man: How often can a patient be using that machine?

James: Good question. So, for those that may not have been able to hear that, how often would our product be used for chronic conditions like asthma? In comparison with the volumes that we’re doing PE, pulmonary embolism, it’s usually a one-off. We typically don’t see that patient ever again with asthma. And some of the clinical trials that will be…the information that we’re gonna be receiving some time this year, like, for example, the clinical trial that we’re doing with hunter up in…for severe asthma, they’re using our product as a baseline to actually understand what the respiratory condition is at the time. And then they’re using it as a response to therapy. So, in the hunter’s case, they’re very expensive product that they’re administering to the patient. And if it doesn’t work, they shouldn’t be using it. So, we can show at a very early stage response to therapy. On a more chronic base, we see that happening in patients, like, with COPD. That’s a very long term. It’s a lifetime condition. We see that, you know, once or two years kind of frequency.

Man: Any other questions you got? Sure.

Woman: Are you looking to spend money in the next few years on improving your generators, so making them even more efficient than they are now?

James: Well, the short answer is we’re always looking to improve the generators. As far as efficiency, we’ve got it down at a very…from a cost-economic level, we’ve got it down to a very, very fine low-cost manufacturing basis. Our yields, because it only takes two or three breaths to actually deliver the product, yield is not necessarily… Where we see some…we see some improvements about controls, about in-process recording, things that the regulatory people really want to see, I think in the longer-term basis. Not right now, but I think we see that probably coming in the future. So, we are looking at how better to provide the additional information that comes out of it. But the beauty about Techengas, and, you know, even all these studies that we’re doing that the FDA want us to do in addition, Techegas hasn’t changed ever since. It’s a nano-sized particle. The particle is very small. And anything that we do to change that will only be around the periphery.

Man: One more question.

Man: Yeah, just a quick question on the market opportunity. Is that the U.S. opportunity?

James: The U.S. opportunity, that was just in the U.S.

Man: All right. So, is there a chance.

James: So, we’ve started to engage. And that’s why we’re engaging in these pilot clinical trials. We’ve got, you know, two or three going in Canada right now. We’re looking at some partners in Europe. That’s been a bit slow with COVID and trying to engage with some of those, but we’re talking to some people. There’s a new paper that was just published at the end of December last year in France that we’re looking to do some more work on. But absolutely. What we see it’s the U.S. and it’s like what happened in Canada. When we first got into Canada, it’s a new technology. It’s something that, you know, people haven’t actually had at their disposal. And from that, we see additional papers that are driven. We expect that to happen with the U.S. Once we introduce these respiratory clinicians and then backed by the nuclear medicine, they’ll start to generate all these papers. The hundreds of papers that I’ve spoken about, very few of those we had a direct involvement in and support in. That’s usually on the ground clinical papers from the departments themselves, but yes, we see it beyond the U.S.