CycloPharm (ASX:CYC): Interview with CEO James McBrayer

We spoke with James McBrayer, CEO of CycloPharm (ASX:CYC), one of Marc & Stuart’s Top Picks, about the work CYC is now doing to resubmit its application with the FDA for Technegas, as well as the significant opportunity that Cyclopharm is targeting beyond its current primary application of Pumonary Embolism (PE).

 

Transcription of our chat with James McBrayer from Cyclopharm (ASX:CYC)

Stuart: Hello, and welcome to Stocks Down Under. My name is Stuart Roberts, and I’m one of the editors of our publication. And with me today is James McBrayer, who’s the CEO of CycloPharm, ASX:CYC. It’s Tuesday the 14th of September. James, thanks for taking the time.

James: Pleasure to be here, Stuart.

Stuart: CycloPharm is a story that is on the cusp of conquering the world. You have probably one of the best pulmonary imaging tools out there in Technegas. It’s sold, I believe, in something like 50 countries around the world. There’s only one where you…one major market you’re not approved for selling yet, that’s the U.S. market. And the FDA have asked for a little bit more data before they’ll [inaudible 00:00:51] there. Talk to us about the journey you’ve been on just lightly in terms of getting Technegas approved in the U.S.

James: Well, before I do, Stuart, I mean, we’re in 60 countries around the world.

Stuart: Sixty.

James: So, you know, when you’re talking about conquering the world, if you look at the map, we’ve got some amazing, amazing coverage. But you’re quite right, U.S. is the largest country market for nuclear medicine. Half the world’s nuclear medicine departments are in the U.S. So, it’s so vitally important for products such as ours who’s seen best in class in those 60 countries that we’re available and it makes it to that market. With your question about what we’ve been up to with the FDA lately. Last year, we submitted our new drug application for Technegas. They have a year to review that. They extended it about three more months.

So, in June this year, they issued us what’s called a complete response letter. And that complete response letter gave us very specific things that they wanted to see, in addition to what we had submitted, not only in the NDA and the 51 subsequent submissions that we did in Q&A throughout that year in 3 months. But, you know, I think where we’re at at the moment, Stuart, is that they gave us a finite list. And rather than, you know, 1000 different things that they can come at you with an NDA, they’ve given us a shopping list that we have to come back with and provide some additional information on. I think the thing that investors particularly want to know, and it’s important to know, is that they didn’t ask us about going and doing another clinical trial. And that’s usually the death knell with…

Stuart: Yeah, absolutely.

James: …submissions. So, we don’t have to do another clinical trial. It’s more about the uniqueness of Technegas, because there’s really nothing like it. So, Technegas is a nuclear medicine functional lung ventilation imaging agent. And so what happens is we create these small, nano-sized particles of carbon encasing a radioactive element, and when inhaled, it coats the inside of the lungs and it’s delivered, anywhere that oxygen is delivered in the lungs, our products deliver. So, it’s an exact replica of how ventilation is going throughout the lung. And it’s so important in so many different respiratory conditions. We’re best known, though, and appear in several guidelines, for diagnosing pulmonary embolism or blood clots in the lungs. It’s part of a ventilation-perfusion and we’re the ventilation part in that.

The reason why it’s particularly important right now is that in Acute Respiratory Syndrome, you might have heard that term with the pandemic on ARDS, a complication of COVID-19 is blood clots in the lungs. And so, you know, our product is used in actually identifying that. And the other reason where it’s so important, particularly in this era right now, clinically, we’re far better than our competition in nuclear medicine, but we’re also seen as a safer alternative given that it only takes a few breaths of Technegas to deliver that to our product to our patients. Compared to the competitive products, it can take minutes, if not the entire imaging procedure, to actually inhale the products. It’s just far more complicated. And from a risk point of view in a department, it’s much harder.

Stuart: And from an economic point of view, right? I mean, time is money. And if you can get people out of the procedure quickly, all the better, right?

James: Absolutely. And, you know, time is money too If you’ve got a contaminated patient. you’re having to clean down, you know, the equipment, not only the equipment that’s used to deliver these competitive products but, you know, if they’ve contaminated the room, there’s the cleanup of the room as well, where our product, you know, it’s only three or four breaths that doesn’t come in the close proximity of the generator compared to the other products. There’s just lots of boxes we tick, particularly in this worldwide pandemic that we’re under right now.

Stuart: Right. Yeah. Okay. We’ve got the product the world needs. And now, if I know the FDA, the FDA don’t try to be unhelpful to companies who are doing the right thing, but they do wanna have peace of mind that they’re not approving something that’s dangerous.

James: True.

Stuart: Most of what you got asked to do by the agency has to do with your CMC, Chemistry, Manufacturing, and Control. Is it fair to say?

James: That’s fair to say. Certainly, the things that is going to take us the time and work. A lot of the other information is just mining what’s already out there and then representing it in a way to answer their questions, but there is some more work to do on the bench, if you will.

Stuart: There is a heck of a lot of companies that would kill to be in your position right now, where really it’s just mostly to do with the formulation of the product that the FDA needs a little bit more hand-holding, shall we say?

James: Yeah. And even… It’s interesting that, you know, throughout all the work that we’ve been doing, you know, the product has been available commercially since 1996. And even in the early days as an Australian invention, it was first conceived some of the work at the ANU. It’s interesting to see that all the tests, even back then, almost three, three and a half decades ago, the results that we get today are very similar. So, Technegas is a very well understood, it’s a very well documented. It’s just it’s not documented in the way the FDA wanna see it at this point in time. And we know the steps to do it now.

Stuart: Yeah. We’re talking about, so long as the agency is comfortable, being in a position to launch Technegas on the U.S. market in the second half of calendar 2022. That will require a certain amount of capital, but that capital has already been raised prior to…

James: That’s right.

Stuart: …the complete response letter.

James: That’s right.

Stuart: So, you’re well funded to be able to go conquer the market with half of all the world’s nuclear medicine in it, right?

James: That’s right, Stuart. We don’t… For everything that…all of our plans, and we highlighted, you know, that we have a particular new business model that we’re gonna be rolling out in the U.S. for rapid penetration, building up inventory levels that we can have that rapid penetration as soon as possible. We don’t need to raise any capital.

Stuart: And the product is stable enough that you can build those inventories?

James: Absolutely. I mean, we have some generators that are still in operation 20-plus years. As long as they’re maintained and, you know, taken care of on a regular basis. And, you know, if people look at our financials, you’ll also see a service revenue component in our numbers in those markets that we have, you know, direct connection with the customer. So, we’ve got some very long-lived generators out there at the moment, very stable.

Stuart: Sure, sure. And a very particularly loyal customer base given, as you say, that this has been in clinical use since [inaudible 00:08:06]. You talked about usage in the rest of the world. How’s business at the moment? We’re still coming out of this pandemic, so you’re a frontline tool, right?

James: Sure. Stuart, we’ve just published our half-year or calendar financial year. And, you know, from prior year, you know, 2020, we’ve bounced back considerably. So, we’re back to normal pre-COVID levels at the moment. So, we’ve definitely recovered.

Stuart: Okay. Talk to us about what’s coming behind Technegas. Obviously, this was a big step change, being able to approve to sell Technegas in the U.S. And let’s just assume that becomes a reality next year. Every good company has a pipeline of products underneath that. What’s coming next?

James: So, Stuart, actually, you know, one of the things that…the benefit of Technegas is its base-functionality. We’re a functional ventilation imaging agent. And what’s coming next is the expansion beyond pulmonary embolism. That’s the broader use of Technegas beyond pulmonary embolism. And PE is done in an acute setting. And it’s usually once-off for a patient. What we’re seeing…

Stuart: Yeah. It’ll kill you if it’s undiagnosed, right?

James: Absolutely. A third actually can die from it if it’s undiagnosed. But what we’re seeing, because of the functionality of Technegas and the advent of new imaging technology cameras, nuclear medicine cameras that add on a CT component, very low-level CT that gives you these anatomical reference points in addition to the development of artificial intelligence, this AI that can take these images and correlate them with various disease states and quantify those disease states over a period of time. We’re starting to see our product used in applications like COPD, like asthma. That you’re not only just seeing that patient in a one-off situation through the emergency department as we see with pulmonary embolism, but we’re seeing it with this long-term, you know, baseline response to therapy, how well that patient is coping with this chronic condition that is, in some ways, debilitating over many, many, many years.

Stuart: And COPD, particularly, excites me. We’re talking a condition with potentially patients numbers in the half a billion to a billion is what I’ve heard. Wherever people have smoked a lot, there’s a heck of a lot of COPD. Obviously, smoking is going down in most parts of the world. But you’re gonna end up as a frontline tool for the management of that condition.

James: We believe that we have an absolute place in that space. In fact, you know, this is also being driven by the respiratory clinicians about wanting better tools to actually phenotype their patients and understand if more drugs are better. I mean, that’s typically what you’re seeing, you’re seeing the more and more addition, but it may not be right for that particular patient. We’re running some clinical trials right now in the world that we’ve just finished one up in Hunter just with full recruitment and we’re in the analysis phase. We’ve got some trials going on in Canada, particularly with COPD. The one in Hunter for severe asthma. They all have this application about understanding that patient so that they can…the respiratory physician can better coordinate specific drugs and therapy and their response to therapy for the agents that they’re doing. And the case for the Hunter, for example, is just as important if they’re introducing some of these very expensive products to a patient to know if it’s going to work or if it doesn’t work. Don’t spend the money. Don’t spend that time and effort in trying to treat a patient that’s not gonna be responsive. And our products shows that at an early stage.

Stuart: So, as we enter the world of personalized medicine, and generally, when I hear personalized medicine, I hear talk about personalized cancer therapy. You’re becoming a key tool in personalized medicine for the pulmonary space. And we’re talking huge markets. I mean, COPD, a second ago, we were talking about. You can’t [inaudible 00:12:19] in a big city in Australia without hitting a heck of a lot of asthma patients, for example, as well. And yeah, therapies are already getting more expensive there. And here is your product having pivoted to serve those markets.

James: And, you know, we’re starting to see some of the clinical information, some of it that we’ve promoted through these small clinical pilot trials that we’ve developed with some leading clinical sites throughout the world. But what we also see is just the sheer nature of our product, there’s a curiosity given the unique characteristics of functional ventilation imaging that you can get from Technegas. We’re starting to see more and more clinical sites actually experimenting with our product in these new areas that we didn’t have anything to do with. And also seeing… Yeah. In COVID as well in that.

Stuart: Yeah. U.S. approval for the original pulmonary embolism application is gonna only be for the good in that regard in terms of encouraging physicians, right?

James: Stuart, every time we enter a market, and we saw this in Canada when we entered into the early 2000s, as soon as you give Technegas to the clinicians, you know, you’re opening their eyes to a different way and new tool that they haven’t had before. And then, as a result, we always see just this natural organic curiosity that grows with research and development and papers that are generated. I mean, you can google Technegas, you know, through PubMed or whatever clinical database that you want, and the vast majority of those papers, we had nothing to do with. In fact, we did a run about a couple of months ago of the last two years, maybe a third of all the papers had something to do with PE. Two-thirds were beyond PE applications that we aren’t even involved with.

Stuart: Right. So, for the first time, I’m seeing a diagnostic product that is actually a pipeline within a product within an ASX-listed company.

James: It was ahead of its time, Stuart.

Stuart: Well, yeah. Now, as you know, I’ve been following the life sciences space in Australia since 2002. So, not only I’ve never seen that, but what I’m seeing now is the market failing to value approval in pulmonary embolism for obvious reasons that people are a little…investors are a little bit cautious given the complete response to that. But I’m willing to bet money that there’s virtually no value in that usage above and beyond in all these new applications. Now, that’s me speaking. How do you feel about that scenario?

James: I think you’re right, Stuart. I mean, it’s interesting the fact that it’s almost that…the fact that we’ve been commercialized for a number of years, you know, the milestones that we have to hit before we’re probably fully valued for the upside, and it takes a little bit more of encouragement than maybe some that just spout the blue sky. Our blue sky is founded on absolute, you know, clinical trial with real patients, not just animal studies and, you know, opinions.

Stuart: Sure. Now, in terms of the intellectual property that you’ve wrapped around Technegas, in many cases, this is a long-off patent product. Where’s the defensible intellectual property that provides the mode for the organization?

James: Good question, Stuart. I guess, you know, it’s one of those where Technegas is a system. And in the U.S., for example, it’s going to be registered as a combination product, that means the drug is considered to be a drug and a device. And so you have a natural mode around that. So, no one can just try to pick you off on a consumable. I think the other mode that’s coming to pass too is the regulations are getting higher and higher and higher. What we’re seeing, for example, in markets where we’ve been in existence for over three decades, this new regime with MDR, say, for example, and getting your CE Mark in Europe, it’s in some ways even more difficult than, you know, a pharmaceutical product. So, there’s regulatory barriers, there’s the systems barrier. And in the U.S., you know, we’re gonna actually roll out our technology rapidly where we own the generator itself so that only our consumable will be used in the U.S. That’s certainly gonna be the case in that market.

Stuart: And we’ve left off the biggest brand name of all. Back in the day, if you were in the oil industry and you had a fire, you needed to pick up the phone and say, “Get me [inaudible 00:16:54].”

James: Yeah.

Stuart: If I’m a pulmonary specialist in the U.S. and I need a particular product urgently, I call up and say, “Get me Technegas.” Right? “Get me CycloPharm’s product.” Not necessarily in the U.S. Building out is the strong brand name that you and your colleagues have built out over the years.

James: Well, you know, Stuart, Technegas, it’s in a really rare position clinically in the world. In fact, you know, when you pull up…when you look at, take, for example, Europe and Canada, you combine that, that’s close to 75%, 80% of our total sales in the world, right? European and Canada. In those guidelines, they actually name Technegas.

Stuart: Yeah. I mean, these are guidelines. These are things doctors are supposed to learn.

James: These are actually clinical guidelines. And I’ll also add that, you know, in the lead up to, you know, in all of our work with the FDA, even in the United States, we’ve had tremendous amount of ground support from clinicians, frontline workers, that have been writing letters to the FDA in support of our product. And in fact, some of them even pleading with them, given the pandemic situation. The Society of Nuclear Medicine, the 16,000 membership organization in January wrote a letter. And that’s unheard of for, you know, a peak body to actually lobby for a particular agent. And we’ve seen another subsequent letter, again, coming from, you know, those clinicians [inaudible 00:18:23]

Stuart: It’s one thing to get a key opinion leader behind you. It’s another thing to get a whole college of medicine behind you.

James: That’s right.

Stuart: Now, for investors who don’t know you very well, tell us a bit about yourself. That accent comes from… Having listened to a few Billy Graham sermons over the years, you’re from North Carolina, right?

James: Well, I lived in North Carolina for a few years. I’m originally from Georgia. I went to a pharmacy school at the University of Georgia, graduated, and went directly into a discipline, a subset specialty in pharmacy called nuclear pharmacy. So, I’ve been involved in nuclear medicine for, you know, just as long as Technegas has been out in the market. That’s why I’ve got all this gray hair.

Stuart: Right.

James: So, I was posted in Washington, D.C. before I moved to Australia in 1996.

Stuart: Right. And you’ve been in charge of this company, if I recall now, since 2007? Is that right?

James: 2008. Yeah. It’s a long time.

Stuart: All right. So, it’s been a long haul. You’ve grown up the original business quite strongly. Taking it to the next stage with Technegas potentially FDA-approved as of next year and now building up, and this is the exciting part I think investors should take care of, the pipeline within a product building up behind this initial approval, which is probably gonna take you… Look, you look pretty young, James, but maybe this will take you through to retirement, building out that pipeline, right?

James: You know, Stuart, we’ve… And I think it’s important for investors that this has been a long game for us, this Beyond PE. Certainly, the U.S. was the most important single-country market that we could have in the world, but this Beyond PE. We’ve been working on this for quite some time. If people wanna go back and look at some of our announcements, we brought on some of our existing distributors. So, we are direct in a lot of the markets in Europe. And we did that because we wanted to get closer to the customers. No one loves your product like you love your product. And for us to drive this beyond PE, we wanted to be in charge of those key markets in Scandinavia, in Germany, in the UK, in the Benelux region. And you’re starting to see some benefit in some of these third-party products, but our main game has always been, you know, plant that flag in the U.S. and expand the use of Technegas beyond PE with our own people on the ground in those key markets.

Stuart: James McBrayer, it’s been a hair-raising few months from an investor’s perspective, but clearly, it’s all in a day’s work for you in terms of growing a real business. Well done on what you’ve achieved so far and good luck with both your interactions with the agency and with your customers going forward.

James: Thanks, Stuart. Thanks for the opportunity.