Not blown away by Cellmid…

There are certain ASX-listed ultra-microcap “biotech” companies that I actually despise for their mediocrity. Cellmid (ASX: CDY) is not one of them, but it does leave me slightly confused.

There are some things to like about the company. It has a product, which is not a bad start, and something that most people don’t have. It sells a bit of that product and makes a small amount of money. If I objectively consider the valuation of the equity relative to the company financials, it’s probably about right depending on what public company comparable you use (ignoring earnings because it isn’t relevant but, for example, looking at 18-25 x revenue for consumer healthcare benchmarks). Of course 4 hair care products doesn’t exactly make it Proctor & Gamble, but I’m feeling generous today. Thinking entrepreneurially for a minute, if you wanted to start a powerhouse consumer health product company, having a public vehicle, a couple of initial products and some early revenue might not be a terribly bad start. Moreover, Australia is chock full of interesting natural health and nutriceutical products and with the Chinese snapping up everything in sight that is “natural” and “Australian Made”, Cellmid could have a great foundation.

I don’t even completely hate their hair care products. But I do I have to tell you, I think the marketing needs work. Selling hair care and cosmetic products has always been about promoting quasi-science but words like “polymer”, “FGF-5” and “in vitro” should not appear in consumer marketing unless you are L’Oreal, and possibly not even then. A polymer is something you glue shingles on to your house with or seal the cracks in your dunny. A punter looking up “FGF-5” on Google gets a Wikipedia entry that has the phrase “tumor growth and invasion” in the second sentence. The average person doesn’t know what “in vitro” means, they just think about IVF – which means for the dumbass looking at your marketing, it must mean that the product is tested on embryos. I’m not a professional consumer marketing guy but when I look at the website, I don’t see the investment in proper product positioning. I see scientists trying to do marketing.

Yuk.

There are also some pretty bright people involved with the company and terrific to see a female CEO, something that I believe is also an asset in the health space – particularly consumer health. Men don’t buy healthcare, women do. Ms Halasz has a decent brain and is articulate. The board and scientific advisory board (SAB) is a little strange and – in my view – doesn’t fit where the company should be going. But I will get to that in a minute.

The problem with CellMid is the split personality of the company. The general trend in the pharmaceutical industry is to separate consumer health from pharmaceuticals/biotech. Different analysts, risk profile and market dynamics. The cross-platform marketing that comes from treating cancer and managing hair loss is also very challenging to get right for the big guys, let alone a pokey outfit like Cellmid. The bigger problem with Cellmid is that it’s hard to buy into the idea that their midkine (MK) “jewel in the crown” is really all that interesting. I mean I sort of get the scientific “philosophy” that the hair care and the cancer diagnostics/therapeutics centre around controlling fibroblasts but I think the relationship is generally tenuous. As a target, we’ve known about MK for over 20 years ever since Kadomatsu-sensei’s original publications and so the only protection you can probably get around this target are new binders/antibodies and frankly there are plenty of antibodies out there that bind to MK, offered by some of the biggest players in in vitro diagnostics. Cellmid’s may indeed be better, but it’s a very tiny market opportunity as a research reagent and a very small slice of the action if MK ever really does make it into primetime as a meaningful cancer diagnostic target (which, it has not yet – though it does have potential).

REALLY tough to get rich on a single target ELISA assay, it’s just not where cancer is going.

As a therapeutic platform, MK is a stretch. Firstly, the company is trying to develop therapeutics in a lot of different application areas that have very distinct development and team requirements. Tough to develop things for cardiovascular disease and cancer with the same group of people, even if the end-goal is just partnerships. The target itself is challenging for therapeutics because it is shed target, which means a lot of circulating protein sink. It is also widely expressed in normal tissues, raising all kind of questions about off-target effects and dosing requirements (huge gastric sink). Basically, I’m not saying it isn’t a potentially interesting or useful target (and I haven’t studied it in depth yet), I’m just saying my knee-jerk reaction is that it probably isn’t at the top of the list of what you might go after for a new drug target. In short, it’s a hard sell for partnering.

If it were me, I would ditch the drug development. I would sell the diagnostic antibody to anyone that wanted to buy it as part of an assay library and get a one-time cash injection / non-dilutive financing event. The company is currently consuming shareholder capital (along with any revenue) in a way that is probably not building value for the company. Certainly, the “value” of the biotech pipeline currently contributes $0 to the market cap of the company, which tells you a lot in my view. Instead I would re-think the board and build a team that is concentrated on in-licensing / partnering for products that align with the consumer health portion of the company that is starting to make money. I would bring a couple of heavy hitters in the retail / consumer health space onto the board and I would completely rework the name, brand and identity of the business. In a couple of years, it could be really something sexy to invest in.

My 2c worth.

 

 

Awesome Photo Credit: Ryan McGuire. http://www.gratisography.com/

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