Drug R&D and Cosmeceuticals: Sirona Biochem Pursues Dual Strategy

Source: VantageWire.com - Developing a new drug is a risky proposition, especially for smaller biotech companies. The payoff can be high, but the process costs millions of dollars, and it can take years to bring a drug from R&D to market approval.

In contrast, products in the lucrative cosmetics sector are cheaper to develop, and regulatory approval is far easier because they aren’t taken internally. So let’s do a little brainstorming, here: What if you wanted your company to develop life-saving medicines, but you could also apply your technology to developing high-demand cosmetics, providing much-needed capital? It would be a brilliant dual strategy. (I believe the appropriate buzzword would be “synergy”.)

Sirona Biochem Corp. (TSX-V: SBM, OTCQX: SRBCF, Frankfurt: ZSB) is pursuing precisely this strategy. And that’s not all: the company’s lead drug candidate is a potential blockbuster that addresses a clinical market worth almost $500 billion a year.

Sirona’s technology platform is based on carbohydrate-containing molecules. (These are simply molecules that contain various sugar groups.) Many of the most essential molecules in your body contain carbohydrates, including blood sugar (glucose), collagen, antibodies, and components of brain cells, to name just a few.

This class of molecules also offers enormous therapeutic and commercial potential in the development of new drugs. But there’s a problem: Carbohydrates are inherently unstable. They’re easily broken down by enzymes, and their byproducts can be toxic. This has made pharmaceutical development extremely challenging, and has rendered many promising candidates useless.

Sirona’s technology offers a solution to the problem. The company’s French subsidiary, TFChem, has developed a proprietary chemistry platform that is able to stabilize these valuable molecules. Sirona has applied the platform to R&D in several product categories, and is currently focused on advancing three main areas: therapeutics, cosmetic agents, and biologicals for cell preservation and protein manufacturing. The company’s most advanced programs include a therapeutic candidate for diabetes, and a cosmetic skin-lightening agent.

The Pipeline: Anti-Aging Cosmeceuticals, Skin Lightening, Diabetes, and More

As mentioned above, cosmetics are a stunningly profitable market. And not just in the U.S. or Europe: With a burgeoning middle class, developing economies such as India and China are seeing rapid growth in products that enhance personal appearance. In India alone, the personal-care sector is expected to exceed $20 billion by 2017, according to Gyan Research and Analytics.

With regard to cosmetics, Sirona’s product candidates are actually “cosmeceuticals,” to use another buzzword. Cosmeceuticals are non-prescription products that are marketed as cosmetics, but include active ingredients with medicinal properties. And the global market for cosmeceuticals is also thriving: In 2011, it was estimated at $30.5 billion, according to RNCOS.

Anti-aging

Not surprisingly, one of the most lucrative segments of the cosmetics market is anti-aging products. Popular media has fueled the desire of baby boomers worldwide to look younger, and this is driving demand for these products. The global market for anti-aging products should approach $275 billion in 2013, says BCC Research. And assuming that growth continues with a CAGR of about 11%, this market should reach $340 billion by 2015. By some estimates, the U.S. market alone for anti-aging skin care is currently over $20 billion a year.

As luck (or skillful science) would have it, carbohydrate-containing molecules can have a major impact on the outward signs of aging. Sirona has applied its expertise to R&D on two major skin-care projects. The first is a cell-preservation compound that can be used to maintain and improve skin’s vitality (in early R&D); and the second, for those dark “age spots,” is a safe and effective skin-lightening agent (nearing commercialization).

Skin-lightening

Age spots aren’t the only application for Sirona’s skin-lightening candidates. In many cultures, paler skin is associated with wealth and attractiveness. This is especially true in Asian and South-Asian cultures.
There are already skin-lightening products on the market, and it’s estimated that about 15% of the global population buys these products. According to Global Industry Analysts, the skin-lightening market should exceed $10 billion by 2015, and it shows no sign of slowing. In Japan alone, almost $6 billion was spent on skin lighteners in 2009.

In addition to the media, another driver for growth is the increasing affluence of those countries whose people are most likely to use skin-lightening products: China and India. In India, 62% of women surveyed use these products, and according to KuicK Research, as many as 80% of men do as well. In China, skin lighteners currently make up 30% of the total skin-care market, says Nielsen Greater China.

However, it turns out that the pursuit of beauty can be dangerous. At present, you can either buy lightening products that work, or you can buy products that are safe, but not both. The problem is that many effective products might cause cancer. Sirona intends to change that. They’ve developed two stabilized compounds that are not only effective, but they also don’t break down into carcinogenic byproducts.

An added benefit: the Sirona candidates aren’t just effective—they’re 700% more effective than a popular compound already on the market, called arbutin. The candidates have completed the necessary irritant and carcinogenicity studies, which moves them closer to commercialization. Partnership discussions are underway.

The skin-lightening industry isn’t very highly regulated in the countries that have the highest use. However, this is likely to change as regulators and newly affluent consumers become more aware of the health effects of the products they use. But increased regulation and consumer awareness will actually work to Sirona’s benefit: it stands to reason that the safer—and more effective—product will acquire the market share of the more toxic products.

Diabetes

Diabetes causes blood-sugar levels to climb too high, which can damage every organ system in the body. The disease has become an epidemic, especially in wealthy nations, and the number of patients will continue to climb as the world’s population ages.

The numbers are staggering. According to the International Diabetes Federation, almost 400 million people have diabetes worldwide. An estimated 4.8 million people died in 2012 as a result of the disease, and $471 billion was spent on treatment. In the U.S. alone, patients and insurance companies spent $201 billion on diabetes treatment—11% of total U.S. healthcare expenditures.

Most diabetics inject insulin or take oral medications, although for many patients the disease can’t be controlled with current options. Sirona is developing a new class of drug, called a “sodium glucose co-transporter,” or SGLT, inhibitor, which causes excess blood sugar to be removed from the body via the kidneys.

A couple of other companies have also developed SGLT inhibitors. Forxiga, from AstraZeneca/BMS, has been approved in the EU. Johnson and Johnson’s canagliflozin should receive FDA approval in the U.S. by next month, and is also being evaluated for market approval in Europe. As a result, market acceptance for this class of medication looks good.

Even better news for Sirona and its investors: in recent head-to-head preclinical studies the Sirona candidate was more effective and lasted longer than J&J’s canagliflozin. (And, since canagliflozin worked better than Forxiga in other studies, it’s reasonable to assume that Sirona’s drug will be the best in its class.)
Sirona is in discussions with potential pharmaceutical partners to handle the downstream clinical and commercial needs of the program.

Cell Preservation

As with the skin-lightening compounds, Sirona is developing applications for its cell-preservation compounds that aren’t all related to anti-aging. The company believes its cell preservation technology can preserve blood products, such as platelets, longer than standard methods, allowing greatly improved storage. The hope is that these compounds can also be used to extend the shelf life of other cellular products such as organs for transplantation, and live vaccines—all of which could, in turn, save many lives.

Also in the Pipeline

Other compounds in Sirona’s pipeline include biological inducers that could be used to improve recombinant-proteins production, and a stable antigen for a cancer vaccine.

Market Strategy

What’s the best advice for an investment portfolio? Diversify. Sirona’s leadership has taken this advice to heart in their R&D strategy, and have chosen to focus on programs with both short and long term revenue potential. The former includes cosmetic agents and biological ingredients, which have a far shorter development timeline than traditional pharmaceuticals.

The company’s plan for their pipeline is to complete preclinical development, then seek partners to take their products through clinical trials and into commercialization. This is clearly the most reasonable path, as they’re a small company and need to maintain a lean infrastructure. (And given the potential of their two lead products to generate multi-billion dollar revenues, they should have no trouble finding partners.) They’ve also implemented an aggressive patent strategy for all of their compounds, processes, structure and technology, in order to protect their very novel IP.

Management

Sirona’s management are seasoned professionals, having built and exited companies in several industries, including life sciences and corporate strategic planning. Especially crucial for these tough economic times is the fact that every member of their management team has an in-depth understanding of business fundamentals.

CEO Neil Belenkie was selected as one of Business in Vancouver Magazine’s “Top Forty Under 40” in 2011. His career in the life sciences industry has included leadership roles in sales, marketing, market research, and medical education with companies such as Ortho Biotech and Hoffman LaRoche. He is the founder of strategic management consulting firm GrowthPoint Group. Prior to founding GrowthPoint, he co-founded consulting firm RevGen and was a consultant at Odgers Berndston. Belenkie is an alumnus of Harvard Business School and Queen’s Executive School Business.

Chief Scientific Officer (CSO) Géraldine Deliencourt-Godefroy, PhD, is the inventor of the company’s carbohydrate technology. She is a synthetic chemist and founded TFChem prior to its acquisition by Sirona. She is the author of several patents and has won several scientific awards in France, including the Francinov Research and Innovation Medal, the French Ministry of Research Award the French Senate Award, and the INPI Trophy for Innovation from France’s National Institute of Industrial Property.

CFO Christopher Hopton has 15 years of expertise in financial management and operations. Previously, he was CFO of Central Resources Corp., a junior mineral exploration company. He also served as Division Controller at Canadian Airlines, where he was responsible for an annual operating budget of $200M. Hopton was also involved in the restructuring of 360 Networks, a network communications company, which led to a buyout by Bell Canada. He earned his Bachelor of Business Administration from Simon Fraser University in British Columbia and is a Certified General Accountant (CGA).

Sirona’s founder and current Chairman of the Board is Dr. Howard J. Verrico. He has both clinical experience and extensive experience as a venture capitalist. He obtained his medical degree from the University of Toronto in 1985 and has been a member of the College of Physicians and Surgeons of British Columbia since July 1986. He is also currently a practicing emergency room physician.

Sirona’s Scientific Advisory Board includes thought leaders in the fields of carbohydrate chemistry, diabetes research, pharmacology, biotechnology, cosmetics development, drug development and strategic partnering. The guidance, advice, and business connections provided by this board should give the company a major advantage in its development and commercialization activities.

The Bottom Line

Sirona Biochem is a biotech company developing diabetes medications, skin lightening and anti-aging cosmeceuticals, and biological ingredients for cell preservation and protein manufacture. The company’s pipeline is based on a proprietary chemistry platform that stabilizes carbohydrate-based molecules. This class of molecules has tremendous potential for treating many different diseases.

Because Sirona’s technology can be used to stabilize almost any kind of carbohydrate-containing molecule, the company plans eventually to partner with other companies to enable the success of promising drugs that would otherwise have to be dropped. This should make the platform very attractive to prospective pharma partners.

In the meantime, Sirona’s own pipeline stands to do extremely well. If you were asked to name a blockbuster market for a) new drugs, and b) personal-care products, chances are your answers would be a) diabetes, and b) skin care (especially anti-aging skin care), both of which are in the hundreds of billions of dollars. Sirona’s strategy of focusing its first R&D efforts on these two sectors is very savvy. It puts the company in the ideal position of being able to help people by developing new medicines, while ensuring that this valuable work will have the earlier financial support it needs from high-demand products that are faster to market and cheaper to develop. With a clear path to development and commercialization, this strategy should also make the company’s investors very happy.

Sirona was named to TSX Venture’s Top 50 in 2011, and ranked 2nd in the “Technology and Life Sciences” category. It also recently earned a top-tier OTCQX listing in the U.S. The company is in good shape financially, with a market cap of $10 million (with 79.7M outstanding shares). A recent $1.9 million grant from the French government should see its skin-lightening product through to commercialization, and the product should bring in significant profits. The company also recently completed a private placement of $1.4 million.

Sirona’s leadership team and research staff have demonstrated their ability to deliver results. The company is at an ideal stage of growth to benefit its investors—still small, but with very large potential.

-Katherine Austin
The Bottom Line Report

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The Bottom Line Report
The Bottom Line Report is an investor newsletter focusing on Canadian public companies in Biotech, Mining, Energy and Green market sectors. The report highlights specific CNSX, TSX and TSX Venture juniors and gives investors insight into specific corporate initiatives while shedding light on the relevance to the overall industry.

Katherine Austin
Katherine is a market analyst and journalist who has written about biotech, pharmaceuticals, and cleantech for over 20 years. Her clients have included Amgen, Sanofi Aventis, the United Nations, Howard Hughes Medical Institute, GE Healthcare, Lux Research, and Frost & Sullivan. Katherine has been interviewed by The New York Times, Forbes Magazine, and Business Week regarding reports she has written. She is also a member of the Gerson Lehrman Group's Council of Healthcare Advisors and of Guidepoint Global's Advisors Panel, which advise investment analysts and corporate executives on emerging technologies. With degrees from Harvard and the University of Washington, Katherine was previously a research scientist. This background and her experience as an analyst give her an edge in spotting disruptive technologies and analyzing their potential for growth and market impact.