ADAPT and GROW!

Historical

This is post is not about evolutionary adaptation of an organism to its environment, or the ability to respond to differing circumstances in life.

The ADAPT of this post is a copy-right process for rendering animal tissues (heterografts or xenografts) suitable for human implantation, in terms of rejection, calcification, and durability. 57 year-old Professor Leon Neethling, an Australian Scientist working in South Africa spent years in pain-staking research to refine the process, the details of which are not disclosed publicly. I haven’t been able to find out what the acronym (presumably) stands for;  it is Tissue Processing Technology, that involves washing out the cells and enzymatic treatment of antigenic material leaving behind a collagen (fibrous material) scaffold into which host cells including stem cells can grow, to be incorporated as an integral living part of the host.

The object of his research was to come up with a suitable material for use by cardiac surgeons to repair congenital defects. A secondary purpose was to be able to replace deformed, incompetent heart valves, a market they thought could be worth US$850 in 2012. An new technique known as Percutaneous Heart Valve Replacement”.(PHVR)”was envisaged allowing the valves to be replaced without open surgery. As far as I known this is not yet a reality.

When Professor Neethling moved to Australia about 16 years ago, he brought with him his knowledge of the fabrication of CardioCel patches from bovine pericardium (the membrane which surrounds the heart). He established a unit at the Royal Perth Hospital for this purpose. The first operation using CardioCel was performed by Cardiothoracic Surgery Head, Professor Francis Smit, at the University Hospital at Bloemfontein in South Africa in May 2008. Two patches were implanted, one for the repair of a coarctation (extreme narrowing) of the aorta, and the other for repair of a defect in the septum between the ventricular chambers of the heart.

At that time the ASX listed biotech bioMD  was created to fund the further development of CardioCel in Phase II trials. In June 2011, bioMD merged with another West Australian company, the unlisted Allied Medical Limited, an initiative of Andrew Forrest of Fortescue Metals Group fame, forming a newly listed biotech stock Allied Healthcare.

The ADAPT process can be used to process other graft materials including homografts (same species donor).  Disparate tissues may need to be custom-made.  Might the technique be applied to bone and cartilage for reconstructive purposes?

Disclaimer and Disclosure

The writer discloses that he is an existing shareholder in the company now known as Admedus, and has been since February 2013 when he wrote a post for this blog about Allied Healthcare.  This information should be considered as general information, not a recommendation for investment by others. The writer has no personal knowledge of the operations of Admedus. Post references are believe believed to be reliable.

 

Company information and fundamental data (as at July 30, 2014)

  • First CardioCel sales were recorded in May 2014 in the USA
  • Sales were up from $7.4 million to $7.8 million
  • Total income including a tax rebate, and a grant of $1.9 million was A$10.4 million.
  • Cash balance at end of the year was $19.5 million, a reserve that will need to support the further marketing of CardioCel.
  • Admedus is now supplying 12 cardio-thoracic surgery centres in Europe, with a target of 15.
  • Admedus is looking to expand the range of indications for the use of CardioCel both within the field of Cardio-thoracic surgery, and for other surgical problems.
  • Initial market approval has been obtained for supply to Asia.
  • Progress with Professor Ian Frazer’s vaccine work via Coridon has not been considered for this post.

 

Technical Appraisal

Range bound

Range bound

Observations

  • After reaching a high of 18 cents in the first quarter of 2014, the share-price eased back to a low of 9.5 cents at the time of a new capital raising in a right issue.
  • Rebound since this issue has been somewhat hesitant with the shares trading sideways in a narrow trading range with little profit margin between 12.5 and 14 cents.
  • The appearance suggest accumulation of shares with reliable recurring support at 12.5 cents buying from those willing to sell cheaply at this level.
  • The flat volume and mid-range RSI suggests that most of those who took up the new share issue feel no urgency to divest the shares they acquired at 10 cents.

 

A possible trading strategy

  • It is likely that sellers will soon be reluctant to accept prices in the current trading range. If so the share-price is likely to test resistance at 14.5 cents.
  • In this event the next resistance targets are at 15 and 18 cents.
  • Buy at support at 12.5 cents, within the range, and/ or break-out above 14 cents
  • Possible stop / loss at 11 cents.

 

Expectations for  2014/5

Admedus continues to make progress in its mission to become a significant healthcare stock; with Professor Ian Frazer a valuable draw-card, and strong support from Andrew Forrest.

Admedus has a versatile, carefully researched product and now has the manufacturing capability it needs, to meet the growing demand for CardioCel. In the coming year it needs to balance the manufacturing and marketing costs with growth in revenue from CardioCel sales.

The take-up of CardioCel is now no longer just in the hands of the company. It’s future depends on the reception it receives from the doctors who use it and they will conduct the trial that matters – performance in the open market.

CardioCel may be unsuitable for some applications. On the other hand valuable new uses may come to light, cultivating stem-cells, repairing hernias, or reconstructing some tissue defects.  If Admedus can adapt to the market needs by modifying the design of its product as needed, then the prospects for profit are excellent.

For the next year or two, the company should be flexible and ADAPT to emerging market needs!

 

Bibliography

http://www.admedus.com/au/

https://technicality.me/2013/02/23/a-make-or-break-year-for-allied-healthcare-group/

https://technicality.me/2013/02/23/a-make-or-break-year-for-allied-healthcare-group/

http://newsstore.smh.com.au/apps/previewDocument.ac?docID=GCA00838431BOD&f=pdf

http://news.smh.com.au/breaking-news-national/new-heart-patch-aussies-life-work-20130909-2tf95.html



Categories: Business, Chart Analyses, Investment, Trading opinion

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