Brief rant: Feedback Medical (FDBK)

I've seen my fair share of "dream investments" enter my portfolio over the years only to be smashed on the rocks of despair a little down the line when it transpires the product is unsellable, my entry was over-priced and/or the BOD are up to no good.

So it should be no surprise to see a company appearing to do well yet the share price moving in the opposite direction. Yet here I'm happy with the product and content with my average and I can't let this one go.

I held all through Trevor Brown's disorderly selling of over 20% of the company's stock on the open market, averaging down throughout. And then stayed firm through a recent rocky patch which saw a new CEO come on board, with high hopes and expectations, only to leave 6 months later after signalling to the market he wanted to raise funds for the second time this year.

And then the breakthrough came. Feedback added to a its handy chunk of research sales with its first clinical sale of TexRAD lung, through a previously-announced tie with GE Healthcare, no less.

And if we needed to see more than one sale to prove TexRAD Lung is a viable clinical product, a second order was quick to follow - from another huge global name: Samsung Medical.

This breakthrough comes in the same year that Feedback appointed Simon Sturge, current COO of Merck Healthcare, as a NED.

I know this company has had its knocks, but to see sales start to arrive and the share price go the other way is just a tad frustrating. Yes, short-term considerations will come in to play (cash, market volatility) but I can't help feel that something else is also in play on this share.

With the first clinical sales through the door and ties to 3 multinationals I can't see it taking too long for this very negative phase of AIM gamesmanship to play out and hopefully see some ROI after sticking more or less to my investment plan over the last year+

Here's a recent interview with executive chair Dr Alastair Riddell

FBDU Research Note

Disclaimer/disclosure: nothing on this blog constitutes investment advice. Research and targets published here are personal opinion of investors and usually created because the writer and/or publisher is invested or interested in taking a position in the company. 

Guest post by Ash (@ashtrading51)

Current Market cap: £2.1m

Current Share price: 3.25p

Director of FBDU Trevor Brown:

25% stake in the company

78.6% of shares are held tightly by directors and major shareholders, leaving a tiny free float

Stone Checker:

Kidney stones are treated using an expensive procedure called lithotripsy which uses a laser to break the stones in the kidney. However, this expensive treatment is only successful in around 60% of patients. Therefore, the treatment wastes a lot of money and vital hospital resources due to its high failure rate.

Stone Checker is designed to help combat this, it is a patented software that uses algorithms to determine the likelihood of kidney stone treatment being a success or failure. A potentially indispensable tool for Doctors.

The product has successfully completed clinical trials. And statistical analysis of 600 stones from an NHS hospital and Peking Union hospital in China, showed the software having a sensitivity of 94% and predicative value of 78%. Figures which exceeded the boards expectations greatly.

To Summarise: A commercial product which is successfully able to predict the likelihood of success for kidney stone treatment, with global reach.

Stone Prevent:

Stone Prevent is the second product which is designed to combat kidney stone reoccurrence. It provides detailed data which is beneficial for both patients and doctors, when trying to prevent Kidney stones from occurring again. Having this information at hand for patients is in line with recommendations by the American Urology Association.

Company has already commenced discussions with a single metabolic screening laboratory with global reach to implement this product.

This product will be available in private and public labs all over the world.

Obtaining CE and FDA approval

Stone Checker is a class 1 medical device so the risk of failing the regulatory processes with the FDA or CE are negligible. Also the regulatory burden in China and India, two of the countries in which the company plan to launch both products commercially, the risk is minimal.

For both products there is no scaled up commercial provider of any similar services, putting the company in a unique position.

Scale of reach

In UK there are 120 NHS hospital with around 80% active in the kidney stone field, Dr Balaji Ganeshans using his connection in the professional community of urologists will penetrate Stone Checker into leading centres in UK. Before moving on to countries such as USA, India and China where there is already huge interest.

In 2013 there was an estimated 27 million kidney stone sufferers in the USA, leading to a direct cost of $4.5bn. If 40% of procedures are likely to fail, one can imagine the costs attributed from the $4.5bn which are wasted. And if Stone Checker is able to accurately predict treatment success in up to 80% of patients. There would not be such a high treatment failure rate and therefore the cost saving benefit of the product is potentially huge! And this is the US alone. Not even accounting for the 5% of Chinese population estimated to be kidney stone sufferers or even the 12% of Indian population estimated to be sufferers. And then the rest of the world!

One market leader in the manufacture and sale of lithotripsy solutions has already expressed a high level of interest in the Stone Checker product. In the US, there are multiple opportunities to partner with niche companies in the radiology market, such as PCAs (personal care agency) providers, x-ray scanner companies and contract media pharmaceutical companies.

50% of kidney stone sufferers have a reoccurrence within 10 years, a problem, Stone Prevent is designed to combat.

The Board

Mr Trevor Brown- CEO of Bravehart investment group and Feedback PLC also ex CEO of AVO. During his time the share prices of all three groups increased remarkably. Trevor Brown has great experience in the medical fields and certainly knows how to create shareholder value.

Dr Qu Li- Non exec director- has over 25 years of experience in international mergers, acquisitions and joint ventures and has completed transactions ranging from $5m-$200m. She specializes in international business transactions.

Mr Kaushal- Mr Kaushal was part of the team that orchestrated the international launch of Losec©/Prilosec© at Astra Zeneca and also headed global strategic marketing of Novo Nordisk’s diabetes business.

Share Price Targets

Minimum share price target of 20p by year end, which would be a MC of around only 13m, due to near term catalysts and revenue.  However, looking at this as a product which can realistically be used by doctors in hospitals all over the world, who knows where the share price can end up to.

Short term news-flow expected (Q4 2017)

• Obtain CE mark certification
• Manufacture of the commercial version of Stone Checker software
• Completion of an online/mobile platform for Stone Prevent which generates reports
• Launch of Stone Prevent in UK market
• Selling of Stone Checker in UK

Motif annual results:muddying waters with proposed HAPB trial yet path to market now tantalisingly close

Motif Bio (LON:MTFB, NASDAQ:MTFB) released their annual results and on first glance from an investor's perspective they're not pretty. The company has a cash deficit to get through the coming year and yet is already talking about starting a second trial, INSPIRE, to measure the efficacy of iclaprim in treating Hospital Acquired Bacterial Pneumonia (HAPB).

But a closer inspection reveals the numbers to be far better than the headline, and once the proposed new INSPIRE trial is taken out of the equation the cash position is nowhere near as bad as it first looks and Motif seems tantalisingly close to hitting that home run and getting iclaprim to market - possibly as soon as H1 next year - as an ABSSSI treatment.

Yes, I think the company has a realistic chance of getting marketing approval from the FDA within 12-14 months from now.

So what about HAPB/INSPIRE? I've already discussed the potentially massive market for iclaprim treating ABSSSI patients who have insufficient kidney function - cornering 30% of that market alone could lead to annual revenues touching $1 billion. Gaining marketing approval for treating HAPB would increase that market by around 65%.

HOWEVER -  HAPB and the INSPIRE trials are not key to success here, and postponing them or at least taking them out of the cash flow equations makes Motif look very attractive indeed at today's price.

The big red flag from today's results is the $39.6m loss for 2016.

BUT by far the bulk of that loss ($34.8m) is associated with the clinical trial REVIVE. 2016 was exceptional in that it saw both Revive-1 and Revive-2 running in parallel. Upfront costs for both REVIVE trials would have been paid in the period.

Revive-1 is now complete so that burn is already reduced. Revive-2 is 80% complete so Clinical Research Organisation (CRO) costs will be minimal within 2 months when we expect to see Last Patient Out (LPO) notification for REVIVE.

Plus 2016 saw additional costs associated with the NASDAQ listing.

So, as I said, taking INSPIRE out of the equation and 2017 should see significantly lower costs. The company had $21.8m in the bank at the end of the period.

Another red flag though is the $18.6m liabilities. Taken from the remaining cash figure leaves not much left in hand.

BUT YET AGAIN, and somewhat unusual for an AIM company annual result, the detail significantly improves the outlook.

About halfway through this large report (111 pages listed on the index - not a typical AIM audit!) we see that $5,798,058 of the stated $18.6m liabilities is a derivative liability not becoming due till at least 2019 (furthermore it's in relation to the issuance of ADR warrants and might never become due, should Motif retain its listing).

So the liabilities becoming due in 2017 are $12.8m and the net cash position at the end of the period stands better at  $9m once liabilities are deducted from the end-of-period cash figure.

On those liabilities, the audit report by PWC (again atypical for an AIM company to be using one of the Big Four for its annual audit) contains disclosures in accordance with the US Sarbanes‑Oxley Act, meaning some of the usual "hidden costs" tricks of many AIM companies are off the table.

It appears as though a large part (and perhaps even all) of the upcoming clinical research costs associated with the REVIVE trials would already be contracted with the CRO,  and as such are included as liabilities.

So whilst the company does probably still need some cash, that deficit is far less than apparent on first scan of the headlines.

Furthermore with Revive-2 now 80% enrolled we are looking at the clinical phase of that trial coming to a completion in the next 2-3 months, with data another 2-3 months behind that.

With iclaprim already granted FDA Fast Track status the Federal Drug Administration will assign Priority Review status once the application is submitted and should have a decision within 6 months of the application being filed.

So the overall position of Motif has never been better after data from its first ABSSSI trial, Revive-1, was very good.

With Revive-2 at 80% enrolment the FDA New Drug Application (NDA) should be submitted by the end of this year, with a decision possible within H1 2018. The company really is that close to success here.

And the very fact Motif is now discussing a potential start to INSPIRE perhaps shows underlying confidence that the company will secure the necessary funding, perhaps from a regional licensing deal or joint venture arrangement.

A look at the reward side for the now-derisked Motif Bio

As a holder I was ecstatic to read the very good data yesterday from Motif Bio's (LON, NASDAQ: MTFB) first phase 3 trial for its novel antibiotic iclaprim.

I've covered Motif before (background reading) and have been amazed how the SP has languished since the Nasdaq IPO last year. The historical data always indicated a very high likelihood of good data in this trial. With such a low risk premium why was the market still pricing the stock so low?

And ironically, with the good data from Revive-1 pretty much a given, then it's probably no surprise the share didn't bag in one day when the good data was announced.

But why can you still buy Motif Bio at 35p?

Of course there is still a small funding shortfall, announced during the US IPO process, to get through to New Drug Approval (NDA) with the Federal Drug Administration (FDA).

But the potential upside here is massive. I'm usually sceptical of high broker targets but in this instance I think the 90p-125p range this is covered at is on the low side.

Pharma acquisitions typically start at around £300 million and can run into the billions. But before we get carried away with acquisition talk there still needs to be demonstrable value in iclaprim.

And that value comes about due to the complexity of treating ABSSSI infections in patients who have kidney problems, as well as patients with a few other complications.

The current standard treatment, vancomycin, is described as a 'terrible drug' for these patients by Dr Maccers, who explained to me how treating such patients involves taking regular blood samples, which then require testing, with the results of those tests being used to recalculate the vancomycin dose.

All this extra time monitoring, testing and recalculating by doctors means the treatment becomes far more costly to administer. It also takes, on average, longer to treat these patients, leading to longer hospital stays and increased costs in the provision of bed space.

Iclaprim has low nephrotoxicity, which basically means patients with kidney problems can be treated in the same way as everyone else. The trial safety data published yesterday confirms fixed-dose suitability for all patients.

So on to the business case, which is the "estimated 26% of 3.6 million ABSSSI patients hospitalised annually in the US" with kidney disease (source).

Based on an estimated drug price of $3,500 per course for iclaprim, clinicians indicate it would make sense on cost, safety and efficacy grounds to use Motif's new therapy, once approved.

$3,500 as an estimated cost of treatment with a market targeting up to 900,000 patients annually puts $1bn annual revenue a realistic target for Motif.

Yes, there is still a remote chance the whole process will be upset by a surprise in the second trial, due in H2 this year. But the Revive-1 data is so solid that, statistically, this chance is now much smaller than 5%.

Therefore the chance of success meeting trial endpoints is now higher than 95%.

So we're looking at very high probability of successful approval with the FDA coupled with a very attractive target market that could realistically see $1bn annual revenues in short order. Possibly more, and this is just from ABSSSI patients with kidney disease in US hospitals.

There's also a new trial treating bacterial pneumonia planned, adding to the potential revenue, as well as the possibility - likelihood, even - of European approval being sought.

As a possible acquisition target for a Big Pharma co with established sales and distribution they could be looking at even better numbers - with very few rival drugs targeting this opportunity a big company might realistically target $2bn+ from ABSSSI treatments @67% share of the target market, with HABP on top.

Have a listen to what the Motif CEO has to say:

Cap-XX (CPX.L) introduction and notes

Cap-xx (CPX.L) is a stock I hold (disclaimer) and would like to cover in a lot more detail than time currently allows.

In brief, the company designs and manufactures supercapacitors. Capacitors store electricity, but unlike batteries don't achieve this by way of a chemical reaction; the electric charge is stored in "plates" within the capacitor.

The lack of a chemical reaction brings several benefits, not least of which incredibly rapid charge cycles and enhanced lifespan over rechargeable batteries. Capacitors are intrinsically safer than conventional Li-ion batteries (ie low fire risk), provide far superior power output (peak power) and can be designed to operate in high temperature environments which would destroy a lithium ion battery.

Capacitors themselves have been around for 250 years - literally - and today are used in nearly all modern electronic devices. It would be highly unusual to find a circuit any more complex than a basic torch that didn't contain a capacitor.


The value proposition: making a capacitor "super"

Supercapacitors (or ultracapacitors - the terms are interchangeable) basically do the same job as capacitors - store electricity - but in a much smaller package.  The amount of electrical energy that can be stored is an order of magnitude larger than a conventional capacitor design of the same physical size.

This ability to store a large amount of electricity in a small package is an enabler in several areas of electrical design, allowing:

• Supercapacitors to replace rechargeable batteries, especially where heat or other factors play a part (e.g. car dashboard/dashcams) and/or lifespan (e.g. embedded battery backup for data cache in servers).
• Rapid charging - minutes or even seconds (depending on power constraints). This might be particularly useful for game controllers, where a game could be paused for a matter of 2 minutes to recharge a controller
• Make devices smaller - e.g. "wearable" electronics - where a traditional capacitor would be too large
• Maintenance free wireless remote sensors and smart meters, which use remote power or energy harvesting stored in an internal supercapacitor.  
• Enable new techniques such as motion charging for smaller devices such as smart watches

The overall market outlook for supercapacitor growth is strong, with reports indicating the global market will quadruple in 7 years from $568m dollars in 2015 to $2.2bn in 2022.

The Journey

Over the last half decade Cap-xx has commercialised the fruits of its ongoing R&D operation. R&D costs themselves are heavily subsidised by way of an annual rebate amounting to 45% of qualifying costs from the Australian government. This amounted to AU$1.5m received in 2016.

The company has a long-standing agreement with Japanese component giant Murata ($10.8 bn revenue - FY15, $32bn mcap) and has seen licensing revenue from this agreement grow year-on-year.

Cap-xx also manufactures components themselves.

In the pipeline: automotive "power module" and TruckStart. These are larger supercapacitor modules aimed at automotive use, both for electric vehicles and traditional combustion engine vehicles for regenerative braking, power boost, engine stop/start and cold start applications.

Revenue growth to date has been solid, but not exponential, leaving the market underwhelmed at times. Automotive applications have taken a while to commercialise.

The last 12 months could prove company-making

Almost exactly a year ago, Cap-xx announced a significant new deal with US component manufacturer AVX Corporation ($1.3bn revenue). The deal was worth £1m up front, with ongoing license fees and royalties.

AVX corporation described the technology licensed from Cap-xx as "best in class" for peak-power handling, and has since launched 2 ranges of capacitors amounting to just under 40 devices. 

Very soon after the AVX deal was announced, Cap-xx announced it had widened its agreement with Murata to license battery technology. Murata then released the UMAL, a novel supercapacitor/battery hybrid.  

Murata subsequently announced it would buy the substantial battery operations of Sony and make a strategic investment in battery technology for a range of end uses, including automotive and smart phones.

Both Murata and Cap-xx have hinted that the UMAL range could be expanded. 

In the annual results it was announced that the company had made a "first design win" for its Thinline range - a new "credit-card sized" application that would start manufacture in 2017.

Towards the end of the year the company won a prestigious industry award from the Society of Automotive Engineers (Australia) for its as-yet unreleased automotive PowerModule.  It then announced significant cost savings in the manufacturing process for PowerModule, indicating the long process of bringing this technology to the market was progressing with a commercial focus.

Early in 2017 we learned that Murata had launched the "world's thinnest" supercapacitor under Cap-xx license - just 0.4mm.

A surprise placing at 9p, close to a multi-year high and 80% premium to the share price just a month prior, piqued interest. The money would be used to accelerate a number of projects, according to the RNS

To top a very busy 12 months, the company announced it had launched a Cap-xx branded range of cylindrical supercapacitors.

After a period of sustained deals and launches it was disappointing to see revenue drop off in the interims. However, the dip seems to be contained to a very specific manufacturing problem and the company still forecasts meeting the FY numbers published by its broker, Allenby, reaffirmed soon after the company results in an updated note.

The future

Despite the blip in the iterims and current dip in the share price, its worth reminding ourselves that institutional investors saw fit to take part in a 9p placing raising £2.43m just 2 months ago, and nothing has changed in the fundamentals. In all likelihood those subscribers would have been aware of the temporary manufacturing problems at the time they invested, ie. they invested on the basis of what's around the corner. 

I expect 2017 to continue to cement to the company's position as a global leader in supercapacitor design with:

• Murata likely to expand the hybrid battery range beyond the existing UMAL size
• AVX likely to launch a new range termed "prizmcap" that is currently being mentioned in marketing literature
• Automotive PowerModule to be finally unveiled this year - potentially
• Details to be released of the projects being accelerated with the additional funds raised

In summary, the company achieved a great deal in the last 12 months. The revenue growth from multiple product launches by its 2 licensors together with its own-brand range in recent months will take a while to reflect in the results, but I don't expect the pace of growth to slow. I expect further launches this year that will continue to drive revenue in future years.

It's also worth noting that R&D spending was never trimmed back, meaning the company continues to invest in research that should support revenue in years to come.

The Ramp/Deramp Circus

I'm (thankfully) a passive observer to the whole Cloudtag embroilment and my thoughts are with the genuine PIs who have lost their entire holding.

And yes, I know some are still holding out hope, but the company's cash needs coupled with the fact there isn't already product on the shelves (launch costs, inventory, distribution, S&M, etc) means there is more hope of Tom Winnifrith becoming Prime Minister than there is of Cloudtag investors getting anything more than fractions of a penny for their shares from shorters looking to close the book in advance of the inevitable, that may drag on for months...

Speaking of Mr Winnifrith, he's a man I'm warming to in my ageing mind - I listened to one of his podcasts for the first time in 5 years and it was that very podcast that gave rise to this little blog of mine.

One of Tom's words of advice for avoiding the next Cloudtag was to listen to the bears on the BBs, instead of dismissing them out of hand as "de-rampers" etc.

Well, that's all very well and good, Tom - and yes, it's worrying that sites like London South East somehow managed to silence a couple of prominent Cloudtag bears whilst leaving many of the rampers to roam free.

But those sage words of advice don't on their own help private investors interpret the melee of your average share BB.

I had a similar experience to Cloudtag of my own last year - I was invested in Teathers Financial Services; not to a great extent, this being AIM and all, but I genuinely thought the Teathers App had a place (excuse the pun) in the market and would lead to more placings (yes, yes, I'm sorry) accessible to ordinary investors.

Of course there were the red flags (but at least the company had a product I could install on my phone), and the ominous warnings from the blogosphere and BB de-rampers. But the company had approximately the mcap in cash and liquid assets, right? What could go wrong?

Well, it did... So, should I have listened to the BB bears a bit more closely? 

It's hard to pay attention to constant dismissive and negative posters on a stock without questioning their motives, for there are few if any impartial voices on share BBs - our perceptions become skewed by the profits we're all chasing.

And, whilst it's important to maintain an open mind and a rational interpretation of the facts, even the good companies on AIM (hard to believe, I know - but they are out there) suffer an attack of the de-ramps from time to time as the bear raiders try and push the price down one last notch before they start to close.

Anyone who's inhabited a share BB for more than a month will no doubt wake up one day to find a former Überbear posting positively about a share. Yes, they not only closed their short yesterday, they also went long.

So I wasn't green, far from it. On Teathers I was determined to stand my ground - I didn't want to sell out at a loss only to see the share put on 30% the very next day. (Happens with surprising frequency, especially if one listens to the derampers...)

The negative voices being all so bitter and determined it was easy to dismiss them as disgruntled losers or nutjobs - maybe even had an axe to grind against the company or BOD.

Whilst none of the Teathers derampers admitted to having shorts I strongly suspected those that I didn't have down as nutjobs were just trying their luck with a short or swing trade. (The lack of a reliable short interest tracker on AIM is a huge problem for investors, but that's a post for another day.)

Turned out the shorters/de-rampers were right on that one. But there have been many shares since where they were wrong.

My conclusion then, as it is now: there is no substitute for research - read every RNS, every press article. Phone the company up - just to check someone is answering. If they have product then buy it. Check the BOD has a record of delivering promises made in past RNSs.

And whilst it is fairly easy to spot the outright agenda-posters, the rampers and the de-rampers, the grudge-holders and the nutjobs; you can't learn anything from them without first having a good understanding of the company fundamentals, a strong feel for the prospects and some idea of an approximate fair valuation.

Only once you've worked out a realistic price range for the company do the ramps and the de-ramps become useful as an early warning system - mainly against possible pump & dump or short & distort scams - but, from time to time, an alert that the company might not be as healthy as your own research had indicated.