POWER3 MEDICAL PRODUCTS, INC

Transcription

D. Paul Cohen, President
21 Manzanita Avenue #1000
San Rafael, CA 94901
www.cohenresearch.com
Telephone: 415.454.6985
Fax: 415.455.0295
E-mail: [email protected]
E-mail: [email protected]
November 3, 2006
(PWRM.PK)
$0.06
BUY
Power3 Medical Products, Inc. is a mid-to-late stage development company engaged in the discovery,
development, and commercialization of protein biomarkers. The Company has made significant
progress in establishing the effectiveness of its patent pending biomarkers in blood serum based test for
the early detection and diagnosis of breast cancer, neurodegenerative diseases and drug resistance.
Power3’s revenue model is based on the licensing of its technology to diagnostic and pharmaceutical
companies. Power3 has been successful in signing important license agreements and therefore, the
Company’s revenue stream has begun with the receipt of a second milestone payment. The Company
has an Intellectual Property (IP) portfolio of 521 differentially expressed biomarkers.
Table 1: Price Targets
Terminal Growth Rates
Optimistic Case
Base Case
Pessimistic Case
3.00%
5.10
2.78
1.74
4.00%
5.34
2.91
1.83
5.00%
5.61
3.07
1.94
6.00%
5.94
3.26
2.07
7.00%
6.33
3.49
2.24
Table 2: Estimated Earnings per Share
Optimistic Case
Base Case
Pessimistic Case
2006
(0.01)
(0.01)
(0.07)
2007
(0.01)
(0.03)
(0.02)
2008
0.02
0.00
(0.00)
2009
0.59
0.27
0.15
2010
0.79
0.41
0.42
2011
0.84
0.39
0.20
At the current market price of $0.06 per share, Power3’s common stock is distinctly undervalued. We
valued the company using three forecast scenarios – Base Case, Optimistic Case and Pessimistic Case.
These methodologies indicate that Power3’s share price is undervalued. Even our most conservative
approach, based on the Pessimistic scenario, yielded a value of $1.83-2.07 share. This price range is
significantly higher than the current market price at mid-level of our Pessimistic target price range.
Copyright © 2006 by Cohen Independent Research Group. All rights reserved. This report may not be reproduced.
Cohen Independent Research Group
QUICK VIEW
(PWRM.PK)
BUY
Page 2 of 113
Chart 1: Price and Volume
5 Day Moving Average
0.086
Current Market Value
0.090
Reported Shares Outstanding (2006/10/18) (#)
5.92M
70.47M
0.104
Balance Sheet Shares Outstanding (2006/06) (#)
70.47M
30 Week Moving Average
0.142
Float (#)
21.73M
0.132
Float As % Of Shares Outstanding
30.84%
Last 4 Weeks
Last 13 Weeks
Last 26 Weeks
Last 52 Weeks
High Price
0.12
0.15
0.2
Low Price
0.084
0.084
0.084
0.43
0.08
Price Change (%)
(23.64)
(16.00)
(54.84)
(66.40)
Price Change vs Market (%)
(25.92)
(22.53)
(56.69)
(40.95)
Page 3 of 113
EXECUTIVE SUMMARY
•
•
•
•
•
•
Power3 Medical Products Inc. is a proteomics company engaged in the discovery and development of
protein biomarkers for use in the early detection and diagnosis of breast cancer, neurodegenerative
diseases and drug resistance. The company was incorporated in 1992 as a medical device company. Since
May 2004, Power3, transitioned itself into a development stage company and currently is moving toward
the commercialization of its proprietary technology.
The Company has identified 521 biomarkers, and is well positioned to commercialize its technology and
diagnostic tests. Power3 has made substantial steps forward to be a dominant player in the protein-based
diagnostics market.
The blood serum test developed by Power3’s is expected to lead to accurate, rapid, and early detection of
breast cancer, thus improving the life expectancy of patients. Breast cancer is the second leading cause of
cancer among women. During 2006, approximately 212,920 cases will be diagnosed and 40,970
individuals will die from the disease. When a woman is diagnosed with breast cancer via mammography;
she has on average, already had the disease for between six to ten years. Early detection and treatment are
crucial for survival from breast cancer.
Power3 developed the NuroPro™ blood test which involves monitoring the concentration of groups of
proteins in blood serum to accurately detect and distinguish Alzheimer’s disease, Parkinson’s disease, and
Amyotrophic Lateral Sclerosis or ALS (Lou Gehrig’s disease). Advanced detection of these diseases will
allow physicians to intervene at an earlier stage, providing the capability to prevent or delay the
progression of the disease. The Company completed proof-of-concept and initial stages of clinical
validation studies for the NuroPro™ Test, with results that exceeded expectations.
An investment in Power3 Medical offers an opportunity to participate in the growth of the protein-based
drug discovery and development industry, projected to reach in excess of $71 billion by 2008 from more
than the present $40 billion. In breast cancer, neurodegenerative diseases, and drug resistance markets,
there is an unfulfilled need for early detection and diagnosis. This would provide a means to save many
patients’ lives and result in very substantial cost savings to the healthcare system as a whole. Breast
cancer diagnostics is a $7 billion market and this alone represents a very sizable market opportunity. .
Power3 will generate significant revenue streams from license fees for both individual biomarkers and
sets of targeted biomarkers to companies such as Pfizer, Innogenetics, Roche, Biosite, Bayer, and Myriad.
Supplementing these license fees will be royalty revenue streams on any products that the companies
produce. In the breast cancer segment, the Company received its second milestone payment from Biosite,
a licensing partner; revenues from royalty payments are expected to begin soon. The Company entered
into an agreement relating to its product NuroProTM with Innogenetics and are in negotiation with other
prominent industry leaders for similiar agreements.
Valuation Summary:
• At the current market price of $0.06 per share, Power3’s common stock is grossly undervalued. We
valued the company using three forecast scenarios – Base Case, Optimistic Case and Pessimistic Case.
These methodologies indicate that Power3’s share price is undervalued. Even our most conservative
approach based on the Pessimistic scenario yielded a value of $1.83-2.07 per share, which is significantly
higher than the current market price at mid-level of our Pessimistic target price range.
• With the realization of milestone payments from Biosite and the Company’s progress to forge new
agreements in 2006, Power3’s commercialization phase will begin, yielding revenues to the Company.
These factors combined with greater market visibility are expected to press Power3’s stock to new highs.
Page 4 of 113
Base Case Estimated Income Statement
Figures in $'millions unless specified
2006E
2007E
2008E
2009E
2010E
2011E
2012E
2013E
2014E
2015E
Revenues:
Breast Cancer Tests
Alzheimer's Tests
Parkinson's Tests
ALS Tests
Drug Resistance Tests
Non-US Revenues
Total Revenue
0.7
0.0
0.0
0.0
0.0
0.0
0.7
2.5
0.7
0.7
0.0
0.0
0.2
4.1
2.8
2.5
2.5
0.0
0.4
0.8
9.0
13.4
31.9
20.8
9.1
1.6
7.7
84.6
13.1
41.2
24.5
28.5
2.7
11.0
121.0
19.3
40.1
22.8
22.4
1.4
10.6
116.5
16.6
35.7
18.7
18.7
0.0
9.0
98.8
19.5
36.4
19.1
17.7
30.4
12.3
135.4
18.7
37.1
19.5
18.0
67.1
16.1
176.6
18.0
37.8
19.9
18.4
74.1
16.8
185.1
0.3
0.0
0.0
0.0
0.0
0.0
0.3
0.4
0.8
0.3
0.3
0.0
0.0
0.1
1.4
2.7
0.8
0.8
0.8
0.0
0.1
0.4
2.8
6.1
4.0
9.6
6.3
3.7
0.5
3.5
27.4
57.2
3.9
12.4
7.4
8.5
0.8
4.9
37.9
83.0
5.8
12.0
6.8
6.7
0.4
4.8
36.5
79.9
5.0
10.7
5.6
5.6
0.0
4.0
31.0
67.8
5.8
10.9
5.7
5.3
9.1
5.5
42.5
92.9
5.6
11.1
5.9
5.4
20.1
7.2
55.4
121.2
5.4
11.4
6.0
5.5
22.2
7.6
58.1
127.1
0.2
0.0
0.0
0.0
0.0
7.2
-6.8
0.6
0.2
0.2
0.0
0.0
4.5
-1.8
0.6
0.5
0.5
0.0
0.1
5.5
0.6
3.4
8.0
5.2
2.3
0.4
27.3
29.8
3.3
10.3
6.1
7.1
0.7
38.0
45.1
4.8
10.0
5.7
5.6
0.4
37.3
42.6
4.2
8.9
4.7
4.7
0.0
32.9
34.9
4.9
9.1
4.8
4.4
7.6
43.6
49.3
4.7
9.3
4.9
4.5
16.8
55.7
65.4
4.5
9.5
5.0
4.6
18.5
59.0
68.0
-0.2
-0.2
-7.0
0.0
-0.2
-0.2
-2.0
0.0
-0.2
-0.2
0.4
0.1
-0.2
-0.2
29.6
10.4
-0.2
-0.2
44.8
15.7
-0.2
-0.2
42.4
14.8
-0.2
-0.2
34.6
12.1
-0.2
-0.2
49.1
17.2
-0.2
-0.2
65.2
22.8
-0.2
-0.2
67.8
23.7
-7.0
(0.10)
-2.0
(0.03)
0.2
0.00
19.2
0.27
29.1
0.41
27.6
0.39
22.5
0.32
31.9
0.45
42.4
0.60
44.1
0.63
Cost of Goods Sold:
Breast Cancer Tests
Alzheimer's Tests
Parkinson's Tests
ALS Tests
Non-US Revenues
Total Cost of Goods Sold
Gross Profit
Operating Expenses:
Breast Cancer Tests
Alzheimer's Tests
Parkinson's Tests
ALS Tests
Total Operating Expenses
Income / (Loss) from Operations
Other Income and (Expense)
Interest (Expense)
Total Other Income (Expense)
Income / Loss before Tax
Provision for Tax @ 35%
Net Income / (Loss)
Net Income / (Loss) per share
Page 5 of 113
Valuation (Discounted Cash Flow Analysis)
Time period to discount cash flow
0.33
1.33
2.33
3.33
4.33
5.33
6.33
7.33
8.33
9.33
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Net Cash Flow from Operations
CAPEX
Net Debt Additions
Free Cash Flows Equity (FCFE)
Present Value of FCFE
-6.44
-0.01
2.82
-3.63
-3.5
0.61
-0.04
0.70
1.27
1.0
-0.29
-0.09
0.00
-0.38
-0.3
18.04
-0.85
0.00
17.20
10.4
30.23
-1.21
0.00
29.02
15.0
27.96
-1.16
0.00
26.80
11.9
22.66
-0.99
0.00
21.67
8.3
33.93
-1.35
0.00
32.58
10.7
44.85
-1.77
0.00
43.08
12.1
45.79
-1.85
0.00
43.93
10.6
10.33
Range of Terminal Growth Rate
3%
572.88
4%
619.00
5%
673.20
6%
737.80
7%
816.11
119.05
128.64
139.90
153.33
169.60
WACC
Cost of Debt
Interest rate on borrowings
Tax Rate
Post Tax Cost of Debt
Cost of Equity
Risk Free Rate
Risk Premium
Beta
Cost of Equity
Proportion of Debt
Proportion of Equity
WACC
Average WACC
11.0%
35.0%
7.2%
11.0%
35.0%
7.2%
11.0%
35.0%
7.2%
11.0%
35.0%
7.2%
11.0%
35.0%
7.2%
5.3%
7.0%
2
19.3%
5.3%
7.0%
2
19.3%
5.3%
7.0%
2
19.3%
5.3%
7.0%
2
19.3%
5.3%
7.0%
2
19.3%
29.7%
70.3%
35.8%
64.2%
34.9%
65.1%
12.0%
88.0%
6.0%
94.0%
15.7%
16.4%
14.9%
15.1%
17.8%
18.6%
Page 6 of 113
Sensitivity Analysis with Growth Rate
Discount Rate
Terminal Growth
Shares O/S
Sum PV of FCFE
Add: Cash
Equity Value
Value Per Share (in $)
16.4%
3%
70.47
195.38
0.34
195.72
2.78
16.4%
4%
70.47
204.96
0.34
205.30
2.91
16.4%
5%
70.47
216.23
0.34
216.56
3.07
Sensitivity Analysis with Discount Rate (With terminal Growth
Rate of 5%)
Range of
Discount Rate
PV of Free Cash Flows (in $'million)
2006
2007
2008
2009
2010
2011
2012
16.8%
1.97
13.33
37.21
40.17
30.74
22.33
19.49
17.8%
1.96
13.18
36.48
39.04
29.62
21.34
18.47
18.8%
1.95
13.03
35.76
37.96
28.56
20.40
17.50
19.8%
1.95
12.89
35.07
36.91
27.54
19.51
16.60
20.8%
1.94
12.75
34.40
35.91
26.57
18.66
15.75
16.4%
6%
70.47
229.65
0.34
229.99
3.26
2013
20.09
18.87
17.74
16.68
15.70
2014
21.21
19.75
18.41
17.17
16.02
16.4%
7%
70.47
245.93
0.34
246.27
3.49
2015
20.03
18.50
17.10
15.81
14.63
Terminal
Value
216.83
198.55
181.94
166.85
153.12
Sum of
PV of
FCFF
443.38
415.76
390.36
366.98
345.43
Less:
Net
Debt
-2.03
-2.03
-2.03
-2.03
-2.03
Page 7 of 113
Equity
Value
445.41
417.79
392.39
369.01
347.46
Value
Per
Share
6.32
5.93
5.57
5.24
4.93
Chart 2: Target Prices
Price Target for Three Scenarios Vs.
Long Term Sustainable Grow th Rates
8.00
7.00
6.00
US $
5.00
4.00
3.00
2.00
1.00
0.00
Long Term Grow th Rates
3%
4%
5%
6%
7%
Optimistic Case
5.10
5.34
5.61
5.94
6.33
Base Case
2.78
2.91
3.07
3.26
3.49
Pessimistic Case
1.74
1.83
1.94
2.07
2.24
INVESTMENT THESIS AND RECOMMENDATION
We initiate coverage on Power3 Medical Products with a Buy recommendation. The Company has a
strong Intellectual Property (IP) portfolio. Coupled with its licensing revenue model, the Company is
well positioned to reap the benefits from its presence in the multi-billion dollar diagnostics market.
Leveraging its proprietary technology, the Company developed blood serum tests for early breast
cancer detection and early diagnosis of neurodegenerative diseases as well as drug resistance. The
Company completed validation studies of more than 1273 patient samples and is monitoring
appropriate biomarkers for their diagnostic value. With over 50 years of combined research expertise,
the Company has developed a portfolio of 521 patent pending biomarkers that offer a substantial
opportunity for commercialization. We believe the licensing of the Company’s proprietary technology
will result in a strong revenue stream in the near-term as well as the long-term. At the current price of
$0.06 per share and a $3.07 valuation target, we recommend purchase of Power3’s common stock for
long term, risk adverse investors.
Page 8 of 113
THE REPORT
POWER3 MEDICAL PRODUCTS, INC.
(PWRM.PK)
BUY
Page 9 of 113
TABLE OF CONTENTS
Table 1: Price Targets ................................................................................................................................................................... 1
Table 2: Estimated Earnings per Share ...................................................................................................................................... 1
QUICK VIEW........................................................................................................................................... 2
Chart 1: Price and Volume............................................................................................................................................................ 3
EXECUTIVE SUMMARY....................................................................................................................................4
Base Case Estimated Income Statement ................................................................................................................5
Valuation (Discounted Cash Flow Analysis) .........................................................................................................6
Chart 2: Target Prices ................................................................................................................................................................... 8
INVESTMENT THESIS AND RECOMMENDATION.......................................................................................8
THE REPORT .......................................................................................................................................... 9
TABLE OF CONTENTS.....................................................................................................................................10
Background ..........................................................................................................................................................12
POWER3’S TECHNOLOGY APPLICATION & UNIQUENESS ................................................... 13
Table 1: Biomarker Portfolio of Power3 Medical .................................................................................................................... 14
Figure 1: Power3’s Medical Suite ............................................................................................................................................. 15
BUSINESS MODEL & STRATEGY.................................................................................................... 16
BULL CASE ........................................................................................................................................................18
BEAR CASE........................................................................................................................................................19
MARKET OVERVIEW: OPPORTUNITY ASSESSMENT & DEMAND DRIVERS ................... 20
Table 3: Size of the market and potential for Power3’s products.......................................................................................... 20
BREAST CANCER .............................................................................................................................................20
Breast Cancer: Detection/Screening ...............................................................................................................21
Breast Cancer: Diagnosis................................................................................................................................21
Figure 2: MRI: Breast cancer diagnosis................................................................................................................................... 22
Breast Cancer: Power3 Filling the Gap for Early Detection.........................................................................23
NEURODEGENERATIVE DISEASES..............................................................................................................23
Table 4: Neurodegenerative Disease Cost Estimates for U.S. Market ................................................................................ 24
Neurodegenerative Diseases: ..........................................................................................................................24
Alzheimer's.......................................................................................................................................................24
Figure 3: Light microscopy slides of human brain using Bielschowsky silver stain ........................................................... 25
Figure 4: Diagnostic Technologies for Alzheimer’s disease ................................................................................................. 26
Parkinson's ......................................................................................................................................................26
Figure 5: Parkinson’s disease in the substantia nigra of the brain....................................................................................... 27
Amyotrophic Lateral Sclerosis (ALS) ..............................................................................................................28
Figure 6: Amyotrophic lateral sclerosis (ALS): Degeneration of Motor Neurons ................................................................ 28
DRUG RESISTANCE IN LEUKEMIA ..............................................................................................................30
Drug Resistance...............................................................................................................................................30
COMPETITIVE LANDSCAPE ............................................................................................................ 32
Table 5: Comparative Study of Proteomics Companies......................................................................................................... 32
STRATEGIC PARTNERSHIPS ........................................................................................................... 33
Figure 7: Power3’s Strategic Partnerships, Research Advisors & Collaborators............................................................... 37
License and / or Research Agreements with Diagnostic Companies...................................................................37
Research Agreements with Pharmaceutical Companies ......................................................................................38
Page 10 of 113
Alliances with Academic and Research Institutions ............................................................................................38
LIQUIDITY & CAPITALIZATION ...................................................................................................................39
Common Stock .................................................................................................................................................39
Convertible Debentures ...................................................................................................................................39
Debt..................................................................................................................................................................39
FORECAST .........................................................................................................................................................40
Revenue Forecast .................................................................................................................................................40
Milestone Payments Forecast..........................................................................................................................40
Table 6: Power3’s Base Case Milestone Payments Forecast.............................................................................................. 41
Royalty Revenues .............................................................................................................................................42
Table 7: Breast Cancer Tests Royalty Revenues Forecast - Base Case ........................................................................... 42
Table 8: Alzheimer’s Disease Tests Royalty Revenues Forecast - Base Case................................................................. 43
Table 9: Parkinson’s Disease Tests Royalty Revenues Forecast - Base Case................................................................. 44
Table 10: ALS Tests Royalty Revenues Forecast - Base Case........................................................................................... 45
Table 11: Drug Resistance Royalty Revenues Forecast - Base Case................................................................................ 45
Total Revenue Forecast – Base Case ...................................................................................................................46
Table 12: Total Revenue Forecast - Base Case .................................................................................................................... 46
Earnings and FCF Forecast ..................................................................................................................................46
Table 13:
Table 14:
Table 15:
Table 16:
Earnings and FCF - Base Case............................................................................................................................... 47
Optimistic Case - Revenue, Earnings and EPS Forecast.................................................................................... 47
Pessimistic Case – Revenue, Earnings and EPS Forecast ................................................................................ 48
Revenue, EPS and FCF growth – (all three scenarios) ....................................................................................... 48
VALUATION ......................................................................................................................................................49
FINANCIAL EXHIBITS ....................................................................................................................... 52
Exhibit 1: Income Statement – Base Case ............................................................................................................................... 53
Exhibit 2: Balance Sheet – Base Case ..................................................................................................................................... 54
APPENDICES ......................................................................................................................................... 68
Appendix I – Biomarkers .....................................................................................................................................69
Figure 8: Biomarker Functions .................................................................................................................................................. 70
Figure 9: Biomarker Qualification ............................................................................................................................................. 73
Figure 10: Molecular Biology ..................................................................................................................................................... 75
Figure 11: Biological Investigations .......................................................................................................................................... 77
Appendix II – Proteomics and Genomics ............................................................................................................78
Figure 12: Branches and Functions of Proteomics ................................................................................................................ 80
Appendix III – Power3’s Discovery Process .......................................................................................................83
Figure 13: Power3’s Discovery Process .................................................................................................................................. 83
Appendix IV – The Nervous System ...................................................................................................................87
NEURONS .......................................................................................................................................................87
Figure 14: Structure of a typical neuron................................................................................................................................... 88
THE SPINAL CORD........................................................................................................................................89
THE BRAIN .....................................................................................................................................................89
Figure 15: Diagram of the main components of the Brain..................................................................................................... 90
Appendix V – Company Management Team.......................................................................................................92
Steven B. Rash – Chairman and Chief Executive Officer ................................................................................92
Essam A. Sheta, Ph.D. – Director of Biochemistry .........................................................................................92
Ira L. Goldknopf, Ph.D. – Director of Proteomics ..........................................................................................93
John P. Burton – Chief Financial Officer........................................................................................................93
Scientific Advisory Board ................................................................................................................................93
Appendix VI – Recent Events..............................................................................................................................96
Appendix VII – Forecast Charts ........................................................................................................................100
Page 11 of 113
(PWRM.PK) $0.06
BUY
Power3 Medical Products, Inc. (Power3) is a
mid-to-late-stage
development
company
engaged in the discovery, development, and
commercialization of protein-based diagnostic
products for the healthcare industry. More than
50 years of combined research experience in
proteomics and protein biochemistry lies within
this Texas based company. Power3’s Director of
Proteomics, Dr. Ira L. Goldknopf, pioneered the
science of clinical proteomics. Broad and farreaching expertise and experience enables the
Company to be on the cutting edge of
developing proprietary technologies for protein
characterization, and development of proteinbased, early diagnostic tests. The Company
utilized its protein technology to successfully
identify 521 (to date) differentially expressed
proteins, essential for the early detection and
treatment of breast cancer, neurodegenerative
diseases, and the identification of drug
resistance.
Significant milestones have been reached in
Power3’s transition from research and
development to a corporation on the threshold
of commercializing its technology. Power3’s
has completed validation studies of more than
1273 patient samples and is monitoring
appropriate
biomarkers
for
diagnostic
sensitivity, specificity, positive predictive value,
and negative predictive value. Because of its
substantial experience in protein biochemistry
research, the Company is well positioned to
satisfy the unmet medical need of early
diagnosis of dreadful diseases such as breast
cancer, Alzheimer’s, Parkinson’s disease, and
Amyotrophic Lateral Sclerosis (ALS or Lou
Gehrig’s disease). An investment in Power3
Medical Products, Inc. offers a participation
opportunity in the growth of the protein-based
drug discovery and development industry,
projected to exceed over $71 billion by 2008
from the current level of over $40 billion.
Background
The Company was incorporated in Florida as
Surgical Safety Products in May 1992. The
Company and its subsidiaries engaged in
product development, sales, distribution, and
services for the healthcare industry. In
September 2003, Surgical Safety Products
changed its name to Power3 Medical Products,
declared a 1:50 reverse split of its common
stock, and increased its authorized capital.
Before May 2004, the Company had one direct
wholly-owned subsidiary, Tenthgate, Inc, which
operated as a “development stage company”. On
May 17, 2004, Tenthgate was spun off under the
control of the prior management of Power3 and
its stock distributed to shareholders of Power3
as of that date.
On May 18, 2004, Power3 entered into an Asset
Purchase Agreement with Advanced BioChem
to purchase all the assets and certain liabilities
of Advanced BioChem. After the transaction,
certain employees of Advanced BioChem
became employees of Power3. The Company
then changed its business focus as an operating
company and transformed into a development
stage company. Currently, Power3 is testing its
“proof of concept”, with the intent of moving
toward commercialization of its intellectual
property.
Page 12 of 113
Power3’s Technology Application & Uniqueness
Power3 developed proprietary methodologies to
identify Biomarkers1 for use in diagnostic tests
targets for new drug development. Using
decades of pioneering proteomic laboratory
experience and expert Biostatistics, Power3 is
positioning itself at the forefront of proteomic
commercial viability. The Company utilizes its
extensive expertise and proprietary technologies
in protein identification and analysis for the
discovery and development of unique protein
biomarkers. These biomarkers are utilized in
diagnostic tests to diagnose and monitor breast
cancer, neurodegenerative diseases, and drug
resistance to chemotherapy.
Proteomics is the study and analysis of proteins
which include receptors, hormones and
enzymes, the fundamental building blocks of all
cells in the human body carrying out cellular
functions. The instructions for building these
proteins are found in the DNA or genome of the
cell. Once formed, a protein can be modified by
other proteins and can interact with other
proteins to form complex structures2. As many
as 120,000 different proteins are found in the
human body, forming the human proteome, and
up to 10% of these proteins may serve as targets
for drugs. Abnormalities in protein structure,
function, or concentration indicate the presence
of disease. Studying the proteins found within
the human body and the changes that occur (i.e.
proteomics), can lead to a better understanding
of how a healthy body functions and can allow
identification of proteins associated with
1 For detailed discussion on biomarkers refer Appendix I
2 More information about the human genome and proteome and their
applications in proteomics is available in Appendix II
specific diseases. Studying the changes in
protein biomarkers may permit researchers (and
eventually doctors) to identify the presence of
disease before any physical symptoms appear.
While studying a single protein may provide
useful information, some disease states are
complex and may be best characterized by
several, or even many, interacting proteins. A
diagnostic product that utilizes multiple proteins
has the sensitivity and ability to identify the
more complex disease state.
Power3’s research platform3 is based on the
study of proteomics. The Company has
developed a unique, discovery platform that is
specifically structured for the discovery and
development of the protein biomarkers of
human disease and the creation of intellectual
property though clinically focused, precise and
controlled analysis. The Company’s technology
platform uses both proprietary methodologies
owned by or licensed to the Company and
accepted technologies to discover biomarkers in
blood serum samples. Following sample
preparation, a 2D Gel system is used for the
separation of proteins in a patient sample such
as blood serum. The gels are stained, imaged,
and analyzed for differences in the diseased
versus normal samples. The significance of
these differences is evaluated relative to the
disease burden of the individual. Proteins of
interest are removed from the gel matrix,
fingerprinted, and sequenced by tandem mass
spectrometry. The Company’s biomarker
discovery
platform
delivers
significant
discoveries that are capable of detecting up to
20 times as many proteins in blood serum
samples as Mud Pit or SELDI TOF (competing
3 For more information on Power3’s discovery process, please refer to
Appendix III
Page 13 of 113
technologies); exhibiting reproducible and
reliable identification; and displaying broad
dynamic range and linearity of quantitative
disease protein footprints. To date, Power3 has
successfully identified over 521 differentially
expressed proteins (Table 1). This discovery has
enabled the development of NuroProTM, a
proprietary, sensitive, early diagnostic kit for
neurodegenerative disorders, which monitors 47
proteins in blood serum. This gives the ability to
distinguish
patients
with
Alzheimer’s,
Parkinson’s, and Lou Gehrig’s disease (ALS)
from normal patients, and patients with other
neurological disorders. The first and second
phases of validation for NuroProTM have been
completed utilizing a sample group of 594
patients. Two Pre-IDE Information Packets have
also been filed with the FDA for guidance of the
NuroProTM diagnostic test.
Table 1: Biomarker Portfolio of Power3 Medical
Study
Neurodegenerative
Breast Cancer
Drug Resistance and Cell Marker
Other Cancers Disorders and Diseases
Total
Power3 developed the first early breast cancer
detection test which utilizes a panel of 12 blood
serum based biomarkers. This sensitive, test can
be used in conjunction with mammography, the
current medical standard. A clinical validation
study has been completed that included 152
patients from multiple sites. This test provides
Power3 Medical with a unique opportunity to
capture a significant portion of the multi billion
dollar early detection screening market for
breast cancer. The Company also completed an
initial “proof of concept” for the use of their
proprietary technology to detect drug resistance
to imatinib mesylate, a major chemotherapy
agent used to treat leukemia patients. Drug
resistance is of particular concern in the use of
chemotherapy
treatment
for
chronic
myeologenous leukemia (CML). Usually by the
time resistance to chemotherapy is detected, the
treatment regime has progressed too far to
change and/or to save the patient. In
collaboration with a major leader in cancer
research, Power3 Medical evaluated bone
Biomarker
Portfolio
47
135
20
319
521
marrow samples of patients diagnosed with
CML, before and after the patients were treated
with imatinib mesylate. The company has
successfully identified a group of 19 biomarkers
that were differentially expressed in responders
and non-responders. These bone marrow
biomarkers have the potential for predicting
patient responsiveness and resistance to this
chemotherapeutic agent. This technology is
being further developed to enable screening of
patients on a molecular level. The ability to
predetermine if an individual will be resistant to
a given chemotherapeutic agent will influence
the treatment regime chosen, increase the
effectiveness of the chosen treatment regime,
and potentially increase a patient’s chances for
survival. The development of this technology
not only has the potential to increase the success
rates of chemotherapy agents and eliminate
futile treatments earlier in clinical trials, but also
has potential applications in the design of new
drugs to overcome resistance and prevent
recurrence, ultimately saving millions of lives.
Page 14 of 113
Figure 1: Power3’s Medical Suite
Source: Cohen Research Library Files
Page 15 of 113
Business Model & Strategy
Power3’s business model is comprised of the
discovery, licensing, and sales of its patent
pending
protein-based
technology.
The
Company’s business strategy is to successfully
establish itself in the market and emerge as a
leader in the field of proteomics. Power3 plans
to do this by capitalizing on its existing
discoveries
through
the
successful
commercialization of its technology. Through
its patent-pending technology, the Company can
quickly and accurately identify individual
proteins and patterns of proteins associated with
disease and apply these to screening,
diagnostics, and drug targets. Once validated
through clinical trials, Power3 benefits
financially from investing partnerships or
licensing arrangements for these protein
biomarkers and their respective applications.
Revenues may be generated through upfront
payments, licensing fees, milestone payments,
and royalties. Each validated biomarker, pattern,
new diagnostic test, or drug target has a
potential market value from $10 - $100 million
plus. The Company’s discovery process
originates with the receipt of samples for
testing. Once received, the proprietary
preparation protocols are applied to the samples,
followed by 2D Gel electrophoresis, high
sensitivity staining, tagging and image analysis,
fragmentation, fingerprinting of proteins, and
mass spec analysis. At this point the
identification of proteins is carried out. After the
proof of concept and protein identification of
disease patterns is complete, the Company
would make patent applications for the
biomarkers discovered. The discovery could
become a part of the Company’s portfolio and
be utilized internally or licensed out to another
company. It could also be leveraged into a
partnership or a joint venture. If further
development is required, the drug target
pathway could follow. Under this, the Company
would call for a greater number of samples,
reinforce the proof of concept, identification,
and validation, and generate a greater valuation
of the IP. Subsequent collaboration with larger
pharmaceutical companies might proceed. Each
discovery
could
also
follow
the
screening/diagnostic pathway or both the drug
and screening/diagnostic pathway. Under this
option, the protein biomarkers would be
incorporated into a first generation screening
test also called the “Home Brew”. The test can
then be converted into a second generation test
with a high throughput and immunoassay and
would be suitable for launch as a home brew
test. It could also be promoted for further
commercialization with FDA approval to be
used as a formal diagnostic product. The
Company also intends to achieve greater
leverage by collaborating with diagnostic and
pharmaceutical companies who are engaged in
synergistic product categories and have the
required infrastructure to introduce its products
in the market. The key would then be to identify
appropriate joint venture or licensee companies
that would be able to propel the Company’s
business forward.
Power3 will generate significant revenue
streams from license fees on both individual
biomarkers and sets of targeted Biomarkers to
companies such as Pfizer, Innogenetics, Roche,
Biosite, Bayer, Myriad, etc. These license fees
will be accompanied by royalty revenue streams
on any testing products that they may produce.
Power3 will also generate similar revenue
streams by license and royalty fees for the use
of individual biomarkers (some will be the same
as above) for use as targets for new drug
development from Pharmaceutical companies.
The Company will provide service offerings to
these testing and pharmaceutical companies in
the form of independent validation of their
Page 16 of 113
testing methodologies and drugs. Finally,
Power3 will have a significant revenue model as
a “home brew” testing laboratory, where early
detection tests (such as the recent prototype
Breast Cancer blood test,) will be provided for
doctors and medical centers around the country
even before the formal FDA approval process is
completed. The main stream of revenues would
be generated through licensing their tests to
drug and diagnostic companies. Currently, the
Company is not attempting to get approval from
the FDA for any diagnostic test. Royalty income
is expected to be in the range of 7 – 14% of the
revenues generated by the licensee company.
The Company’s target set of customers
would be clinical diagnostics companies, drug
development
companies,
as
well
as
pharmaceutical companies seeking independent
validation of their testing methodologies and
drugs. In 2005, Power3 entered into a licensing
agreement with Biosite (BSTE) for early
detection tests for breast cancer. Biosite is a
medical diagnostic solution company focusing
on diagnosis of debilitating and life-threatening
diseases. The Agreement states that the Company
and Biosite will engage in a collaborative research
program in which Biosite will attempt to develop
antibodies and diagnostic assays for selected target
biomolecules proposed by the Company. The
Company and Biosite will then assess the diagnostic
and therapeutic potential of these antibodies and
diagnostic assays for breast cancer and neurological
diseases. If the antibodies and diagnostic assays are
found to have diagnostic and/or therapeutic
potential, Biosite will develop and commercialize
Biosite Products for the detection and/or treatment
of breast cancer and/or neurological diseases. Biosite
will make milestone payments to the Company, as
well as pay royalties on the sale of any Biosite
Products containing antibodies to any selected target
biomolecule claimed in a patent application or an
issued patent. In addition, Power3 has a research
agreement with Pfizer Pharmaceuticals.
Apart from the US markets, the
Company is also actively seeking to partner
with companies outside the US to sign licensing
agreements. Recently, the Company entered into
a Materials Transfer and Confidential Disclosure
Agreement with Innogenetics N.V., a Belgium-based
international biopharmaceutical company.
The
current proposal is an assessment of the utility of the
Company’s NuroPro™ to differentiate control
subjects from subjects with Alzheimer’s disease. It
is anticipated the assessment will begin in third
quarter 2006.
The Company is in talks with other European
companies for similar licensing and joint
venture partnerships.
Page 17 of 113
BULL CASE
•
Power3’s patent-pending technology can
quickly and accurately identify individual
proteins and patterns of proteins associated
with disease, and apply them to screening,
diagnostics, and drug targets. Capitalizing
on its biomarker discovery process and
antibody detection system, the Company
developed the first blood serum based tests
to differentially diagnose and stage
neurodegenerative diseases, as well as the
first early breast cancer detection test.
•
Power3’s research platform is a unique
model, specifically structured for the
discovery and development of protein
biomarkers and the creation of intellectual
property through clinically focused, precise,
and controlled analysis. The Company
completed validation studies of more than
1273 patient samples and is monitoring
appropriate biomarkers for diagnostic value.
•
The Company put in place a comprehensive
IP strategy, crucial to the success of
commercialization. Securing intellectual
property requires the acquisition and
nurturing of relationships with strategic,
well published clinical scientists in
renowned research institutions. Power3’s
founders used their knowledge of the
diagnostic field and associations with the
scientists in the discipline to foster
collaborations leading to the acquisition of
intellectual properties.
•
The Company’s strong intellectual property
portfolio ensures it will capture significant
market share in the protein-based biomarker
diagnostic market. With respect to its
biomarker discovery process, breast cancer
biomarkers, neurodegenerative biomarkers,
and drug resistance. The Company holds
one issued patent (which is in-licensed) and
17 provisional and utility patents pending.
•
By licensing the discovered biomarkers and
diagnostic test of Power3’s IP portfolio this
presents sizeable revenue opportunity. Power3
has entered into a licensing agreement with
Biosite, through which it will earn royalty
revenue on any testing products they may
produce. In addition, the Company is likely
to generate revenue streams by license and
royalty fees for the use of individual
biomarkers employed as targets for new
drug development by the pharmaceutical
companies. Additional revenue is obtainable
by providing Home Brew diagnostic testing
prior to FDA approval of the in-vitro
diagnostic tests.
•
The Company is led by an experienced
management team and strong Scientific
Advisory Board. With a scientific team of
well established and experienced scientists
coupled with a reputed and proven
management team, we believe that the
Company is well positioned to scale great
heights.
Page 18 of 113
BEAR CASE
•
The protein biomarker diagnostics sector is
growing more competitive and is subject to
significant changes in respect to the
technology for diagnosis and treatment of
disease. The competition in the biomarker
discovery field will be based primarily on
each of the industry participant’s product
sensitivity/specificity, reliability, stability,
and timing of market entry, cost, and
acceptance by health care providers. The
rising competition may diminish the value of
the Company’s diagnostic tests and
technology.
•
While the application of protein biomarkers
in diagnostics has the ability of early
detection and diagnosis of a number of
diseases, the investment in biomarker
discovery and validation thereof will be
considerable, further highlighting the
importance of the success of Power3’s
diagnostic product and technology.
•
The validation and qualification of
biomarkers by the FDA may be a timeconsuming process and may result in a delay
in the Company’s
schedule.
commercialization
•
The Company may not be able to sign an
adequate number of licensing agreements
which may tend to limit its revenue growth.
Additionally, the terms in each of the license
agreements may not be favorable for the
Company for milestone and royalty
payments. For example, the royalty
payments from the license agreement with
Biosite may not reflect in future license
agreements.
•
The Company’s success depends on its
ability to protect its proprietary technology
through patents. The Company has not yet
received patents for its 17 patent
applications and this may adversely hamper
the Company’s competitive position.
Page 19 of 113
Market Overview: Opportunity Assessment & Demand Drivers
Power3 is well positioned to commercialize its
discovery technology and ground-breaking
diagnostic tests. Through its extensive portfolio
of proven biomarkers, the Company will be a
dominant player in the market for breast cancer,
neurodegenerative and drug resistance proteinbased diagnostics. The Company has leveraged
its biomarker discovery process to develop the
first blood serum based tests to diagnose early
breast cancer, neurodegenerative diseases, well
as drug resistance in Leukemia. The Company
believes that each validated biomarker, pattern,
new diagnostic test, and drug target may have a
potential market value ranging from $10 million
to over $100 million. The worldwide clinical
diagnostic market revenues are estimated at $22
billion annually. Protein-based drug discovery
and development spending was approximately
$40 billion in 2004 and is projected to reach
over $71 billion by 2008 (Business
Communications Company, Inc.). With over 50
years of combined research expertise in protein
biochemistry, Power3 is poised to seize strong
revenue opportunities in large and growing
markets.
Table 3: Size of the market and potential for Power3’s products
Products in Development
Markets
Early screening, monitoring, treatment selection,
monitoring for clinical trials and drug targets
Early screening, diagnosis, monitoring, prognostics
Neurodegenerative Test (NuroPro™) for AD, ALS, Parkinson’s Clinical trial monitoring
and drug targets
Breast Cancer: Blood Serum Test
Total Market $
$7-10 billion
$6-9 billion
Drug Resistance in
Chemotherapeutics
Early screening, monitoring and drug target for drug
$1.6 billion +++
resistance in Leukemia
Biomarker Portfolio
Diagnostic Tests, Screening Drug targets
$5-100 + million
Source: Company’s Presentation
BREAST CANCER
Cancer is characterized by the uncontrollable
growth of abnormal cells. An estimated onethird of all Americans will develop cancer in
their lifetime, with the average age of diagnosis
being 68. The most common forms of cancer are
lung, breast, colon, and prostate. Worldwide,
breast cancer is the second leading cause of
cancer related death in women. Breast Cancer
affects more than 2 million women in the United
States. It is also the most common malignancy
in women, second only to skin cancer. In 2006,
approximately 212,920 cases will be diagnosed
and 40,970 individuals will die due to the
disease. Early detection and treatment are
critical in the survival rates for breast cancer
patients. The blood serum tests developed by
Power3’s will lead to accurate and early
detection of breast cancer, thus improving the
life expectancy of patients. The annual United
States spending on breast cancer biopsies is
approximately $2.8 billion and spending on
mammograms is $4.2 billion. The breast cancer
diagnostics market comprising of $7 billion is
the market opportunity and financial potential
available to the Company.
Lumps that develop in the breast can be either
malignant or benign. Many of the lumps found
Page 20 of 113
in the breast are benign; however, they can
produce symptoms that are similar to breast
cancer. Some malignant tumors are detectable
by mammography, but diagnosis can only be
confirmed by biopsy. Other tumors are not
detectable by mammography. Therefore several
types of breast cancer are extremely difficult to
detect with traditional screening tools. It is
essential for any new technology platform or
diagnostic test for breast cancer to be able to
distinguish between benign and breast cancer at
least as, and preferably more effectively as
existing screening and diagnostic tools such as
mammography.
Breast Cancer: Detection/Screening
An estimated one million women are unaware
they have breast cancer. A woman has a one in
eight chance of developing breast cancer in her
lifetime and a 1 in 33 chance of dying from it.
Breast cancer can also affect men, but the
condition is rare. Of the women with invasive
breast cancer, 12% die within 5 years, 20%
within 10 years, and 40% within 20 years. The
goal of screening is to detect cancer in
individuals long before they begin to show
indications of symptoms. Early detection allows
treatment to begin sooner and therefore
potentially increases the chances of survival.
The most reliable, proven methods for early
detection of breast cancer available today
include physical examination of the breast and
the mammogram. The American Cancer Society
recommends that breast self-examination be
performed monthly by all women over the age
of 20.
Mammography involves taking an x-ray of the
breast. Mammograms and MRI’s are the current
technologies utilized to detect lesions too small
to be palpated. A mass needs to be at least 1 cm
in diameter before it can be detected by
palpation, but a mammogram can detect lesions
as small as 1mm. The American Cancer Society
recommends that all women between the ages of
35-39 should have a mammogram to serve as a
baseline for future comparison. Between the
ages of 40-49, a mammogram should be
performed every 1-2 years, and every year after
the age of 50. Because the mammogram exposes
an individual to radiation, the American Cancer
Society recommends limiting mammograms to
one per year. This technique has a sensitivity of
80%-85% and is generally less effective in
women under the age of 50 due to their denser
breast tissue.
The early detection of breast cancer greatly
increases an individual’s chances of survival.
Only 40% of all breast cancer can be detected
by direct palpation, with another 40% being
detectable by mammogram. However, a
cancerous tumor may be present many years
before it becomes large enough to be detected
by palpation or mammogram. In fact, a woman
usually has breast cancer for an average of 6-10
years before the disease is detected by
mammography and is subsequently diagnosed
by biopsy, the current standard of care. The
death rate due to breast cancer could be reduced
by as much as 25% with more frequent
mammograms, but this would still result in
about 30,000 deaths annually.
Breast Cancer: Diagnosis
The most common diagnostic tests for breast
cancer include mammograms, ultrasound, MRI,
and a variety of surgical biopsy techniques. In
addition to serving as a screening tool, the
mammogram is also a useful diagnostic tool.
Within the first 3 years of the disease, only one-
Page 21 of 113
third of breast cancers are correctly diagnosed
by mammography. Detection rates improve
dramatically once the patient has had the breast
cancer for at least 6 years. The average
equipment cost for mammography ranges from
$75,000 to $225,000; the average cost of a
single mammogram procedure is $120 to $160.
In an ultrasound, an image of the soft tissues in
the body is created using high frequency waves.
The average equipment costs for ultrasound
ranges from $60,000 to $200,000; the average
cost of a single ultrasound procedure is $75 to
$200.
Magnetic resonance imaging (MRI) is a more
sensitive diagnostic technique that allows earlier
detection of breast cancer (Figure 2). This tool
detects more than twice as many breast cancers
than mammography and is 79.5% effective
within the first 3 years of the disease. However,
it has a much higher cost of $1,600 to $2,000
per procedure.
Figure 2: MRI: Breast cancer diagnosis.
Left image shows a breast cancer lesion as it appears on a mammogram. On the right, the same lesion appears in an MRI.
True diagnosis of cancer requires some form of
biopsy to obtain cell samples for examination.
Some surgical techniques include fine-needle
aspiration, stereotactic needle biopsy, and core
needle biopsy. Excisional biopsy involves the
removal of the entire lump for examination. In
the United States, more than 750,000 surgical
biopsies are performed every year, but only onethird of these procedures actually remove
malignant tumors; the remainder extracts benign
breast tissue.
The choice of a diagnostic test depends on a
variety of factors and must also take into
consideration the cost of the test and the
potential discomfort to the patient. There is a
critical unmet need for a sensitive, early
detection test with a reasonable cost to bridge
the gap left by mammography alone. Power3
has realized this potential and has been
successful in developing blood serum-based
tests to detect breast cancer.
Page 22 of 113
Breast Cancer: Power3 Filling the
Gap for Early Detection
The limitations or absence of current diagnostic
tests highlight the need for a test that can detect
the presence of breast cancer much earlier. At
the initial validation stage, Power3 Medical’s
breast cancer blood serum test has been shown
to have the capability to detect breast cancer
earlier than the current standard of care. This
simple test has the potential to serve as an early
detection tool to identify breast cancer long
before it becomes detectable by conventional
screening methods, greatly improving an
individual’s chance for survival. Power3’s early
detection breast cancer screening test, utilizing
12 blood serum based biomarkers, is able to do
so. Preliminary testing results demonstrated that
the diagnostic tool is able to correctly identify at
an exceptional rate and classify individuals who
are cancer-free, have benign disease, have earlystage cancer, or have late-stage cancer.
Power3 Medical’s blood serum test can
accurately differentiate normal, benign, and
breast cancer, considerably earlier than the
current standard of care. The test involves
taking a routine blood sample and evaluating the
proteins in the blood serum by the company’s
proprietary two-dimensional gel electrophoresis
platform. This provides a digital image that can
be quantitatively analyzed. The test separates
the proteins into a distinctive spot pattern, where
12 of these proteins distinguish patients with
breast cancer from those who have benign
disease and those who are normal (Figure 10).
Discriminate, multivariate biostatistics of the
group of 12 biomarkers provides a sophisticated
analysis that provides sufficient sensitivity and
specificity of the test for diagnostic purposes.
In a preliminary training set of 98 samples,
more than 90% of samples were correctly
classified, including 100% of normal samples,
84% of benign samples, and 97% of breast
cancer samples. Patients who test positive can
be recommended for further MRI testing or
biopsy for conclusive diagnosis. This diagnostic
tool is currently being clinically validated.
The Power3 diagnostic test gives an opportunity
to capture a significant portion of the early
detection screening market estimated to be
valued at more than $7 billion worldwide. This
opportunity is particularly significant as the
Company‘s test is the first such product to enter
the market. This technology would then enable
detection of breast cancer earlier than is allowed
by current technology and prove life-saving for
thousands of women around the world.
NEURODEGENERATIVE DISEASES
The neurodegenerative diseases are a group of
Central Nervous System disorders characterized
by a progressive loss of nervous tissue in
specific regions. The human nervous system is a
complex, highly organized network that allows
the body to continuously react to changes in the
external environment, as well as to changes
occurring within the body4. Neurons do not
have the ability to regenerate. The specific signs
and symptoms depend on the area of the
nervous system that is involved. Some disorders
4 For a discussion of the divisions of the nervous system, the structure
of neurons, the spinal cord and the brain, please refer to Appendix IV.
Page 23 of 113
affect movement (e.g. Parkinson’s disease,
amyotrophic
lateral
sclerosis,
multiple
sclerosis), while others affect cognition (e.g.
Alzheimer’s, Creutzfeldt-Jakob disease). These
diseases tend to have a negative impact on an
individual’s ability to care for themselves and to
continue to live normally. As the disease
progresses,
individuals
become
less
independent, eventually requiring substantial
support and care.
Early detection and diagnosis of these
neurodegenerative diseases may allow the
opportunity to slow the progression of the
disease and to better manage the symptoms.
Most of these conditions are only diagnosed
once irreversible neural damage has occurred
and symptoms start to appear. Even then,
diagnosis is often inaccurate due to an overlap
in the signs and symptoms of the various
neurodegenerative diseases. There is an urgent
need for tests that can accurately detect and
differentiate these conditions long before
symptoms begin appearing. Such tests also
would be useful in monitoring the progression
of a disease and in evaluating an individual’s
response to various treatment regimens.
Currently, the diagnosis of neurodegenerative
diseases is often difficult as it is typically based
on symptoms rather than a diagnostic test.
Because some symptoms may overlap for some
of the neurodegenerative diseases (ND), major
ND-like disorders are often confused with one
another. Power3 is working to fill this critical
need with its diagnostic test, NuroProTM. Using
the science of proteomics, Power3 has identified
a combination of 47 specific biomarkers for
three neurodegenerative diseases: Alzheimer’s
disease, Parkinson’s disease, and amyotrophic
lateral sclerosis (ALS, Lou Gehrig’s disease).
This simple blood serum test is able to
distinguish with more than 90% sensitivity from
patients having any of these diseases and
between patients with other neurological
disorders. NuroProTM provides an early
detection
test
for
these
debilitating
neurodegenerative diseases.
Table 4: Neurodegenerative Disease Cost Estimates for U.S. Market
Neurodegenerative Total Number
Diseases
of Patients
Average Survival
Average Annual Annual
from Disease
Cost/Patient
Market Costs
Onset
U.S. Market Product
Year 2003
Alzheimer’s
5,000,000
20 yrs
$ 47,500-70,000
$82 billion
$2.6 billion
Parkinson’s
1,500,000
10 yrs
$ 24,000
$26 billion
$1.7 billion
ALS
30,000
3-5 yrs
$ 200,000
$ 6 billion
$100 million
Source: Power3 Investor Presentation
Neurodegenerative Diseases:
Alzheimer's
Alzheimer’s disease is an incapacitating
neurodegenerative disorder involving the
progressive loss of cognitive abilities (e.g.
memory,
learning,
judgment,
and
communication), leading to dementia and death.
Approximately 4.5 million individuals in the
United States have Alzheimer’s disease and this
number is expected to grow to an estimated 14
million by 2050. Growth projections are based
in part on the increasing size of the elderly
Page 24 of 113
population and improved health care standards
lengthening life expectancy. Currently, there is
no known cure for Alzheimer’s disease.
Medications now in use focus on slowing the
progression of the disease and managing the
symptoms. The NuroProTM test will provide a
method to confirm a diagnosis, allowing for
timely intervention of treatments and, slowing
the progress of the disease.
The classic microscopic features of Alzheimer’s
disease are the accumulation of amyloid plaques
and neurofibrillary tangles in the brain (Figure
3). These two structures occur as part of the
normal aging process and have been found in
the brains of individuals without cognitive
impairment. However, in Alzheimer’s disease,
these structures are much more prevalent and
cause clumping of neurons and disruption of
electrical signaling and nutrient transport.
Figure 3: Light microscopy slides of human brain using Bielschowsky silver stain
(A)
(B)
Normal axons are stained black. (a) Amyloid plaque which contains dark black, swollen, distorted axons or dendrites. (b)
Neurofibrillary tangle.
No specific test exists to confirm the diagnosis
of Alzheimer’s disease. The diagnosis of early
stage Alzheimer’s disease is also extremely
difficult using traditional methods. Diagnosis is
based on clinical and neurological examination,
laboratory tests, and the elimination of other
possible conditions. However, diagnosis can
only be confirmed by microscopic examination
of brain tissue obtained at autopsy. In addition
to clinical examination, diagnostic imaging (e.g.
CT, MRI) can be performed to exclude the
possibility of other diseases (e.g. stroke, tumors,
depression). Unfortunately, these procedures are
expensive and relatively ineffective for an early
detection
or
conclusive
diagnosis
of
Alzheimer’s. At best, they are only 75-80%
accurate. Metabolic screening can eliminate the
possibility of other known causes of dementia
(e.g.
thyroid
dysfunction,
electrolyte
imbalances, vitamin B12 deficiency) but cannot
provide a conclusive diagnosis. Some
biochemical diagnostic tests can identify certain
protein biomarkers in the cerebrospinal fluid via
a spinal tap; however these tests are expensive,
are not very sensitive, and the procedure is
invasive and very painful. The entire process of
diagnosing Alzheimer’s using traditional
methods can take a very long time (up to 3
Page 25 of 113
years); when at that point, significant
irreversible brain damage has already occurred.
Power3 has developed a test for the differential
diagnosis of neurodegenerative diseases
including Alzheimer’s disease utilizing blood
serum (Figure 4). With this test, involving
monitoring the concentration of select groups of
protein biomarkers, the Company demonstrated
unique markers whose profiles appear to
distinguish patients from those with other
neurological disorders. This simple blood serum
biomarker test is capable of detecting up to 20
times as many proteins as the current competing
technologies and exhibits reproducible and
reliable identification, with greater than 90%
accuracy for Alzheimer’s disease. We believe
this discovery to be a major breakthrough in the
history of treating Alzheimer’s disease and
expect Power3 to have first mover advantage
and benefit immensely from the increasing
prevalence of the disease.
Figure 4: Diagnostic Technologies for Alzheimer’s disease
Power3
Diagnostic
Technology
Early Detection
Current
Diagnostic
Technology
Autopsy
Irreversible Damage
Source: Company Presentation
Parkinson's
Parkinson’s disease is a progressive,
degenerative disorder of the central nervous
system. It involves the gradual degeneration of
the brain centers that control movement. The
cardinal manifestations of Parkinson’s disease
are tremor, rigidity, and bradykinesia (slowness
of movement). According to the American
Parkinson’s Disease Association, over 1.5
million people in the United States suffer from
this disease, with an additional 60,000 new
cases diagnosed each year. Parkinson’s is the
fourth most common neurodegenerative
disorder of the elderly; it is more prevalent in
people over 60 years of age, and the incidence
and prevalence of this disease is expected to
increase as the average age of the population
increases. Approximately $2.3 billion is spent
annually worldwide on drug therapy to treat
Parkinson’s disease. However, the cause of
Parkinson’s disease is not yet known.
Parkinson’s disease involves the loss of neurons
that extend from the substantia nigra of the brain
stem to the putamen and caudate nucleus of the
basal ganglia (Figure 5). This degeneration of
neurons creates a shortage of an important brain
signaling chemical or neurotransmitter, known
as dopamine, rendering patients unable to
initiate movements in a normal manner.
Parkinson’s disease is characterized by a
Page 26 of 113
number of symptoms including tremors, limb
stiffness, slowness of movements, and
difficulties with posture and balance. By the
time symptoms are diagnosed as Parkinson’s
disease, 50-80% of the dopamine producing
cells are damaged or destroyed. The severity of
Parkinson’s disease symptoms tends to worsen
over time.
Treatment of Parkinson’s disease varies with
each individual and usually involves some
combination
of
nonpharmacologic,
pharmacologic, and/or surgical interventions.
Most pharmacological treatments are designed
to either increase dopamine levels or decrease
acetylcholine levels. However, many of the
drugs have wide-ranging side effects and, since
they do not stop or slow the progression of the
disease, their potency decreases over time.
Currently, there is no specific diagnostic test for
Parkinson’s disease. Diagnosis is based on
clinical and neurological examination and the
elimination of other possible causes and can
only be confirmed by autopsy. Parkinson’s
disease may sometimes be difficult to
distinguish from the normal symptoms exhibited
by an elderly person such as reduced
spontaneity of movement, short-stepped gait,
and mild depression or dementia. Because the
symptoms of Parkinson’s disease do not occur
until almost 80% of the substantia nigra neurons
are damaged, there is a pressing need for a test
that can detect the disease in its early stages.
Early detection could open the door to more
treatment options and possibly slow the
progression of the disease.
Figure 5: Parkinson’s disease in the substantia nigra of the brain
The NuroProTM blood serum test developed by
Power3 will offer new hope to Parkinson’s
patients, as it has the ability to detect with more
than 86% accuracy.
Page 27 of 113
Amyotrophic Lateral Sclerosis (ALS)
Amyotrophic lateral sclerosis (ALS), also
known as Lou Gehrig’s disease, is a devastating
progressive neurodegenerative disorder that is
ultimately fatal. It causes weakness and muscle
atrophy initially in the hands, forearms, and
legs, then spreading to involve most of the body.
Approximately 30,000 individuals in the United
States have ALS, and about 5,000 new cases are
diagnosed each year. Currently there is no cure
for ALS. The only FDA approved treatment for
ALS is the antiglutamate drug named Riluzole.
It acts to decrease glutamate accumulation,
thereby reducing motor neuron damage. An
accurate diagnostic test is critical, as an
incorrect diagnosis of ALS is devastating to the
patient.
In ALS, the neurotransmitter glutamate is
overproduced and builds up at the synaptic
clefts of neurons causing the nerves to
malfunction and die (Figure 6). The disease
seems to initially affect the distal parts of the
nervous system, particularly the nerves that
supply the hands and arms, but then rapidly
progresses proximally to affect the nerves
supplying the whole body and the head. As with
Alzheimer’s and Parkinson’s disease, there
currently is no specific diagnostic test for ALS.
Diagnosis is based primarily on clinical and
neurological examination, and can only be
confirmed by autopsy. The progressive
worsening of symptoms such as muscle
weakness, atrophy of muscles, and spasticity are
strong indicators. Because of the severity of the
prognosis of this disease, it is important to rule
out any other possible causes such as peripheral
nerve damage, muscle disease, infectious
disease, and other neurological disorders. Early
detection of ALS and easy differentiation of this
disease from other conditions would allow an
individual to better manage the course of their
disease and possibly extend their survival time.
It would also reduce the chance of an incorrect
diagnosis of this fatal disease.
Figure 6: Amyotrophic lateral sclerosis (ALS): Degeneration of Motor Neurons
Note: Degeneration of motor neurons in the spinal cord and brainstem results in degeneration of pyramidal tracts and severe atrophy of
anterior spinal roots, which is demonstrated here.
Page 28 of 113
The NuroProTM test monitors the concentration
of a select group of unique protein biomarkers
in blood serum. This simple, highly sensitive
and specific diagnostic tool has been shown to
successfully identify ALS patients with greater
than 88% accuracy. In fact, training and
independent validation tests of NuroProTM with
664 patient and normal control samples have
demonstrated a differential diagnosis of ALS,
Alzheimer’s, and Parkinson’s diseases with a
sensitivity and specificity of 80-90%.
Page 29 of 113
DRUG RESISTANCE IN LEUKEMIA
Leukemia is a cancer of the blood-forming
elements found in the bone marrow. Chronic
leukemia is characterized by gradual onset and
slow progression of disease. Chronic
myelogenous leukemia (CML) involves the
malignant transformation of stem cells found in
the bone marrow, resulting in the overproduction of granulocytes, a type of white
blood cell. The American Cancer Society
estimates that there will be 4,600 new cases of,
and 850 deaths from, CML in the United States
in 2006. CML accounts for 15% of all adult
leukemia and predominantly affects individuals
between the ages of 30 to 50.
include increasing age, being male, the presence
of the Philadelphia (Ph) chromosome, and
exposure to high levels of radiation. To date
there are no available screening tests for early
detection of CML. Because CML in its early
stages has little or no symptoms, it is usually
discovered during routine blood tests. The
treatment of CML depends on a variety of
factors such as the stage of the disease, the size
of the spleen, the patient’s overall health status,
and the patient’s age. Some potential treatment
options include targeted therapy, bone marrow
transplant,
donor
lymphocyte
infusion,
biological therapy, surgery, chemotherapy, and
radiation therapy.
There is no single known cause of CML. Risk
factors known to be associated with CML
Drug Resistance
Often the human body develops the ability to
tolerate certain drugs that were once effective in
treating disease. This loss of effectiveness
greatly impacts the ability to treat a disease and
impacts the clinical outcome of the patient’s
treatment and recovery. Drug resistance is of
particular concern for the use of chemotherapy
in treating cancer and particularly for CML.
Usually by the time resistance to chemotherapy
is detected, the treatment regime has progressed
too far to change or save the patient. The ability
to predetermine if an individual will be resistant
to certain chemotherapeutic agents would
influence the chosen treatment regime, increase
the effectiveness of the treatment, and increase a
patient’s chances for survival. One particular
form of drug resistance that commonly develops
is a resistance to imatinib mesylate (Gleevec ®).
Most patients who succumb to CML do so
because they have developed resistance to
chemotherapy. There is a critical need to
identify patients prior to treatment who are
resistant or are likely to become resistant to a
particular cancer therapy. There is also a need to
identify drug targets for the development of new
chemotherapeutic drugs.
Power3 Product Application
In collaboration with a major leader in cancer
research, the Company completed an initial
“proof of concept” which addressed drug
resistance to imatinib mesylate, a major
chemotherapy agent. Bone marrow samples of
patients diagnosed with CML were evaluated by
two-dimensional gel electrophoresis and high
sensitivity fluorescent staining, pre and post
treatment with imatinib mesylate (Figure 11).
Digital images were quantitatively analyzed,
and a group of 19 biomarkers that were
differentially expressed in responders and non-
Page 30 of 113
responders were identified. These bone marrow
biomarkers have the potential for predicting
patient responsiveness and resistance to this
chemotherapeutic agent.
Developing the Power3 technology to screen
patients on a molecular level will increase the
success rates of chemotherapy agents, eliminate
futile treatments earlier in clinical trials, and
permit the design of new drugs to overcome
resistance, ultimately saving millions of lives.
Page 31 of 113
Competitive Landscape
The application of biomarkers in diagnostics
and drug discovery drive the discovery and
validation of biomarkers. Since biomarkers can
serve as an effective solution to reduce costs and
increase productivity in the pharmaceutical
industry, numerous companies, in collaboration
with academia, directed their focus on
biomarker development. The biomarker market
was estimated to be valued at $5.4 billion in
2005, accounting for more than 10% of total
pharmaceutical R&D spending. This growing
market is projected to reach $13.3 billion in
2010 and advance to $21.2 billion in 2012.
The discovery of biomarkers is carried out with
the help of genomics, proteomics and
metabonomics technologies. In the field of
diagnostics, biomarkers are used currently in the
early detection, differential diagnosis, and for
theranostic monitoring. The significant benefits
of biomarkers and the tremendous market
potential and opportunity made the protein
biomarker
industry
very
competitive.
Significant interest in the three novel ‘omics
technologies has led to the burgeoning of
companies using their own research platform for
biomarker discovery. The industry participants
have been specializing either in one technology
or in a combination of technologies for
biomarker discovery. However, the competition
within genomics and proteomics increased
considerably during the last few years as a
significant number of genomics and proteomics
companies offer drug discovery and diagnostic
services to the pharmaceutical industry. Given
that the proteomics industry is at a very early
stage of evolution, the competitive scenario has
not emerged very clearly. However, we have
attempted to make a comparative study of the
industry participants (see Table below).
Table 5: Comparative Study of Proteomics Companies
Company Name
Activity
Celera Genomics
(Applera Corporation)
Engaged in proteomics, bioinformatics and genomics to identify and
develop drug targets and biomarkers
Develops, manufactures and markets ProteinChip technology for clinical
and drug development research
PhosphoScan (a proteomics technology that enables the discovery of drug
target phospho-profiles) to identify phosphorylation profiles and
prospective biomarkers of kinase targeted lead compounds.
Discovery and development of in vitro diagnostic tests for early detection
of breast cancer. Identifying novel markers for diagnosis of breast cancer.
Developer of proteomics-based diagnostic products for the early detection
of various types of cancer.
Engaged in the development and marketing of therapeutic and molecular
diagnostic products. It products are mainly targeted at Alzheimer's Disease
and Cancer.
Application of proteomics for diagnostic purposes, identification of novel
drug targets and development of predictive drug toxicology profiling
methods.
Manufacturer of mass spectrometers. Applies proteomics in protein
biomarker research. Conducted spinal fluid based protein study on
Neurodegenerative diseases (Cerebral Spinal Fluid - CSF).
Ciphergen Biosystems
Cell Signaling
Technology Inc.
Europroteome
Matritech
Myriad Genetics
WITA Proteomics
Applied Biosystems (in
JV with MDS Sciex)
Ticker
Symbol
CRA
CIPH (Nasdaq
CM)
US-Based Co.
Based in
Germany
MZT
MYGN
Based in
Germany
Page 32 of 113
Power3’s key competitors for proteomics-based
biomarkers are Ciphergen Biosystems and Cell
Signaling Technologies. Ciphergen, holding 21
patents for its biomarkers, and is leveraging its
strong IP position to form strategic alliances
with pharmaceutical companies and academic
institutions. The key factors that would
determine the success of a company engaged in
biomarker discovery and development would be
their intellectual property rights. Sensing the
opportunity, Power3 has created a strong
intellectual property portfolio. This will position
Power3 to capture a significant share of the
protein-based biomarker diagnostic market. The
Company has one issued patent and 17
provisional and utility patents pending.
Power3’s IP portfolio presents a sizeable revenue
opportunity.
Chart 3: Number of Patents Filed by Major Biomarker Companies
No. of Patents filed by various Biomarker Companies
25
20
15
10
Power3
Aclara
UCB
Entelos
Cell Signaling
Technologies
TriPath
Imaging Inc
Compugen
SurroMed
PPD
Ciphergen
0
VirtualScopics
5
Source: Esp@cenet, US Patent and Trademark Office; Published in: Commercial Opportunities from Biomarkers
© Business Insights Limited, 2006
Strategic Partnerships
Power3 Medical Products, Inc. conducts
innovative discovery programs and product
development activities that are addressing large
patient markets with critical unmet needs
especially in the area of early disease detection
and treatment. Power3 has been focusing on
breast cancer, neurodegenerative diseases, drug
resistance and is working with leading
diagnostic and pharmaceutical companies,
world renowned institutions and collaborators,
who are recognized opinion leaders in their
chosen fields, to find solutions for early and
more accurate detection and treatment of these
conditions.
The high initial investment in the biomarker
discovery and validation process led to the
emergence of strategic partnerships with
pharmaceutical and diagnostic companies as
well as with research and educational
institutions by the companies engaged in
biomarker discovery. Assessing this need to
collaborate with various prestigious institutions,
Page 33 of 113
Power3 entered into numerous research and
licensing agreements with renowned medical
colleges, research institutes, pharmaceutical
companies and leading specialists. These
strategic partnerships are expected to not only
help the Company in aiding research and
introducing their products into the market, but
also in gaining tremendous support and
acceptance within the medical fraternity.
To date, Power3 Medical Products, Inc. has
entered into numerous Research Agreements,
Collaborative Agreements and Licensing
Agreements.
Furthermore, the Company
expects to enter into additional agreements
during the fourth quarter of 2006 and the first
and second quarter of 2007.
Outlined below is a summation of some of the
Company’s existing strategic partnerships.
Effective June 28, 2004, Power3 entered
into an exclusive license agreement with the Baylor
College of Medicine which grants to the Company
an exclusive, worldwide, sublicensable license for
serum proteomics methods under certain patent
rights for all biomarkers for both diagnostic and
therapeutic use in neurodegenerative disease. Under
the terms of the agreement, Power3 paid Baylor an
initial license fee and it has the obligation to pay
future royalties and additional licensing fees upon
the achievement of certain milestones.
The
Company is obligated under the license agreement to
indemnify Baylor, its faculty members, scientists,
researchers, employees, officers, trustees and agents
against claims arising from the design, process,
manufacture or use of any of the patent rights or
licensed products that are developed through the use
of the license from Baylor. Subject to customary
termination provisions, the term of the agreement is
established on a country-by-country basis and
expires on the date of expiration of the last patent
rights to expire in that country or the tenth
anniversary of the first commercial sale of licensed
products in countries where no patents exist in such
country. After such expiration the Company will
have a perpetual paid in full license in such country.
On August 1, 2004, Power3 entered into an
exclusive license agreement with M.D. Anderson
which grants the Company an exclusive, worldwide,
sublicensable license to patents and technologies for
early detection screening tests, identified protein
biomarkers and drug targets for cancer patient’s
resistance to drug therapy. The licensed technology
was developed through joint collaboration between
the Company’s scientific team and M.D. Anderson.
Under the terms of the agreement, the Company paid
M.D. Anderson an initial license fee and the
Company has the obligation to pay further royalties
and additional licensing fees upon the achievement
of certain milestones.
The license agreement
imposes upon the Company an obligation to
indemnify the Board of Regents, The University of
Texas System, M.D. Anderson, the regents, officers,
employees, students, and agents against claims
arising on account of any injury or death or damage
to property caused by the exercise of the rights
granted under the license agreement to the
Company, its officers and affiliates. The term of the
license agreement is based on the date of expiration
of the last patent rights to expire or, in the case of
licensed technology rights, for a term of fifteen (15)
years.
However, in addition to customary
termination provisions, M.D. Anderson has the right
to terminate the license in any country if the
Company fails, within ninety (90) days after
receiving written notification from M.D. Anderson,
to provide satisfactory evidence that it has
commercialized or is attempting to commercialize
the licensed invention in such country.
On August 31, 2004 the Company entered
into a research agreement with Baylor College of
Medicine for the purpose of discovering biomarkers
in serum and plasma that are of particular utility in
the diagnosis and drug targeting for metabolic
syndrome and associated disorders including
diabetes, cardiovascular disease, hypertension and
stroke. Under the terms of the agreement, Baylor
College of Medicine will provide the Company
sample materials for use in diagnosis in drug
targeting metabolic syndrome and associated
diseases including diabetes, cardiovascular disease,
Page 34 of 113
hypertension and stroke. With respect to any
inventions developed pursuant to the agreement, the
party who develops such invention will retain sole
and exclusive rights to such invention. The other
party will have the right to an exclusive license for
the invention, which has been developed. Inventions
developed jointly by the parties will be jointly
owned. Power3 does not have any obligations for
the payment of fees or royalties pursuant to this
agreement. The agreement has a term ending June
30, 2007 and may be renewed for successive oneyear periods.
On March 21, 2005, the Company entered
into a collaborative research agreement with New
Horizons Diagnostic for the development of
antibody
based
diagnostic
tests
for
neurodegenerative disease utilizing the Company’s
identified biomarkers. The research agreement is
based on groups of biomarkers whose profiles are
relatively sensitive and specific in distinguishing
patients with ALS, Alzheimer’s disease and
Parkinson’s disease from each other, as well as from
normal patients and patients with other
neuromuscular and neurological disorders. The
purpose of the agreement is to tailor monoclonal and
polyclonal antibodies to the biomarkers, which will
be incorporated into immunoassays. Once the
assays are available, they will be developed to
validate diagnostic tests specifically designed to
detect
and
discriminate
among
the
The research
agreement provides that the parties will develop an
agreed upon schedule and budget for the work
contemplated thereunder within sixty (60) days of
the effective date. The agreement provides that in
the event the parties are able to achieve specified
goals relating to the development of a diagnostic kit
as contemplated by the research agreement, New
Horizons would be compensated in any one of the
following manners with respect to such diagnostic
kit: (i) a contract to manufacture at least one key
component of such diagnostic kit; (ii) royalties on
the sale of such diagnostic kit; (iii) the opportunity
to form a joint venture with the Company for the
commercialization of such diagnostic kit; or (iv) a
reasonable percentage of any cash consideration that
the Company receives from a third party for such
diagnostic kit. Although the form and amounts of
any consideration to be paid have not been agreed
upon, the parties have agreed to be reasonable in
negotiating such consideration.
On May 24, 2005, the Company entered into
a
Collaboration
Agreement
with
BioSite
Incorporated . The Agreement provides that the
Company and Biosite will engage in a collaborative
research program in which Biosite will attempt to
develop antibodies and diagnostic assays for selected
target biomolecules proposed by the Company. The
Company and Biosite will then assess the diagnostic
and therapeutic potential of these antibodies and
diagnostic assays for breast cancer and neurological
diseases. If the antibodies and diagnostic assays are
found to have diagnostic and/or therapeutic
potential, Biosite will develop and commercialize
Biosite Products for the detection and/or treatment
of breast cancer and/or neurological diseases. Biosite
will make milestone payments to the Company, as
well as pay royalties on the sale of any Biosite
Products containing antibodies to any selected target
biomolecule claimed in a patent application or an
issued patent.
More specifically, the Agreement provides
that the Company shall propose target biomolecules
for the collaborative research program; Biosite and
the Company shall mutually select certain target
biomolecules for immunization ("Program Target");
and Biosite shall use commercially reasonable
efforts to develop monoclonal and omniclonal
antibodies to the selected target biomolecules that
meet the specification set out by the parties
("Program Antibodies"). Upon Biosite's written
request subsequent to the delivery of Program
Antibodies to the Company, the Company will
provide Biosite with blood-based clinical samples
useful in the assessment of the Program Antibodies.
Biosite will use commercially reasonable
efforts to generate an ELISA-based assay for each
Program Target for which Biosite has generated
Program Antibodies. If Biosite successfully
develops an ELISA-based assay for any such
Program Target, Biosite shall analyze each of the
clinical samples provided by Power3 with such
assay and shall provide the resulting data to Power3.
Page 35 of 113
Under the terms of the Agreement, Power3
grants to Biosite a worldwide, royalty-bearing
license under the Power3 patent rights for the target
biomolecules and Power3 know-how rights to
develop, make, have made, use, offer for sale, sell
and import Biosite Products for use in the detection,
prognosis, diagnosis or monitoring of any breast
cancer-related disease. This license is exclusive with
the right to grant sublicenses for the assay of less
than or equal to 100 patient samples per hour. This
license is semi-exclusive, with the right for each
party to grant one sublicense, for the assay of 100 or
more patient samples per hour.
Under the terms of the Agreement, Power3
grants to Biosite a non-exclusive, worldwide,
royalty-bearing license under the Power3 patent
rights for the target biomolecules and Power3 knowhow rights to develop, make, have made, use, offer
for sale, sell and import Biosite Products for use in
the detection, prognosis, diagnosis or monitoring of
any neurological-related disease. This license
includes the right for Biosite to grant one sublicense
for each Program Target, provided that the grant of
such sublicense will replace Biosite's own rights
under the license.
In consideration for the collection and
transfer of samples, Biosite shall pay specified fees
to Power3 based on a minimum number of samples
delivered to Biosite and per unit fees for samples
delivered in excess of the minimum.
Biosite shall pay the Company milestone
payments based on certain specified events as
follows:
• upon the earlier of (a) the First
Commercial Sale by Biosite of a Biosite
Product, or the effective date of the first
written agreement between Biosite and a
Third Party sublicensee for a sublicense,
• upon demonstration, as determined in
Biosite's sole and reasonable discretion, that
a panel of antibodies (including one or more
antibodies to a Program Target) is suitable
for development of a commercial product,
• upon the first submission by Biosite of the
first 510(k) (premarket notification) or PMA
(pre-market approval application) to the
FDA for the first Biosite Product; and
• upon the first FDA approval of the first
510k or PMA submitted by Biosite for the
first Biosite Product.
Commencing at the end of the first full
calendar year following the date of First Commercial
Sale for the first Biosite product, and at the end of
each subsequent calendar year during the term of
this Agreement, Biosite shall pay the Company
specified annual minimum royalties. During the
applicable Royalty Term for a Biosite Product, on a
country-by-country basis, Biosite shall pay the
Company royalties, with respect to each Biosite
Product equal to a specified percentage of Net Sales
of each Biosite product in that country. In addition
to the specified royalty payments, to the extent that
Biosite reaches certain specified sales targets, then
Biosite shall be obligated to make additional
payment to the Company. The Agreement expires
upon the expiration of the last to expire applicable
Power3 patent right. The agreement may be
terminated for cause, by either party or upon written
notice by either party following the twenty four
month anniversary date of the Agreement, or by
Biosite if it is unable to develop and deliver Program
antibodies to the to the Program Targets.
On October 13, 2005, Power3 executed a
Research Agreement with Pfizer, Inc. to further
evaluate the Company’s NuroPro™ test capabilities
and to test blind and unblinded samples, provided by
Pfizer, under controlled conditions. The Company
has completed the analysis of the results and has
presented them to Pfizer.
On May 16, 2006, Power3 entered into a
Materials Transfer and Confidential Disclosure
Agreement with Innogenetics N.V., a Belgiumbased international biopharmaceutical company.
The current proposal is an assessment of the
utility of the Company’s NuroPro™ to
differentiate control subjects from subjects with
Alzheimer’s disease. The assessment will begin
in the fourth quarter 2006 as patient samples are
expected to be received for analysis in
November 2006.
Page 36 of 113
Figure 7: Power3’s Strategic Partnerships, Research Advisors & Collaborators
License and / or Research Agreements with Diagnostic Companies
Because Power3’s revenue model is based on
the licensing of its proprietary technology, the
Company is actively seeking strategic alliances
with diagnostic companies. The milestone
payments and royalty fees from these alliances
will give Power3 the required capital to fund
their continued research and capitalize on the
developed technology.
Power3 entered into a licensing agreement with
Biosite Inc. for the breast cancer test. Under the
license agreement Biosite will make milestone
and royalty payments to Power3 on the sale of
all products containing antibodies to target
biomolecules claimed in the issued patent.
Power3 transferred the first five proteins to
Biosite for development of antibodies and
diagnostic
assays.
Biosite
began
the
development of anti-bodies in the first quarter of
2006. Power3 received its second payment from
Biosite in the third quarter of 2006.
Page 37 of 113
The Company also has a collaborative research
agreement with New Horizons Diagnostic. The
objective of the agreement is to develop
antibody
based
diagnostic
tests
for
neurodegenerative diseases utilizing the
Company’s identified biomarkers. The purpose
of the agreement is to tailor monoclonal and
polyclonal antibodies to the biomarkers, which
will be incorporated into immunoassays. Once
the assays are available, they will be developed
to validate diagnostic tests specifically designed
to detect and discriminate among the
Research Agreements with Pharmaceutical Companies
The ability of biomarkers to aid in drug
targeting and reducing time and cost of
introduction of drugs in the market led to
formation of partnerships between biomarker
discovery companies and pharmaceutical
companies. Power3 realized the potential of
agreements
with
large
pharmaceutical
companies and continues to focus on building
strategic relationships. The Company entered
into a few agreements with large companies and
expects to leverage these partnerships for
mutual gain.
agreement with Pfizer in which blind and unblinded samples provided by Pfizer would be
tested under controlled conditions. Power3
completed the analysis of the results and
presented them to Pfizer.
Recently, the Company entered into a Materials
Transfer
and
Confidential
Disclosure
Agreement with Innogenetics N.V., a Belgiumbased international biopharmaceutical company.
The objective of the agreement is to assess the
utility of NuroPro™ in differentiating control
subjects from Alzheimer’s disease patients.
In order to substantiate the NuroPro test’s
capabilities, Power3 entered into a research
Alliances with Academic and Research Institutions
The Company has an exclusive license
agreement with the Baylor College of Medicine.
This agreement grants the Company an
exclusive, worldwide, sub-licensable license for
serum proteomics methods under certain patent
rights for all biomarkers for both diagnostic and
therapeutic use in neurodegenerative disease.
The Company also has a research agreement
with Baylor College, focused on the discovery
of biomarkers in serum and plasma. Under the
terms of the agreement, Baylor College provides
Power3 sample materials for use in diagnosis
and drug targeting for metabolic syndrome and
associated disorders.
The Company has an agreement with The
Methodist Hospital Neurological Research
Institute, Houston, Texas. This agreement
enables the Company to continue research work
for biomarkers and the development of the
NuroPro suite of tests.
The Company has an exclusive license
agreement with M.D. Anderson. This agreement
grants the Company an exclusive, worldwide,
sub-licensable license to patents and
technologies for early detection screening tests,
identified protein biomarkers and drug targets
for cancer patient’s resistance to drug therapy.
The Company’s scientific team and M.D.
Page 38 of 113
Anderson have jointly developed the licensed
technology.
Hollingsworth, director of a leading breast
cancer MRI screening clinic.
Power3 has additional collaborations with
leading diagnostic neurologist Dr. Stanley
Appel, Methodist’s Chair of Neurology and
leading biostatistician Dr. Lemuel Moye. The
Company also collaborated with a leading breast
cancer
surgical
oncologist
Dr.
Alan
These collaborations are providing advice,
guidance and expertise in the evaluation,
validation,
early
detection
and
commercialization of the Company’s diagnostic
tests for neurodegenerative diseases and breast
cancer.
LIQUIDITY & CAPITALIZATION
Power3 assess liquidity based on its ability to
raise capital to continue its operations in the
development stage and later, during the
commercialization phase, generate sufficient
cash to fund its operations. After the Advanced
BioChem transaction, the Company raised funds
through the sale of common stock, issuance of
convertible debentures, and issuance of notes
payable. The Company’s liquidity needs are for
the availability of working capital, development,
and other corporate requirements. As of the end
of June 2006, Power3’s major source of
liquidity was a cash balance of $152,914. Apart
from financing activities, the Company’s source
of funds before the commencement of its
operations would be research grants and
milestone payments from strategic alliances.
Common Stock
As of June 30, 2006, the Company has 70.4
million outstanding common shares. In the
future, the Company is likely to raise capital
through the sale of common stock. Additionally,
the conversion of warrants and convertible
debentures is expected to dilute the Company’s
common stock.
Convertible Debentures
Under a Securities Purchase agreement, the
Company issued convertible debentures worth
$1 million in October 2004. Subsequently in
January 2005, a second tranche of $400,000 was
issued and sold to a sub-group of the original
investors. These debentures are non-interest
bearing instruments and are convertible into the
common stock of the Company. According to
the agreement, the original investors were to
purchase an additional $1.6 million worth of
debentures. However, as the Company, is in
default in relation to the previously issued
debentures, the likelihood for the additional
purchase of the debentures is uncertain.
Debt
The Company raised debt primarily in the form
of Notes payable and advances from related
parties. After the Advanced BioChem
transaction, the Company raised approximately
$3.2 million in debt through the end of the
second quarter of 2006. As of June 30, 2006, the
Notes payable accounted for $1.3 million. In
November and December 2005, the Company
received bridge loans in the form of secured
Notes payable aggregating $300,000. The
interest on these notes payable is 11% to
Page 39 of 113
maturity and 24% thereafter until the loan is
fully repaid. More recently in March and June
2006, the Company raised $666,000 in debt
through promissory notes.
FORECAST
Our financial forecasts for Power3 Medical are
based on the impending commercialization of
the Company’s path-breaking and innovative
concepts. Being a development stage company,
Power3 does not have a substantial operating
history. As such, the basis of our assumptions
lies in the significant progress the Company
made in transitioning itself from a developmentstage company to forging alliances for the
introduction of its products into the market. The
Company’s protein-based technology and
biomarkers have proven to be effective in the
early detection and treatment of Breast Cancer,
Neurodegenerative
Disease,
and
the
identification of Drug Resistance. For the
purpose of forecasting Power3’s revenues, we
concentrated primarily on breast cancer,
neurodegenerative diseases, and drug resistance
markets, all we believe will make a maximum
contribution to the Company’s top line.
Protein biomarker-based diagnostics is an
emerging field and the dynamics are fast
changing. Power3’s strategy to focus solely on
the licensing business model is expected to
benefit the Company by capitalizing on its
research without experiencing the difficulties of
marketing and distributing its products. The
Company applied for numerous patents for their
various processes and products. After patent
protection, the Company would be able to
license its technology to large pharmaceutical
and diagnostic companies and obtain the
financial rewards of its research.
Revenue Forecast
The Company’s main stream of revenues is
expected to accrue from milestone payments
and royalty revenue from licensee companies. In
addition to revenues generated from the
domestic market, Power3 is also projected to tap
international markets and earn revenues from its
international operations. Bearing in mind that
the Company is planning to operate through a
licensing model, we attempted to forecast the
Company’s revenues by estimating milestone
payments and royalty revenues for its different
product segments. The catalyst in Power3’s
growth and success therefore, is the number of
licensing agreements that it enters into over the
next three years.
Milestone Payments Forecast
Milestone payments are a form of periodic
payments by means of the licensee company
making controlled payments to the licensor
company upon the latter achieving stipulated
progress under the license agreement. Our
estimate of Power3’s license agreements is split
Page 40 of 113
agreements are expected to net the Company
$12 million in milestone payments over the next
six years. In the Alzheimer’s disease segment,
we assume that Power3 will sign three
agreements by 2008. Milestone payments
valued at $9 million would be received through
these agreements. For Parkinson’s disease, we
expect Power3 to sign three agreements in the
next three years. These agreements would
provide milestone payments of $9 million by
2011. In the ALS segment, the Company is
projected to sign two agreements by 2008,
generating milestone payments of $6 million.
Finally in the drug resistance segment, we
expect the Company to sign two agreements.
The milestone payments in this segment,
aggregating to $6 million, would be spread
across the next six years with the final payment
being received in 2011.
for the various target markets that the Company
intends to enter in the next few years.
The Company’s agreement with Biosite
provides
for
milestone
payments
of
approximately $3 million. The milestone
payments for subsequent licensing agreements
could range from $2 million to $10 million.
However, in line with our conservative
approach, we forecasted that the new
agreements signed by Power3 in the future
would result in milestone payments of $3
million for each agreement. Moreover,
milestone payments would be staggered over a
period of approximately three years and
received by the Company in a ratio of 0.5:1:1.5.
For the breast cancer tests, we expect the
Company to sign at least four license
agreements by the end of 2010. These
Table 6: Power3’s Base Case Milestone Payments Forecast
Milestone Payments in $ million
2006E
2007E
2008E
2009E
2010E
2011E
2012E
2
0.7
2
2.5
2
2.8
3
0.35
4
1.6
4
2.65
4
1.4
0
0
2
0.7
2
2.5
3
3.15
3
1.25
3
1.4
3
0
0
0
2
0.7
2
2.5
3
3.15
3
1.25
3
1.4
3
0
0
0
0
0
0
0
1
0.35
2
1.6
2
2.65
2
1.4
0
0
0.7
0
0
3.9
1
0.35
8.15
2
1.6
8.6
2
2.65
8.35
2
1.4
9.5
2
0
2.8
Breast Cancer Tests
No. of Agreements
Milestone Payments
Alzheimer's Tests
No. of Agreements
Milestone Payments
Parkinson's Tests
No. of Agreements
Milestone Payments
ALS Tests
No. of Agreements
Milestone Payments
No. of Agreements
Milestone Payments
Total Milestone Payments
Page 41 of 113
Royalty Revenues
Royalty revenues are the recurring stream of
payments that the Company would receive
based on the sales of the licensee companies.
The key components affecting royalty revenues
are the royalty fee percentage in the agreement
and the market share captured by the licensee
company. For estimating the market share in
each target segment, we take into account
various factors such as size of the market, the
growth, and the number of agreements. Our
royalty fee forecast is guided by Power3’s
licensing agreement with Biosite, which
provides for a 7% royalty on sales by Biosite.
Breast Cancer
In order to forecast demand for the breast cancer
segment, we considered the number of
mammograms conducted in the US annually to
estimate the potential market size. The number
of mammograms being done currently in the
country is 44 million and we have assumed a
negative growth rate of 2% for each year from
2006 onwards. From the 44 million
mammograms, we assumed a 2.4% market share
for Biosite in the first year of introduction.
Furthermore, we assumed that Power3 would
sign at least four license agreements by the end
of 2010. As the test will gain escalating
acceptance in the market, market share for each
new agreement would increase, adding to the
market share captured by the existing
agreements of Power3.
At $200 per test, and with 7% in royalty
payments, Power3 would be able to generate
revenues of approximately $13 million by 2009.
Royalty income from breast cancer tests would
increase with the number of license agreements
and also with the market penetration of each
licensee company. Going forward, in 2015,
royalty revenues for the breast cancer segment
are expected to reach $18 million.
Table 7: Breast Cancer Tests Royalty Revenues Forecast - Base Case
Figures in $'millions unless
specified
Size of market (No. of tests in
million)
growth %
Total Market Share %
Total Target market (no. of
tests in million)
Price per Test in $
Royalty @ 7%
Total Royalty Income
2006E
2007E
2008E
2009E
2010E
2011E
2012E
2013E
2014E
2015E
44.0
2.00%
43.1
-2%
2.00%
42.3
-2%
2.00%
41.4
-2%
2.40%
40.6
-2%
2.20%
39.8
-2%
3.30%
39.0
-2%
3.15%
38.2
-2%
4.20%
37.4
-2%
4.20%
36.7
-2%
4.20%
0.9
0.9
0.8
1.0
0.9
1.3
1.2
1.6
1.6
1.5
200
12.3
0.0
196
11.8
0.0
192
11.4
0.0
188
13.1
13.1
184
11.5
11.5
181
16.6
16.6
177
15.2
15.2
174
19.5
19.5
170
18.7
18.7
167
18.0
18.0
Page 42 of 113
Alzheimer’s Disease
In the Alzheimer’s disease segment, our royalty
revenue forecast begins from the beginning of
2009. For estimating the market size of
Alzheimer’s disease, we have taken the
percentage of incidence approach. Since there is
an absence of a formal diagnostic product
currently, Power3’s NuroProTM, post receipt of
patents, is expected to capture significant
market share in the evolving market. The
increasing proportion of aging population in the
United States would further augment the
demand for the product. To estimate the size of
the market, we took two categories of the total
United States population; people between the
ages of 45 to 64 years and people above the age
of 65 years. By assigning a probability to each
of these categories for the number of people
who would likely take the neurodegenerative
disease test, we arrived at the potential size of
the market. For Alzheimer’s disease, we
assumed that 5% of the people in the age group
45-64 years would likely take the test. The
corresponding figure for the people above the
age of 65 is 10%. We then computed the market
size for Alzheimer’s disease tests at 1.2 million
in 2007. This market is expected to grow in
tandem with the population growth in those age
categories and reach 8.9 million in 2015.
Having established the total market potential for
the Alzheimer’s disease tests, we then assumed
the total market share that the Company would
be able to capture from this target segment. For
NuroProTM, we assume a larger market share
and a higher price per test than for the breast
cancer tests because, in the neurodegenerative
diseases market, there is a currently unmet
medical need for diagnosis. In order to arrive at
Power3’s market share for Alzheimer’s disease,
we assumed that the Company will sign three
agreements by 2009 and the corresponding
market share will be 10% for new agreements
and 5% for existing agreements. The growth
rate for market share captured by existing
agreements would initially be 20%, but with
increasing competitive pressure, it would
decline to 5% by 2012 and will remain constant
thereafter. Power3’s market share in this
segment is expected to be 1.4 million in 2015.
The price per test for Alzheimer’s disease is
forecasted to be $500. Maintaining the royalty
earning at a constant 7% of sales attained by the
licensee company, we arrived at Power3’s
revenues for Alzheimer’s disease over the next
10 years. We expect the Company to earn $37.8
million from the Alzheimer’s disease test
royalty
income
in
the
year
2015.
Table 8: Alzheimer’s Disease Tests Royalty Revenues Forecast - Base Case
Figures in $'millions
unless specified
Size of the market
Total Target market
(no. of tests in million)
Price per Test in $
Royalty @ 7%
2006E
2007E
2008E
2009E
2010E
2011E
2012E
2013E
2014E
2015E
7.5
0.00%
7.6
20.00%
7.8
10.00%
7.9
23.00%
8.1
16.50%
8.2
16.50%
8.4
15.75%
8.5
15.75%
8.7
15.75%
8.9
15.75%
0.0
1.5
0.8
1.8
1.3
1.4
1.3
1.3
1.4
1.4
500
0
0
500
53.3
0.0
475
25.8
0.0
451
57.5
28.7
429
39.9
39.9
407
38.7
38.7
387
35.7
35.7
387
36.4
36.4
387
37.1
37.1
387
37.8
37.8
Page 43 of 113
Parkinson’s Disease
For estimating royalty revenues for the
Parkinson’s disease tests, we followed the same
approach as that for Alzheimer’s disease tests.
In the case of Parkinson’s disease, we expect
that 3% of the people in the age group 45-64
years and 7% of people over 65 years would
take the test. Our estimate of the market size for
Parkinson’s disease tests resulted in 4.9 million
in 2007. This market is expected to grow in
tandem with the population growth in those age
categories and reach 5.8 million in 2015. The
Company’s market share for Parkinson’s
disease tests was calculated by assuming the
signing of three agreements in the next three
years, 10% market share for new agreements,
and 5% market share for existing agreements.
The growth rate for market share captured by
existing agreements would initially be 20%, but
with increasing competitive pressure, it would
thereafter. The Company’s market share in this
segment is expected to be 0.9 million in 2015.
The price for Parkinson’s disease test would
also be $500. The 7% royalty on sales by the
licensee companies would net Power3 $20
million in royalty revenues by 2015.
Table 9: Parkinson’s Disease Tests Royalty Revenues Forecast - Base Case
specified
Size of the market
tests in million)
Price per Test in $
Royalty @ 7%
2006E
2007E
2008E
2009E
2010E
2011E
2012E
2013E
2014E
2015E
4.8
0.0%
4.9
20.0%
5.0
22.0%
5.1
23.0%
5.2
16.5%
5.3
16.5%
5.5
15.8%
5.6
15.8%
5.7
15.8%
5.8
15.8%
0
1.0
0.0
1.2
0.9
0.9
0.9
0.9
0.9
0.9
500
0
0.0
500
34.6
0.0
475
0.0
0.0
428
35.4
17.7
385
23.3
23.3
346
21.4
21.4
312
18.7
18.7
312
19.1
19.1
312
19.5
19.5
312
19.9
19.9
ALS
For the ALS segment, we followed the same
approach as that of Alzheimer’s and Parkinson’s
disease tests. For ALS, the number of people
between 45-64 years and people over 65 years
who are expected to take the test are 2% and 5%
respectively. Our estimate of the market size for
Parkinson’s disease tests resulted in 3.4 million
tests in 2007 and is projected to grow to 4
million in 2015. In order to arrive at the
Company’s market share for ALS disease tests,
we assumed that the company will sign two
agreements in next three years and will garner
15% market share with new agreements and
10% market share with existing agreements.
The growth rate for market share captured by
existing agreements would initially be 20%, but
with increasing competitive pressure, it would
thereafter. Power3’s market share in ALS tests
would be 0.8 million in 2015. The price for ALS
test would also be $500. The 7% royalty on
sales by the licensee companies would net
Power3 $18million in royalty revenues by 2015.
Page 44 of 113
Table 10: ALS Tests Royalty Revenues Forecast - Base Case
specified
Size of the market
tests in million)
Price per Test in $
Royalty @ 7%
2006E
2007E
2008E
2009E
2010E
2011E
2012E
2013E
2014E
2015E
3.4
0.0%
3.4
0.0%
3.5
0.0%
3.6
16.5%
3.6
27.5%
3.7
22.0%
3.8
21.0%
3.9
21.0%
3.9
21.0%
4.0
21.0%
0
0.0
0.0
0.6
1.0
0.8
0.8
0.8
0.8
0.8
500
0
0.0
500
0.0
0.0
475
0.0
0.0
428
17.6
8.8
385
26.9
26.9
346
19.7
19.7
312
17.3
17.3
312
17.7
17.7
312
18.0
18.0
312
18.4
18.4
Drug Resistance
The Company already identified and developed
19 biomarkers that enable monitoring drug
resistance. However, the commercialization of
this product is expected to begin only after six
years. Therefore, although the milestone
payments would start accruing from 2008
onwards, revenues from royalty payments for
drug resistance would start only by the year
2012. The size of the drug resistance market in
2007 is expected to be approximately 5 million
tests, growing at an annual rate of 10%. The
market share captured by the Company would
be 25% in 2012 when the market size would
have increased to 8.1 million tests. The
Company is projected to capture significant
market share in this segment, which is expected
to be 8.4 million in 2015. The price per test for
the drug resistance tests is expected to be $200
in 2012 when the Company would begin
commercialization. In 2015, the income from
royalty payments for the drug resistance
segment is expected to be over $74 million.
Table 11: Drug Resistance Royalty Revenues Forecast - Base Case
specified
Size of market (No. of tests in
million)
tests in million)
2006E
2007E
2008E
2009E
2010E
2011E
2012E
2013E
2014E
2015E
0.0
5.0
5.5
6.1
6.7
7.3
8.1
8.9
9.7
10.7
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
25.0%
51.3%
52.5%
0
0
0
0
0
0
0.0
2.2
5.0
5.6
Price per Test in $
0
0
0
0
0
0
200
196
192
188
Royalty @ 7%
0
0
0
0
0
0
0.0
30.4
67.1
74.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
30.4
67.1
74.1
International Operations
Another stream of revenues is expected to be
generated from international strategic alliances
and agreements. In fact, the Company signed an
initial agreement with Innogenetics; a Belgium
based international biopharmaceutical company.
In order to reflect the Company’s global plans,
we assumed that non-US revenues would
constitute 10% of US revenues.
Page 45 of 113
Total Revenue Forecast – Base Case
In our Base Case scenario, we estimated the
Company’s revenues to reach approximately
$0.7 million in 2006. However, from 2007
going forward over the next 10 years, revenues
are expected to grow exponentially due to the
developed marketing and distribution of the
Company’s products through its licensee
companies. According to our estimates,
Power3’s revenues would reach $185 million by
2015. We forecast total milestone payments to
be $0.7 million in 2006, increasing to $3.9
million in 2009 and then gradually reducing to
$2.8 million in 2012. Our royalty revenue
forecast is $68.3 million in 2009 and would
reach $168.3 million by 2015. Non-US
revenues, estimated at 10% of US revenues
would contribute $0.2 million in 2007
increasing to $16.8 million in 2015. Our Base
Case scenario is presented in Table 12.
Table 12: Total Revenue Forecast - Base Case
specified
Total Milestone Payments
Total Royalties Income
Total US Revenues
Total Non-US Revenues
Total Revenues
2006E
2007E
2008E
2009E
2010E
2011E
2012E
2013E
2014E
2015E
0.7
0.0
0.7
0.0
0.7
3.9
0.0
3.9
0.2
4.1
8.2
0.0
8.2
0.8
9.0
8.6
68.3
76.9
7.7
84.6
8.4
101.6
110.0
11.0
121.0
9.5
96.4
105.9
10.6
116.5
2.8
87.0
89.8
9.0
98.8
0.0
123.1
123.1
12.3
135.4
0.0
160.5
160.5
16.1
176.6
0.0
168.3
168.3
16.8
185.1
Earnings and FCF Forecast
In addition to the revenue forecast, we
attempted to project Power3’s future earnings
and free cash flows. Since the Company does
not have an operating history, our estimate of
costs and margins are based on reasonable
estimates of Cost of Goods Sold and operating
expenses. We estimated both COGS and
operating expenses as a percentage of royalty
revenues. COGS is forecasted to be at 40% of
total revenues up to the year of commercial
introduction and 30% of revenues thereafter and
would remain constant over the forecast period.
On the other hand, operating expenses are
estimated at 30% of total revenues in 2006, then
falling to 25% in 2007, 20% in 2008 and 25%
from 2009 through 2015. Additionally, for
estimating the business costs, we forecasted
R&D expenses at $2 million in 2006. With a
growth of 10%, R&D expenses would increase
to $4.7 million in 2015. Business Development
costs are estimated at 5% of total revenues and
projected to reach $9.3 million in 2015.
Additionally, other costs are also estimated for
the forecast period. Since the Company’s
operations are not capital intensive in nature, we
estimated the Capex at a modest 1% of
revenues.
The Company’s accumulated loss through the
development stage is approximately $35.7
million. Our Net Profit forecast for the
Company in 2006 is negative $7 million.
Moreover, with significant revenues accruing
from 2007 onwards, we expect losses to
diminish and profits to improve significantly
over the next 10 years and reach $44.1 million
by 2015 under the Base Case scenario. Earnings
per share are estimated at -$0.01 for 2006 and
are expected to improve to $0.63 by 2015. We
expect the Company to experience a negative
Page 46 of 113
operating cash flow in 2006 and 2008. However
Cash from operations will turn positive in 2007
and begin a vigorous growth over the forecast
period. The Company’s significant revenue
growth coupled with controlled constant costs
will likely result in strong cash flows in the
forecast period as well as in the long term.
Table 13: Earnings and FCF - Base Case
Figures in $'millions, except EPS
2006E
2007E
2008E
2009E
2010E
2011E
2012E
2013E
2014E
2015E
Total Revenues
Net Income / (Loss)
0.7
-6.8
-7.0
-0.10
(3.63)
4.1
-1.8
-2.0
-0.03
1.27
9.0
0.6
0.2
0.00
(0.38)
84.6
29.8
19.2
0.27
17.20
121.0
45.1
29.1
0.41
29.02
116.5
42.6
27.6
0.39
26.80
98.8
34.9
22.5
0.32
21.67
135.4
49.3
31.9
0.45
32.58
176.6
65.4
42.4
0.60
43.08
185.1
68.0
44.1
0.63
43.93
In addition to the Base Case scenario, we have
also forecasted two additional scenarios – one
Optimistic Case and one Pessimistic Case. The
main factor behind the different scenarios is to
reflect the potential growth of the Company in
an emerging market over the next 10 years.
In our Optimistic Case forecast, we have
assumed that the Company would be able to
successfully leverage its technology by
strengthening its customer base of licensing
agreements and would also be able to realize a
higher price for its products. Consequently,
while estimating revenues in the Optimistic
Case forecast, we assumed a higher number of
license agreements in the breast cancer,
neurodegenerative diseases. and drug resistance
market segments. On the pricing front, because
the Company is attempting to venture into an
evolving domain, it can experience better
control over its pricing. Hence, we also forecast
a higher price per test for all the segments. We
expect Power3 to emerge as a leader in the
proteomics industry and reach $283 million in
revenues by the year 2015. Since the
Company’s products are based on the
application of extensive research, the lack of
vigorous competition may further brighten the
Company’s prospects. In the Optimistic Case,
our profit forecast for Power3 is $1.4 million for
2008. In the future, the Company would be able
to generate $85.3 million in profits. EPS would
improve from -$0.01 in 2006 to $1.21 in 2015.
Table 14: Optimistic Case - Revenue, Earnings and EPS Forecast
2006E
2007E
2008E
2009E
2010E
2011E
2012E
2013E
2014E
2015E
Total Revenues
Net Income / (Loss)
0.7
-6.8
-7.0
-0.10
(3.63)
4.5
-1.4
-1.0
-0.01
1.56
11.9
2.3
1.4
0.02
1.53
140.4
63.9
41.4
0.59
35.41
187.1
86.3
55.9
0.79
54.33
199.1
91.3
59.2
0.84
58.10
157.0
70.1
45.4
0.64
45.19
193.3
87.8
56.9
0.81
55.98
236.3
108.8
70.5
1.00
69.48
283.2
131.4
85.3
1.21
84.11
Our Pessimistic Case forecast takes a more
conservative approach in estimating the number
of licensing agreements and also the pricing of
the company’s products. In this scenario, we
assume that Power3 will face strong competition
from other companies which have greater
financial strength or better relationships with
biotechnology or pharmaceutical companies. As
Page 47 of 113
a result, Power3 may not be able to enter into
more licensing agreements. In addition, the
Company’s pricing is also expected to come
under
pressure.
Furthermore,
Power3’s
technology is still pending for patents and any
adverse development in this regard may
severely hamper the Company’s growth and
prospects. Under this scenario, the Company’s
top line will show a steady and gradual increase
to $110 million in the next 10 years. Under the
Pessimistic Case scenario, our profit estimate
for the Company is -$4.6 million in 2006 and
would increase to $24 million by 2015. The
corresponding figures for EPS are -$0.07 and
$0.34 respectively.
Table 15: Pessimistic Case – Revenue, Earnings and EPS Forecast
Total Revenues
Income / (Loss) from
Operations
Net Income / (Loss)
2006E
2007E
2008E
2009E
2010E
2011E
2012E
2013E
2014E
2015E
0.4
2.6
7.8
50.0
121.9
66.9
102.2
127.4
107.9
110.5
-6.9
-4.6
-0.07
(3.67)
-2.3
-1.7
-0.02
(1.15)
0.0
-0.1
0.00
(0.65)
16.4
10.5
0.15
6.44
45.5
29.4
0.42
22.53
22.4
14.4
0.20
18.78
36.3
23.4
0.33
19.98
46.0
29.8
0.42
27.13
37.4
24.1
0.34
25.64
37.5
24.2
0.34
24.00
Table 16: Revenue, EPS and FCF growth – (all three scenarios)
2006E
2007E
2008E
2009E
2010E
2011E
0.70
4.10
485%
-0.03
-71%
1.27
-135%
8.97
119%
0.00
-112%
-0.38
-130%
84.60
844%
0.27
7611%
17.20
-4665%
120.97
43%
0.41
51%
29.02
69%
116.47
-4%
0.39
-5%
26.80
-8%
4.46
538%
-0.01
-85%
1.56
-143%
11.88
166%
0.02
-232%
1.53
-2%
140.39
1082%
0.59
2959%
35.41
2217%
187.09
33%
0.79
35%
54.33
53%
2.64
654%
-0.02
-64%
-1.15
-69%
7.76
194%
0.00
-93%
-0.65
-44%
49.98
544%
0.15
-9002%
6.44
-1095%
121.94
144%
0.42
180%
22.53
250%
2012E
2013E
2014E
2015E
98.77
-15%
0.32
-18%
21.67
-19%
135.38
37%
0.45
42%
32.58
50%
176.57
30%
0.60
33%
43.08
32%
185.11
5%
0.63
4%
43.93
2%
199.06
6%
0.84
6%
58.10
7%
157.03
-21%
0.64
-23%
45.19
-22%
193.26
23%
0.81
25%
55.98
24%
236.35
22%
1.00
24%
69.48
24%
283.24
20%
1.21
21%
84.11
21%
66.92
-45%
0.20
-51%
18.78
-17%
102.18
53%
0.33
63%
19.98
6%
127.44
25%
0.42
27%
27.13
36%
107.94
-15%
0.34
-19%
25.64
-5%
110.49
2%
0.34
0%
24.00
-6%
Base Case
Total Revenue
% Growth
-0.10
% Growth
-3.63
% Growth
Optimistic Case
Total Revenue
0.70
% Growth
-0.10
% Growth
-3.63
% Growth
Pessimistic Case
Total Revenue
0.35
% Growth
-0.07
% Growth
% Growth
-3.67
Page 48 of 113
VALUATION
Our fair value estimate for Power3 ranges from
$2.91 - $3.26 based on our the Base Case
forecast, a discount rate of 18.8%, and long term
terminal growth rate of 4–6%. This represents a
large premium to the Company’s current market
price of $0.06 at mid-level of our target price
range. We calculated the fair value range for the
stock price based on the free cash flow to equity
projections for each scenario.
To determine an appropriate valuation, we apply
a present valuation formulation to the forecasted
free cash flows. An important component of the
present valuation formulation is the discount
rate used for calculation. We normally
determine an appropriate discount rate
beginning with the 10-year Treasury bond yield
of 5.3% and adjusting it for the equity risk
premium and stock volatility. For Power3, we
assumed the total risk premium to be 7.0%. The
volatility measure, Beta, is based on the last four
years of trading. Power3 common stock has
experienced low volatility due to minimal
trading activity in the market. Hence, using the
historical beta as a measure of volatility to
determine the discount rate may not prove to be
reasonable. However, going forward, we
assumed that the stock would be more volatile
in the near future as the Company gradually
moves toward its commercialization phase,
which is expected to lead to increased trading
activity. Therefore, the beta for Power3 is
estimated at 2.0. The resulting increase in the
discount rate leads to a more conservative fair
value range for the stock price. The discount
rate we use in our valuation analysis for Power3
ranges from 16.8 – 20.8%. In our opinion,
18.8% is a conservative discount rate. It
adequately represents the risk profile of the
Company. However, our Base Case scenario
also reflects the sensitivity of the target stock
price to the discount rate range (16.8-20.8%).
Another important component of the present
value analyses for stock valuation is
determining the growth rate investors will
attribute to the Company toward the end of the
forecast period (beyond 2015 in the case of
Power3). Assuming strong growth in free cash
flows during the next ten years, our conservative
estimate for the terminal growth rate after 2015
is in the 3–7% range.
We discount the stream of cash flows in the
forecast period using a present valuation
formulation. We then add the present value of
the terminal value. To determine the terminal
value, the Y+10 growth rate is applied to the
free cash flows in FY 2015. The terminal value
is instrumental in calculating a target stock price
range. The following chart and table describes
the target price range for the stock for each
scenario for a range of terminal growth rates
with the discount rate of 18.8%.
Page 49 of 113
Chart 4: Price Target vs. long Term Growth Rates
Long Term Sustainable Grow th Rates
8.00
7.00
6.00
US $
5.00
4.00
3.00
2.00
1.00
0.00
Long Term Grow th Rates
3%
4%
5%
6%
7%
Optimistic Case
5.10
5.34
5.61
5.94
6.33
Base Case
2.78
2.91
3.07
3.26
3.49
Pessimistic Case
1.74
1.83
1.94
2.07
2.24
The following chart and table describes the
target price range for the stock in each scenario
for a range of discount rates with the terminal
growth rate at 5%. This indicates that the target
price for Power3 is more sensitive to changes in
the discount rates.
Chart 5: Price Target vs. Discount Rates
Range of Discount Rates
7.00
6.00
US $
5.00
4.00
3.00
2.00
1.00
0.00
Range of Discount Rates
14.4%
15.4%
16.4%
17.4%
18.4%
Optimistic Case
6.53
6.04
5.60
5.20
4.83
Base Case
3.58
3.31
3.06
2.84
2.63
Pessimistic Case
2.41
2.23
2.07
1.92
1.78
It is interesting to note that the stock is
considerably undervalued given our Pessimistic
Case scenario. Our Pessimistic Case price range
of $1.83-2.07 translates into a large premium at
the mid-level of our price range. We believe this
is due to the Company’s limited visibility in the
marketplace and uncertainty over its revenue
growth in the future. However, the Company
Page 50 of 113
received its first milestone payment from
Biosite, to which it licensed its breast cancer
detection and diagnostic technology. We expect
the commercialization of these tests to be
positive; leading to Power3 entering into more
licensing agreements with large pharmaceutical
companies both nationally and internationally.
The successful commercialization of the
Company’s products will strengthen investor
confidence, thus increasing demand for the
Company’s stock and subsequently its stock
price. We therefore recommend purchase of
Power3 common stock for long term risk
adverse investors.
RS/Cohen Independent Research Group
Page 51 of 113
FINANCIAL EXHIBITS
(PWRM.PK)
BUY
Page 52 of 113
Exhibit 1: Income Statement – Base Case
Page 53 of 113
Exhibit 2: Balance Sheet – Base Case
Page 54 of 113
Exhibit 3: Cash Flow Statement – Base Case
Page 55 of 113
Exhibit 4: Income Statement – Optimistic Case
Page 56 of 113
Exhibit 5: Balance Sheet – Optimistic Case
Page 57 of 113
Exhibit 6: Cash Flow Statement – Optimistic Case
Page 58 of 113
Exhibit 7: Income Statement – Pessimistic Case
Page 59 of 113
Exhibit 8: Balance Sheet – Pessimistic Case
Page 60 of 113
Exhibit 9: Cash Flow Statement – Pessimistic Case
Page 61 of 113
Exhibit 10: Discounted Cash Flow Analysis – Base Case
Page 62 of 113
Sensitivity Analysis with Discount Rate (With terminal Growth Rate of
5%)
Range of Discount
Rate
16.8%
17.8%
18.8%
19.8%
20.8%
2006
1.97
1.96
1.95
1.95
1.94
2007
13.33
13.18
13.03
12.89
12.75
2008
37.21
36.48
35.76
35.07
34.40
2009
40.17
39.04
37.96
36.91
35.91
2010
30.74
29.62
28.56
27.54
26.57
2011
22.33
21.34
20.40
19.51
18.66
2012
19.49
18.47
17.50
16.60
15.75
2013
20.09
18.87
17.74
16.68
15.70
2014
21.21
19.75
18.41
17.17
16.02
2015
20.03
18.50
17.10
15.81
14.63
Terminal
Value
216.83
198.55
181.94
166.85
153.12
Sum
of PV
of
FCFF
443.38
415.76
390.36
366.98
345.43
Less:
Net
Debt
-2.03
-2.03
-2.03
-2.03
-2.03
Page 63 of 113
Equity
Value
445.41
417.79
392.39
369.01
347.46
Value
Per
Share
6.32
5.93
5.57
5.24
4.93
Exhibit 11: Discounted Cash Flow Analysis – Optimistic Case
Page 64 of 113
Sensitivity Analysis with Discount Rate (With
terminal Growth Rate of 5%)
Range of
Discount
Rate
2006 2007 2008 2009 2010 2011 2012 2013
16.9%
1.82
24.09
60.36
66.76
52.74
39.97
34.11
35.50
17.9%
1.82
23.81
59.17
64.89
50.82
38.19
32.32
33.35
18.9%
1.81
23.55
58.02
63.09
49.00
36.51
30.63
31.35
19.9%
1.81
23.29
56.89
61.35
47.25
34.92
29.05
29.48
20.9%
1.80
23.03
55.80
59.68
45.58
33.40
27.56
27.74
2014
36.21
33.73
31.44
29.32
27.36
2015
33.07
30.54
28.23
26.10
24.16
Termi
nal
Value
356.37
326.34
299.06
274.27
251.71
Sum
of PV
of
FCFF
740.99
695.00
652.69
613.73
577.82
Less:
Net
Debt
-2.18
-2.18
-2.18
-2.18
-2.18
Equity
Value
743.17
697.18
654.87
615.91
580.00
Page 65 of 113
Value
Per
Share
10.55
9.89
9.29
8.74
8.23
Exhibit 12: Discounted Cash Flow Analysis – Pessimistic Case
Page 66 of 113
Sensitivity Analysis with Discount Rate (With terminal Growth
Rate of 5%)
Range of
Discount Rate
2006
2007
2008
2009
2010
2011
2012
16.8%
1.70
9.61
20.94
20.36
14.83
11.21
10.74
17.8%
1.70
9.50
20.53
19.79
14.29
10.71
10.17
18.8%
1.69
9.39
20.12
19.24
13.78
10.24
9.64
19.8%
1.69
9.29
19.73
18.71
13.28
9.79
9.14
20.8%
1.69
9.19
19.36
18.20
12.81
9.37
8.67
2013
11.70
10.99
10.33
9.72
9.14
2014
11.17
10.40
9.69
9.04
8.43
2015
9.86
9.10
8.41
7.78
7.20
Terminal
Value
107.37
98.31
90.09
82.61
75.81
Sum of
PV of
FCFF
229.48
215.50
202.63
190.78
179.86
Less:
Net
Debt
-2.31
-2.31
-2.31
-2.31
-2.31
Page 67 of 113
Equity
Value
231.79
217.80
204.94
193.09
182.17
Value
Per
Share
3.29
3.09
2.91
2.74
2.58
APPENDICES
(PWRM.PK)
BUY
Page 68 of 113
Appendix I – Biomarkers
Definition and Application
Biological markers, known as biomarkers, are
effective drugs. Biomarkers for monitoring the
tests that can be objectively measured and
progression of chronic diseases and cancer
evaluated to reflect normal biologic processes,
specific biomarkers are expected to predict
pathogenic
pharmacologic
disease symptoms and also evaluate the
responses to therapeutic intervention. Therefore,
effectiveness of new drugs with a lesser cost of
biomarkers are analysts that aid in disease
clinical trials and in a shorter time period.
processes,
or
management. The ability of biomarkers to
improve the drug discovery and development
Most of the biomarkers fall into four general
process makes the discovery of biomarkers a
classes: small molecules, proteins, genetic or
critical need for the pharmaceutical industry.
imaging markers. The application of biomarkers
Biomarkers are expected to help in improving
is done in various aspects of drug discovery and
R&D
drug
development. Biomarkers play a significant role
development, and also shorten the time of drug
in target discovery and validation. They lead to
introduction to the market. Biomarkers are of
prioritization and optimization, the study of
particular significance for cancer and chronic
drug and disease mechanisms, toxicity profiling,
diseases because these diseases represent a
and proof-of-concept in preclinical studies.
major share of healthcare costs and represent a
Additionally, biomarkers are also used in
substantial and urgent unmet medical need.
developing new diagnostic processes. The
These diseases affect a large number of people
various functions of biomarkers are shown in
thereby heightening the need to develop more
the Figure 13
productivity,
reduce
cost
of
.
Page 69 of 113
Figure 8: Biomarker Functions
Source: Pharmavision.co.uk
Based on the application of biomarkers in the
These
management of diseases, they can be classified
development as approved surrogate markers.
into the following categories:
In
the
biomarkers
absence
are
of
used
early
in
drug
clinical
improvement, they help to improve patient
1. Stratification markers
compliance.
These biomarkers predict the likelihood of
a drug response and aid in making
3. Toxicity markers
decisions for administering the right drug
Toxicity biomarkers are used to identify
to the right patient. They are also used in
certain patients for exclusion from test
the development of drugs, by helping in the
groups during clinical trials. They also help
selection of patients for clinical trials.
in identifying the correct drug for a
particular patient.
2. Efficacy markers
4. Screening markers
Page 70 of 113
These are used primarily for disease
critical need to identify and develop biomarkers.
management and help in the early detection
Biomarkers can be effectively utilized once they
of diseases.
qualify as fit-for-purpose. The focus therefore,
is on their validation once they are identified
5. Prognostic markers
and
developed.
According
to
the
FDA,
Prognostic markers are also used in disease
biomarkers can be defined as valid, probable
management and to predict the probable
valid, or exploratory. A biomarker’s intended
course of the disease.
use determines the extent to which it may
require validation or qualification. For example,
The last two categories, specifically screening
a biomarker that is intended to be used as a
markers and prognostic markers, are used in
surrogate end-point in clinical trials may need to
theranostics. Theranostics is the term used to
be validated more rigorously than a biomarker
describe the proposed process of diagnostic
that may be intended for use in clinical
therapy for individual patients; to test them for
development. The FDA’s draft guidance for the
possible reactions to taking new medications
qualification of new safety and efficacy
and to tailor a treatment program for them based
biomarkers is expected to be published in 2007.
on the test results.
The most important criteria for valid biomarkers
Regulatory Framework
to be used in drug development are their clinical
The current regulatory framework for the
relevance, their sensitivity, specificity and
validation and use of biomarkers is not very
reliability (do they measure what they are
definitive.
supposed to measure), and their practicality and
Although
efforts
have
been
established by various regulatory agencies
around
the
world,
guidance
related
simplicity (Rosenkranz, 2003).
to
biomarkers has long been delayed. The FDA
In 1999, a National Institute of Health
took an initiative in March 2006 by publishing
(NIH)/Industry
the Critical Path Opportunities List. This has
definitions and built a conceptual framework for
brought about a consensus agreement outlining
biomarkers. Outlined below are the definitions
the key role of biomarkers in improving the
from the Biomarkers Definitions Working
development of medical products and the
Group, 1999.
consortium
developed
Page 71 of 113
key
•
Probable valid biomarker: A
Clinical Endpoint: Characteristic that reflects
biomarker that is measured in an
how a patient feels, functions, or survives.
analytical test system with wellestablished performance characteristics
Biomarker: Characteristic that is objectively
and for which there is a scientific
measured and evaluated as an indicator of
framework or body of evidence that
normal biologic processes, pathogenic
appears to elucidate the physiologic,
processes, or pharmacologic response to a
toxicological, pharmacologic, or clinical
therapeutic intervention;
significance of the test results. A
probable valid biomarker may not have
Surrogate Endpoint: Biomarker intended to
reached the status of a known valid
substitute for a clinical endpoint.
marker because, for example, of any one
of the following reasons:
In a guidance issued for pharmacogenomics data
submission, the FDA, published definitions for
known valid and probable valid biomarkers.
•
- The data elucidating its significance
may have been generated within a single
company and may not be available for
Known valid biomarker: A biomarker
public scientific scrutiny.
that is measured in an analytical test
- The data elucidating its significance,
system with well-established
although highly suggestive, may not be
performance characteristics and for
conclusive.
which there is widespread agreement in
- Independent verification of the results
the medical or scientific community
may not have occurred.
about the physiologic, toxicological,
pharmacologic, or clinical significance
of the results
The qualification of biomarkers as fit-forpurpose is shown in Figure 9.
Page 72 of 113
Figure 9: Biomarker Qualification
Source: Commercial Opportunities form Biomarkers, by Dr. CL Barton, (adapted from Wagner et al, 2004)
Market
Size,
Challenges
and
Market
expected to be a major driver for the growth of
Scenario
the biomarker market.
The size of the biomarker market is estimated to
In the diagnostics and pharmaceutical industries,
be $5.4 billion in 2005. This is approximately
there is a constant need for new diagnostic
equal to 10.5% of the total research and
biomarkers for earlier disease diagnosis and
development expenses of the pharmaceutical
with improved sensitivity and specificity.
market. The biomarker market is projected to
During the last five years, only a few novel
grow to $13.3 billion in 2010 and further to
diagnostic markers have been introduced into
$21.2 billion in 2012. The molecular diagnostics
the market. Proteomics technologies are now
market was estimated at $2.5bn in 2006. The
offering unique chances to identify new
growing trend of personalized medicine is
candidate markers. Pharmaceutical companies
generally pursue biomarkers in relation to
Page 73 of 113
process pathway analysis and in conjunction
The Challenges
with hypothesis-driven, deductive, knowledgebased drug target discovery, where certain key
The usefulness of a biomarker is judged by
proteins are found to be good targets for drug
evaluating its reliability and reproducibility.
design. The pressure to discover and develop
Validation data needs to exhibit the correlation
new therapeutics at a lesser cost and within
between the biomarker and its desired clinical
shorter
many
outcome. After a biomarker is identified,
pharmaceutical and biotechnology companies
obtaining scientific and regulatory approval for
actively seeking out alternative yet equally
the valid biomarker is an expensive process and
effective approaches.
takes a longer time than the identification of the
timeframes
has
led
to
biomarker itself.
Biomarker discovery and research has been
undertaken by many companies and academic
Although biomarkers are developed to save
institutions and many developed significant IP
money, their discovery and validation adds to
portfolios. Major pharmaceutical and diagnostic
cost, and initially the cost-benefit equation may
companies seeking to benefit from this research
not be favorable. There is a high cost involved
entered into alliances with these research-based
in the discovery of biomarkers and subsequently
companies.
trend
converting them into a useful test post
therefore, is one in which companies, both
validation. In fact, development costs can be
research-based
and
quite prohibitive for a single company to
diagnostics companies, form alliances in order
continue research into the development of
to capitalize on developed technology. The
biomarkers.
The
emerging
and
large
market
pharma
biomarker industry may be going through the
“Validation Phase”, as many companies are at
Apart from the adequacy of capital to fund
the validating stage, attempting to qualify the
research work, another setback could be in the
biomarkers identified and developed and at the
form
same time forming collaborations with other
companies to consider and accept diagnostic co-
companies.
products that could divide or reduce a drug’s
of
reluctance
by
pharmaceutical
potential market.
Page 74 of 113
discovery
Technologies used in biomarker discovery
of
biomarkers
are
genomics,
proteomics, and metabonomics. The “central
dogma” of molecular biology states that DNA is
The
development
of
biomarkers
utilizes
transcribed into RNA and then translated into
biological information from many levels, such
proteins, which then make small molecules. A
as DNA, mRNA, proteins, and metabolites, in
graphical presentation of this concept is made in
order to better understand clinical outcomes.
Figure 10.
The three major technologies that are used in the
Figure 10: Molecular Biology
Source:Metabolon.com
of drug targets into new therapies in clinical
Genomics
trials is in progress.
Genomics is the study of the structure and the
functions of genomes and genes. Functional
genomics is being progressively used to identify
and
validate
drug
targets
and
disease
biomarkers. Currently, validation and translation
Page 75 of 113
Proteomics
Proteomics is the study of the structure and
function of proteins, including the way they
work and interact with each other inside cells.
Since proteomics analyzes the complement of
proteins in an organism, this field of study is in
a
good
position
to
expose
measurable
differences correlating with disease.
Page 76 of 113
metabolite profiling, metabolic fingerprinting,
Metabonomics
metabolic
profiling,
and
metabonomics”.
Metabonomics is the study of metabolic
Metabonomics uses mass spectrometry and
responses to drugs, environmental changes and
nuclear
diseases.
According
quantification and identification of metabolites
Society,
“Metabolomics
metabolic
metabolomics,
to
changes.
metabolite
the
is
It
Metabolomics
the
study
of
magnetic
resonance
(NMR)
in biofluids.
encompasses
target
analysis,
Figure 11: Biological Investigations
Source: Functional Genomics Experiment (FuGE) on Reporting Structure for Biological Investigations
Page 77 of 113
for
Appendix II – Proteomics and Genomics
Proteomics is the study and analyses of proteins,
proteome, and up to 10% of these proteins may
which
serve as targets for drugs.
include
receptors,
hormones
and
enzymes. These proteins are the fundamental
Genomics (i.e. the study of the genes) can
building blocks of all cells in the human body
provide some information about a disease
that help carry out cellular functions. The
process, but it can only identify the potential
instructions for building these proteins are found
(genetic) risk of developing a disease. To obtain
in the DNA of the cell, and the complete
a full understanding of a disease process, and to
collection of DNA within a cell is referred to as
identify the presence of disease, the proteins
the genome. The human genome contains
must be examined. Regardless of the cause of a
approximately 30,000 genes, each of which
disease, it can affect the ability of a protein to
codes for a specific protein.
function properly, alter the concentrations of a
protein, or cause the formation of abnormal
Proteins are constructed from this DNA
proteins.
blueprint through a complex process that
structure, function, or concentration indicate the
involves many other proteins. Once formed, a
presence of disease. Studying the proteins found
protein can be modified by other proteins and
within the human body, and the changes that
can interact with other proteins to form complex
occur (i.e. proteomics), can lead to a better
structures. Even though the DNA in two given
understanding of how a healthy body functions
cells may be exactly the same, the proteins that
and can also allow identification of proteins
are coded for by that DNA are expressed
associated with specific diseases. In fact,
(displayed)
differently,
studying the changes in protein biomarkers may
depending on the specific function of that cell
permit researchers (and eventually doctors) to
and in a particular environment. The proteins
identify the presence of disease before any
give each cell its unique characteristics. As
physical symptoms appear.
and
processed
Thus,
abnormalities
in
protein
many as 120,000 different proteins can be found
in the human body, forming the human
The technologies used in proteomics range from
studying the activities of an individual protein
Page 78 of 113
through the analysis of thousands of proteins
and diagnosis of disease, differentiating between
from a certain cell type. The two main areas of
similar diseases, determining the specific stage
study in proteomics are: (1) cell mapping
of a disease, determining disease prognosis,
proteomics, which attempts to learn more about
monitoring
intercellular signaling pathways, and (2) protein
developing new treatments, particularly through
expression proteomics, which monitors the
drug engineering.
responses
to
treatment,
and
expression of proteins within a specific cell or
tissue type, or in certain biological fluids, and
Proteomics in Biomarker Discovery
looks for different expression patterns under
varying conditions such as in disease.
Proteomics
complete
involves
complement
the
of
analysis
proteins
of
the
in
an
Proteomics can be used to create a catalogue of
organism. It encompasses the identification and
proteins associated with a variety of conditions
quantification of these proteins, determination
such as cancer and neurodegenerative diseases.
of their localization, interactions, activities, and
Some potential applications of proteomics
their function. These functions also denote the
include: developing tests for the early detection
branches of proteomics as shown in Figure 12.
Page 79 of 113
Figure 12: Branches and Functions of Proteomics
Source: Pharmavision.co.uk
The separation of proteins forms the basis of all
revolutionized
proteomic
the
proteomics. Soft ionization methods are MALDI
separation of a complex mixture of proteins in
(Matrix-assisted laser desorption/ionization) and
order to process and analyze individual proteins
ESI (electrospray ionization). The type of a
with the help of other technologies.
mass spectrometer most widely used with
technologies.
It
involves
through high throughput techniques and is based
on mass spectrometry (MS). The development
of ‘soft ionization’ methods (methods that
ionize proteins without destroying them) has
major
development
for
spectrometer), mainly due to its large mass
The identification of proteins is carried out
a
spectrometry
MALDI is the TOF (time-of-flight mass
Protein identification
been
mass
that
has
range. Electrospray ionization (ESI) is a
technique used in mass spectrometry to produce
ions from macromolecules because it overcomes
the propensity of these molecules to fragment
when ionized. Another method of protein
screening that rapidly identifies altered proteins
Page 80 of 113
is
SELDI
(Surface
enhanced
laser
Cellular proteomics
desorption/ionization).
Cellular proteomics is a new branch of
Two MS methods commonly used for the
proteomics whose objective is to map the
identification of proteins are peptide mass
location
fingerprinting and de novo repeat detection.
interactions in whole cells during key events in
While peptide mass fingerprinting is carried out
the cells. It is carried out with techniques such
with simpler instruments, de novo repeat
as X-ray Tomography and optical fluorescence
detection sequencing is done on instruments that
microscopy.
of
proteins
and
protein-protein
are capable of more than one round of MS.
Protein sequence analysis
Protein quantification
Protein sequence analysis involves searching
Protein quantification is usually done with the
databases to match possible protein or peptide
help of protein microarray technology. Earlier
equivalents
protein quantification was carried out by two
domains, prediction of function from sequence,
dimensional gel-based methods, some of which
and also evolutionary relationships of proteins.
also included methods with differential staining
Hence, sequence analysis can also termed as
with the help of florescent dyes. Nowadays, gel
part of bioinformatics.
for
functional
assignment
of
electrophoresis research is carried out with the
help of software-based image analysis tools.
Structural proteomics
These tools enable analysis of biomarkers by
quantifying individual, as well as differentiating
Structural proteomics involves the analysis of
between one or more protein spots on a scanned
the 3 dimensional structures of proteins with the
image. Moreover, these tools also enable
help
matching of spots between gels of similar
spectroscopy. The structure of a protein is an
samples to indicate differences such as early or
important factor in function, especially in cases
advanced stage of an illness.
where a new protein structure is homologous to
of
x-ray
crystallography
or
NMR
a known one. In the drug discovery field,
Page 81 of 113
protein-protein and protein-ligand interactions
systems, from mass spectrometry assays or from
are particularly significant.
microarrays of proteins.
Interaction proteomics
Protein modification
Interaction proteomics is engaged in the
Post-translational modification is a result of the
investigation
and
modification of proteins from their pure
interactions on the atomic, molecular and
translated amino-acid sequence. In order to
cellular levels. Interactions between pairs of
study phosporylation (phosphoproteomics) and
proteins can be inferred from yeast two-hybrid
glycosylation
of
protein
functions
(glycoproteomics),
specialized
methods have been developed.
Page 82 of 113
Appendix III – Power3’s Discovery Process
Power3’s
research
on
in 2004. After years of extensive laboratory
discovery made by the Company’s Director of
research and application of biostatistics, Power3
Proteomics, Dr. Ira Goldknopf in 1975. His
has developed a structured approach to the
discovery
discovery and development of protein footprints
of
platform is
Protein
based
Ubiquitination,
the
ubiquitin conjugation of proteins was cited by
and
biomarkers
of
human
disease.
the Swedish Academy of Sciences in their
following figure illustrates the Company’s
announcement of the Nobel Prize in Chemistry
discovery platform.
Figure 13: Power3’s Discovery Process
Serum, Plasma,
Breast Ductal
Fluid (NAF), Bone
Marrow Aspirates,
…
2-D Gel
Electrophoresis
Digital
Imaging &
Analysis
Disease
Mechanis
m
Drug
Targets
Biomarker
Identification
Biomarker
Quantification
Disease
Diagnosis
Therapeuti
c Efficacy
Page 83 of 113
The
Power3’s discovery platform encompasses a 7step process resulting in identification and
2. Sample Preparation
development of biomarkers and clinically
The samples that are received by the
relevant protein patterns. The process steps are
Company need to be prepared for analysis
as follows:
since they are in a sub optimal form. They
are sorted according to their type, which is
essential for carrying out analysis. The
1. Receipt of patient Samples
The first step is to receive clinically relevant
specific methods of sample preparation are
patient samples, which form the base of the
proprietary information of the Company.
entire process. The Company receives
patient samples for two broad reasons:
3. 2-Dimensional Gel Electrophoresis (2DE)
a. To discover biomarkers of human
2De is used to break up the highly complex
disease to develop the Company’s
mixture of proteins into its constituents and
Intellectual Property. The Company
to separate out the clinically important
may also publish their research in
disease footprints. The approach, which is
science journals or present their
the gold standard of proteomics, was
findings at meetings or seminars.
pioneered by Dr. Ira Goldknopf. In the first
These patient samples are provided
dimension, proteins are resolved according
by
under
to their electric charge and in the second
approved research agreements and
dimension they are separated according to
protocols.
their size. The 2D gel technology enables
b.
physician
The
scientists
Company
samples
clinical
receives
times as many proteins in clinical samples
validation of their biomarkers. These
than is possible otherwise. This is possible
clinical studies may be conducted at
because of the Company’s ability of high
single site or multiple sites for Phase
sensitivity of detection and measurement,
I,
reproducibility and resolution.
or
III
trials
the visualization and measurement of 2-20
and
II
for
also
preceding
commercialization.
Page 84 of 113
4. Gel Staining
7. Disease Protein Footprints, Biomarkers,
The samples now go through a staining
and Drug Targets
process, since they cannot be identified for
The Company then uses its proprietary
analysis before staining. After staining is
techniques of database searching, protein
done, the differences in the expressed
analysis and medical information. The
proteins can be observed with a lot of
discovered disease footprints are then finally
clarity.
transformed
into
rationales
for
early
detection and tracking of diseases. They are
also beneficial in projecting appropriate
5. Digital Imaging and Data Analysis
The physical samples are converted into a
drug targets for early treatment.
digital form with the help of a highresolution digital scanner. These samples in
digital form can now be easily compared
and analyzed.
6. Mass
Spec
Analysis
and
Protein
Next, the protein constituents of the disease
footprints are separated and taken through
mass spectrometry (MS). The proteins are
then identified by proprietary techniques of
spectral analysis and sequence database
searching. Mass Spectrometry is the process
of breaking down a protein into pieces and
analyzing its fundamental composition. Post
MS, the results are organized into a
and
scientific team.
This process is one of the most critical steps in
the discovery process and is also the key
Identification
spectrum
Two-Dimensional Gel Electrophoresis
analyzed
by
Power3's
differentiator for the Company. As explained
earlier, proteins are separated in two dimensions
according to their electric charge and size. In the
first dimension, Iso-Electric Focusing (IEF) is
carried out. The proteins migrate across a pH
gradient in an electric field until each protein is
neutrally charged. At this stage the IEF strip is
loaded with sample and the scientist focuses on
proteins within a pH gradient.
In the second dimension, as proteins migrate
from the top of the gel in an electric field, the
smaller move faster and travel further down the
gel than the larger proteins. At this stage, the
IEF strip is loaded on top of the gel and proteins
are run through this gel. Once this is done, the
Page 85 of 113
proteins are stained, destained and their image is
4. Identification of individual proteins
scanned.
allows for development of antibody
The advantages of 2DE are as follows:
based high throughput tests
1. Differential protein expression correlates
directly to disease presence rather than
genetic predisposition.
2. Disease footprints can be directly related
to individual proteins
3. Typically, more proteins can be detected
5. Identification of individual proteins
allows additional applications in drug
development and efficacy testing
The variability in 2DE platform can be
minimized by running replicate samples and
ensuring implementation of quality controls.
as compared to other methods
Page 86 of 113
Appendix IV – The Nervous System
The human nervous system is a complex, highly
The functions of the nervous system encompass
organized, network that allows the body to
three categories: sensory, integrative, and motor.
continuously react to changes in the external
The sensory components detect changes in the
environment as well as changes occurring
internal (within the body) or external (outside
within the body. The nervous system can be
the
divided into the central and peripheral nervous
information to the CNS via sensory neurons.
systems. The central nervous system (CNS)
The integrative components channel and
consists of the brain and spinal cord. It
process sensory information, analyze and store
integrates incoming sensory information and
information,
initiates responses and is responsible for higher
appropriate responses. The motor components
mental functions such as thinking, emotions,
control various bodily activities in response to
and memory.
decisions made in the integrating centers. The
body)
environments,
and
make
and
relay
decisions
that
about
motor responses are sent via motor neurons;
The peripheral nervous system (PNS) consists
those contained within the CNS are referred to
of all of the peripheral nerves found in the body
as upper motor neurons while those that leave
and is responsible for conducting impulses to
the CNS and travel out to the muscles are
and from the CNS. The PNS can be further
referred to as lower motor neurons.
subdivided into the somatic nervous system,
providing sensory information from the body
and is responsible for the voluntary motor
NEURONS
second
The neuron is the structural and functional unit
subdivision is the autonomic nervous system,
of the nervous system. Neurons are able to
which provides sensory information from the
communicate information from one part of the
organs and is responsible for the involuntary
body to another by responding to a stimulus and
motor control of smooth muscles, cardiac
converting it into an electrical signal, or nerve
muscle, and the glands.
impulse called an action potential.
control
of
skeletal
muscle.
The
Page 87 of 113
A typical neuron is composed of a cell body,
action potential away from the cell body and
dendrites, and an axon (Figure 14). The cell
towards another cell. The end of the axon
body
by
contains membrane-enclosed sacs filled with
cytoplasm, which contains typical cellular
neurotransmitters (e.g. dopamine, acetylcholine,
components
specialized
glutamate). The site of communication between
structures. The dendrites are short, tapering,
two neurons, or between a neuron and a target
highly branched, tree-like extensions that radiate
cell such as a muscle cell or gland cell, is called
off of the cell body. They are the input or
a synapse. When an action potential in the first
receiving end of the neuron that is electrically
neuron reaches the end of the axon, the
excited by another neuron or an appropriate
neurotransmitters are released from the axon
stimulus. The axon is a long, thin, cylindrical
and act by either exciting or inhibiting the
projection from the cell body. This is the output
second neuron or target cell.
contains
a
along
nucleus
with
surrounded
some
end of the neuron that sends or propagates an
Figure 14: Structure of a typical neuron
Some nerves have a protective, insulating
during an action potential) and improving
coating called a myelin sheath, providing
conduction (i.e. action potentials travel faster).
electrical insulation (i.e. less energy is lost
The “white matter” of the nervous system is
Page 88 of 113
made up of aggregations of myelinated axons,
perform
whereas non-myelinated nervous tissues are
components of the brain are the brain stem, the
referred to as “grey matter”.
cerebellum, the diencephalon, and the cerebrum
THE SPINAL CORD
certain
functions.
The
main
(Figure 15).
The spinal cord serves as a pathway for
The brain stem acts as a relay center for
impulses going between the brain and the body.
impulses going back and forth between the
It contains an ascending pathway of sensory
spinal cord, cerebellum, and the higher brain. It
neurons and a descending pathway of motor
is responsible for visual and auditory reflexes
neurons. The spinal cord also acts as a major
and contains specialized centers for the control
reflex center. A reflex is a highly predictable
of
relationship between a stimulus and a response.
control, and cardiovascular regulation. The
Reflexes help to maintain homeostasis by
substantia nigra within the brain stem works
allowing the body to make extremely rapid
with the basal ganglia of the cerebrum to control
adjustments to changes in the environment.
subconscious muscle activities.
arousal
and
consciousness,
respiratory
THE BRAIN
The brain has many components, each with
different roles, yet many working together to
Page 89 of 113
Figure 15: Diagram of the main components of the Brain
The cerebellum participates in all voluntary and
automatic aspects of movements, but does not
The cerebrum is the largest part of the brain. It
actually initiate movements. It monitors and
controls our ability to read, write, speak,
makes corrective adjustments in motor activities
calculate, imagine, remember, etc. The outer
as they are performed and contributes to the
coating, called the cerebral cortex, contains:
timing and sequencing of motor activities.
sensory areas which receive and interpret
sensory impulses; motor areas which initiate
The diencephalon forms the central core of the
movement; and association areas which deal
brain
thalamus,
with complex integrative functions such as
hypothalamus, epithalamus, and subthalamus.
memory, emotion, reasoning, will, judgment,
The thalamus acts mainly as a relay station for
intelligence and personality. Another region of
sensory impulses going to the cerebral cortex.
the cerebrum, the basal ganglia, plays an
The hypothalamus is a major regulator of
essential role in the control of habitual and
homeostasis, playing a role in controlling the
automatic movements.
and
autonomic
consists
nervous
of
the
system
and
body
temperature, and in the regulation of emotion,
The limbic system is comprised of all
behavioral patterns, eating and drinking, and
components of the nervous system involved in
circadian rhythms.
the
control
of
emotional
behavior
Page 90 of 113
and
motivational desires. The main components of
(involved in encoding, consolidation, and
the limbic system are the amygdala (involved in
retrieval of memories), and the hypothalamus
the initiation, regulation, and modulation of
(involved in recognition and physical expression
emotional
of emotion).
responses),
the
hippocampus
Page 91 of 113
Appendix V – Company Management Team
Steven B. Rash – Chairman and Chief
Essam A. Sheta, Ph.D. – Director of
Executive Officer
Biochemistry
Mr. Rash is a senior executive with a dynamic,
Dr. Sheta has over 28 years of broad academic
20-year management career, building and
and research experience in protein biochemistry
leading profitable corporations nationwide. An
and cancer cell signaling from Alexandria
accomplished and versatile professional, Mr.
University
Rash is adept in all aspects of mergers and
University, The University of Texas at San
acquisitions, turnarounds, start-up scenarios and
Antonio and The University of Virginia. Dr.
business consolidations. Mr. Rash has been
Sheta was awarded the prestigious Fulbright
involved in 70 mergers and acquisitions from $1
Scholarship at The University of Texas at San
million to over $600 million. Other significant
Antonio where he provided the first bidomain
accomplishments include licensing agreements
structural proof of nitric oxide synthase, the
and strategic alliances generating over $650
most complex human enzyme known. This was
million in new revenues, FDA approvals,
followed by his unique methodology in the first
closing of 400 managed care contracts, and over
commercial production of the enzyme by over
200 presentations to Fortune 500 Board of
expression in E. coli. As an Associate Professor
Directors. Recently, Mr. Rash was President and
of
CEO of American BioMed, Vice President of
Alexandria University, he supervised several
Blue Rhino Corporation and Division President
graduate students for Master and Ph.D. degrees
of Maxum Health Corporation, and held
in biochemistry and served on the Fulbright
numerous Vice President positions at BOC
Committee Review Board in Cairo.
the
in
Egypt,
Department
Washington
of
State
Biochemistry
at
Group, PLC. Mr. Rash has a BS in Business
Administration from the University of Delaware
In 1998, Dr. Sheta was honored with an
and an MBA from Southern Illinois University.
Excellence in Science Award from Alexandria
University
for
his
distinguished
research
accomplishments.
Page 92 of 113
Dr. Sheta has been a key member of the
Sweden. He is the author of more than 90
scientific staff at Power3 Medical and has led
publications, inventor of more than 20 patent
several discoveries of many disease biomarkers.
applications, and also serves on the Scientific
He shared in drawing strategic plans for the
Advisory Board of the Company.
developmental
methods
and
research
in
proteomics, clinical trial biomarkers validation,
John P. Burton – Chief Financial Officer
and commercialization of biomarkers. Dr. Sheta
Mr. Burton is a senior executive with 25 years
has also shared in the development of multiple
of financial management experience with small
business relationships and writing over 20
companies in the Houston/Gulf Coast of Texas
patents and numerous peer review journals
area. Prior to joining Power3, he was Vice
publications.
President and CFO of Wild Well Control, Inc. in
Houston, TX. Subsequent to that, he was
Ira L. Goldknopf, Ph.D. – Director of
employed as CFO of a chemical company and a
Proteomics
water processing company, both also in
Dr. Goldknopf has over 30 years of proteomic
Houston. Immediately prior to joining Power3,
experience. He is a well recognized pioneer and
Mr. Burton was CFO of Affiniscape, Inc., a
leader in Proteomics, having produced the first
technology company in Austin, TX. In addition
isolation, identification, and sequencing of a
to financial management, his work experience is
new protein spot on a 2D gel. He also
primarily in cash management, cost control and
discovered ubiquitin conjugation of proteins,
human resource management. Mr. Burton has a
which was added in the 2004 Nobel Prize in
BBA and MBA from The University of Texas at
Chemistry. He was cofounder of ProteEx in
Austin.
2000 and prior to that was founding CEO of
UbiquiTex Technologies, and cofounder and VP
of R&D of FlowGenix Corporation. His
experience
also
includes
Manager
GMP,
QC/QA, and analytical operations, GAF/ISP
and Triplex Pharmaceuticals. He spent 10 years
on the faculty of Baylor College of Medicine
and a sabbatical year at the Medical Nobel
Institute,
Karolinska
Institute,
Stockholm,
Scientific Advisory Board
The Company’s Scientific Advisory Board
provides
assistance
in
the
research
and
development of the Company’s products. Unlike
members of the Company’s Board of Directors,
members of the Scientific Advisory Board other
than Dr. Goldknopf, are not involved in the
Page 93 of 113
management or operations of the Company. The
College of Medicine, Houston, Texas. After
members of the Scientific Advisory Board are
completing his Ph.D. in Chemistry, University
as follows:
of Birmingham, England, Dr. Atassi started his
career in 1960 as Postdoctoral Research Fellow
Dr. Stanley H. Appel, M. D.
in Chemistry at the University of Birmingham.
Dr. Stanley H. Appel, M. D. is Professor and
Dr. Atassi was the 2003 President of the
Chair of Neurology at the Methodist Hospital
Institute of Immunobiology and he is the current
Neurological Institute, Professor of Neurology
Editor-in-Chief for The Protein Journal, Protein
at Baylor College of Medicine, Director of the
Reviews and Critical Reviews in Immunology.
Vicki Appel MDA/ALS Clinic, and past-
Dr. Atassi has published 14 books and several
Director of the Alzheimer’s Disease Research
volumes in Immunochemistry of Proteins and
Center at Baylor College of Medicine in
Immunobiology of Proteins and Peptides. He
Houston, Texas. He also serves as the Director
has given more than 150 lectures in national and
of the Jerry Lewis Neuromuscular Research
international conferences and more than 180
Center. Dr. Appel is a leading authority on
invited seminars in U.S. and foreign universities
degenerative neurological diseases, such as
and research institutions. In addition Dr. Atassi
Parkinson’s,
ALS.
has more than several hundred scientific
the
publications and has been awarded five United
Specifically,
Alzheimer’s
Dr.
Appel
and
focuses
on
importance of neurotrophic factors and immune
States patents between 1996 and 2000.
mechanisms, including the role of inflammatory
cytokines in these diseases. He has served as an
Ira L. Goldknopf, Ph. D.
Advisory Board member of the Alzheimer’s
Dr. Ira L. Goldknopf began his scientific career
Disease and Related Disorders Association and
over 30 years ago, pioneering the field that is
as a Council member of the American Society
now known as Proteomics. More than a decade
of Neurochemistry.
before the start of the Human Genome Project,
Dr. Goldknopf made the earliest proteomic
Zouhair Atassi, Ph. D.
discovery at Baylor College of Medicine with
Dr. Zouhair Atassi is the current Robert A.
Harris Busch, the isolation, identification, and
Welch Chair of Chemistry and the Professor of
sequencing of a new protein from a two-
Biochemistry and Molecular Biology at Baylor
dimensional gel, Protein A24. During the course
Page 94 of 113
of these investigations, he discovered that
protein A24 was the first known conjugate of
Alan B. Hollingsworth, M. D.
two very important proteins, Histone H2A, a
Dr. Alan B. Hollingsworth received his M.D.
part of the subunit structure that packages DNA
with
in the cell nucleus, and Ubiquitin. Through the
Oklahoma College of Medicine in 1975 where
work of Dr. Goldknopf and many others (over
he served as First Vice-President of Alpha
9,000 publications in the ensuing years) –
Omega Alpha Honor Medical Society. In
including
Aaron
addition to his general surgery residency at the
Ciechanover, and Alex Varshavsky, who shared
University of Oklahoma, he completed a one-
the 2000 Lasker Award for their achievements –
year fellowship in surgical pathology at UCLA
the Ubiquitin Conjugation System is now
In the 1980s, he joined the first wave of
known to play a major role in the management
surgeons who chose to limit their practices to
of the inventories of proteins in the cell, cell
breast cancer. He was the Founding Medical
proliferation, programmed cell death, and most
Director of the University of Oklahoma Institute
if not all major regulatory functions in health
for Breast Health in 1993 where he held the G.
and disease at the cellular level.
Rainey Williams Chair of Surgical Breast
Drs.
Avram
Hershko,
Distinction
from
the
University
of
Oncology. Currently, he serves as Medical
Thomas E. Watts, M. D.
Director of Mercy Women’s Center (Mercy
Dr. Thomas E. Watts received his M.D. in 1975
Health Center, Oklahoma City) and Medical
from Baylor College of Medicine. Dr. Watts is
Director, Breast MRI of Oklahoma. His interest
board certified, from American Board of Family
in breast cancer risk assessment led to the
Practice since 1972 and practiced medicine at
publication of the first lay book on the subject,
Blue Earth Medical Center in Minnesota from
The
1975 to 1996 and is now practicing at the
Assessment, and he served as lead author for the
Kelsey-Seybold Clinic, The Woodlands, Texas.
multi-institutional consensus paper published in
As a physician with more than 30 years of
the American Journal of Surgery by the national
practice experience, Dr. Watts provides the
breast cancer risk assessment working group.
Truth
About
Breast
Cancer
Risk
Company with insights from the perspective of
the end user of the Company’s products.
Page 95 of 113
Appendix VI – Recent Events
Power3 Medical Products Files Utility Patent
"Power3's
Application on Discovery that Distinguishes
technologies apply directly to specific medical
Between Parkinson's and ALS - New Power3
problems that continue to challenge physicians
Study Reveals Serum Biomarkers for Early
and patients worldwide," said Mr. Rash. "The
ID of Parkinson's and ALS-
biomarkers we have discovered create and
September 20, 2006
Power3 Medical Products, Inc., announced
proprietary
protein
discovery
present significant and novel opportunities for
drug targeting and monitoring therapeutic
interventions."
today that it has filed for a utility patent that
encompasses multiple blood serum protein
Mr. Rash said that the patent application adds to
biomarkers useful in distinguishing patients
Power3's portfolio of intellectual properties,
with Parkinson's disease and ALS (Lou Gehrig's
which currently includes 18 patents pending.
disease). Power3 (www.Power3Medical.com) is
"This IP can be licensed to pharmaceutical
a leading proteomics company that develops
companies, diagnostic test manufacturers for the
proteomic testing and biomarker discovery for
development
early detection, monitoring and staging of
making Power3 even more attractive to strategic
diseases including breast cancer, Alzheimer's,
partners in the diagnostic and pharmaceutical
Parkinson's and ALS.
arena," he said. The findings in the application
"The biomarkers discovered by Power3 and
have been published, he said, in two peer-
described in the application for a utility patent
reviewed scientific journals -- Expert Review of
will form the basis of a blood test for early
Proteomics and Biochemical and Biophysical
detection and diagnosis, as well as be used to
Research Communications -- and presented
monitor the overall disease process in patients,"
earlier this year at the Experimental Biology
said Steven B. Rash, the company's chairman
International Conference.
and CEO.
Other
major
of
commercial
scientific
applications,
announcements
by
Power3 in recent weeks include, "Power3's
Page 96 of 113
Biomarkers
'Show
Great
for
breast ductal fluid, backed by strong clinical
Alzheimer's Diagnostics and Therapeutics"
documentation. This 'living' database is the
(Business Wire, August 30) and "Power3
foundation for our identification of more than
Identifies
for
500 protein biomarkers, and continues to
Wire,
expand through Power3's strategic partnerships
Early-Detection
Parkinson's
Disease"
Promise'
Biomarkers
(Business
September 6).
and world-wide collaborations."
Power3 Makes Extensive Medical Research
Power3
Available to Industry Partners
Biomarkers for Parkinson's Disease
September 13, 2006
September 6, 2006
Power3 Medical Products, Inc., a leading
Power3 Medical Products, Inc. said today it has
developer of proteomic testing and biomarker
discovered
discovery for early detection and monitoring of
demonstrated the ability to identify Parkinson's
neurodegenerative disease and breast cancer,
disease in its early stages through serum-based
said today it is making its medical research
testing, as well as differentiate between
database available to industry partners.
Parkinson's and Parkinson's-like diseases. A
The database - more than 2,000 patient samples
leading proteomics company, Power3 Medical
from the last five years used to identify more
is developing proteomic testing and biomarker
than 500 protein biomarkers - represents the
discovery for early detection, monitoring, and
platform for Power3's patent-pending proteomic
staging of a broad range of diseases, including
testing and biomarker discovery methods for
Alzheimer's,
early detection, monitoring and staging of a
Gehrig's disease).
broad range of diseases, including breast cancer,
Steven B. Rash, the CEO of Power3, said the
Alzheimer's, Parkinson's, ALS (Lou Gehrig's
new biomarkers were identified in patient
disease), and other neurodegenerative diseases.
samples as part of an analysis of data conducted
"The database offers a broad spectrum of patient
during
samples from our proteomic research," said
validation study.
Silvia Quintero of Power3's scientific team.
"During the study, Power3 and our international
"Specimens
partners
include
human
cells,
serum,
plasma, bone marrow, tissue, biopsies, and
Identifies
11
the
will
Early-Detection
biomarkers
Parkinson's,
company's
further
and
which
ALS
on-going
explore,
have
(Lou
clinical
evaluate,
strengthen, and confirm the validity of these
Page 97 of 113
markers," Mr. Rash said. The study, he said,
will encompass some 500 samples in all, and is
"Our scientific team applied extensive analytical
being conducted in cooperation with a major
and statistical analysis which resulted in the
European research institution and a leading
selection of these five optimal biomarkers," said
expert in the study of Neurodegenerative
Mr. Rash. "We believe these protein biomarkers
diseases.
have the potential to be used in the development
of high throughput serum-based diagnostic tests
Power3's Biomarkers 'Show Great Promise'
for Alzheimer's disease, and that understanding
for Alzheimer's Diagnostics and Therapeutics
the biological significance of these biomarkers
August 30, 2006
could be beneficial in the establishment of new
Power3 Medical Products, Inc. announced today
therapeutic drug targets as well."
that
preliminary
results
of
tests
using
biomarkers it discovered have shown greater
'Superstar' Biomarkers Used in Tests
than 90% sensitivity in identifying patients with
Preliminary tests by Power3 indicated that these
Alzheimer's disease. A leading proteomics
five biomarkers are capable of diagnosing
company, Power3 Medical (is developing
Alzheimer's disease, for which currently there is
proteomic testing and biomarker discovery
no blood serum diagnostic test. The tests
methods for early detection, monitoring, and
employ Power3's patent-pending methods to
staging of a broad range of diseases, including
monitor the concentration of a panel of five
Alzheimer's,
specific serum proteins, with a diagnostic power
Parkinson's,
and
ALS
(Lou
Gehrig's disease).
that appears to be independent of patient
treatment protocols. These biomarkers have
Power3 Medical CEO Steven B. Rash said his
defined concentration ranges that indicate the
company's biomarker breakthrough is based on
presence of Alzheimer's disease.
the isolation of five distinctive biomarkers from
its portfolio of 47 previously identified protein
"Preliminary sensitivity and specificity using
biomarkers for neurodegenerative diseases.
these biomarkers in the evaluation of more than
"These five biomarkers," he said, "show great
200 patients continue to exceed expectations,"
promise and represent a major step forward as a
Mr. Rash said, noting that further clinical
tool for the diagnosis of Alzheimer's disease.
evaluation will be completed by Power3 in the
Page 98 of 113
coming months with the support of one of its
Institute of Biological Sciences (AIBS) to be on
international strategic partners.
its review panel for grant proposals related to
"The process developed by Power3 will
Parkinson's disease.
continue to be refined during the validation
The AIBS has been tasked by the U.S. Army
stage, with the proficiency of these biomarkers
Medical Research and Materiel Command
supported by the biostatistical analysis program
(USAMRMC)
designed
Treatment Research Program (NETRP) to
in-house,
specifically
for
the
Alzheimer's diagnostic test."
Neurotoxin
Exposure
and
convene a peer review panel to review novel
and innovative research proposals related to
With tests on-going, Mr. Rash said Power3 "will
continue to build relationships with U.S. and
foreign companies who we anticipate will
become
our
partners
in
the
worldwide
commercialization of these and other Power3developed diagnostic tests."
Parkinson's
disease.
The
USAMRMC
is
soliciting research proposals for studies on the
pathophysiology,
surrogate
markers,
mechanisms and treatment of Parkinson's
disease
and
neurodegenerative
Parkinson's-related
conditions
to
include
Dr. Essam Sheta, Director of Biochemistry of
initiating causes, interaction of environmental
Power3
to
and genetic risk factors, epigenetic modifying
American Institute of Biological Sciences'
factors, with emphasis on exposure factors
Parkinson's Review Panel
encountered in military operations which may
Medical
Products,
Named
June 27, 2006
Dr. Essam Sheta, Director of Biochemistry of
be neurotoxic or lead to neurodegenerative
conditions.
Power3 Medical Products, Inc., a leading
Dr. Sheta took part in the AIBS review panel's
proteomics company engaged in the discovery
meetings in Reston, Virginia, earlier this month.
of protein footprints, pathways, and mechanisms
of diseases, has been named to the American
Page 99 of 113
Appendix VII – Forecast Charts
Revenues - Base Case
200.0
1000%
800%
150.0
600%
100.0
400%
200%
50.0
0%
0.0
-200%
2006E 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E
Total Revenue
Grow th in Revenues
Segmentwise Revenue Breakup - Base Case
300.0
250.0
200.0
150.0
100.0
50.0
0.0
2006E 2007E
2008E 2009E 2010E 2011E 2012E
2013E 2014E 2015E
Breast Cancer Tests
Alzheimer's Tests
Parkinson's Tests
ALS Tests
Non-US Revenues
Page 100 of 113
Growth - Base Case
1000%
800%
600%
400%
200%
0%
-200%
2006E
Total Revenues
2007E
2008E
2009E
Cost of goods sold
2010E
2011E
2012E
2013E
2014E
2015E
Operating Costs
Revenues - Optimistic Case
300.0
1200%
250.0
1000%
800%
200.0
600%
150.0
400%
100.0
200%
50.0
0%
0.0
-200%
2006E 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E
Total Revenue
Grow th in Revenues
Page 101 of 113
Segmentwise Revenue Breakup - Optimistic Case
300.0
250.0
200.0
150.0
100.0
50.0
0.0
2006E
2007E
2008E
2009E
2010E
2011E
2012E
2013E
2014E
Breast Cancer Tests
Alzheimer's Tests
Parkinson's Tests
ALS Tests
Non-US Revenues
2015E
Growth - Optimistic Case
1200%
1000%
800%
600%
400%
200%
0%
-200%
2006E 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E
Total Revenues
Cost of goods sold
Operating Costs
Page 102 of 113
Revenues - Pessimistic Case
140.0
700%
120.0
600%
100.0
500%
400%
80.0
300%
60.0
200%
40.0
100%
20.0
0%
-100%
0.0
2006E 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E
Total Revenue
Grow th in Revenues
Segmentwise Revenue Breakup - Pessimistic Case
100.0
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
2006E
2007E
2008E
2009E
2010E
2011E
2012E
2013E
2014E
Breast Cancer Tests
Alzheimer's Tests
Parkinson's Tests
ALS Tests
Non-US Revenues
2015E
Page 103 of 113
Free Cash Flow Equity - All Scenarios
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
-10.0
2006E
2007E
Optimistic Case
2008E
2009E
Base Case
2010E
2011E
2012E
2013E
2014E
2015E
Pessimistic Case
Free Cash Flows Equity - Base Case
50.00
in $ million
40.00
30.00
20.00
10.00
(10.00)
2006E 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E
Page 104 of 113
Net Cash Flow from Operations - Base Case
50.00
in $ million
40.00
30.00
20.00
10.00
(10.00)
2006E
2007E
2008E 2009E
2010E
2011E
2012E 2013E
2014E
2015E
2014
2015
Present Value of FCFE - Base Case
20.0
in $ million
15.0
10.0
5.0
0.0
-5.0
2006
2007
2008
2009
2010
2011
2012
2013
Page 105 of 113
in $ million
Free Cash Flows Equity - Optimistic Case
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
(10.00)
2006E
2007E 2008E
2009E 2010E
2011E 2012E
2013E 2014E
2015E
Net Cash Flow from Operations - Optimistic Case
100.00
in $ million
80.00
60.00
40.00
20.00
(20.00)
2006E
2007E
2008E 2009E
2010E
2011E
2012E 2013E
2014E
2015E
Page 106 of 113
Present Value of FCFE - Optimistic Case
30.0
25.0
in $ million
20.0
15.0
10.0
5.0
0.0
-5.0
-10.0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Free Cash Flows Equity - Pessimistic Case
30.00
25.00
in $ million
20.00
15.00
10.00
5.00
(5.00)
(10.00)
2006E
2007E 2008E
2009E 2010E
2011E 2012E
2013E 2014E
2015E
Page 107 of 113
Net Cash Flow from Operations - Pessimistic Case
in $ million
35.00
30.00
25.00
20.00
15.00
10.00
5.00
(5.00)
(10.00)
2006E
2007E 2008E 2009E
2010E 2011E
2012E 2013E 2014E
2015E
2012
2015
in $ million
Present Value of FCFE - Pessimistic Case
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
2006
2007
2008
2009
2010
2011
2013
2014
Page 108 of 113
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Recommendations: BUY 98%, SELL 2%
Page 109 of 113
Notes:
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Notes:
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Notes:
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Notes:
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POWER3 MEDICAL PRODUCTS, INC

Transcription

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