Ed Bowsher looks at a small biotech with a promising hair loss treatment.
Sadly, my hairline is receding, so my interest was easily piqued when I came across Intercytex
(LSE: ICX)
, a small UK biotech which is developing a promising treatment for hair loss.
The treatment is called ICX-TRC and is similar in some ways to conventional hair transplants. Current procedures involve taking hair from the back of a man's head and transplanting it to the man's bald patches. This process leaves a gap on the back of the head, so the gap is then drawn together.
These procedures normally produce good results. The downsides are cost, and a lack of repeatability. In other words, hair loss continues where the man still has his original hair on the top of the head, and it's normally only possible to take hair from the back of a head on two occasions. That's because the gaps at the back have become too large to be drawn together.
The beauty of Intercytex's treatment is that you only need to take a small number of skin cells from the back of the patient's head, and then many more cells can be cultured and grown in a lab. These new cells can then promote new hair growth in bald patches. Since so few cells are taken from the back of the head, you could have many operations as your hairline recedes.
TRC got plenty of publicity last month after the DTI awarded Intercytex a £1.85m grant to develop robots that can carry out the culturing of new cells.
Right now, TRC is in mid stage Phase II trials, and if all goes well, launch could follow in 2010. The company reckons the US market opportunity for TRC is around $800m (£420m) and the chance of success is somewhere around 20%.
At 88p, Intercytex is valued at £49m, and I don't think you can justify that valuation on hair loss alone. However, the company is also developing three skin treatments. All of them are based on cells taken from a baby's foreskin. Intercytex uses about one foreskin a year and replicates cells from that original piece of skin.
The most advanced skin product is ICX-PRO which is for the treatment of chronic "hard to heal" wounds. PRO is a matrix containing cells which promote wound healing. It's easier to use than current treatments as well as being cheaper and faster to manufacture.
PRO is in Phase III trials and if all goes well, it could be launched in late 2008. The chance of success is 60% and Intercytex reckons the US market opportunity here is around $350m.
I don't have space to look at the company's other two products. They both look interesting, but right now they're not as valuable as PRO or TRC.
Another plus for Intercytex is that there should be plenty of news flow over the next year -- results from clinical trials for all four products should be published.
The company also has a £15m cash pile which should last until early 2008 assuming no revenue is generated from other sources. So, yes, Intercytex may have to do a share issue in the next year or so, and there's a risk that it could be very dilutive if the share price is low at that time.
On the other hand, we could see some licensing deals, and one of the products I've not discussed could generate some income from an early launch next year.
Of course, the biggest risk is that none of the products ever gain regulatory approval. And then there's the valuation problem. It's very hard to value a young biotech with virtually no revenue apart from a DTI grant.
Still, when you look at the size of the potential markets for TRC and PRO, I think you can make a good case that 88p is too cheap.
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