Lung imager Cyclopharm is breathing easy after winning two major US clients. Pic: Getty Images
Health & Biotech
After a 16-year wait for the US Food and Drug Administration (FDA) to approve its lung imaging tool, Cyclopharm (ASX:CYC) is making up for lost time by snaring the custom of the country’s biggest public and private hospital groups.
Cyclopharm’s Technegas is a nuclear medicine-based device to detect pulmonary embolisms with a greater accuracy than current methods.
In October last year Cyclopharm entered an interim agreement to supply Technegas to the Veterans Health Administration (VA), the biggest US health care system covering 120 nuclear medicine facilities.
In late November Cyclopharm received its first purchase orders from two VA hospitals, on five-year terms.
The company expects revenue to flow immediately.
Last week, Cyclopharm forged into the private market in a deal with the country’s biggest non-government health network, Health Corporation of America (HCA).
“We have ticked two very large boxes,” says Cyclopharm CEO James McBrayer.
Just as crucially, the Centers for Medicare and Medicaid Services (CMS) in June last year granted favourable reimbursement to Technegas.
In September 2023 the FDA approved Technegas, belatedly following the lead of 65 other countries including neighbouring frenemy nation Canada.
Australia approved Technegas in Australia in 1986, when Bob Hawke still ruled the land and John Farnham’s You’re the Voice topped the charts.
Technegas involves the patient breathing a superheated radioactive, gas-like substance, which sounds as unhealthy as smoking a pack of fags but leads to better lung imaging.
The tool is currently used to detected pulmonary embolisms – blood clots – but can also be deployed for other conditions including chronic obstructive pulmonary disease (COPD) and asthma.
Made in a bedside generator, Technegas consists of dry-carbon nanoparticles irradiated with the isotope technetium-99 and heated to 2700 degrees.
The patient only needs to take three to four breaths – and won’t feel a thing.
The gas works as an imaging agent, allowing three-dimensional viewing with a gamma or computed tomography (CT) camera.
Despite the connotations of nuclear medicine, the process involves far less radiation than a CT procedure, which also cannot be used for many patients including pregnant ones and those with compromised renal function.
McBrayer claims Technegas’s clinical benefits are beyond dispute, with pretty much 100% accuracy in detecting pulmonary embolisms.
The HCA spans 2200 facilities across 189 locations and 160 nuclear med departments, the key ‘audience’ for Technegas.
HCA also owns a group purchasing organisation called HealthTrust, a procurement intermediary for 1800 other hospitals.
In the case of the HCA and the VA, the company still must plead its case to the networks’ individual hospitals in the network – but the top-level paperwork is done.
“We have the contracting process out of the way [at group level], which is often the longest part of the interaction,” McBrayer says.
When the company obtained FDA approval, it already had a strong interest from the individual facilities but needed head office imprimatur first.
“Initially we will focus on the larger sites and then the small to medium ones tend to follow suit,” McBrayer says.
As anyone involved in the US health system would attest, money trumps patient care (no pun intended – or maybe so).
The reimbursement means clinicians can claim US$328 per test, with the company charging them US$225 a pop, a fat enough margin to keep everyone happy.
“CMS reimbursement took the economic argument off the table,” McBrayer says.
“We still have to go through [hospital] committees and reviews, but when we made the accountants happy that changed things for us.”
Next month, Cyclopharm’s full-year numbers (for calendar 2024) will reveal the revenue to date from the initial US foray.
As of the end of December, US hospitals had installed 17 units with Massachusetts General Hospital and Stanford University Hospital and School of
Medicine among the pre-reimbursement adopters.
Put in context, Technegas is installed globally at 1500 sites, with more than 80% of lung ventilation studies carried out with the agent (in Canada the figure is more like 100%).
In the June half Cyclopharm chalked up $13.3 million of revenue, $7.5 million from mainly non-US of Technegas sales.
The company also lost $7.5 million and has guided to a ‘run rate of profitability’ by the end of 2025.
The remainder of Cyclopharm’s derives from selling products on behalf of third parties, in the 17 countries in which it has a direct sales force.
This business is profitable, albeit with lumpy earnings.
Given the US accounts for half of the world’s nuclear medicine market, the star-spangled nation clearly will drive Cyclopharm’s revenue – and profit – momentum.
The company estimates the US pulmonary embolism detection market at US$180 million, but a planned push into other indications such as COPD and hypertension could expand this reach to US$900 million.
A key risk is the Trump administration plonking a tariff on Cyclopharm’s generators, which are proudly Australian-made in the Sydney suburb of Kingsgrove.
“We are a great and friendly partner of the US and if anyone is going to get ‘favoured nation’ status it is Australia,” McBrayer says.
He adds that even when dealing with the veterans’ affairs bureaucracy, the company had to jump through hoops because of the entrenched ‘made in America’ philosophy (it had to prove it was a sole provider of a critical diagnostic agent).
“We don’t take anything off the table,” McBrayer says.
“We have always said in five years we will have a secondary manufacturing site somewhere in the world – and that is just good risk management.”
As with home-grown hero Telix Pharmaceuticals (ASX:TLX), Cyclopharm is riding the resurgence in nuclear medicine imaging, on the back of better imaging and cameras and, now, artificial intelligence.
Intriguingly, the company’s $260 million market cap is only just above that of 4D Medical (ASX:4DX), which has only just started commercialising its lung-scanning algorithm in the US.
Having been founded in 1991 and ASX-listed since January 2007 Cyclopharm exemplifies the need for life-science investors to have a degree of patience they usually don’t possess.
“We are a 30-year, overnight success story,” McBrayer says.
Health & Biotech
Health & Biotech
Health & Biotech
