Protea Offers Compelling Value Proposition to Investors
The best biotech opportunities disrupt large and established markets with new technologies capable of improving efficacy and/or lowering cost. For example, Intuitive Surgical Inc.’s (ISRG) built a multi-billion-dollar business by making surgical robots – known as Da Vinci Systems – capable of executing a greater number of procedures with a high level of precision, while making surgeries much less invasive in nature for patients.
In this article, we’ll take a look at Protea Biosciences Group Inc. (PRGB) and its potential to disrupt the ~$12 billion dollar global bioanalytics market with its innovative technology, as well as its unique strategy to rapidly bring the technology to market.
A Foundational Multi-Billion-Dollar Market
Mass spectrometry is a scientific technique used to identify the composition of materials by measuring the mass and charge of specific molecules in an electromagnetic field. In lay terms, it’s a bit like determining how much money is in your pocket by weighing each coin in your hand without having to take them out and visually count them, where dimes are the lightest coins, pennies are a little heavier, and quarters are the heaviest (in most pockets).
The technology has been commercially available since the 1950s, but computing power dramatically expanded its potential in the 60s and 70s. While technology has made machines smaller and processing times faster, the same underlying “grind and find” approach is still used to weigh a sample’s components and identify its composition. For instance, traditional Mass Spectrometry for the tissue-based bioanalytics space requires a lot of leg work and time to properly setup.
As an example of the limitations of current methods, the MALDI mass spectrometry process involves carefully preparing a sample, mounting thin tissue slices on conductive microscope slides, and applying a MALDI chemical matrix to the tissue. Overnight incubation is required. Next, the slide is inserted into a MALDI mass spectrometer that records the spatial distribution of molecular components, like peptides, proteins, or other molecules. Imaging software is then used to make sense of the data by creating a visual image.
With broad applications across all pharmaceutical and life science research, the mass spec market was valued at $12.2 billion in 2013 and is estimated to reach $19.6 billion by 2020, growing at a 7.4% compound annual growth rate, according to Transparency Market Research. The market includes a number of public companies, ranging from mid-caps like Affymetrix Inc. (AFFX) to large-caps like Thermo Fisher Scientific Inc. (TMO).
Faster Analysis without Touching the Sample
Protea’s Laser Ablation Electrospray Ionization (“LAESI”) technology platform represents nothing short of a breakthrough in the way molecules are introduced into the mass spectrometer for detection. Backed by 10 patents extending out through 2026, and already with over 40 peer reviewed publications, the technology requires no sample preparation, generates data in seconds to minutes, is fully automated, maps the exact location of each molecule in 2D and 3D images, and creates permanent molecular databases for future data mining operations.
In addition, the company has pioneered the concept of offering mass spectrometry imaging services as an alternative to purchasing expensive instrumentation and paying highly-trained specialists to interpret the data. Companies across numerous industries can simply provide their samples for analysis and receive relevant and extensive data very rapidly, and also receive help with data mining and bioinformatics services – a value proposition that could revolutionize preclinical drug research, biomarker discovery, and diagnostics. The Company’s mass spec imaging services are multidisciplinary, offering access to both state of the art MALDI as well as the newer LAESI workflows that are proprietary to Protea.
For example, a biotech company developing an antibiotic could use the service to quickly assess the effectiveness of a flagship product. Protea’s LAESI technology can generate results in minutes, while the ambient conditions enable time-course studies of living cells and bacterial colonies, to assess the effectiveness of new drugs.
The service-based aspects of the business generate high-margin recurring revenue over time, while the product-based business generates sizable one-time revenue and potential partnership opportunities with traditional mass spectrometry companies. These dynamics are great news for investors, especially because the technology is already being sold to large clients across a number of different industries in the U.S. and abroad.
Finally, the company is leveraging its molecular information services to develop a new molecular diagnostics franchise that employs LAESI mass spec imaging technology to provide comprehensive molecular profiles of cancer tissue and cells. The company has entered into a research collaboration with Memorial Sloan-Kettering Cancer Center to develop new tests for early stage lung cancer; other agreements are pending. The studies will use the Company’s proprietary mass spectrometry technology to generate molecular information “signatures” that will improve the precision of cancer diagnosis and prognosis.
Ancillary Benefits for Investors
Protea offers a number of other ancillary benefits to investors that extend beyond its breakthrough technology that are worth considering.
First, the company has a number of self-funding collaborations with industry and academic partners to support its future business development. As an example, DARPA provided a $15 million contract to a consortium that includes Protea, GE Global Research (GE) and Stanford Research Institute (SRI). The goal is to reduce the time needed to identify the mechanisms of action associated with new chemical and biological threat agents from the years currently required to only one month. The company is also working with Insphero to target the rapidly growing 3D micro-tissue market.
Second, the company’s broad base of top tier corporate customers provides a high level of diversification that most biotech companies lack. The company has already attracted FORTUNE 500 clients, in the pharmaceutical, consumer products and Agbio industries, who are accessing Protea’s unique scientific expertise and technology to generate better molecular information to support their internal product development objectives.
“Molecular Information” refers to the generation and bioinformatic processing of large datasets that identify and characterize all the biologically-active molecules, which are the output of all living cells and life forms. This information is foundational to all life science R&D. The company’s technology can detect and visualize the molecular processes and changes underway in cells with unprecedented speed, comprehensiveness, and precision. This “molecular knowledge” is used by the Company’s clients to improve the productivity of their research and product development. Very simply, better molecular knowledge means better R&D outcomes – this is Protea’s business.