In a previous article we discussed the SEC warning against investing in companies that conduct a reverse merger on the over-the-counter exchange. However, there are always exceptions to any rule. In looking at Harris and Harris Group’s (NASDAQ:TINY) latest 10-Q we see that TINY has a current investment in an OTC stock called Champions Oncology (OTCMKTS:CSBR).
This New Jersey based company is focused on the development and sale of advanced technology solutions to personalize the development and use of oncology drugs. The origin of the company is stated in their latest 10-K as follows:
Until 2005, the company was a consultant to Marriott International, Inc. and operated one Champions sports bar restaurant. In January 2007, we changed our business direction to focus on biotechnology and subsequently changed our name to Champions Biotechnology, Inc. In April 2011, we changed our name to Champions Oncology, Inc.
The company has 38 full time employees and subsidiaries in Israel, the UK, and Singapore. The company generated 8.3 million in revenues in 2013, a 16% increase from 2012. The subsidiaries generated no revenue.
The Company’s flagship technology platform is called TumorGraft. It works as follows:
- A doctor sends in a biopsy of a patient’s tumor to Champion’s Oncology
- The company implants a fragment of the tumor in a small colony of immune-deficient mice to grow the tumor tissue
- The mouse colony is expanded and then allocated into different groups
- Each mouse in a group is dosed with a drug or drugs and the response of the tumor is tracked over time
The company makes the following statement in their latest 10-K regarding the effectiveness of this method:
Our data, which is currently limited in nature, indicates that there may be a correlation between the response to drugs of a tumor in a mouse with the response to drugs of a tumor in a patient
However there was some positive news given in an oral presentation by the company on June 5th 2013 stating:
In the study, exome sequencing analysis was used to inform the selection of drugs that were tested in mouse avatar models for 13 patients. The results of the mouse avatar tests were used to guide treatment for these patients. 11 of the 13 patients received clinical benefit from the avatar guided therapy.
Just because there may be a correlation doesn’t mean the company can keep others from duplicating this method. There may not be any barriers to entry for other businesses to duplicate this method based on the following statement by the company:
Our TumorGraft Technology Platform is proprietary and requires significant know-how to both initiate and operate, but is not patented.
Since around the time of the June 5th, 2013 announcement the stock has risen over 132%.
While these gains are significant, the overall impact on TINY’s NAV is minimal. In their Q1 10-Q TINY priced their position at .47 cents per share. At today’s price of 1.14 dollars per share, TINY’s NAV would have increased about 2.2 million or 1.73% of overall NAV.
In an earlier article we discussed Foundation Medicine’s upcoming IPO and there are some similarities between the two companies in that they both are providing solutions that attempt to personalize oncology drugs. However when comparing the two companies, it’s difficult to see how Champion’s Oncology will be able to compete without first demonstrating conclusively the effectiveness of their technology and then protecting it.