Epistem: Matthew Walls Talks Present and Future Deals and Collaborations




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Video title: Epistem: Matthew Walls Talks Present and Future Deals and Collaborations
Released on: June 30, 2010. © PharmaVentures Ltd
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In this episode of PharmaTelevision News Review, Fintan Walton talks with Matthew Walls, CEO at Epistem. Filmed at BioTrinity 2010 in Newbury, UK, they discuss:

• Epistem's success on AIM

• Business model: Three independent business divisions in one group

• Dealingd and relationships with Novartis

• Scope for collaborations with other pharma companies

• Future vision and strategy

• The priority for acquisitions in the business model
Epistem 's success on AIM
Fintan Walton:
Hello and welcome to PharmaTelevision News Review here at BioTrinity at Newbury, Berkshire in the UK. On this show I have Matthew Walls, who is the CEO of a company called Epistem based here in the UK, welcome to the show.
Matthew Walls:
Hello Fintan Walton.
Fintan Walton:
Matthew Walls, your company is a quite interesting has got an interesting business model it's also a publicly quoted company so it's one of these companies which is obviously exposed to the markets, how does a company like yours do well on AIM?
Matthew Walls:
It's quite an interesting question now Fintan it goes back for the last three-years now we've been listed on the public markets on AIM. We came at the point April 2007 was when we came for the admission process and at that time there I think we were probably the last company of any size in the sector that actually got away before the economic climate turned. And really through that period of last three-years we've done I think reasonably well as a company. We came to market at one pound 24p per share and we currently trade around about between 4 and 4.50 so we are well on our way to quadrupling that value from April 2007. And the reason for that is primarily it gets back to good old basics, traditional financial growth, good revenue top-line growth, profitability now coming through so in the second half of this year the markets are forecasting for us a profit and hopefully we want to be run disciplined.
Business model: Three independent business divisions in one group
Fintan Walton:
I did say you are interesting because that's you know bucks all the trends for most biotech companies, so what it is about Epistem and its business model that allows it to attain that value?
Matthew Walls:
I think well it's a combination of things, we operate what I call the combined business model or hybrid business model which is you know well sometimes seen often seen but seldom operated effectively. So what we have is three divisions within the company, we have novel therapeutics to discovery, we have a biomarker group and contract research so three independent autonomous divisions. Each of those divisions this year we expect to be profitable in their own rights, so effectively we have three independent businesses that are profitable in their own right in one group Epistem so I suppose behind the scenes there are three pieces to us as we operate.
Fintan Walton:
So when you talk about profitability of course the different types of revenues are different based so some are actually contract research and it's a normal sort of cost plus type of arrangement I would assume.
Matthew Walls:
Yes.
Fintan Walton:
And then the others are based on how successful you are in getting upfront payments and milestone payments on research programs, so let's just go to look at Epistem now and that's to drill down in those each of those three areas, so just give us some brief description on each of those three for me please?
Matthew Walls:
Okay, well I will go in what I call descending order and by that the way that the market values the company. Contract research it's a fee for service based business, when we came to market in April 2007 we were working with about 60 companies we now work with well over 100 so we've effectively doubled the size of the business opportunity for that division. It does on average something in the order of around about 100, 130 contracts a year at anything between 40 and 50,000 pounds a contract.
Fintan Walton:
So what are they actually doing? What are each of those contracts? What's your technology?
Matthew Walls:
So in this instance it is preclinical efficacy testing so drug companies will send us their drugs, we will test them in our models and tell them how efficacious they are primarily in epithelial disease so that's oncology, oncology supportive care mucositis, inflammatory bowel disease and dermatology, so all epithelial based disease efficacy is what we are looking at.
Fintan Walton:
And that's because you have lot in your company that allows you to do that?
Matthew Walls:
We have a very unique number of models that the company has developed. I may just quickly go back but in the 1960's a gentleman by the name of Professor Chris Potten founded the company or started working in stem cells in the 60's at the Patterson Institute for Cancer Research, by the year 2000 his small group from the Paterson has started working with Amgen, Genetics Institute and other US big pharma groups mainly on a contract research basis so drug companies would send them their drugs he would work through them work through how efficacious they were and then provide the results back so that was a contract research based model. It didn't fit with the Patterson Institute's charitable funding status so they then spun out Epistem from the Patterson Institute , we then built it on one of our therapies group in 2003 and then in 2007 we launched our Biomarker Division, so that's how the company is growing through that process. Just coming back to biomarker, biomarker is slightly separate or different from the fee for service, we own all of the intellectual property for biomarkers that we identify so it tends to start as a fee for service based opportunity and this is based on a plucked hair, so we pluck a single hair and the bulb of cells at the base of the hair follicle we extract RNA from that bulb of cells, we then administer drug take another hair we look how the epithelial tissue of the cells within that tissue have changed on the basis of drug induced gene expression change. So it's highly technical area but it gives us a non-invasive mechanism for measuring the defect. And then the third area probably the one that's most valuable to us is our Novel Therapies Group. Novel Therapies is (indiscernable) collaboration with Novartis [PharmaDeals ID = 32637] so we are at the very much drug discovery in early stage development end of the drug cycle but it's an exciting program for us we Novartis have paid a lot of money to work with this initially upfront $4 million they fully fund our research. We have milestones for hits and leads that are licensed by Novartis and obviously then royalties on anything that then goes to market in the future.
Fintan Walton:
So there is a basis there is a underlying basis to the company and you've mentioned epithelial cells for an example and I think also endothelial cells, so how important is that knowledge to your organization?
Matthew Walls:
I think Fintan you hit the nail on the head that's probably our USP. The reason why Novartis and other drug company is globally want to work with Epistem is because of our epithelial stem cell understanding. So we are working at highly defined understanding of cell biology. We are understanding how stem cells operate specifically in the epithelial tissue, how they are regulated, which genes regulate those cells, how they proliferate, how they are regulated in terms of apoptosis and cancer and so on. So it's an understanding what we call the mechanism of action a very detailed cell biology level that's our USP and that's really where we cut our teeth.
Fintan Walton:
You are still a relatively small company yet you've got this three different effectively business divisions, how do you do that?
Matthew Walls:
Well each one of them is autonomously managed so they are independent offerings or silos in their own right, so each one of them is headed by a MD and each of those MD's has a particular domain expertise within contract research.
Fintan Walton:
MD being a Managing Director running and managing through them?
Matthew Walls:
Managing Director that's right, exactly and within biomarker, contract research and novel therapies. So I mean there is an expert know-how to head them up, you're right I mean it's been one of I suppose over the last few years we've become more and more effective at managing them all as independent business units each one of them has its own budget, each one of that has its own IP or know-how or proprietary models from which it operates and that's the way we've grown, we also see that I suppose in growing further not only through organic growth from those divisions but it wouldn't be unreasonable to consider a fourth silo may be even a fifth alongside them. So I think we become reasonably effective at growing in that way.
Deal and relationship with Novartis
Fintan Walton:
Right, Going back to the Novartis deal that you've done because obviously that's in one area which is got the potential biggest growth particularly in value for the organization, what is that relationship I mean how does that actually work between yourselves and Novartis?
Matthew Walls:
We've got a very strong relationship with the Novartis team, we work with them in a multitude of areas that the program is quite a broad program. So this is a program that (indiscernable) our regenerative medicine strategy within Novartis and we Epistem bring to that a knowledge of understanding of how cells regenerate, how tissue grows throughout our lives, so it's a process that from an understanding of how a stem celloperates giving rise to new tissue regeneration how that understanding is applied to not only disease therapeutics and novel therapies in their own right but also fundamentally if you move that forward to the whole process by which we age. So there is a lot of what I would call detailed molecular pathway gene understanding on one side and the impact that has on the cell biology on the other.
Scope for collaborations with other pharma companies
Fintan Walton:
You've said you are very specific you are focused in this particular area of epithelial cells, obviously Novartis is got that relationship with you, is there a scope and room for other pharmaceutical companies to come in and set up collaborations around that all, is Novartis sitting on most of the opportunity there?
Matthew Walls:
You know it's a balance, I mean yes at one side we have a very successful relationship with Novartis and we want to be successful with them. We are not a group who anchors goes after trying to disrupt something that we think is working well, so at the moment we are very happy with the relationship, happy with Novartis that are good collaborative partner. As time goes on it may well be not necessarily that things you know degenerate or anything on those lines but it may be there are opportunities further for the things to come from the work that we do, may be less so in terms of the Novartis collaboration but other collaborations that we bring in to Epistem , so I think but it piano piano little by little we are not one's for dashing into things you know quickly, we like to think carefully, conservatively in some ways about sensible collaborations if you put them in place but not in a way that disrupts the good successful collaboration we have with Novartis. And I think from their side as well we see that if we grow together and develop together and things are working well then it's a symbiotic relationship it should work well for us both and that's where we are at the moment but it doesn't mean to say in hasten to that, that if we think that there are opportunities and obviously to share our technology more broadly is something that we think about I think as time goes by we may well do that but looking forward a little bit more to the future rather than present.
Future vision and strategy
Fintan Walton:
So you've described how the model works and obviously for you there are some very important decisions that you have to make because you have to get this balance right between the contract research that you do and the collaborations that you have, you've stated that your each of those three divisions are profitable parts of the business, so how you are going to take this company forward then? What are the key components that you are going to say right you know Epistem is going to be the company to watch because it's got this vision and the strategy going forward?
Matthew Walls:
Well several things let's start the first one is the financial standard that we operate in and very few what I would call high end biotech drug discovery companies are profitable, so we set out our storm certainly I do I want to continue to drive the company's profit at the bottom-line level so that will be generated by revenue high level rapid growth at the revenue line which would drop through to an increasing profit over the next few years. If I then break that down into you know that's fine on the financial basis but it isn't may be going to set the world on fire if you look at where we are financial at the moment what else is there to bring through. So in the areas of biomarker and novel therapies I would say this is where having got the model into a position where it's already cutting and differentiating itself from the pack in biotech terms here in the UK and potentially also the US the next step is then to get the potential or the significant upside potential of what we have. And in biomarkers the technology we have there is very unique, it's an amplification of RNA so we are looking at small amounts of tissue and an ability to be able to read what's happening in gene expression terms accurately in a way that's highly sensitive there again we see that no one has that technology at the moment so that's a firm position which we intend to play to. And then secondly the probably the most and the biggest area of opportunity for this company is to really generate new novel therapies, biologics in our collaboration initially with Novartis and may be in the future with others. But it's those two pieces that will be the big factors of value growth and then I suppose that you could also add then to that as a final point in vision to the organic growth we will be looking an acquisition.
What is the priority for acquisitions in the business model?
Fintan Walton:
But it's not what you basically need to do because we look at companies like Galapagos who have got something of similar business model, they've largely grown through acquisition, so does that become an integral part of your business or how important in your priorities does an acquisition become?
Matthew Walls:
It's important but it's not overriding in terms of good business sense so you know I've been and I am quite selective in terms of what we look for in the acquisition side. For the last 12 months I've been looking we looked at a number more closely than others but we won't rush into that, we are not in a particular rush but at the same time we don't want to miss a good opportunity. It's the kind of opportunity in acquisition terms that could maybe double the size of the company. So we move from being a company that's 30, 40 may be towards 50 million towards a 100 million if we get it right plus the synergies that the market can then see moves us on again. So we are growing in a sensible, logical, slug by slug way but we are not going to be rushing to do it in a way that will fall over. So you know we have great investors, the investors behind the company largely certainly in the last six or eight months the bigger institutions who've come on board coupled with the Savvy Investor Groups that we have it also support the company at the moment, company is very well placed, we got very strong cash reserves and as I say we're just moving to profitability. So we are keen to maintain that model, grow it sensibly not rush and almost operate a new model for biotech growth in an industry that's been castigated recently for some of the poor management and some of the poor business models that have emerged.
Fintan Walton:
Matthew Walls, thank you very much indeed for coming on the show.
Matthew Walls:
Thank you Fintan Walton. Thank you very much.
Fintan Walton:
Thank you.
Fintan Walton
Dr Fintan Walton is the Founder and CEO of PharmaVentures . After completing his doctoral research on the genetics of cell proliferation at the University of Michigan(US)and Trinity College (Dublin, Ireland), Dr Walton gained broad commercial experience in biotechnology in management positions at Bass and Celltech plc (1982-1992).
Matthew Walls
CEO
Matthew Walls is an experienced CEO most recently with Oxford BioSignals Limited where he led the strategic 'diagnostic' collaboration with Rolls Royce Plc and Covance Inc and completed the recent fundraising and repositioning of the medical diagnostic business to the United States. Matthew Walls spent the early part of his career with ICI plc progressing through the executive development programme and several senior management positions. Matthew Walls headed up the corporate financial and commercial development of plant biotechnology at AstraZeneca plc prior to its merger with Novartis to form Syngenta plc. Matthew Walls has led the growth and development of several technology and biotechnology companies as CEO including Internexus Limited and Zylepsis Limited. Matthew Walls holds a non-executive role at Riyada Oxford Investments Limited and is a chartered accountant and a member of CIMA.
PharmaVentures
PharmaVentures is a corporate finance and transactions advisory firm that has served hundreds of clients worldwide in relation to their strategic deal making in the pharmaceutical, life science and healthcare sectors. Our key offerings include: Transactions / deal negotiations; Product / technology valuations; Deal term advice; Due diligence & expert reports; Strategy formulation; Alliance management; and Expert opinion for litigation/arbitration cases. PharmaVentures provides the global expertise to ensure our clients generate the highest possible return on investment from all their deal making activities. We have experience of all therapeutic areas and can offer advice on both product and technology commercialisation.
Epistem
Epistem is a biotechnology company commercializing adult stem cells in the areas of oncology and gastrointestinal diseases as well as cosmeceutical applications. Epistem develops innovative therapeutic and diagnostic biomarkers and provides contract research services to drug development companies. The Group's expertise is focused on the regulation of adult stem cells located in epithelial tissue, which includes the gastrointestinal tract, skin, hair follicles, breast and prostate.