Published April 20, 2009

Transcu upbeat on its business prospects

Income flows soon from clean fuels, trans-dermal drug delivery system: CEO

By VEN SREENIVASAN

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AFTER 'burning' cash at the rate of some $2 million a month, mainboard-listed Japanese life sciences company Transcu Ltd is beginning to see light at the end of the tunnel.

Mr Matsumura: With three revenue divisions, labs in US and Japan, Transcu is poised to be a world-beater within 12-24 months, says CEO

While founder and chief executive Akihiko Matsumura refrained from making any forecasts, he expressed confidence that his company will soon see income flows from its clean fuels and its trans-dermal drug delivery (T-DDS) system.

'Our battery powered anaesthetic Lidocaine patch has passed Stage 2 clinical trials of the US Food & Drug Administration (FDA),' said Mr Matsumura, who has invested some $80 million of his own money into the company he founded 20 years ago. 'We are now into Stage 3 to assess the safety and viability of mass production.'

Commercialisation could begin by early 2011. Trans-dermal drug patches are not new, and are already used by various drug makers. But Mr Matsumura claimed that Transcu's smaller and thinner patches - powered by wafer-thin batteries - are more technologically advanced, enabling faster onset of the drug permeation and wider technological application.

'Existing T-DDS delivery systems are passive patches which can't deliver water soluble drugs or large molecule drugs,' Mr Matsumura said. 'Ours can handle both water and oil soluble drugs, using ionisation to modulate drug flow in passive patches, and batteries to control timing and concentration in our active patches.'

As its Lidocaine active patch enters final stage FDA approval, its passive ionic patch has been licensed to a Japanese pharmaceutical firm even as it enters Phase 1 clinical trials. The global market share for special drug delivery technology was about US$112 billion in 2007, with active T-DDS at about US$13.8 billion. This is poised to grow to US$22 billion in 2012, and US$32 billion by 2017. One promising application is the US$3 billion market for asthma drugs.

Transcu - listed on the Singapore Exchange last year through a $675 million reverse takeover of Eng Wah Organisation - counts former US secretary of state Alexander Haig, ex-deputy secretary of state Richard Armitage, and prominent Singapore lawyer Lee Suet Fern among its directors.

It has already filed nearly 200 patents.

Mr Matsumura reckoned that global drug giants have a very strong incentive to hitch on to Transcu's T-DDS. 'Most drug patents expire in 20 years or less. But drug makers can extend patent life, and protect profits, by finding new delivery systems. There are some 180 drugs - a market worth some US$500 million a day - with patents that will expire between 2010 and 2012.'

Some analysts estimated that Transcu could rake in some US$44 million in annual licensing fees, service fees and product sales even if only a fraction of these drug companies buy its delivery platform.

That would be great news for investors, who saw the company post a net loss of US$72.8 million for its third quarter ended Dec 31, 2008 after a US$61 million impairment for goodwill. And it had some $14.6 million in cash at the end of December, compared to $22 million at end-September. It is now raising $80 million via a one per cent convertible notes issue, due in 2014, and with a 10 per cent conversion discount.

Meanwhile, its shares have been range-bound between 22 cents and 24 cents, way below its October 2008 pre-listing valuation of almost 50 cents. This, despite moving beyond Stage 2 FDA approval, and its recent purchase of Japanese technology lab Biomass Energy Inc (BME).

In a barely noticed move, Transcu last month paid a mere $277,000 for 45 per cent of BME, which has patented technology for the conversion of non-edible biomass into methanol.

Mr Matsumura said this could leapfrog Transcu into the rapidly growing green energy market: 'This is the next generation energy which will replace natural gas and ethanol produced from corn or cane sugar.'

Meanwhile, using nano-technology, the company has recently started producing emulsified 'clean fuels'. Its new emulsified diesel - which is a combination of 85 per cent diesel and 15 per cent water - has caught the attention of the Japanese government, which has been looking at alternative sources to power its fishing and merchant marine fleet.

Transcu said it is also in talks with potential users of its methanol-coal pellets and methanol fuel cells, including Japanese energy providers, a leading mobile phone maker and a German automotive giant.

Mr Matsumura expects income from Transcu's energy business to start flowing in by late next year - even before T-DDS starts paying off.

Meanwhile, the company has also built up a cosmetics business around Ellebeau Inc, which it bought in 2007. It intends to use its T-DDS system for skin replenishing and anti-ageing cosmetics. The global skin care cosmetics market is currently worth some US$56.6 billion, but projected to be US$69.4 billion by 2012.

With three revenue divisions, labs in the US and Japan, and a global headquarters in Singapore, Mr Matsumura says Transcu is poised to be a world-beater within 12-24 months.

'We are almost there,' he said. 'We have the people, the patents, the network, and the pipelines to emerge as the leading global technology player.'

Investors will no doubt be hoping he is right.