Health Discovery Corp (OTCBB:HDVY) is a molecular diagnostics company that captured the imagination of speculators in 2009. The firm saw its share prices more than quadruple in value that year, but the appetite investors had for the stock never truly translated and the fundamentals seemed to lag behind. Eventually shares dropped back down and have been consolidating at these levels for some time.
Pending news flow and developments may help to finally change that, but if you've never heard of the firm, you must first know that HDVY attempts to differentiate themselves from others in the field by using advanced mathematical techniques to analyze large amounts of data and that their three-pronged approach to molecular diagnostics allows for more specific, effective diagnosis and treatment. The promise here has always been that by applying cutting-edge computer technology and mathematical modeling to available and emerging data sources, the emerging player would uncover meaningful relationships useful in prevention, detection, and treatment of disease.
In recent months, the company has been trying to capture the attention of the markets with some key developments, but the news has fallen mostly on deaf ears.
In January, NeoGenomics, Inc. (OTCBB: NGNM), a leading provider of cancer-focused genetic testing services, announced that it had licensed worldwide rights to Health Discovery’s intellectual property portfolio in order to develop laboratory developed tests (LDTs) and other products relating to hematopoietic and solid tumor cancers, excluding retina and breast cancer. As part of that agreement, NeoGenomics paid $1 million in cash and issued 1,360,000 shares of common stock to HDVY in upfront licensing fees. In addition, NeoGenomics will make milestone payments of $500,000 (up to $5 million) for every $2 million in revenue recognized by NeoGenomics based on products and services developed as a result of the licensing agreement. After NeoGenomics recognizes $20 million in cumulative revenue, NeoGenomics will pay a royalty of 6.5 percent on product sales and will share profits from sub-licensing arrangements.
A month later in February, HDVY announced that they would be launching a product called Retinalyze Analytics, to assist Ophthalmologists and Optometrists with the Detection of Macular Degeneration. The firm has high hopes for the product, which was set to launch at the recent Heart of America Convention geared for primary eye care practitioners. If the product is adopted by the industry, it could mean substantial revenues for the firm, but skeptics have taken a wait and see approach despite the fact that the Retinalyze Analytics product would go after a piece of the age-related macular degeneration (“AMD”) market-- a progressive eye disease affecting more than 15 million Americans, with over 200,000 new cases diagnosed each year.
Despite the reported popularity and increasing downloads of the company’s smartphone software, MelApp-- which uses highly sophisticated patent protected mathematical algorithms and image based pattern recognition technology to and deliver a risk analysis of user’s photographed skin lesions within seconds-- investors have noted a lack of true financial impact for the company’s bottom line from activities related to the app’s downloads and revenue stream.
That has certainly raised the bar for both expectations and skepticism in regards to the new Retinalyze Analytics product. Speculators are standing by to see if the new product can really capture the attention of primary eye care practitioners and we are expecting some announcements in the short term which may give us an indication of not only potential sales and revenues, but also whether HDVY’s newest software offering can truly help deliver the potential of its technologies.
In an effort to help shed more light on some of these news developments—but in particular the relationship with NeoGenomics, we reached out to Dr. Stephen D. Barnhill, who serves as Chairman and Chief Executive Officer of Health Discovery. A Physician trained in Laboratory Medicine/Clinical Pathology , Barnhill is a Pioneer in the development of Artificial Intelligence and Pattern Recognition Computational Techniques used in Medicine, Genomics, Proteomics, Diagnostics and Drug Discovery.
BioMedReports: Please tell us about the recent deal the HDC signed with Neogenomics.
Dr. Stephen D. Barnhill: Our alliance with NeoGenomics, a leading provider of cancer-focused genetic testing services, will provide us a partner that has a sense of urgency to complete the development of the HDC cancer related pipeline including the tests for prostate cancer, pancreatic cancer, colon cancer, cytogenetics and flow cytometry using HDC’s patent protected technology. According to the Agreement, NeoGenomics will use its Best Efforts to have these test developed and commercialized within the next 12 months. NeoGenomics is CLIA certified, has a bi-coastal lab operation, a strong logistical network and an outstanding reputation among their physician clients and is one of the fastest growing labs in the US. Moreover, with the addition of Dr Maher Albetar as Chief Medical Officer, who continues to serve on the HDC Board of Directors, they have increased their medical and technical capabilities. NGNM licensed worldwide LDT rights to utilize our extensive intellectual property portfolio in the Field of hematopoetic diseases and cancer.
BioMedReports: Why is it important?
Barnhill: This is a significant step forward for HDC. HDC now has a partner that has made a significant investment and has the size, scope and track record to deliver. By hand-selecting NeoGenomics as our partner not only do we feel we have escalated the “time to market”, we have significantly minimized the capital cost and other investments that would have been required had we chosen to become a CLIA lab.
BioMedReports: What products does it cover?
Barnhill: Under the terms of the License Agreement, NeoGenomics was granted an exclusive worldwide license to HDC's technology to use, develop, make, have made, modify, sell, and commercially exploit products and services in the fields of laboratory testing, molecular diagnostics, clinical pathology, anatomic pathology and digital image analysis relating to the development, marketing production or sale of any LDTs or other products used for diagnosing, ruling out, predicting a response to treatment, and/or monitoring treatment of any or all hematopoietic and solid tumor cancers excluding cancers affecting the retina (which was licensed to Retinalyze, LLC) and breast cancer (which was licensed to Quest Diagnostics and SmartPerMed). One example is the development of a test to assist in the diagnosis of Prostate Cancer. Given the disappointment in today’s “standard”, PSA there is a clear need for a test that will improve the detection of early stage cancer and as important eliminate the need for unnecessary biopsies.
The License Agreement will allow NeoGenomics to develop and sell any gene, gene-product or protein-based LDTs based on HDC's technology as referenced above and provides for sublicensing rights and the assignment of the License Agreement. The License Agreement further provides NeoGenomics with access to certain HDC personnel and consulting resources in the fields of mathematics and in genetic and molecular test development. The licensed technology also includes, among other things, certain tests, algorithms and computer software which have already been developed by HDC.
BioMedReports: Didn't the company already receive some cash?
Barnhill: Yes, Neogenomics paid an upfront payment of $3 Million dollars ($1 Million in cash and approximately $2 Million in Neogenomics stock (1,360,000 shares at $1.43 per share) all of which was received on about January 9th, 2012... The current price of that Neogenomics stock is now $1.75 per share (an increase of $435,200.00 in just over a month).
BioMedReports: When can the shares be sold?
Barnhill: The shares become free trading on or around July 6, 2012. If NeoGenomics files a Registration Statement sooner and because of our “piggy back rights”, the shares would become free trading at that time.
BioMedReports: Have the Neogenomics shares increased in value because of this deal?
Barnhill: We can’t say specifically why the NeoGenomics shares have increased, however, the share price has increased from $1.43 per share when we signed and announced the Agreement to $1.75 per share on February 14, 2012 (an increase of $0.32 per share in just over one month).
BioMedReports: Can this money be shown as income on your balance sheet and income statement? when?
Barnhill: Yes. Beginning with our 1st Quarter 2012 financials, HDC will account for these shares are a “trading shares” within the asset section on our balance sheet. As a result, the increase in value of the shares will be reflected as income within the Statement of Income Section of our financials.
BioMedReports: Why is having a lab partner important?
Barnhill: Having the “appropriate lab partner” was critical to the overall success of HDC. We can now aggressively work to commercialize our organization and take advantage of our patent protected technology without the significant cost of running a CLIA lab. Furthermore, this will allow the senior management team, to focus on several revenue generating opportunities outside the cancer field such as Alzheimers disease and Cardiac diseases.
BioMedReports: Can the company realize any additional revenue from this relationship this year?
Barnhill: Yes, the Agreement is loaded with incentive based compensation/investments. In 2012 we are working towards generating revenue from the work that has been accomplished with our cytogenetics software (we are a partner with NGNM). Moreover, it is possible that sub-licensing will afford an opportunity to generate cash. In addition, under the Agreement, NGNM will make milestone payments in increments of $500K for every $2 million in revenue that is recognized by NGNM (up to $5 million) After $20M in cumulative revenue has been recognized a royalty of 6.5% on product sales AND share the profits from sub-licensing arrangements.
BioMedReports: Did HDC have to give up any of its shares in the deal?
BioMedReports: What is your feeling about the long term results of this relationship?
Barnhill: It is our feeling that the backend of the relationship with NeoGenomics is even more exciting as the frontend. A robust pipeline provides the sustainability that is required.
BioMedReports: Are there any other areas of expansion between the two companies that might occur?
Barnhill: There are been discussions of other partnership opportunities however we remain focused on our current arrangement
BioMedReports: Would you consider putting the prostate cancer product into this mix?
Barnhill: The NeoGenomics Agreement did include the prostate cancer test and they are working on the plasma (blood) based version of the test as a priority.
BioMedReports: With this major announcement, why doesn't your stock price reflect the value?
Barnhill: That’s a good question.
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