This little device could save a million lives

A small-cap British company has developed a device that could save millions from the misery of tuberculosis – and bring healthy returns for investors. Tom Bulford investigates.

When a company with revenues of just £6m has a stock market value of over £50m you can be sure that it has something exciting up its sleeve. And that is certainly the case with Epistem Holdings (LSE:EHP).

Epistem has a device that could help the millions of people that suffer from tuberculosis. It has developed a diagnostic tool, similar to what I described in my article yesterday.

This is the age of molecular medicine. Until now, disease has been seen as a collection of symptoms or a breakdown of a particular organ, but in molecular medicine, illness is regarded as a dysfunction in the interactions of biological molecules.

Crucial to this is our newfound ability to see and understand the workings of the tiniest biological molecules, right down to the level of DNA. According to a 2011 report by Alliance Bernstein, “molecular medicine will revolutionise the practice of medicine, transform the global healthcare industry and ultimately lead to longer and healthier lives”.

60%-70% of all treatment decisions are based on diagnostic testing, and by deciphering molecular information we are increasingly able to spot the onset of disease at a very early stage and provide therapies tailored to the condition of the patient.

Molecular diagnostics is a major growth sector: according to Alliance Bernstein, industry revenues are set to reach around $21bn by 2020. A figure like that doesn’t surprise me – with some of the smartest people on the planet rushing to pump money into this sector, it makes perfect sense. But knowing where to look and where to start as an investor can be tricky. If you want some guidance, check out my latest video here.

The portable ‘Genedrive’ device

Though there have been improvements in tuberculosis care and control, the disease is contracted by around ten million young adults every year, and it can be fatal. Tuberculosis, caused by airborne germs, usually affects the lungs, but it can also affect other parts of the body, such as the brain, the kidneys, or the spine.

Most of the victims are likely to live in poverty and may be hours away from medical facilities, so a solution is difficult. Many countries still rely principally on sputum smear microscopy, a diagnostic method that was developed over a century ago. But even if patients can be tested it can take weeks to take samples to the laboratory and get back the results.

Writing in The Lancet in 2012, Claudia Denkinger and Madhukar Pai said that “low-cost, point-of-care tests for HIV and malaria have completely transformed the management of these serious diseases. By contrast, suboptimum and delayed diagnosis of tuberculosis continues to fuel the epidemic in many countries…the need for a laboratory-free, point-of-care test for tuberculosis cannot be overstated.”

Epistem’s answer is a molecular diagnostic device called the ‘Genedrive’. Crucially, this is a portable device that can be taken into the field, delivers results within an hour, and costs a modest $2,500.

Last August, Epistem announced a distribution agreement that will see the $20bn US giant Becton Dickinson (NYSE: BDX) supply a tuberculosis test based on the on the Genedrive platform. The deal excludes India, the country with the greatest incidence of tuberculosis, where Epistem has a separate agreement with Xcelris Labs.

Epistem is confident it has the upper hand

The Genedrive, which can quickly identify molecular evidence of tuberculosis, looks like a great product. But Epistem is not stopping there. When I met Epistem’s chief executive, Matthew Walls, last week, he explained that Epistem expects to develop tests for other infectious diseases including HIV and dengue fever.

But the Genedrive is not without competition. The World Health Organisation has publicly recommended that nations introduce rapid molecular tests for tuberculosis, and this market opportunity for low cost point-of-care, diagnostic testing devices has attracted plenty of interest.

Cepheid (Nasdaq:CPHD); Biohelix, which is owned by Quidel Corporation (Nasdaq: QDEL); and the private companies Idaho Technology and Enigma Diagnostics are all rivals to Epistem.

In comparison with this competition, however, Epistem believes that the Genedrive is considerably cheaper, provides quicker results and, crucially, it operates in ambient temperatures of up to 60°C, while the others will not operate above 30°C.

However, the competition might not end there. Another large US company, Alere (NYSE: ALR), recently won funding from the Bill & Melinda Gates Foundation to develop its own tuberculosis assay. Using a technique called isothermal amplification, Alere is developing a molecular device, which is currently in clinical trials. Alere says that its “compact, affordable, battery-powered, portable device will offer the high-performance sensitivity and specificity needed to diagnose individuals with tuberculosis accurately”.

Although Epistem is by no means a one trick pony, this competitive race to find new diagnostic devices sounds better news for tuberculosis patients than for any of the companies involved. I would love to see Epistem succeed, and it hopes to get approval soon to launch its Genedrive test into the Indian market. But the valuation of the company suggests that investors are taking quite a lot on trust. A share to watch, I think, but not to buy just yet.

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