SCLL visit Q&A
SCLL ?'s
Dr. Kelly and I sat down for a couple hours at his office in Houston, TX. We talked a lot about the technology and various investor related concerns. If any of the info below is wrong, it is likely my fault for misunderstanding something or not being able to read my own notes. I encourage anyone with follow up questions to call Dr. Kelly, and then share what they've learned here.
We started off with Dr. Kelly giving an overview of the biz. Executive summary: They started in the lab at Baylor college of medicine with the bio-liver concept, then they turned that into a company. That company merged with a public shell. At some point they aquired a stem cell company and have based their work going further on some of that tech. They continue to be active with the liver device as a mature product while developing and researching some exciting tech.
The office comprises 10,000 sq. ft., majority of it is lab space, a couple conference rooms, etc. Dr. Kelly took me into the labs and showed me some cultured stem cells (very cool). They grow the stem cells on a layer of feeder cells and in order to see the stem cells, they are dyed various colors depending on their purpose. They've certainly got some capital tied up in equipment if a comparison to my sister's bio-lab is valid. They keep the research area separate from the production (bio-liver) area in order to avoid contamination.
Q&A follows:
1)What is being done to market cell lines to big pharma & others, for drug research?
Usual things, this is a big focus for them now. Their strategy is largely networking through conferences, company visits, etc. This is the wrong “product” for consumer style advertising. The goal is to make their products a part of big pharma's drug discovery system. Right now people (labs, project groups within larger companies) will send them boxes of compounds to test with the bio-liver. So far no big pharma has signed up for the subscription/license concept though many projects within companies have used their service. Boehringer Ingelheim has expressed great interest in making this a company wide system but then it goes through various bureaucracies with no word until 6 months later when they get another request for more info. I got the impression that has gone on awhile and Dr. Kelly didn't seem to want to count on this deal, after several cycles of this back and forth.
2)Any sales projections on the above (or other tech such as liver device)?
Currently, it is several hundred thousand dollars annually, based on just the bio-liver product they have going now. They do have numbers for tech they haven't released but he said there are too many variables to really know how realistic those numbers would be.
3)Any other revenue producing tech being worked on?
License cells off and on. Drug discovery with the bio-liver. There are 4 areas of tech they are working on, I describe below.
4)How do you see yourselves fitting into the emerging stem cell space over the next few years?
Embryonic germ cells are a different type than is currently available, this makes SCLL stand out from the crowd. They are in the process of producing some journal papers related to this and expect some buzz once they are published. They are positioning themselves as a world class research firm as opposed to a widget producing facility so that approach makes sense. They expect to continue in drug discovery work and what makes them stand out here is they are currently actively doing this, whereas other companies are claiming to do it in the future.
5)When will SCLL be profitable?
“Not this year.” A big part of this is how quickly big pharma will adopt their toxicity testing. He stressed that last year was very difficult for everyone and he is just now starting to see some relief and things are getting a little more relaxed. I asked about some numbers and to put it in perspective he said that he would expect a big pharma subscriber to their toxicity program to spend around 2-2.5 mill for their service/products. If/when they land just a couple of those fish then they will be profitable.
6)What are the current outstanding shares?
1.6 billion. They are planning to issue more to help them through, I did not get an idea on how many. He did say a reverse split is quite possible in the future but there is no point to doing it now. It would have to be on an upswing in company prospects/share price and allow them to sustain a share price of at least $1/share. I asked about a buyback vs. a RS and the answer is that there simply isn't enough working capital at this time.
7)Where does D. Brech fit into the company now?
David Brech and his wife Maggie Chassman are biotech investors and they have been hit pretty hard this last year as has everyone in the financial sectors. David has been and continues to be a major supporter for SCLL while Maggie has sold off a lot of her shares to other investors (within David's group Dr. Kelly thinks). Other than saying that, he couldn't say anything else as that's David and Maggie's personal choice/info that he is only partly privy to.
8)Where does Maggie Chassman fit into the company now? Why isn't she listed as an insider and where is her conversion process? Can you address dilution concerns?
See above.
9)What is the progress on patent #20070026520? Is this being turned into a marketable product/process?
I didn't have the patent particulars with me and just throwing out the # to Dr. Kelly didn't seem to ring an immediate bell but he said that they get notifications and documents requesting more info from the various patent offices all the time. This however doesn't really give anyone a solid idea of how far along this stuff is, it can and does take years. Of course we are all interested in the patents because of licensing and revenue possibilities and Dr. Kelly said that to some degree the revenue is divorced from the patent. The patent is important but what is more important is showing results with the technique/product that is up for the patent, that is what brings interest from people with the $$. So they are working that angle and the patent office will make a decision on their own time.
10)Is research continuing, or is it halted for lack of funding?
Very much continuing. There are 4 main areas they are working on now:
1)Continuing with the bio-liver project - this project allows them to test potential drug compounds but also allows a temporary “dialysis-like” liver replacement for damaged livers while the patient's own liver has time to heal. They have successfully saved some lives with this and continue to make revenue from the drug discovery folks.
2)turning germ cells into stem cells, it is easy to do for mice and they expected it would be straightforward for humans. Turns out it was not straightforward and they have spent a large amount of the last year figuring out why and overcoming the technical difficulties. He said he has overcome them now and will be able to release some info soon (months, not days). This will allow them to generate marketable stem cell lines.
3)full spectrum of organ tissues with the same principle as #1, i.e. a bio-heart, bio-kidney, etc. All cultured from stem cells. These can be used in drug discovery in a couple ways, generating a set of these from a single stem cell line yields the equivalent of a virtual patient, so more extensive testing can be done before a live human needs to get involved. Secondly, growing these from several (possibly hundreds) of stem lines allows for “virtual clinical trials” , this is big sky thinking and I get the sense that despite formidable technical challenges, the real challenge would be within the regulatory framework.
4)Stem cell skin rejuvenation/repair. This is an offshoot from “lessons learned” during the research into turning germ cells to stem cells. It turns out that some of the compounds needed for #2 are beneficial to the skin. This can be looked into from both a cosmetic standpoint and a medical standpoint. This project is in very early stages though. My understanding was that this is a reverse-aging process where the youngest skin that is growing all the time is migrated to the surface instead of the usual older skin.
11)Are you aware of any companies looking at SCLL as a possiible acquisition or partnership?
They are talking to people all the time but can't give too many specifics as they'd then have to go public with the info. There is nothing to the point where people are coming in to go over the books. I asked if they were open to being bought or partnered (as opposed to ACTC that's gone on record saying no to the idea) and Dr. Kelly said yes they were very open to the idea.
12)Any new research buzz coming out of SCLL?
Answered in 10..
13)Is the europe office still up?
No, they shut it down last year. The story with this is that they were approached by the overseas people , similar to a chamber of commerce here (in fact the contact was through the Houston chamber of commerce). They said “if you build a lab here, we'll subsidize its cost”. Well, they built it and then the government refused to put up the money. So there was no reason to continue it.
14)What is the overall goal of the company? Is the goal to become a huge player in the stem market? If so, what is the plan to achieve this?
What does huge player mean? They are not positioning themselves to big in cell therapy and clinical trials, that sort of thing. However, the drug discovery, virtual-human compound filter, etc are all huge potentials. He said yes they've done projected numbers but “everyone has a billion dollar project” and that until they get farther along they are just numbers.
15) Any plans for a PR stating you guys are still in business?
He said they are not wanting to put out PR's simply for the sake of PR's and part of this is because of their cash crunch, it costs $1500 for them to put out each press release. I stressed that this is important for the retail investor and promotes confidence in the company, after all some of us weren't sure they were even still in business. He understands this and though the position on the PR's isn't changing right now, he encouraged any retail investors to give him a call with particular quesstions and he'd try to answer.
16)Any plans to get off the pink sheets?
Yes. He has the paperwork on his desk and has been working on that for awhile. However, doing the proper filings for this costs a lot of money so while it does appear to be a priority I didn't get a sense of a timetable for this.
17)How many employees?
Currently 5 full time with several more part time. At one point they had 12 full time but the last year has been tough. There are no solid plans to staff up but he says they would for sure as the progress on the 4 research areas starts to bear fruit.
18)Update the website already!
He knows this is a problem and has his former fulltime, now parttime guy on it. Expect something soon on this. I stressed that, much like the PR's, this gives us small guys confidence. Again, he was on board with that.
5pm Thurs. April 30th
11222 Richmond Ave, Suite 180
Houston, TX 77082-2646
281-679-7900 ext 13
