Beijing Bound: Chinese Biotech Giant Pursues Deal with Canada’s Miraculins

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Less than 60 days after acquiring its non-invasive diabetes screening test technology, Canadian biotech firm Miraculins Inc. is planning to expand into China.

Less than 60 days after acquiring its non-invasive diabetes screening test technology, Canadian biotech firm Miraculins Inc. is planning to expand into China. Now bound for Beijing, President and CEO Chris Moreau is set to meet with the heads of Cachet Pharmaceutical, an approximately $700 million USD market cap company with the intention of spreading Miraculins’ Scout DS technology to the massive Chinese marketplace.

The spread of diabetes is a rapidly growing problem in China. Overall prevalence of diabetes in China was estimated to be 11.6% of the population. However, the diagnosis rates of the disease are still low, with an overall rate estimated to be 3.5% whereas undiagnosed is believed to be another 8.1%. Another recent study indicates that the country has approximately 114 million people with diabetes, with 40% of 18-20 year olds and 47% of 30-39 years being prediabetic.

To help curb the epidemic, point-of-care testing is on the rise in China. Majority controlled by the Chinese government, Cachet has been proactive in making a large-scale difference for the Chinese people. Impressed by a demonstration recently given in Toronto, and by an in-depth review of the science and significant studies and data behind the SCOUT, representatives from Cachet were quick to entice Miraculins into coming to China to negotiate a deal to bring the non-invasive testing technology to China.

The two companies signed a Letter of Intent shortly after Miraculins had closed on its acquisition of the SCOUT.

“We closed the acquisition and right after we were at work on a deal,” says Moreau. “Typically when you have discussions with big pharma on any technology it’s five minutes of ‘Hi, how are you?’ and then the next step is ‘Send us your data.’”

Moreau will be accompanied on his trip to China with his Vice President of SCOUT Technology John Maynard, in order to answers any additional questions about the science or intellectual property from their prospective partners.

“They’re not kicking tires, the senior management team wants to see the SCOUT in operation now that they have fully reviewed the data, the studies and the science,” says Moreau. “We are working towards a licensing deal.”

The deal is a tentative 90-day non-exclusive agreement for the two companies to become better acquainted. However, it has many of the earmarks of what a junior company in today’s market would look for when dealing with such a large partner.

Cachet is established, with annual sales averaging between $400-$500 million USD. At that size, Cachet has the capital to commercialize the product properly.

As well, the company represents Bayer, Novartis, Johnson & Johnson and Medtronic, and sells to pharmacies and hospitals throughout China.

“We’ve had a wish list and Cachet looks a lot like our ideal Chinese partner,” says Moreau. “They had to be in this business, which Cachet clearly is, as well as have a high level of transparency. So when I looked at all the components I felt this deal was perfectly aligned. At that point, I pushed hard for a Letter of Intent, on the terms that I knew my investors would be happy with.”

The terms that Moreau held out for were: 1. An upfront fee ; 2. An ongoing royalty; 3. Cachet is to cover the costs of the Chinese federal drug authority; 4. Cachet covers all marketing development costs; 5. Miraculins handles all manufacturing (in order to protect trade secrets).

Despite a request for a face-to-face meeting before signing the Letter of Intent, Moreau and his team held fast to their request for a signed LOI. After a back and forth, Cachet agreed to the terms, and Moreau’s plane tickets were booked for Beijing.

With the SCOUT device in hand and face-to-face meetings with Cachet’s top brass on deck, the hope is to come back with a stronger indication of specific deal metrics. A clearer picture of this should allow Miraculins’ SCOUT DS to make the leap to China, should the end deal be acceptable to Moreau and his team.

“Cachet’s willingness to sign the LOI in my opinion showed just how interested they are in the SCOUT technology,” says Moreau.

It’s still too early to say what the overall terms of the deal will be, should the two companies take the next step together formally. Should the Canadian contingent come away with a deal in hand for a $3-$5 million non-dilutive deal, it could do wonders for the stock.

In the meantime, the SCOUT DS continues to make progress in Canada with a recent announcement of a 35-store pilot with a major Canadian supermarket chain. Typical clinical diabetic testing requires fasting for 12 hours, and lab work to draw blood to check glucose levels.

This is the gold standard test but doesn’t qualify as a quick screen. The SCOUT DS system as a screening test, removes the need for invasive blood testing, or fasting bringing low cost, high throughput results in mere moments. Risk elevated patients identified by the SCOUT will then be asked to go and see their doctor for the gold standard test. The company plans to begin discussion with the FDA to discuss regulatory clearance options for the SCOUT in the US.

The SCOUT DS system, is the world’s first non-invasive diabetes screening system effective for screening pre-diabetes and type 2 diabetes that’s fast, convenient and effective.

The first $20 million invested into its original technology was actually put in by Johnson & Johnson, which focused on trying to fluoresce glucose in the blood. SCOUT DS went further to fluoresce and measure the skin for elevated advanced glycation end products (or “AGES”). The AGES measurement is a sensitive metric for the cumulative damage done to the body from the effects of abnormally high blood sugar and oxidative stress.

For investors to note, SCOUT DS appeals to all retail pharmacy chains. Diabetic patients purchase approximately $5,000 per year in supplies and medication from a retail provider, hence a drive for patient loyalty for the chain that helped identify the problem brings value to end-users.

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