SI Research: Clearbridge Health – A Rocket In Disguise?

2017 was indeed a fruitful year for Singapore Exchange, raising approximately $4.7 billion from the 21 successful IPO listings, as Clearbridge Health (Clearbridge) was the last company to debut on 18 December 2017 on Catalist of the Singapore Exchange. The shares of Clearbridge Health soared by 80.4 percent to close at $0.505 on 25 January 2018 over a five-week period with an average volume of 3.1 million shares traded each day.

Ageing population has been a critical issue for Singapore over the past decade. For the first time in history, the amount of people above 65 will match the amount of people under 15 by this year, according to a research note by United Overseas Bank economist Francis Tan. The occurrence for conditions such as cardiovascular diseases and cancer will be on the rise and Clearbridge is expected to benefit from the higher demand of precision medicine approach.

The Business

Clearbridge is one of Asia’s pioneer companies that cater to different segments of the medical industry, with a primary focus on the delivery of precision medicine. Clearbridge aims to equip healthcare professionals with the advanced medical technology to provide higher quality of healthcare services to patients.

Clearbridge currently operates two medical centres in Singapore and Hong Kong and has strategic holdings in Clearbridge Biomedics (CBB) and Singapore Institute of Advanced Medicine Holdings (SIAMH).

SAM Laboratory, a subsidiary of Clearbridge, provides clinical diagnostics services such as health screening and management, cancer diagnostics, biomarker diagnostics and treatment monitoring and prognosis.

State-Of-The-Art Medical Technology

The ClearCell FX System developed by CBB, is one of world’s first fully automated cell retrieval systems that simplify integration between downstream molecular analyses and diagnostics assays, empowering medical practitioners to make better healthcare treatment decisions.

Proton therapy developed by SIAMH, is a new form of radiation treatment using proton to treat cancer. The greater control over proton beams help to minimise damages to surrounding healthy tissues which lower the side effects of radiation treatment.

Collaboration between Caltech and Clearbridge has led to the development of Fourier Ptychographic Microscope (FPM). This algorithm-powered imaging technology is capable of wide field of view and high resolution, which gives the ability to build a diagnostic system for different research and clinical applications. However, a percentage of net revenue from the usage of FPM is payable to Caltech as royalties.

Envision Precision Medicine Market

In Asia’s genomics space, China has recently launched a Precision Medicine Initiative that amounts to as much as US$9 billion in spending over the next 15 years. According to Research Innovation Enterprise 2020 Plan, $19 billion has been put aside in 2016 to support Singapore’s Research and Development for the next five years, with greater emphasis on the healthcare sector.

Guardant Health, an American genomics-focused biotechnology firm has recently managed to raise US$360 million funds from investors such as our local sovereign fund Temasek Holdings.

Furthermore, Temasek Holdings and Yunfeng Capital backed by Jack Ma, have also co-led a $75 million funding round for WuXi NextCode, a Chinese contract genomics company. Interestingly, WuXi NextCode has collaborated with National Heart Centre Singapore, together with SingHealth Duke-NUS Institute Of Precision Medicine and Infocomm Media Development Authority.

Presently, SAM Laboratory also has local partnership with Singapore General Hospital and several other global partners such as Precipio Diagnostics in America and Metabolomic Discoveries in Germany.

These investments are further testament of growing interest in genomics and Singapore’s commitment to become a world-class hub for healthcare innovation. This will significantly benefit the growth of Clearbridge, in terms of government aid and partnership opportunities with relevant authorities to help amplify the growth of precision medicine.

Financial Health

Ever since the incorporation of Clearbridge, its financial performances have been lacklustre as it is still in its infancy stage. In the latest 1H17, Clearbridge is still incapable of surpassing the one million mark in revenue, recording only $284,000 due to lesser referrals to medical clinics.

Following 1H17, net loss extended by 59.4 percent to $2 million arising from further business expansion which led to higher employee benefits that rose 48.1 percent to $2.3 million and since the inclusion of Clearbridge Medical Group (CBMG) in August 2016 increase other operating expenses by 61.4 percent to $1 million. Dividends are not expected to be paid out since the company is still in loss-making stage.

Clearbridge sits on top of a healthy cash pile of $9.8 million and holds a low debt-to-equity ratio of 0.2 times. Nevertheless, according to the closing price of $0.505 on 25 January 2018, Clearbridge is valued at 4.4 times its book value of $0.1143 per share that implies a high premium.

The 88 million share placement at $0.28 is on invitation-only, without any allocated public tranche. Post-IPO, 18.3 percent of the total shares in Clearbridge will be available for float and over 50 percent of total shares will be under moratorium for a minimum period of six months.

Proceeds To Fund The Future

Clearbridge gained approximately $21.5 million net proceeds from the share placement, $11 million is planned for expansion of its medical clinics, $3 million for expansion of its laboratory testing services and the remaining $7.5 million for working capital purposes.

In the recent acquisition of a 65-percent equity stake in a Philippines healthcare provider, Marzan Health Care, Clearbridge paid a total consideration of $3.3 million of which $1.3 million was funded from proceeds of the IPO while the rest is funded by bank loans. Consequently, that would mean that $9.7 million remains for expansion of its medical clinics.

Future Prospects

The company has successfully secured a two-year business partnership with MILS International (MILS), to become the exclusive distributor of MILS’s diagnostic tests in 11 countries, notably in Asia. MILS’s screening for Inborn Errors of Metabolism (IEM) is comparatively strong as it detects up to 150 metabolic disorders and is non-invasive while traditional IEM tests requires the drawing of blood and only detect up to 40 metabolic disorders.

Leveraging on Asia’s unfamiliarity with metabolomics profiling, precision oncology testing and genetic based profiling screening tests, Clearbridge plans to exploit this comparative advantage to gain regional market share.

While Clearbridge is clearly in its infancy stage, we would prefer not to focus on its earnings while paying more attention to its potential growth. The healthy cash position permits for greater acquisition opportunities and the substantial amount of working capital put aside would lessen the worry for investors. One must still take note that with aggressive business expansion coupled with negative net profits raises the possibility of further capital raising exercises.

That said, the upsurge in its share price within the short duration has been backed by investors for its upside potential of the precision medicine market, time is still required for the rocket to reach its fullest capacity.