2011 Letter to Stockholders
A Forward Looking Statement from the CEO
"We do not intend to compete with major device manufacturers. Instead, we open new markets based on the need for the unique qualities of our products."
Dear PKC Investors:
2010 was a year of significant achievement for your company. I would like to review the milestones we accomplished at PKC related to Round B funding, review our initial product offerings, and provide an outline of our preparations for product commercialization during the coming years.
Our resources have mainly been focused on completing the challenging technical tasks and initial in-vivo studies that were associated with the pre-commercialization of our first product, the Metronomic Biofeedback Pump (MBP). The MBP is specifically designed for local, metronomic chemotherapy delivery. It is a fully implantable pump which can deliver a variety of drugs to a treatment location via its multi-lumen catheter, allowing for patient-specific personalized medicine and remote adjustment of the regimen by the physician. Multiple studies have shown that continuous flow of medication, administration of alternate drug regimens or drug combinations, and adaptation of dosage to individualized patient needs can improve survival rates. However, as of yet no device has been developed with these capability. We believe the MBP can deliver these capabilities and improve the survival rates and the quality of life of patients.
The tests we have conducted using the MBP have firmly established that this device functions in accordance with its design specifications. In addition, we have devoted considerable time and effort to miniaturize and integrate the MBP components for optimal use in implanting the pump in the human body. The miniaturized product is well within the dimensions of previous devices that have been approved by the U.S. Food and Drug Administration (FDA) for implantation in the body.
This progress represents the achievement of a major pre-commercialization stage in the development of your company, both in terms of reaching the next stage of pre-clinical and clinical trials and in our mission to receive FDA clearance of the MBP.
In addition to the MBP for human use, PKC has developed the MBP Tool-Kit for animal testing of pharmaceutical products under development and a unique Biosensor that utilizes advanced nanotechnology for detection of markers associated with several types of cancer. Since these last two products, the MBP Tool-Kit and the Biosensor, do not require the regulatory process associated with our MBP, and we intend to begin to commercialize these products within the coming two years.
Our products have drawn the attention of multinational strategic partners, and preliminary discussions are underway for agreements that can lead to commercialization. I anticipate in 2011 to receive an infusion of capital for PKC from at least one of these strategic partners. The partnerships we are planning are designed to expedite time-to-market while reducing barriers to entry. Under the proposed business model with pharmaceutical companies, they will provide stable formulations of their existing drugs to be used in PKC’s MBP and support FDA clearance and commercialization in exchange for a licensing arrangement. The advantage to pharmaceutical companies is that PKC’s smart delivery system will enable proprietary formulations of drugs that are generic, thus protecting proprietary products and greatly increasing the profitability of existing generic products. The improved application of existing proprietary and generic drugs using the MBP is expected to reduce the side effects associated with systemic delivery and increase efficacy.
Following is an outline of our progress and plans for developing the MBP. Round B – MBP Milestone Progress:
• Publication and issuance of patents that protect the Metronomic Biofeedback Pump (MBP) – (Completed).
• Design of an animal version of the MBP, completion of seven (7) functioning prototypes – (Completed).
• Three (3) pre-clinical animal trials were conducted for the purpose of evaluation and to provide proof of functionality of the MBP in ex-vivo and in-vivo animals – (Completed).
• Design of polymer/glass microfluidic motherboard for human version of MBP – (Completed).
• Design integration of large components to miniaturized size to meet criteria for implantation into the human body – (Completed).
• Ten (10) units of MBP are currently in the stages of being built for testing in pre-clinical in-vivo animal and human trials – (Completion date: August 2011).
• Pre IDE (Investigative Device Exemption) with the FDA – (Completion date: December 2011).
Upcoming Milestones Associated with Round B Funding:
PKC is currently working toward the completion of the remaining deliverables associated with our Round B financing. The most important of these are the development of the first MBP for human studies, expected in September 2011, and the submission of our Pre-Investigational Device Exemption (IDE) for human studies of the MBP, expected in Q4 2011. After our pre IDE meeting and submission of our preclinical data, the process is anticipated to last for approximately three to six months. Assuming our pre-clinical data are accepted by the FDA in a fast-track IDE application, we expect to use the MBP for trials in a limited number of patients with Leptomeningeal Carcinomatosis in Q2 2012.
Following is a brief description of our products under development:
MBP – PKC’s flagship product, the MBP, is being readied for human testing. This process requires FDA regulatory Pre-Market Approval (PMA), a lengthy process which will take a least a few years. The time horizon for a fully commercialized and approved version is anticipated to be in the Year 2015. However, PKC is developing two products with commercialization potential within the next 12-18 months.
The MBP Tool-Kit – a version of the MBP, is designed to be used by pharmaceutical companies to conduct new drug development at the stage of in-vivo animal testing. Similar to the MBP, our Tool-Kit product is a device never before offered, with the ability to deliver medication locally and metronomically, identify and measure cancer markers, and retrieve data wirelessly. This product does not require regulatory approval, and we anticipate receiving revenue from the MBP Tool-Kit by the first half of 2012.
Biosensor – PKC made a strategic decision in 2010 to develop a proprietary state-of-the-art biosensor that uses nano technology to identify and measure specific markers associated with several types of cancer. One application of the Biosensor is to measure return fluid from the cancer site to determine whether the cancerous condition is responding to treatment. In addition, the Biosensor can detect food borne pathogens for screening our food supply, as well as water borne pathogens. We are in discussions with international companies for joint development and marketing of various Biosensor applications.
PKC’s business strategy is based on the “Blue Ocean” concept of creating and entering industry segments where profits and growth are open to us, based upon developing “Smart” types of products never before offered in the medical device arena. In this way, we operate within an uncontested market space, build new demand for our products, and break the value-cost trade-off. We do not intend to compete with major device manufacturers. Instead, we open new markets based on the need for the unique qualities of our products, such as the MBP, MBP Tool-Kit and Biosensor, and plan to cooperate with major medical device organizations based on this reconstruction of market boundaries and creation of market demand.
Market Potential PKC is Creating:
With this “Blue Ocean” strategy in mind, PKC is operating within major global markets:
MBP – Devices such as ours previously employed “Blue Ocean” strategies. Currently there is no implantable smart pump for patients with cancer. Implantable Cardiovascular Defibrillators (ICDs) represent a similar past product cycle in the medical device marketplace. An estimated 4.8 million Americans have cognitive heart failure each year. Medical device companies sold 684,000 ICDs in the US last year at average price of $20,000 each, amounting to a $1.36 billion market. This market did not exist a decade ago. PKC’s intends to be the leader in the implantable device market for cancer. According to the World Health Organization (WHO), 12 million patients were diagnosed with cancer worldwide in 2000. Due to population growth, population aging in Western and Asian markets, improved diagnostic methods, and other factors, this number is expected to increase by 50% to 18 million people by 2050. In the 2000, malignant tumors were responsible for 12% of the nearly 56 million deaths worldwide from all causes. In many countries, more than a quarter of deaths are attributable to cancer. In 2000, 5.3 million men and 4.7 million women developed malignant tumors and altogether, 6.2 million died from these diseases. This represents a “Blue Ocean market for the MBP upon commercialization, with potential sales of even approximately 50,000 units at a sales price of $20,000 per unit, creating a total market size of about $1 billion within five years.
MBP Tool-Kit – The U.S. in-vitro toxicity testing market has been valued at $765 million in 2006. At a compounded annual growth rate of 14.4%, the total U.S. market will grow to reach $1.5 billion by 2011. Approximately 10% of this market is directly related to the MBP Tool-Kit. Upon the launch of the first generation of the MBP Tool-Kit in the first half of 2012, we intend to create a revenue stream based on capturing 5% of market in the first five years of commercialization, representing approximately $75 million in sales for PKC.
Biosensor – The revenue for the global biosensor market increased from $6.72 billion in 2009 to $7.40 billion in 2010 and is expected to reach $12.8 billion by 2015. End-user markets like security and biodefense, environmental, home diagnostic and point of care all showed growth. A proliferation of biosensors into various applications continues to the present day. The U.S. market was $2.39 billion in 2010, representing 32.3% of worldwide sales, and is expected to grow at a CAGR of 11.6% to $4.14 billion by 2015. We intend to move aggressively and capture 1% share of this market in the coming years.
Our 2010 financial statements, audited by the accounting firm of Gumbiner and Savitt, are expected to be completed by April 1, 2011 and will be sent to you. In the meantime, we believe that PKC is well advanced toward commercialization, with exciting new products, efficient use of capital in achieving our milestones, a sound business strategy, and significant target markets.
With your continuing support, we plan to continue the development of PKC into a revenue producing corporation, expand the scope of our activities, and provide a return to shareholders that is commensurate with the major business opportunities we expect to achieve.
Chief Executive Officer
March 17, 2011