Stem cell services company WideCells (LSE:WDC) is preparing to launch itself into a period of global expansion. With shares currently priced at 3p, the next six months could be very exciting even if the company is only able to partially carry out its plans. The business has turned the corner after a recent period of turbulence and is moving ahead with a renewed spring in its step as the worldwide market for stem cell storage and insurance continues to thrive. We caught up with chief executive João Andrade to discuss his plans for driving shareholder value in the second half of this year.
Despite cord blood stem cell storage often costing no more than a few thousand pounds, cord blood stem cell transplants (to treat diseases such as leukaemia) can cost as much as £300,000, a figure that is very much out of reach for most patients. WideCells was launched to combat this by making cord blood stem cell transplantation accessible and affordable.
Specifically, the organisation focuses on cord blood collected from the umbilical cord after a baby is born. Unlike other sources of blood forming stem cells, e.g. bone marrow, cord blood is easy to collect and does not require a 100pc genetic match for a transplant. As a result, a global cord blood stem cell market is developing, with around 4m cord blood samples already stored and 250,000 new cord blood samples being stored globally every year.
To provide a truly end-to-end service, WideCells has three divisions: CellPlan, WideCells, and Wideacademy.
CellPlan is the world’s first comprehensive stem cell healthcare insurance plan, providing coverage of up to £1m for cord blood stem cell transplantation, travel and accommodation, and a concierge service. CellPlan also covers the cost of taking part in registered clinical trials for the treatment of cerebral palsy. The plan costs an average of £170 a year, with WideCells keeping between £50-£75 as revenue. If a client uses the program and keeps renewing the policy over the next 20 years, and if we calculate a net present value considering a 50pc discount, Andrade puts their lifetime value at around £500. This figure could be realistic, with Andrade suggesting that the insurance has the potential to have high client retention rates.
WideCells, the firm’s stem cell storage facility service, is based at the University of Manchester Innovation Centre. The division charges an average of £2,000 to store cord blood and cord tissue in the UK, of which it holds on to around £1,200 as revenue. WideCells also carries out stem cell research in regenerative medicine.
Finally, Wideacademy, the company’s educational division, promotes awareness of stem cell storage among the general public and health care professionals globally. This part of this business generates revenues from three separate sources. It will cost a health care professional £120 a year to subscribe to the Wideacademy pro platform, £200 for a health care professional to study each accredited module, and £250,000 a year with a minimum three-year contract for the localization of the platform the company developed in the UK for other countries. Once the platform is localized and deployed into a new market it is intended that local healthcare professionals start subscribing to the platform and enroll in its stem cell online courseware. Wideacademy then expects to generate repeat revenue that will be shared in different rates with the local partner that contracted the localization.
WideCells’ recent problems began on 1 May this year, when it announced that it was in discussions with financial advisers to raise funds. Crucially, it added that there was a risk that it would no longer be able to trade as a going concern if it could not secure additional capital. Unsurprisingly, this led shares to fall from around 9p to just above 3p.
Around a week after this shock announcement, WideCells revealed a placing to raise £1.47m by placing shares at 3p each. The fundraise included a £650,000 Live Market Bookbuild accessible to private investors via the Teathers App
Following suspension on 3 May, Widecells’ shares resumed trading in early June after the release of its results. With its cash position freshly bolstered by the ca £2m raised in the placing and the ability to raise further 20% of its share capital, if needed, following the recent publication of the prospectus, Andrade told us that the company is now focused on driving revenues across its three divisions.
Over the summer, WideCells will focus mainly on optimising its existing operations in the UK and Spain. In the UK, it has now set up a cord blood and cord tissue stem cell storage and research and development facility at the University of Manchester Innovation Centre where it is currently carrying out three research projects. In February, it received a Human Application licence from the Human Tissue Authority (HTA) that allows it to procure, import, export, process, store and distribute umbilical cord blood/tissue from the UK and Europe for its WideCells division.
It has now launched its ‘BabyCells’ stem cell retrieval storage and distribution service, which is designed to apply industry-leading techniques to optimise the quality and safety of cord blood stem cells and umbilical cord tissue. It also plans to launch its innovative products called TeethCells and LipoCells in 2019, which will process and store dental pulp stem cells and adipose tissue stem cells in collaboration with Dentists and Cosmetic and Plastic Surgeons.
Having trialled CellPlan in the UK through a revenue-generating collaboration with a cord blood bank in 2017, the business will now look to increase the roll-out of its services across the UK by utilising its own storage facility. As Andrade puts it:
‘We now offer the first year of a CellPlan policy to all new WideCells clients. This means one sale for WideCells equals a sale for CellPlan, with both likely to generate repeat revenues over the coming years.’
Beyond this, the company is also looking to roll out partnership programmes with additional, third-party blood banks through CellPlan in the UK. To facilitate this, it has developed an e-commerce platform that allows selected companies to offer CellPlan insurance products to their customers.
‘We are looking to grow CellPlan sales by building a sales and marketing team and moving into large cities like London. We are in conversations with other stem cell banks operating in the UK to eventually include the CellPlan product in their offering as well,’ adds Andrade.
The business is also keen to establish itself in Spain after launching CellPlan in the country last October through an agreement with a leading domestic stem cell bank. As part of the deal, Stem Cell Spain – as the bank is known – will offer CellPlan to each of its hundreds of new clients it takes on every year. Andrade tells us he is also in discussions with other Spanish stem cell banks to set up additional agreements.
Finally, WideCells also plans to launch its e-commerce platform in Spain by the end of July to increase third-party engagement and, subsequently, revenues.
‘Spain is most likely the best market in Europe for stem cell storage, so that is why we targeted it after running our pilot programme in the UK,’ he says.
Finally, CellPlan is now considering to enter its domestic market, Portugal, where the company holds its insurance brokearage license and where its office and team is based.
‘We are currently in discussions with our partners as well as cord blood banks and local insurers to explore the possibility of launching CellPlan in Portugal in the next few months.’ he says.
WideCells’ current goal is to take on 100,000 CellPlan clients and 5,000 BabyCells clients over the next three years. So how is it going to achieve this? Andrade tell us the company has now ‘cracked the model’ for entering new countries, obtained licenses to operate in a few markets with WideCells storage and research and CellPlan, adding that this will serve it well when it looks at expanding beyond the UK and Spain later this year as the implementation processes have commenced to bring its products to new countries through the already established commercial contracts :
‘We had to go through a learning curve, and the UK launch took a little bit longer than we were initially expecting. There is not a great deal of innovation in the insurance industry, and our approach is highly unique. We now have a model that allows us to go into any market in the world with a reasonably accurate idea of when we will be able to go live. We have global reinsurance and insurance capacity through our partners as long as there is a good commercial opportunity which enables us to scale up the business into new geographical locations as we progress’
‘When entering a new market, we have to find a local quality insurer to offer CellPlan. We then enter an agreement with them and go through all of their compliance, adjust the policy to meet local regulations, translate all the documentation and marketing materials to local language, and adapt our marketing approach and e-commerce platform to meet each countries requirements. This is an exercise that can take between four and 12 months depending on where you are looking to enter in the world, but having done this in the UK and now completing the process in Spain we are well positioned to be at the forefront of the stem cell insurance industry growth. It is worth it – as once we are established, we have first-mover advantage.’
So where will WideCells go? Andrade told us it is highly likely that the company will look to increase its presence in Europe because its HTA licence already applies across the continent. One particular country of interest here is Portugal, a historical operational hub for WideCells where it has obtained a permit for CellPlan to avoid any future insurance passporting issues following Brexit.
‘We are looking at where we can deliver our product offering as soon as possible to drive revenue and return on investment. We sent out blanket requirements to all European countries to offer CellPlan, and now we need to identify a local insurer when we decide to enter each country. Portugal is a well-developed market where we are already present and are considering partnerships. We are licensed in Portugal, our team is based in our office in Porto and our insurance partners have a presence in Portugal as well. We believe the market may have appetite for the product and we could potentially obtain positive results as our CellPlan global operation is being run from our back-office in Porto, and our team knows the Portuguese stem cell banking and insurance market well. There are numerous large stem cell banks and more than 100,000 cord blood samples stored across the country,’ elaborated Andrade.
The most potentially transformational move for WideCells, however, will be its expansion into Asia, where it secured a landmark partnership agreement in March with a significant cord blood storage facility. Cryoviva, which operates in Thailand, Singapore and India, has c.250,000 stem cell samples stored to date and is forecasted to save c.25,000 new samples every year. Its agreement with WideCells will see it offer CellPlan to customers on a phased basis from the second half of this year.
Andrade told us he is particularly excited about this stage of the company’s development: ‘Given that Asia is one of the fastest-growing markets for cord blood stem cell banking and treatment, this was a real game-changer for us. The agreement could possible see Cryoviva new clients taking on CellPlan coverage from the very first day of storage. We are planning to start sales in Thailand, where Cryoviva is headquartered, before moving on to Singapore or India, and we are keen to introduce CellPlan to its large database of existed clients who can benefit from our insurance solution in case they need to access a stem cell treatment in the future’
Finally, WideCells has already agreed to enter the Brazilian market in a bid to establish its footing in South America. The firm signed an agreement with leading local storage facility Hemocord last July to offer CellPlan to new and existing clients in a holistical marketing approach. It is now in discussions with local Brazilian insurers to begin rolling out CellPlan in H1 2019 and looking to sign up more Brazilian cord blood banks to start introducing CellPlan to its clients.
Beyond CellPlan and stem cell storage, WideCells also hopes to enter contracts with third parties to localizations of its Wideacademy platform which has the potential to generate revenues up-front for the development of the platform and repeat revenues from subscriptions to Wideacademy PRO – which enables exclusive access to healthcare professionals to a wide range of content on stem cell innovation – and also from accreditation via its online modular courseware on stem cell technology.
Since 2005, there has been a 300pc increase in the number of illnesses that can be treated using stem cells. The technique can now be used to treat cerebral palsy, autism, diabetes and stroke with more uses anticipated in ythe future. As a result of this, the global stem cell market, currently valued at $96bn, is expected to grow to $170bn by 2020 and $270.5bn by 2025.
Thanks to this growth, Andrade told us there has been an increasing amount of M&A activity and collaboration among businesses operating in different areas of the stem cell industry work to maximise growth:
‘Stem cell banks have historically been a little bit isolated, but that is now changing. Strong strategic partnerships and collaborations between organisations are the only way the industry can keep up with advances and new treatments emerging across the world. We connect the best minds around the world and the best treatment centres and provides these to clients. We are very well positioned to take advantage of increasing collaboration by connecting the dots. I think we have selected the best time to come to the market as there is now a huge amount of media coverage and engagement.’
However, with growth comes competition from new firms and improving technology. Despite stem cell technology and cord blood banking still being relatively new, WideCells has already seen insurance companies begin to offer insurance policies of its own but with much less coverage, driven to domestic markets only instead of providing worldwide coverage up to 1,000,000 €/£/$ and with none of the CellPlan services such as the global medical concierge and expert consultation. To ensure it remains the market’s leader, Andrade told us he has put into place a Scientific Advisory Committee working with its marketing team and plans to include new covers to its standard product offering as the division progresses.
As mentioned, as at the time of writing this piece, WideCells’ shares sat at 3p, giving the business a market cap of ca £4m. With most of this value covered by the company’s post-fundraise cash balance, and plenty of newsflow on the horizon, Andrade expects a market re-rate shortly:
‘From 2015 to 2017, we were building our e-commerce platform, entering contracts with stem cell banks for CellPlan, setting up the storage facility in Manchester and preparing our commercial and quality processes, and WideAcademy platform. There was a lot of investment in getting our procedures and quality management in place, and this is reflected in our results throughout the period. All of that is now behind us, and it is now time to capitalise on these investments, as these position us at the forefront of the industry with a diversity of complimentary products that no one can match at the moment. All the newsflow from now, we expect, will be focused in entering markets and by bringing in partners to facilitate or pay for our products to drive revenues. Some of the market may currently be missing this potential, but I believe a re-rate will be on the cards when results appear and investors catch on.’
If Andrade’s vision becomes a reality, then there is a good chance that WideCells will see its share price rise as investors rush to get exposure to growing revenues. Likewise, if the firm can establish itself as the market leader in the storage and insurance spaces, then there seems little doubt that it will benefit if the stem cells industry continues on its current growth trajectory. With these points in mind, it could be worth having a punt on WideCells, especially given that the company is now funded to execute the next stage of its sales plan.