GOLDEN CAPITAL SECURITIES LTD. PT.2
Current Technology Corp is a Vancouver-based company which has acquired a worldwide license to a patented electrotherapeutic device to treat common baldness. The treatment, known as ElectroTrichoGenesis (or simply ETG), involves the electrical stimulation of dormant hair follicles, which is believed to promote cellular activity within the hair follicle to arrest the shedding process, and in many cases reverse it. In its eleven years of operation, the Company has weathered a number of hardships, the most significant of which was coming up against regulatory obstacles in the US in 1994. Realizing that it had to re-orient itself to a non-US market for the time being, the Company has since implemented an extensive worldwide marketing effort, with exclusive distribution agreements already signed in 24 countries, and letters of intent signed in another eight. At present, there are approximately 50 devices in use throughout the world, and sales in the first two quarters of 1997 exceeded $1 million.
Current Technology is currently in transition from an R&D company to a commercial entity. Prior to 1996, the Company reported no revenues from sales of personal care products, and incurred continual losses as a result of its ongoing R&D and testing charges (which have been expensed rather than amortized in accordance with US GAAP). As the Company has completed its R&D and commenced sales, it should be profitable by 1998.
The concept of a single-product company basing its entire existence on hair loss products is admittedly grounds for skepticism on the part of investors, with this skepticism due in large part to the deluge of "miracle cure" scams already on the market. Current Technology is taking a more upscale approach with their product, making it available only to dermatologists and other healthcare clinics, and operated by a registered nurse or other trained professional. Thus, while end users will ultimately drive the incremental usage revenues, health care professionals will drive unit sales. As for the single-product concern, the Company has expressed an interest in developing additional hair, skin and/or nail products targeting the so-called "vanity sector", and would likely distribute these products through the international network it has forged with the ETG device. No formal plans have been announced.
Androgenetic Alopecia (AGA)
The scalp has three basic layers: the epidermis (the outer layer of the skin), the dermis (the vascular inner layer of the skin) and the subcutaneous layer (beneath the skin). As blood brings oxygen and other nutrients into the dermis, cellular activity produces a protein called keratin. Keratin is the basis of hair and nails on humans, and is the basis of horns, claws, hooves and feathers on other species. Hair is formed within a protective casing called a follicle, with the average person having approximately 100,000 hairs on his or her head. Hair grows in cycles, starting with a growth ("anagen") stage of two to six years, followed by a dormant ("catagen") stage of two to six weeks, and ending with a fall out ("telogen") stage of four to eight weeks. During the fall out stage, hair pulls away from the root area as new hair is being produced in the follicle. Every day, approximately 50 to 100 hairs fall out of a healthy scalp, and 50 to 100 new hairs take their place.
Of the various forms of baldness, androgenetic alopecia (AGA) - more commonly known as pattern baldness - is the most prevalent, comprising 95% of all cases. It is estimated that up to 60% of men and 30% of women will experience some degree of AGA during their lifetime. The pattern of hair loss is predictable once it starts (hence the "pattern" in "pattern baldness"): in men, the effects are more pronounced, starting with the frontal hairline or back of the head and extending across the top of the head; in women, the loss is less localized, and generally leads to overall thinning hair rather than actual bald spots. For individuals with AGA, the rate of hair loss does not accelerate, but rather the rate of hair replacement declines as a result of a prolonged resting stage. Resting follicles also tend to shrink in size, such that when hair does begin a new growth phase, the new hair becomes progressively finer. Eventually, the dormant stage eclipses the growth stage and new hair stops growing altogether.
The pathogenesis of AGA is not fully understood, and likely involves both a genetic component (which can be inherited from either parent) and a susceptibility to androgens. It is believed that individuals with androgenetic alopecia have increased levels of 5a-reductase - the enzyme that converts testosterone to dihydrotestosterone (DHT) - in their scalp. This enzyme is found in two places on the body: the scalp and the prostate gland. DHT affects hair follicles by shortening the hair cycle and shrinking scalp follicles, such that hair both falls out more quickly and is replaced with thinner strands. Precisely why DHT affects some individuals in this way is not entirely understood. Estrogen tends to counteract the effects of DHT even in women who have inher-ited the genetic trait which predisposes them to hair loss. For this reason, many cases of female pattern baldness occur after menopause.
There is no cure for AGA, as the genetic determinants have yet to be clearly understood. Once AGA manifests itself, it cannot be eliminated. Treatments exist to combat the effects of AGA, and in many cases can prevent further hair loss and even restore hair growth. It must be kept in mind, however, that these treatments are chronic, and that in order to counteract the effects of AGA, the treatments must be continued indefinitely.
The market for hair replacement products is substantial. In the US alone, men spend an estimated $400 million on wigs and toupees, $100 million on "non-traditional" remedies such as herbs and teas, and $800 million on hair transplants, according to a 1996 article in Fortune which cites the American Academy of Cosmetic Surgery and Pharmacia & Upjohn as its sources. These figures do not include sales of Rogaine or prescription products not formally approved for treating hair loss. While North America is unques-tionably the most significant market for hair loss products due to the demographics, income level and boundless vanity of its general population, concern over hair loss is not confined to this continent or even to the western hemisphere. It is Current Technology's contention that vanity is more a function of income than of culture, and that the market for hair loss products outside of the US will continue to grow as nations become wealthier.
Existing Therapies
There are a variety of hair loss treatments available on the market, and they typically fall into one of three categories: oral and topical pharmaceuticals, wigs and toupees, or surgery - or more colloquially, the "drugs, rugs and plugs" trilogy.
Pharmaceuticals
Finasteride was introduced in 1989 as a 5a-reductase inhibitor in treating men with enlarged prostates. While this product is gener-ally effective at reducing DHT in the prostate, it has been shown to have little impact on 5a-reductase levels in the scalp. However, it has recently been discovered that while it does not significantly affect 5a-reductase in the scalp, oral finasteride decreases DHT levels in the scalp. This has led researchers to postulate that DHT levels in the scalp may be influenced by both types of 5a-reduc-tase instead of just the one type found in the scalp. Both animal and clinical studies have concluded that with prolonged use, finas-teride may be an effective means of controlling DHT levels in patients with androgenetic alopecia.
Merck is currently seeking FDA approval for finasteride as a hair loss treatment, to be marketed under the brand name Propecia. This product has been prescribed as a prostate drug (Proscar) for several years, but has not been approved for dermatological indica-tions. In December 1996, Merck completed a Phase III clinical trial for vertex hair loss (i.e. top of the head), and presented the results at the annual American Academy of Dermatology meeting in March 1997. The study enrolled over 1,500 male test subjects aged 18 to 41 for twelve months, and concluded that patients treated with Propecia experienced significantly greater hair growth - measured both objectively and subjectively - than those treated with a placebo. A second Phase III study for frontal hair loss was also completed recently, with only slightly less significant results. FDA approval is expected by the fourth quarter of 1997 or the first quarter of 1998.
A number of anti-androgens have been investigated for the treat-ment of AGA, based on the assumption that increased DHT levels in the scalp are the primary cause of common baldness when combined with a genetic predisposition to hair loss. By and large, these studies have met with limited success, primarily due to the severe side effects in some cases. Spironolactone, a drug used to treat hypertension and congestive heart failure (and one of the strongest anti-androgens on the market), has been reported to show some subjective improvement in AGA at doses of 50 to 200 mg per day. Side effects such as decreased libido and gynecomastia (the development of breasts), however, precludes its use in men. Cimetidine, a drug used to treat peptic ulcers and reflux esophagitis, has similar side effects in men, although one clinical study on 10 female patients found favourable results in seven cases.
The list of anti-androgens which are not approved for hair loss but which have documented hair growth side effects is long, and includes: cyproterone acetate (an anti-androgen and contracep-tive), azeleic acid, flutamide, inocoterone, ketoconazole, Proxiphen, and turosteride. With the exception of Proxiphen and cyproterone acetate, none of these products makes any claim to be an effective treatment for hair loss. Prophixen has no clinical trials to support its claim; cyproterone acetate has proven to have minimal to moderate effectiveness, but has certain estrogenic side effects in men.
There are a number of other prescription medications not intended for hair loss but with observed (albeit not formally tested) hair growth properties. Buserilin and leuprolide acetate, "gonadatropin releasing hormones (GNrH)" used to treat hirsutism in women, may also stimulate hair growth. Ironically enough, treatments to prevent excessive hair growth also seem to work well in preventing excessive hair loss, at least in women. This stems from the observation that estrogen controls DHT levels. Since men are rarely if ever treated for hirsutism, the effects of these drugs in treating male baldness is unknown. Certain oral contraceptives have also been found to have similar properties for the same reason. Heart drugs, including potassium channel openers (Cromakalim, diazoxide, Pinacidil) and cholesterol-lowering agents (Simvastin), also appear to prevent hair loss. Phenytoin, an oral anti-convulsant used to control epileptic seizures has a well-known side effect of growing hair. Cyclosporin, an immunosuppressive used in organ transplants to prevent rejec-tion, has been found to be highly effective in stimulating hair growth when taken orally (up to an 80% response), but only mildly effective when applied topically (up to a 20% response). When taken internally over the long-term, however, this drug can cause kidney failure, making it a less than ideal candidate for treating hair loss on a permanent basis.
Minoxidil, marketed under the brand name Rogaine by Pharmacia & Upjohn, is the only treatment for androgenetic alopecia which has been approved by the FDA. Minoxidil was originally approved as an anti-hyperintensive agent in 1979, and has been sold under the brand name Loniten. It was later found to stimulate hair growth, although the mechanism by which it func-tions is not completely understood. It is postulated that minoxidil stimulates papillae or follicular hair matrix cells, which in turn prevents new hairs from growing progressively lighter in weight. Rogaine was approved by the FDA in 1988 as a treatment for men in 1988 and for women in 1991.
While Rogaine is considered to be effective for treating hair loss, it has a number of disadvantages. First, it must be applied twice a day. Second, it works only for thinning hair which begins at the vertex (the top of the head), and may be ineffective for AGA which has advanced beyond a certain stage or which begins else-where (such as the temples). Third, it is not recommended for individuals without a family history of hair loss - in fact, the company itself does not recommend using the product if you "do not know the reasons for your hair loss." Fourth, the scalp must be kept dry for four hours after each application, which means that basic activities such as showers must be scheduled around the treatments. Fifth, if used improperly, Rogaine can cause unwanted hair growth elsewhere on the body: in June, a 73 year-old woman launched a $1.5 million lawsuit against Pharmacia & Upjohn alleging that Rogaine caused her to grow heavy facial hair. Finally, anecdotal evidence from some dermatologists has found that while Rogaine is a safe and effective way of retarding hair loss, only a minority of their patients achieved regrowth which they considered to be "cosmetically acceptable."
In February 1996, Rogaine was approved by the FDA for over-the- counter sale. It is currently being marketed in about 90 coun-tries, and sold without a prescription in 20. In 1994, while still a prescription product in the US, annual sales of Rogaine were $122 million worldwide, with almost 80% coming from the US market alone. In 1996, US sales were $162 million. The product sells for around US$30 for a one month supply or about half its price as a prescription product and is generally not covered by health insur-ance because it is considered cosmetic.
Wigs and Toupees
Hair pieces constitute a sizeable proportion of the hair replace-ment market - an estimated US$400 million annually among US men alone. Wigs and toupees vary greatly in price and quality, from $50 schlock to semi-permanent moulded skullcaps which can run into the thousands of dollars. While the size of this market seems exceptionally large considering the surgical and non-surgical alternatives available today, hair pieces can offer one thing that none of the other therapies can: a 100% guarantee that the customer will walk out of the shop with a full head of hair. Rather than take a chance with drug therapies or endure the discomfort of surgery, many individuals with AGA are sticking with the more traditional solution until a 100% effective therapy reaches the market. Granted, they may be waiting a while. Others may simply be purchasing hair pieces as an interim measure while undergoing more long-term treatments.
Wigs and toupees offer a number of advantages over other treat-ments. First, the results are instantaneous: there is no lead time of six to twelve months before any noticeable results can be observed. Second, there is no risk of false expectations: the customer knows exactly what results can be expected before he or she purchases the prosthesis, whereas longer-term therapies cannot guarantee results. Third, there is no risk of adverse side effects. Fourth, the one-time cost of a typical hair piece is significantly lower than the ongoing cost of most other therapies.
Despite these advantages, there are a number of disadvantages associated with hair pieces. The primary limitation of hair pieces is the risk of detection. Unless glued to the scalp using surgical adhe-sive, there is always a risk of a hair piece falling off at an inoppor-tune moment. For many consumers, the anxiety caused by this potential outcome is not worth the aesthetic benefit. Secondly, there are additional costs to owning a hair piece. While the purchase price of a basic wig or toup‚e is lower than other thera-pies, the user must still shell out "maintenance fees" every month or two in order to keep the hair looking real. Factoring in the cost of cleaning and refitting the wig - and considering the fact that most users own a second wig to wear while the first one is being cleaned - the cost advantage of wigs over other treatments is not as significant as it may appear at first glance. Finally, a hair piece is not a lifetime investment, since most customers realize that styles change. Moreover, in order to escape detection, wigs have to be upgraded over time - while a 35 year-old man can get away with a full head of jet black hair without raising suspicion, the same cannot be said for the same man at age 60. If the hair piece allows real hair on the sides and back of the head to show, it will have to be replaced over time as the colour and texture of the permanent hair matures.
Surgery
Hair transplants have been performed since the 1930s in Japan, initially as cosmetic eyebrow transplants. In the 1950s, the concept was expanded to the scalp by New York dermatologist Dr. Norman Orentreich, who pioneered surgical hair replacement on the head. Dr. Orentreich's experimental research proved the theory of "donor dominance" - that certain hair follicles, such as those found on the back of the head, are genetically programmed to be permanent, and that this genetic programming is linked to the follicle itself rather than its location on the body. As such, these follicles can be moved around on the body, and will usually continue to grow in their new location.
Hair transplant surgery involves the relocation of "permanent" hair from the back of the head to the balding area on the top of the head. This procedure cannot bring dead follicles back to life, but rather changes the distribution of remaining hairs. There is a pervasive misconception that hair grows like grass, and that a few healthy stands placed over a bald patch will eventually "fill out" to cover the entire head. In actuality, hair transplanted from one part of the scalp to another will usually continue to grow in its new location, but will not regrow in its original location. It is therefore suitable only for individuals with certain hair types, skin types and degrees of baldness, since these factors determine the amount of hair which can be transplanted without causing noticeable thin-ning in the source location.
Historically, transplants have received bad publicity due to the fact that they did not age particularly well. In the early days of hair transplants, clumps ("plugs") of 10 to 20 permanent hair follicles were placed into the thinning scalp in a grid pattern. This gave the appearance of thicker hair as long as there was some thinning hair around it. Over time, however, as the thinning hair eventually stopped growing, the individual was left with a head of evenly-spaced hair clusters, or "Barbie hair" as one practitioner put it. Today, hair grafts are much more precise, usually with no more than three or four hairs per graft, and can be surgically trans-planted in such a way as to give the appearance of natural hair growth.
Transplants have numerous advantages. First, they are generally very effective, and if the surgery is performed by a competent dermatologist or plastic surgeon, the patient can usually expect more than 90% of the hair grafts to grow. Second, the healing process is short, and generally not noticeable. Healing typically takes a week to 10 days using the latest micro-surgery techniques, and hair growth usually commences within three months. Third, although there is potential for hemorrhaging, infection or scarring - as with any type of surgery - a hair transplant is a relatively safe and minor procedure, and there are very few complications in practise.
Despite these advantages, the procedure for a hair transplant is lengthy, uncomfortable and expensive. Hair grafts are typically performed under a local anaesthetic, and can take upwards of 8 hours. The procedure is lengthy because hair grafts now consist of only one to five follicles. While some doctors will transplant up to 1,500 grafts in a single session (and up to 4,000 in the extreme), others opt to spread the procedure out over several sessions three months apart. This is done to allow the first set of grafts to take hold and blood flow to return to normal. In spite of the fact that the patient feels little if any physical sensation under a local anaes-thetic, being conscious and witnessing the entire procedure can be unsettling. The cost of a hair transplant varies, and is sometimes quoted on a "per graft" basis. On average, a hair transplant costs about US$4,000. Finally, the quality of the transplant depends on the competence of the doctor performing the operation. Many patients come out of surgery with uneven patches, visible scars, or hairlines which are either too low on the forehead or uneven, and often end up undergoing the entire procedure again in order to correct these problems.
Scalp reduction surgery is in some cases an alternative to trans-plants (although generally less effective) but in most cases is performed only in conjunction with a transplant. The procedure involves splicing the scalp at the vertex, pulling it together, removing the excess skin, and stitching it back up in an effort to remove the bald patch. Ideally, the patient will have enough hair on the sides of his head that the bald spot can be completely cut out. The fundamental limitation of scalp reduction surgery is that while it can bring two hairy areas together initially, it cannot prevent any further hair loss. If hair loss progresses in these areas, the patient will inevitably wind up with a narrow bald patch with a scar running through it. There are also risks of blood supply problems and nerve trauma associated with this procedure, which explains why many clinics performing hair transplants refuse to perform these procedures.
Despite the expense, discomfort and risks of hair transplant surgery, it still captures about 60% of the market for hair replace-ment therapies due to a lack of available treatments which can offer comparable results.
ElectroTrichoGenesis
ElectroTrichoGenesis (ETG) is a novel approach to treating AGA in that it is the first treatment to be developed which uses electrical signals rather than topical or oral medications to stimulate hair regrowth. The concept is not without empirical foundation, as studies dating back to the 1950s have investigated the use of pulsed electrical signals in repairing both hard and soft tissue. The ETG system emits electrical pulses with a field density of about 4,000 volts per metre - nowhere near the estimated danger threshold of 300 million volts per metre - for 12 minutes. The patient quite literally feels nothing, and no side effects have been discovered in any of the clinical trials conducted to date.
As with Rogaine, the precise mechanism by which ETG stimulates hair growth is not known with certainty. It is likely to be due to increased cell mitosis resulting from electrical stimulation - the same mechanism by which electromagnetic fields are used to heal bone fractures and ulcers. Research into ETG published in the International Journal of Dermatology proposes that dormant hair follicles are sensitive to certain levels of electrical stimulation, and can be prompted into their growth phase by subjecting them to a mild electrical field.
ETG treatment is completely passive and non-invasive. The patient sits in a chair not unlike that found in a dentist's office, and a semi-spherical "helmet" is placed over the top of their head. There is no physical contact between the patient's head and the inside of the device, although safety precautions ensure that there is no danger even if hair does come in contact with the machine. The hood creates an electrostatic field which is believed to produce a stimulative effect on hair follicles, but without the alleged carcinogenic effects of electromagnetic fields. The free-standing device runs on a rechargeable battery, and has been certi-fied to comply with domestic (CSA) and international (IEC) elec-trical safety standards.
ETG has been clinically tested in four clinical trials. The first was an open trial conducted at the Company's test clinic, and found that subjects treated with ETG experienced reduced hair loss and/or increased hair growth than those not treated with ETG. Unfortunately, since the trial was open, meaning both subjects and investigators knew whether they were in the treatment group or the control group, these findings are not considered to be robust. Two additional trials were conducted through the Faculty of Medicine at the University of British Columbia between 1988 and 1990, and results from both were published in the International Journal of Dermatology (July-August 1990 and December 1992). These controlled studies confirmed the Company's earlier findings, but in a contolled setting in which neither subjects nor investigators knew beforehand who belonged to the treatment group and who belonged to the control group. Finally, a multi-centre study was conducted at eight centres throughout North America as part of an FDA submission. While the results have not been published, they were consistent with the findings of the other three trials.The Company has sought and received regulatory approval for the ETG device in Canada, Australia, New Zealand and Mexico. The device is not, however, approved in the US. The Company submitted an application for Pre-Market Approval (PMA), but withdrew its application in July 1994 when it was informed that the FDA required long-term studies - and "long term" not being explicitly defined - in order to determine the device's safety for chronic use. The Company intends to re-submit an application to the FDA within the next year, and continues to collect data on long-term use through its ongoing study at its Vancouver office.
While ETG has been found to have statistically significant results after 36 weeks when tested against a placebo device, there have been no clinical studies investigating ETG's efficacy relative to existing therapies. Subjective appraisals deem ETG to be equally effective as minoxidil and finasteride, although there is no clinical data to support this claim - nor to disprove it. The device is being marketed as a safe and convenient alternative to existing therapies rather than as a treatment promising better results. |
