Cyrcadia, Inc. (dba Cyrcadia Health) 2017 Q3 Stakeholder Newsletter

Dear Shareholder:

Since becoming Cyrcadia, Inc.’s (dba Cyrcadia Health) CEO in April, the team has been engaged in taking over duties from Rob Royea, who has moved to head up Cyrcadia’s expansion into Asia under a licensing agreement. We have undergone a transitional period under the new structure and the following is the company’s progress and strategy.

Publicity – Cannes Lions Awards
In case you missed it, I will start with the latest news via a recent press release; Cyrcadia Health, alongside our PR firm Area 23, has won two awards at the Cannes Lions International Festival of Creativity, a global event for the creative communications, marketing and advertising world. Held in Cannes, France and attended by over 10,000 delegates.  Lions awards are considered the most coveted in the PR and marketing industry. Until now, neither award has yet to be issued to a health care company.

The first award was a Bronze Lion in the category of Innovation, which honors ground-breaking technology and problem-solving. It specifically looks at how technology, data and ideas, when working in unison, can revolutionize lives. Cyrcadia Health shared the Bronze award with industry giants such as Google, Shell and Apple.

The second award was a Silver Glass Lion award, recognizing ideas that could change the world and positively impact gender inequality or injustice. Cyrcadia Health’s ability to deliver early breast cancer health monitoring to the mass populations of women who have little or no access to quality health care was key to Cyrcadia Health’s award achievement.

The presentation of the iTBra™ and the Area 23 Marketing Campaign as delivered by Karen Smith can be seen here: Cannes Lion Award: iTBra™ Presentation.

In addition to these prestigious press and global awards, we have presented at a number of international conferences. Note that in all cases we were the guest speaker and no sponsorship money was required. In one case, the international travel expenses were covered. The events were:

“Detected” trailer screening release, Boston and Los Angeles, April and June 2017.  These screenings are only an extract of the actual documentary which details the invention, history and development of the system, originating with William Reeves, PhD. During Rob Royea’s tenure as CEO with CI, he was responsible for the further development of the original devices and the naming of the iTBra™, owned by CI.

Healthy Ageing Conference, Hong Kong (Keynote Speaking Invitation), June 2017

World Precision Medical Congress – London – June 2017

Wearable Technology Conference – San Francisco – July 2017

10th Annual Digital Pharma Conference – Philadelphia (Keynote Speaking Invitation), Oct. 2017

Media coverage: Forbes, “In Cancer Fight, Artificial Intelligence is a Smart Move for Everyone.”

Media coverage: WhaTec Channel, “The major players in global and United States Healthcare Artificial Intelligence market, including IBM Watson Health, AiCure, Atomwise, Cyrcadia Health, Lifegraph, Modernizing Medicine, Sensely, Zebra Medical Vision, Sophia Genetics, iCarbonX, Welltok, Butterfly Network, APIXIO, Pathway Genomics, Enlitic, Insilico Medicine.”

License and Cooperation Agreement with Cyrcadia Asia
Following our last public press release in April regarding a license and cooperation agreement, a new company was formed called Cyrcadia Asia, Ltd.  (CA).  The former Cyrcadia, Inc. (CI) CEO, Rob Royea, is now heading the new endeavor. While the previous press release covered some of the information, we can now provide more detail on the deal.

Background
The business arrangement arose from an approach by an investment fund based in Shanghai, Southern Capital Partners (“SCP” see www.southerncapital.co.nz) which provided funds for the operations of CI in China and other Asian territories. Since SCP was primarily interested in the Asia region rather than the U.S. and rest of world markets, the licensing deal was found to be a means of infusing funds quickly into CI in a minimally dilutive manner. The deal also allows the Cyrcadia Health brand  to tap into the large populations of Asia in a swifter period given the regulatory requirements in many Asian countries could utilize Cyrcadia’s U.S. FDA Class II clearance. SCP also have strong networks of partners and potential investors throughout the region.

The CI Board therefore agreed with SCP to establish a licensee operation in Hong Kong CA and CI have cross shareholdings and have signed a License and Cooperation Agreement which will ensure that both companies act as one entity under the global brand of Cyrcadia Health while developing separate markets. We believe this to be a sound model to develop markets throughout the world under similar potential licensee structures.

Key Terms
The essential points of this particular Agreement are as follows:

CA will purchase equity in CI to a total of $830,000 at $1.00/share with a $1.00 warrant in several tranches. This equity purchase met the condition for CI to trigger an intellectual property option agreement with Lifeline Biotechnologies, Inc. (LLBO), with the result that all the intellectual property owned by LLBO has now been assigned to CI.

In addition, CA will pay a license fee to CI totaling $1,050,000 over a period of 50 months for use of CI’s intellectual property in the Asia region. Unlike a traditional license fee, the payments start immediately and not when the product is sold, so that CI has ongoing income.

CA has provided 2.5% of its equity to CI.

CA will undertake a significant proportion of CI’s product development and operating costs, including:

  • CA will undertake initial commercializable product development and manufacturing costs with Jabil and other vendors, such as the developers of the application interface that accompanies the device, those costs estimated at $3MM;
  • Employment of Rob Royea as CEO of CA. This ensures that Rob’s knowledge and experience remains within the group while liabilities are carried under another entity;
  • The Core Lab costs, including those of Dr. Vinithasree Subhurraam, Director of the Core Lab, are shared between both companies;
  • The Core Lab has been domiciled in Ireland, Cyrcadia Data Services (CDS), jointly owned by both companies. This allows CI to exploit the user database that will build up as both CI and CA start to commercialize and develop their respective markets. Profits of the CDS are shared between CI and CA;
  • CA will fund new intellectual property filings and will own intellectual property in its Asia region but U.S. patents will be assigned to CI for domestic ownership and protection;
  • CA will continue to work through existing distributors in its region for product distribution.

Value of the Deal
We estimate that the value of this deal to CI, including equity, cash and operating costs is between $4.4 to $5.6 million in the first year and approximately $1.5 million in subsequent years. The deal in particular sees Cyrcadia Health increasing its momentum by expanding quickly into patient-rich markets.

Given a significant portion of Cyrcadia Health’s value and future exit is likely to be based on the volume of its user data and the ever-increasing accuracy of the Core Lab CDS fueled by Cyrcadia Health’s pathology associated patient data, we see the expansion into Asia as a significant strategic step which is additive, and not dilutive, of CI’s resources. The deal also means that the key patents valued at $5MM have now dropped down from Lifeline to CI with new patents to follow.

The intellectual property ownership combined with the value of the CI/CA License and Cooperation Agreement has generated a deal value of approximately $9.4 to $10.6 million.

The deal has already started to have a positive impact on CI’s progress, as detailed below.

Product Development and Manufacturing
As a result of the deal with CA, manufacturing agreements have now been signed with Jabil (see www.jabil.com), the world’s third largest electronic manufacturing services provider with a particular specialization in wearable technology and medical devices.

Jabil has chosen Cyrcadia Health as one of their marquee new projects and have provided in-kind services valued at over $800,000, covering mainly design and development of an improved hardware system. Jabil also analyzed historic clinical patches and software for potential points of failure to ensure Cyrcadia Health’s commercial products were highly reproducible and scalable.

Jabil will manufacture the Cyrcadia Health hardware at their FDA-approved facility in Shanghai. Full scale manufacturing is scheduled to start at the beginning of 2018, but in the intervening period, we will be able to obtain sets of patches as required for conducting pilots in the U.S. and other countries.

In terms of the smartphone app which is integral to our device, CA is in the final round of negotiations with a to-be-named 3rd party specialist medical app developer who has considerable experience in commercial applications.

Regulatory Clearance, Clinical Trials and Market Entry
CI’s current US trial success has allowed us to utilize a Non-Filing Justification (NFJ) with the FDA, potentially enabling CI to go to market pending FDA acceptance.  The predicate device utilized as the foundation for clearance was developed by Chronodynamics, Inc. which was acquired by Lifeline Biotechnologies.  That technology and intellectual property is now owned by CI as one of the outcomes of the Licensing and Cooperation Agreement.

The El Camino Hospital and The Ohio State University clinical trials have shown that CI’s scalable device is demonstrating over 84% accuracy, sensitivity and specificity with a 2-hour wear time, vs. the Chronodynamic’s historic accuracy of 74.5% and required a 48-hour wear time.

We now have strategies in place for managing our current and future regulatory pathways. Under the current FDA 510(k) Class II clearance, CI has met the regulatory qualification to go to market. We will be utilizing the NFJ, as described above, addressing current FDA positions of reduced burden for technologies such as ours.  Our priority now is to finalize and implement our marketing plan enabling the ramp up of sales as soon as possible in 2018 once the product is available.

Simultaneously, Cyrcadia is working on additional regulatory pathways for our product to be sold over-the-counter (OTC) in the U.S. instead of only through the physician. We are driving for a Class I filing for OTC sales and ultimately a digital health designation requiring no FDA clearance and unfettered marketing through the largest and highest quality channels. CI intends to simultaneously launch through the support of the physician market, as well as progress to OTC markets.

Intellectual Property
As mentioned above, one result of the deal with CA is that CI has been able to trigger its option with Lifeline Biotechnologies for transfer of patents and other intellectual property into CI.  From being a licensee, CI is now the sole owner of the full suite of iTBra™ patents.

In addition, since those patents were drafted, we have now developed the product considerably into the wearable and conformable device that it is now. We are currently in the process of drafting patent applications for the new inventions that have been created as a result of this product development since the first set of patents were awarded.  As a result, CI will own several new patent applications.  Patent applications can take some years to be examined and approved, but the pending patents themselves will have tangible value to current and potential investors, partners and acquirers.

As a result of the deal with CA, CA is also applying for trademarks, designs and patents in over multiple countries in Asia, ensuring that Cyrcadia Health’s brand and technology has global protection and giving us, in combination, a bolstered intellectual property portfolio.

 Strategic Partners
Apart from Jabil, a strategic partner in the manufacturing side, we have discussions ongoing with several strategic partners who may either help us enter the market and/or invest in us. Some of these cannot be named at this time at their request but we hope to be able to disclose them in due course.

CA is in advanced discussions and contract negotiations with some of the world’s leading insurance providers throughout Asia.  Pilot trials will be conducted in various countries throughout Asia under the guidance of prospective insurance partners.

Insurance companies are using Asia as a launch point for new digital health initiatives which can enable increased dialog with their insured while improving early cancer detection.  Once successfully implemented in Asia, similar programs could migrate to the U.S. and Europe through support by these global providers.  Also, as mentioned above, most countries throughout Asia honor our existing US FDA 510(k) which allows for multiple country entrance where breast cancer is accelerating at up to twice the pace of the rest of the world.

While CI and CA are pursuing opportunities simultaneously in our respective markets, we are very much coordinated in dealing with global strategic partners, collaborating and sharing leads and opportunities.

Market Pilots
As previously noted, the first “live” clinical market entries are likely to be with our insurance partners in Asia working with CA, as well as a lead out pilot in the U.S.  Additionally, CI will be addressing the consumer markets in the U.S. and rest of world.

With each insurance partner, pilots will involve several hundreds of patients working through two or three leading healthcare providers and key opinion leaders. This reflects our model globally, which is to ensure that healthcare providers and Key Opinion Leaders (KOL’s) are fully educated and bought in to what Cyrcadia Health’s technology achieves, supporting the move of the product into the wider healthcare market.

For the U.S., CI has been working with Evidation Health, Inc. (see :http://www.evidationhealth. com  ) to design a go to market pilot for the U.S. market for early 2018.  Evidation Health is an organization associated with Stanford University which is funded by GE Ventures and others to evaluate how the evolution of digital health and wearables can affect change from a care and insurance perspective in the U.S.  There will be more information forthcoming on the pilot with Evidation Health as we move into product availability for the trial in Q1/Q2 of 2018.

In summary, on behalf of the CI Board of Directors and myself, we thank you for your support as we bring this life saving technology to market.  As the newly appointed CEO for CI, I will do all in my power to ensure timely and profitable delivery of CI’s technology to the U.S. market and rest of world outside of the territories covered by CA.  We are committed to ensuring ongoing communication with you, our shareholders, and look forward to demonstrating further success for you in 2017 and 2018.

Sincerely,

Matt Benardis
CEO
Cyrcadia, Inc.