Expert Financial Analysis and Reporting

Back From BIO CEO Conference

I have returned from spending two days at the BIO CEO conference at the Waldorf Astoria in New York City. Through attending presentations or one on one meetings,  I heard presentations from Advanced Cell Technology ACTC), Advaxis (ADXS), Agenus (AGEN), Alexion (ALXN) , Alkermes (ALKM), Aradigm (ARDM), Athersys (ATHX), Celator Pharmaceuticals (CPXX), Chimerix (CMRX), CytoDyn (CYDT), Cytokinetics (CYTK), ImmunoCellular Therapeutics (IMUC), KaloBios (KBIO), NeoStem (NBS), Neuralstem (CUR), Northwest Biotherapeutics (NWBO), NovaBay Pharmaceuticals (NBY), OncoMed Pharmaceuticals (OMED), Onconova Therapeutics (ONTX), Rigel Pharmaceuticals (RIGL), Sanofi (SNY), Ohr Pharmaceuticals (OHRP), pSivida (PSDV) and Targacept (TRGT). I took 43 pages of notes.

I am not actively writing on all of these names. This is in part due to bandwidth and sometimes because I don’t feel confident that I have a grasp on the story or because I am skeptical. I have heard multiple prior presentations from most of these companies. It is not unusual for me to follow companies for some time before I do extensive research on them that may lead to a write-up although not necessarily a recommendation. I am constantly looking for new ideas and in the above list I am actually working on reports on two names. Within the above group, I am currently recommending Agenus, Cytokinetics, Neuralstem, Northwest Biotherapeutics and PSivida.

This note summarizes some of the highlights of the conference from my perspective. Most of you are used to my writing lengthy reports. My comments here are more Twitter style. I have also written this note in two ways. For all those who frequent my website, I have written on my perceived highlights of the presentations. For paid subscribers, I have written a separate note that discusses how these affect my investment thinking.

What Could 2014 Bring?

As a general overview, I think that this could be a very good year for small emerging biotechnology companies. In the last few years, they too often have been dismissed as science projects by institutional investors focused on the more mature, large capitalization biotechnology companies which had a phenomenal run in 2012 and 2013. The emerging biotechnology companies that I focus on are generally involved in cutting edge, paradigm shifting technologies that have been perceived as too early stage for many investors.

I think that institutional investors flush with profits from their large capitalization biotechnology investments that seem fairly priced may be more willing to look at the smaller caps and when they do, I think they will be surprised at the progress that is being made in the small cap arena. There are lots of very important clinical trial results coming up in 2014 that will focus attention on the group. This will be a year of interpreting clinical trial data. There is going to be a lot of activity in stocks surrounding the reporting of data.

Let me make an important point here. Some investors believe that the outcome on a clinical trial is binary, it either works or it doesn’t. However, in many cases the outcome might not reach the specified endpoints but could still be positive in pointing the way forward for future clinical trials. Drug development and biology is complex. It is hard to design and successfully execute a clinical trial in phase 1 or phase 2 or even phase 3 on the first pass. A topline report that the trial did not achieve statistical significance does not always tell the whole story. I suspect that you will see instances of this in the coming year and I just want to make you aware of this possibility in advance.

One very favorable factor for small stocks is that the biotechnology financing window has opened wide for them. For much of the last several years, many small companies were unable to raise sufficient amounts of capital to comfortably fund their programs and became serial issuers so that just after one deal was completed, investors were fretting about the next. In this environment, there arose the perception that equity deals are dilutive and bad for shareholders.

This obviously is a simplistic, naive and often wrong view as biotechnology companies obviously burn cash for many years and are dependent on external funding to finance their programs. Still it held sway and often caused pressure on anticipation of, during and after an equity deal. This has changed as in many cases stocks are actually trading up after deals are completed as investors see that the financing overhang is lifted and the Companies are strongly financed. I can’t emphasize how important this new attitude is to investing in emerging biotechnology stocks.

Cytokinetics (CYTK, $9.58)

Conference Highlights;

The biggest clinical trial event in all of biotechnology for 2014 could be the reporting of phase 2b results from the BENEFIT-ALS trial of tirasemtiv in ALS. I have an in-depth report about finished that analyzes phase 1 and 2 results for tirasemtiv and how they might be predictive of outcome in BENEFIT-ALS. Stay tuned.

The Company hopes to report results of BENEFIT-ALS at the American Academy of Neurology Meeting in Philadelphia which meets from April 26 to May 3. However, the results may not be available then and if so they will be reported at the joint Congress of European Neurology in Istanbul which meets from May 31 to June 3.

A second event for CYTK is the completion of the COSMIC-HF trial results in heart failure patients. The Company is less specific on the timing of release for results from COSMIC-HF, but it will probably be in 1H, 2015. Positive results could lead to the start of the phase III trial by Amgen in 2H, 2015. If Amgen elects to go forward into phase 3, this also would be a major positive.

Investment Perspective

My upcoming report on tirasemtiv leads me to believe that tirasemtiv does have a biologic effect that stabilizes or possibly improves ALS patients in short term studies of 14 to 21 days. The question is whether this effect is durable. The BENEFIT-ALS trial studies patients over 12 weeks and offers more of an insight into durably of effect.

I think that there is a reasonable chance that the results of the trial will be an outright success. I also think that if the primary endpoint is not reached with p=0.05 or less that the data will probably be sufficiently encouraging that  the Company still will move on to a confirmatory phase 3 trial.

The base case of the Company is that they will have to do a phase III trial, but in the event that the results in BENEFIT-ALS are spectacular that they could potentially file for approval.

If BENEFIT-ALS is a success, I think we are looking at a $20 stock or probably more. If it is a complete failure and the trial results are so bad that the product is dropped, I think that the stock drops in the short term to $3.00 to $4.00. There are many in-between scenarios depending on the data in which the Company proceeds to a phase 3. In the latter case, I think there would be significant initial pressure on the stock as the market absorbs the news that the primary endpoint was not reached with statistical significance, but the stock could then bounce back after more careful analysis.

There has been exhaustive research on omecamtiv over the last ten years and I do not look at COSMIC-HF as a make or break trial. In fact, it doesn’t really have a primary endpoint. This trial is designed more to fine tune the trial design for phase 3. The pharmacokinetics and pharmacodynamic properties of this drug are well defined and warrant phase 3 just on available evidence in my opinion. Amgen must agree because they just extended the agreement with Cytokinetics to obtain Japanese rights. I think there is a very high probability that Amgen announces in 2015 that it is taking omecamtiv to faze 3.

If omecamtiv is successful in phase 3, it meets one of the largest unmet medical needs in medicine and I see it as a multi-billion drug. One interesting aspect of this investment situation is that Amgen is committed to paying Cytokinetics $300 million or so of milestones that will be due to Cytokinetics before commercialization. Much of this will probably relate to the filing of the NDA and approval of the NDA, but there could be a substantial in-flow before then as when Amgen elects to go forward into phase 3 and then doses the first patient, both of which could occur in 2015. There is no reasonable way to guess amounts of these milestones but they could be in the $50 to $75 million range in 2015 and give CYTK a solid financial footing into 2016 and perhaps 2017.

If tirasemtiv fails and the stock goes to $4.00 or some such price, I would view it as a buying opportunity. If Amgen takes omecamtiv into phase 3 in 2015, I could see the stock at $15.00 on this basis alone and with no value attributed to tirasemtiv. If omecamtiv is then successful in phase 3, it is a multi-billion product and Amgen probably buys the Company for $25 to $30 per share. This is a complex investment scenario but it is an excellent asymmetric upside investment. I suspect that I will be doing a lot of writing on CYTK in 2014.

Agenus (AGEN, $3.10)

Conference Highlights

The presentation was made by Bob Stein, the new chief medical officer of the Company. He spoke almost entirely about the recent acquisition of the privately held company 4-Antibody. Dr. Stein stated that its Retrocyte Display technology platform, which uses mammalian cells for discovering and optimizing human antibodies, may offer significant advantages over current antibody development technologies.

Using this antibody platform, 4-Antibody has created therapeutic antibodies to six key checkpoint targets that regulate immune response to cancers and other diseases. These target some of the most promising checkpoint targets: GITR, OX40, CTLA-4, PD-1, TIM-3 and LAG-3. Agenus now has a broad range of pre-clinical programs that will lead to numerous IND filings in the coming years.

The human body uses mechanisms to regulate the T cell response, some of which enhance and others of which turn down T-cell activity. There are certain receptors or checkpoints such as CTLA-4 and PD-1 that when activated turn down the immune response. Many cancers have found mechanisms that activate these receptors which has the effect of putting a brake on the immune system’s response to cancer. Drugs which block activation of these checkpoints (checkpoint inhibitors) can take the brake off the immune system and increase the activity of T cells against many cancers.

The first commercial checkpoint inhibitor was Bristol-Myers Yervoy which blocks the CTLA-4 receptor. This drug is compromised by side effect issues, but still has reached $1 billion of sales. Bristol-Myers Squibb, Merck and Roche are working on antibodies that target PD-1 and PDL-1, which are generally considered by investors to have as much as $5 billion of sales potential by 2020. Dr. Stein said that Agenus will soon file an IND on an antibody that offers a superior reward/ risk relative to Yervoy.

You can think of the checkpoint inhibitors as taking the brake off of the immune response. There are other checkpoints that enhance the body’s immune response to cancer. This is like hitting the accelerator for the immune system. The result is increased T-cell activity against cancer. Agenus’ second IND will deal with a product that stimulates the immune system. Celldex’s CDX-1127 has the same therapeutic goal and has been the subject of much investor interest and added meaningful value to the shares.

I am going to be doing significantly more work on this new acquisition.

Agenus also announced that it had completed an equity offering that brought in $49 million. The stock was issued at $2.70 and with no warrants. This brings the effective basic share count to 54.6 million. There are also 3.6 million warrants exercisable at $11.53, 4.1 million options at $5.74 and 0.7 million of other shares. If all of the warrants and options were exercised, there would be 63 million shares outstanding and this would bring in $65 million more of cash. At the recent price of $3.10, the market capitalization based on 63 million shares is $195 million.

I estimate that the cash balance at the end of 1Q, 2014 will be roughly $70 to $75 million. For a Company that has been living with small cash balances over the past several years, this is tremendous positive for the investment case.

Investment Perspective

This acquisition is transformational for Agenus in several ways. Based on presentations at BIO CEO, I detected a very interesting new investment theme developing. The hypothesis is that perhaps the frequent failures of cancer vaccines in the past have been because the cancer has hijacked the immune system to the extent that the immune system response is blunted and this inhibits the efficacy of cancer vaccines. If so, the combination of the checkpoint inhibitors and other T cell regulatory products with cancer vaccines is a natural combination that could be highly synergistic and unlock the promise of cancer vaccines.

I think that Agenus has one of the most broadly developed capabilities in their ability to combine T cell regulatory drugs and their heat shock cancer vaccines. This has enormous theoretical potential for all types of cancers. Agenus is in the valley of the giants with Bristol-Myers Squibb, Merck and Roche all aggressively advancing T reg products. However, they have no cancer vaccine expertise. I think that the most likely road to success for Agenus (from an investor’s standpoint) is that some other big drug company wanting to join the hunt acquires the Company.

The capital raise takes away the financing overhang that has plagued the Company for years. It has had to conduct small financing after small financing over the last five or so years to keep afloat. It now has cash resources that can carry it into 2016 and beyond and enable it to do some internal programs. I understand that the Company could have brought in $75 to $100 million in this equity offering but didn’t want to take the dilution. I think that big investors were motivated by the T reg/ cancer vaccine thesis.

Lastly, I think this is a reputational transformation. Agenus and its long time CEO have been harangued by hedge funds and skeptics after the failure of the Prophage trial in renal cell carcinoma and the resultant and continual financial distress of the Company. Adam Feuerstein has been particularly vicious in his attacks accusing Dr. Armen of scamming investors among other scurrilous accusations. I think that F-stein and his ilk will be backtracking in coming years and Dr. Armen will be given credit for a great transformational move.

There is a truly binary event coming up in 1H, 2014 as Glaxo reports the results of its MAGE A-3 vaccine results in non-small cell lung cancer. There are low expectations for success in this trial following failure of the same MAGE A-3 vaccine in melanoma. If it is successful, the stock should surge (maybe up 50% to 100%) but if it fails I see a short term reaction and then a quick recovery as investors focus on the new Agenus. This is like a free option on this event. I know you are going to ask what the chances for success are and I don’t know, but my intuition is that they are small.

I have liked Agenus on the basis on the Prophage cancer vaccine program and the potential royalty stream from its QS-21 adjuvants. The transformation of the Company with the 4-Antibody transaction obviously increases my enthusiasm. I was frankly a little nervous about the cash position and I am ecstatic about the substantial strengthening of the balance sheet bringing the cash position to $70 to $75 million. The fully diluted market capitalization of $195 million seems modest for the new Agenus. I am increasing my stock position in the Company.

Northwest Biotherapeutics (NWBO, $5.28)

Conference Highlights

Linda Powers devoted a significant part of her presentation to her two continent manufacturing and development strategy. Autologous living cell products offer extremely complex manufacturing challenges. She went through the complex procedures that NWBO went through to set up manufacturing in Germany and France. I can’t recount precisely the entirety of the steps involved but she alluded to identifying suppliers, identifying and training manufacturing personnel, having to do months of product runs for regulatory purposes, designing and validating tests for quality assurance, cryopreserving the product and logistics involved with an autologous product.

NWBO had already perfected its US manufacturing of DCVax-L, but even with this head start, it took the Company three years to gain regulatory approval for manufacturing in Germany and the UK that is a prerequisite for doing phase III trials. If NWBO is successful in its phase III trials, it will bring a lot of competitors out of the woodwork, indeed they are already beginning to emerge. However, the manufacturing edge in Europe gives NWBO a substantial head start and is a barrier to entry in Europe for US based companies. This is an extremely important part of my investment thesis for NWBO and one which I fell is poorly understood.

Ms. Powers mentioned that they have submitted an abstract to ASCO on DCVax Direct on the initial results from the 60 patient proof of concept phase I trial that is being done with M.D. Anderson, one of the premier US cancer treatment centers. The hope for this phase I trial is that exceptional animal model results can be replicated in humans and there will be some complete responses seen in inoperable tumors.

The Data Monitoring Committee should report on its interim look at the DCVax-L phase 3 trials in two weeks or so. The most likely outcome is a recommendation to continue the trial. I would be shocked by anything else.

Investment Perspective

The European manufacturing strategy is a major positive for the Company and is little appreciated by investors. European regulators are taking a much more aggressive stance than the FDA in getting breakthrough drugs to the market. This is taking the form of compassionate use programs and assistance in running clinical trials. However, without manufacturing capabilities, a company can’t take advantage of this.

Ms. Powers didn’t mention competitors but for perspective. ImmunoCellular Therapeutics has not even finalized a manufacturing process in the US for phase 3. Assuming it has the resources and motivation, it might take IMUC three years or so to get manufacturing facilities in place in Europe to conduct a phase 3 trial. I suspect this is true of any other potential US competitors but I can’t say for sure.

I think that there is the possibility for the Europeans to approve DCVax-L even if the phase 3 trial does not rigorously reach its primary endpoints if there are good trends in the data. This is not the case in the US. Hence, I could see a scenario in which the phase 3 trial is statistically unsuccessful but encouraging enough for NWBO to receive a contingent approval in Europe. This may just be wishful thinking, but I could not even “wishful think” without the manufacturing in place.

There are some anecdotal reports about success in the early stages of the DCVax Direct trial and the Company is enormously excited about it. The ASCO paper could put a focus on DCVax Direct and add a second leg to the story. However, I don’t want to set this expectation in the market just yet.

Ms. Powers emphasized that the phase 3 trial of DCVax-L is not a homerun attempt as was the case with the disappointing phase 2 trial of ICT-107. IMUC used very aggressive powering assumptions that were in retrospect far too aggressive and raised investors’ expectations to excess. The powering in DCVax-L is more conservative. They win in the trial if progression free survival is six months greater than standard of care, which compares to 18 months seen in the phase 1 trial.

Ms. Powers like Dr. Armen of Agenus has been the subject of a lot or personal attacks on her character with the aforesaid Adam Feuerstein leading the charge. I can see the potential for a major change in the assessment of investors of this company as they come to understand the European strategy and the advancement of DCVax Direct into human trials. Ms. Powers is a bit unconventional but a brilliant strategist.

The Company really needs to bring in more capital and with the willingness of the capital markets to invest in early stage companies, I would be surprised if NWBO doesn’t raise money in the next few months. I think this will be a positive as it will raise awareness of institutional investors and remove the financial overhang. Obviously, I remain a buyer.

Neuralstem (CUR, $3.33)

Conference Highlights

There is just a tremendous amount of clinical activity going on with Neuralstem’s neural stem cells. For such a small company the scope of clinical trials spread out across the globe is amazing. The presentation by Richard Garr focused on this.

Last year, the Company began a phase 2 trial in ALS to see if the results seen in a few patients in phase 1 could be replicated a trial involving more appropriate patients given more surgical injections and cells per injection. This trial is divided into five cohorts of three patients each.

The third cohort should complete surgeries in February. The fourth cohort will complete in March. All of these surgeries involve cervical injections while phase 1 was more focused on lumbar injections. A final group of three will be brought back and given lumbar injections and this will complete the enrollment. There is a six month follow-up on all patients so the topline results are probable for very late 4Q, 2014 or early 2015. Assuming success, the phase 3 trial could start in 1H, 2015.

Mass General just did their first surgery in the phase 2 ALS trial. This is now the third center participating.

The FDA has approved a chronic spinal cord injury phase 1 trial. Neuralstem is awaiting the IRB approval from the lead hospital to start the trial and expects the first surgery to take place in April or May. This trial is different from ALS in which the cells are implanted at various points along an uninjured spinal cord. The goal in ALS is for the cells to engraft in the spinal cord with the intent of nursing surrounding, damaged cells back to health. In this chronic spinal cord injury trial, the cells (which are the same as those used in the ALS trial) are transplanted above the site of an injury that has led to paralysis. The hope is that the cells will bridge the gap and restore some neuronal function.

The first patient in an ischemic stroke trial was just implanted in China. This also uses the same neural stem cells, but they are injected into the brain instead of the spinal cord. This is essentially a dose ranging study and will take the better part of this year to complete. With positive results, it could be followed by a potentially registrational trial.

IND approval for acute spinal cord injury trial in Korean is expected this summer and the phase 1 trial should begin shortly thereafter. Acute spinal cord injuries are those that have just occurred while chronic spinal cord injuries have been stabilized for a number of months. It is difficult to enroll acute spinal cord injury patients because the participating centers must be near the site where the injury occurred. This was a major problem for a Geron (GERN) trial in this setting.

The phase 1b trial of the novel small molecule drug NSI-189 is now unblinding and we could see results in 1Q, 2014

The Company has just completed a financing at the end of the year in which net proceeds were $18.8 million so that yearend cash was $33.0 million by my estimates. The recent burn rate has been about $2.5 to $3.0 million per quarter and at this rate this cash would fund the Company into 2016. However, I think that the burn rate may accelerate if the Company moves into later stage and more expensive trials.

Investment Perspective

I think that there could be some short term catalysts for the stock. Eva Feldman, the lead investigator on the trial has prepared an abstract in which she will update and summarize the results from the phase 1 trial in a peer reviewed journal. She will also be presenting the results in an oral presentation at American Academy of Neurology Meeting in Philadelphia which meets from April 26 to May 3. Here is why.

Richard Garr showed slides of three patients who were in the Ted Harada groups in phase 1. All three evaluable patients were out 600 to 700 or more days post-surgery and were showing stability in ALSFRS-r. This data was last updated last year so it could show even better days of stability in the Feldman presentations. Normally ALSFRS-r declines about 0.9 points per month on a scale that runs from 48 (normal) to 0 (dead). These three patients would normally be dead or in the terminal stages of their disease.

While the patient numbers are small the results are extra-extraordinary. But, could there be an explanation other than that the stem cells are effective? A placebo effect can absolutely be ruled out. However, about 5% of ALS patients are atypical patients like Stephen Hawking the famed British physicist, who do survive for many years. I suppose it could be the case that each of these three patients is atypical, but the chance of this occurring by chance seems very small.  Or we could assume that the surgeon and lead investigator identified these patients as being atypical (I don’t know of any way of actually doing so) and purposely tried to mislead investors (and destroy the physicians’ careers). I think something very positive is happening with these cells.

I think the Feldman abstract and her oral presentation could attract investor and media attention and be a catalyst for the stock

Rigel (RIGL, $3.18)

Conference Highlights

This company was an investment darling for Wall Street when it signed an incredibly lucrative deal to license its lead drug fostamatinib to Astra Zeneca in February 2010. This was an oral drug that was the most advanced of the spleen tyrosine kinase (SYK) inhibitors and had shown encouraging results in rheumatoid arthritis and other indications. Astra Zeneca licensed fostamatinib for extraordinary terms that included an upfront milestone payment of $100 million and additional pre-commercial milestones of $345 million. Unfortunately, results in the phase 3 trials were disappointing and the drug was given back to Rigel.

The mechanism of action of fostamatinib also makes it potentially important in the treatment of idiopathic thrombocytopenia purpura (ITP). A prior phase II trial involving 16 ITP patients produced some encouraging results. Astra Zeneca did not follow up on this signal and now Rigel intends to develop fostamatinib in ITP for its own account. The phase III trial will start in 1Q, 2014 and phase III results could be available in 2H, 2015.

I have followed this Company for nearly ten years and I have a great deal of respect for the capabilities of management. The setback in the fostamatinib trial in rheumatoid arthritis does not in any way reflect on the quality of this team.

Investment Perspective

The Company is currently in the penalty box because of the disappointing rheumatoid arthritis results for fostamatinib and caution that the Company is going into a phase III trial in ITP on the basis of results for only 16 patients. There is one very positive aspect of the prior trials with fostamatinib in that there is safety data on 4500 patients. Products have to be shown to be safe as well as effective in clinical trials; it is a major positive that the safety profile is well defined and acceptable for ITP. Hence, the phase 3 trials can be smaller than if Rigel had to establish safety as well as efficacy.

Rigel probably ended 2014 with about $230 million of cash. It has been showing a quarterly burn rate of $15 to $17 million. It is cutting back on research spending which has driven the burn rate so that the intrinsic burn rate as a guess may be reduced to $12 million or so. The cost of the phase III trial in ITP could cost $25 million so that the cash position in 3Q, 2015 when topline results should be available could be $130 million. The Company is in an exceptionally strong cash position and should not need to raise capital in the next six to eight quarters.

Market research performed by Rigel suggests that there is peak US sales potential of about $200 million for fostamatinib and that this drug could be marketed by a sales force of 20 reps under Rigel’s control. While the data is limited to 16 ITP patients, it seems to establish that the mechanism of action works for ITP and very importantly, there is a very high probability that there are no safety issues. I think the chances for approval are excellent.

I am very interested in this situation and will be doing some more research. You may want to start your own due diligence.

Chimerix (CMRX, $19.49)

Conference Highlights

Chimerix is still not well known to investors as it only came public in an April IPO that raised $118 million. The Company is developing an orally effective drug for the treatment of diseases caused by double stranded DNA viruses. It is actively enrolling patients in the phase 3 SUPPRESS trial of its lead drug brincidofovir for preventing cytomegalovirus infections in hematopoietic stem cell transplant recipients. Secondary endpoints in this trial are designed to provide information on efficacy against other dsDNA viruses with the goal of establishing brincidofovir as the first broad spectrum therapy for these dsDNA viruses.

The topline results for SUPPRESS should be available in mid-2015 and could be the basis for regulatory approval. The Company has a strong cash position. At its current burn rate the Company would burn through about $65 million of cash through the point in time that the SUPPRESS results are probably going to be available. If so, the cash position at that time would be about $50 million. The balance sheet is strong.

Investment Perspective

This stock reminds me of Trius, a company developing an antibiotic for MRSA bacterial infections that I recommended on May 30, 2012 at a price of $5.05 and which was acquired by Cubist (CBST) on September 11, 2013 at a price of $13.50. There are strong similarities for the two companies. Unlike most drugs, the efficacy of antibiotics and anti-viral agents usually can be determined from pre-clinical and animal models. If a drug can kill bacteria or antibiotics in a Petrie dish or animal model it can also do this in humans if the drug can be delivered to the site of infection. Phase 2 data for brincidofovir shows that this is the case. There is a high probability that the SUPPRESS trial will be successful.

The initial indication has sufficient commercial potential to make this an interesting stock. However, this is only a small part of the ultimate commercial opportunity. I think that Chimerix could market brincidofovir for the stem cell transplantation on its own, but moving to other indications would likely require a partner. Viral infections present the same magnitude of problems as bacterial but there are many fewer effective drugs. Hence, there is a scarcity value for brincidofovir.

I am working on a report on Chimerix and you may want to do some due diligence on your own. I think the ultimate fate of Chimerix is the same as Trius; I think it will be acquired.

pSivida (PSDV, $4.55)

Conference Highlights

pSivida expects that Alimera will refile the NDA on Iluvien and all indications are that the FDA will approve the NDA in September, 2014. This will trigger a $25 million milestone payment to pSivida that will put the Company in a very strong cash position.

In regard to Medidur, the enrollment on the first phase III trial of Medidur will complete by the middle of the year and topline data should be available in mid-2015. This drug is fully owned by PSDV.

The CEO, Paul Ashton is probably most excited about the Tethadur technology. The product is still in animal studies and we should see the first pre-clinical results in 2014. This technology is very unique and was developed for use in the semiconductor industry. The hope is that this will be a way to deliver proteins like monoclonal antibodies in a sustained release formulation. This is high risk and early stage, but this type of technology, if successful, would be the Holy Grail for protein drug delivery that could enhance the product characteristics of monoclonal antibodies and extend their patent lives.

Investment Perspective

Along with some credible Wall Street analysts, I believe that Iluvien can reach peak sales of $100 to $200 million in both the US and Europe and this will lead to about $30 to $60 million of pretax profits for PSDV, but this could be in the 2020+ so that in 2014 and 2015, there may be little contribution.

There is a high expectation that the data on Medidur will be positive based on the efficacy seen with other steroid products in posterior uveitis. The question is whether the FDA will accept this single trial for regulatory approval or require a confirmatory phase 3 trial. In either event, there is a strong likelihood that this product receives approval. This can be a $100 million product in the US.

The first results in animals for Tethadur could be available in mid-2014. Very quietly and probably unappreciated by most people in the audience, Dr. Ashton said that this could lead to a collaboration with a major pharmaceutical or biotechnology company in 2H, 2014. This is a very important statement. My sources suggest that the intial study is being done in the delivery of Lunesta to the back of the eye.

Based on animal studies, the hope is that the Tethadur product could allow for an injection of Lunesta every six months instead of the seven or eight annual injections now required with Lunesta and its arch competitor Eylea. Why is that important? Let’s look at the example of Allergan’s DARPin, a new VEGF inhibitor comparable to Lunesta and Eylea. The promise of DARPin is that it might need only to be injected into the eye twice a year rather than seven or eight times as with Lunesta and Eylea.

I won’t go into the whole history of DARPin but in 2012 there was the expectation that the phase III trial of DARPin could be completed in 2014 or 2015 and would point a clear path forward for filing an NDA. Problems in trial design led to a delay in the program so that DARPin is now in phase II. This announcement shaved nearly $4 billion off of Allergan’s market capitalization. I take this as an indication of the potential value of a Tethadur based product that delivers Lunesta or Eylea twice a year.

The Company could end calendar 2014 with $23 million of cash assuming that the $25 million milestone is paid and could end calendar 2015 with $11 million. This takes away the near term financing risk.

This is a solid long term investment. I think that if the Tethadur collaboration occurs, we might see a nice move in the stock. If not, it will be a quiet year. I think that this Company will be acquired at some point in 2015 or 2016 if the Medidur trial is positive and/or if there is encouraging data on Tethadur.

Ohr Pharmaceutical (OHRP, $12.16)

Conference Highlights

Ohr acquired rights to squalamine from Genera Pharmaceuticals, which was developing the drug as an intravenously administered product for the treatment of wet AMD (age related macular degeneration); wet AMD is the number one cause of blindness in adults over 60. The introduction of the anti-VEGF monoclonal antibody Lucentis by Genentech for wet AMD has been a major success. Squalamine inhibits VEGF as well as other growth factors.

Ohr has developed an eye drop dosage form of squalamine. The reason for developing an eye drop is that the like the brain, there is a barrier that blocks or impedes delivery of a drug from the blood to the retina. This makes it difficult to achieve effective drug levels using a systemic dosage form of a drug. The goal of the eye drop formulation is to deliver effective amounts of squalamine through the vitreous fluid to the retina.

Ohr is now conducting a 120 patient trial in which squalamine plus Lucentis is compared to Lucentis alone. All patients will receive an initial injection of Lucentis prior to randomization and then be evaluated monthly for their need for further Lucentis injections using protocol defined retreatment criteria. The goal is to show that this can reduce the number of Lucentis injections. The pharmaceutical industry is aggressively pursuing formulations that can reduce the number of intravitreal injections required each year for anti-VEGF products.

The commercial importance of reduced injections is well documented by the inroads that Regeneron’s anti-VEGF drug Eylea has made against Lucentis by reducing the number of injections per year by two to three. If Ohr’s eye drop formulation of squalamine in combination with Lucentis can produce equivalent therapeutic results while reducing the number of annual injections, it could have significant commercial potential. Each injection in the eye of Lucentis costs about $2,000 and requires an office visit. Reducing the number of injections by just one per year is probably enough to be clinically meaningful and commercially successful

The clinical trial began in November of 2012. Some type of interim data is coming up in late February or March and more complete topline results could be available at some later time, perhaps 2H, 2014.

Investment Perspective

The work that I have done in ophthalmology has taught me that delivering drugs to the back of the eye is a daunting challenge. My checks with industry and physician contacts produced a near unanimous skepticism that this eyedrop formulation of squalamine will be effective. I am not involved with this stock.

ImmunoCellular Therapeutics (IMUC, $1.29)

Conference Highlights

The Company plans to release a more detailed analysis of the phase 2 results of the ICT-107 phase 2 trial in glioblastoma multiforme at the ASCO meeting which will be held from May 30 to June 3 in Chicago. This summer they will hold an end of phase 2 meeting with FDA and the Company hopes to begin a phase 3 trial in late 2014 or 2015.

The phase 3 trial could be a larger trial powered to show significance on the basis of the therapeutic efficacy signal that is shown in phase 2 or it might be able to identify a more targeted population that would require a larger trial.

The Company has suggested that the phase 2 results were based on immature data and could improve. The data showed a 2.0 month improvement in progression free survival and this was statistically significant at a p value of 0.014. The endpoint of overall survival produced a p value of 0.40 and was not statistically significant. However there was a trend in favor of ICT-107 over control of 2.0 months of added survival in the intent to treat group and 3.0 months in the per protocol group.

Investment Perspective

The Company has not released any data on what the actual time periods were for PFS and OS in phase 2 other than to say that the control group performed as expected. I asked if median overall survival had been reached in either the standard of care group or the ICT-107 group and the answer was no. Kaplan Meiers curves which are the basis for statistical analysis use assumptions to predict outcomes in patients who have not reached an endpoint of PFS or OS based on data from patients who have. This is a complicated process which frankly I don’t understand very well. However, the potential is that the data could improve over time.

The Company has not really explained the KM analysis very well to investors and like me this causes confusion. I suggested to the CEO that they put out a press release that explains this in sufficient detail that non-statisticians can understand the issues. He was receptive and I think that he will do this. This could benefit the stock.

My gut feel is that the data at ASCO will be more positive than the intial release. This coupled with the announcement of a plan to conduct a phase 3 trial in 2015 could cause a nice trading move in the stock sometime this year.

I am not inclined to put a buy on the stock but for the more adventure minded who like to trade; you may want to try this strategy. My caution is based on the sober reality that conducting the phase 3 trials could take three years to complete so that we would be looking at approval in 2018 or so. Also, Bristol-Myers, Merck and Roche are gearing up for phase 3 trials in glioblastoma multiforme that will produce significant competition for patients. Europe is not an option for recruiting patients, as unlike NWBO, they have no manufacturing capability and this would take two to three years to establish.

Finally, these trials will be expensive and the Company may have to raise $70 to $80 million to conduct these trials and fund the other parts of the Company. This is a daunting challenge.

Athersys (ATHX, $3.80)

Conference Highlights

The Company completed phase 2 enrollment from MultiStem for the treatment of inflammatory bowel disease in 4Q, 2013 and will report topline results in April or May of 2014. Success in this trial would have an enormously positive impact on the stock.

Investment Perspective

I wrote an extensive report on Athersys on February 7, 2013 and the stock has doubled since then. However, I have uncertainty on the potential outcome of the inflammatory bowel disease indication and this in combination with concern about financing and bandwidth issues kept me focused on other companies.

The Company was able to raise about $40 million in deals that were actually initiated by investors according to the Company. This has substantially improved the balance sheet position to the extent that I think the Company could close 1Q, 2014 with $35 to $40 million of cash.

Advaxis (ADXS, $5.28)

Conference Highlights

This was the first presentation by Advaxis that I have attended although I met with management in San Francisco. This is a cancer vaccine company that uses a different approach than I have seen from any other Company. It uses live, attenuated bacteria that are bio-engineered to secrete antigen/adjuvant fusion proteins. These induce a strong immune response and then the cancer antigen is taken up by dendritic cells and the cancer antigen and presented to T cells to activate them against cancer cells that express this antigen.

The Company has had a complete change in top management and has brought in two executives who were at ImClone. The CEO, Dan O’Connor, is an ex-Marine officer and has the discipline and drive that would be expected from someone with that background. He first shored up the financial position of the Company by raising $27 million of cash in October and has moved rapidly forward in clinical trials.

The Company will have an end of phase 2 meeting with the FDA on its cervical cancer vaccine product in mid- 2014 and plans to begin a phase 3 trial in late 2014.

Investment Perspective

I plan to do more work on the Company. As a side note, I sat next to a long term colleague who manages money and whose investment judgment. I value. He owns NWBO, ATHX and other living cell therapy companies. He told me that for one of the few times in his life he bought this stock after hearing his first presentation from the new CEO. I am not willing to do the same but I think that this underlines the effectiveness of Mr. O’Connor in representing this company.

Advanced Cell Technology (ACTC, $0.07)

This is a stem cell therapy company that has shown some promising results through using its technology to create retinal pigment epithelium cells. It has produced some early encouraging results in a phase 1 in an orphan disease called Strargardt’s macular dystrophy and dry AMD. Results for two patients were previously published in Lancet and further results have been submitted to another peer reviewed journal. I am just beginning to do work on this company.

NeoStem (NBS, $6.95)

I am also just beginning to do work on NeoStem. This is a stem cell company with some similarities to Athersys and which also has some interesting technology for T cell regulation. The Company is involved in a phase 2 trial called PreServe that is investigating the role of its stem cells in the treatment of heart muscle damaged by myocardial infarctions. There will be data readout in 3Q, 2014 on six month results in the trial.

It also has one of the two top manufacturing facilities for living cells in the US which I regard as an asset having great value.

KaloBios Pharmaceuticals (KBIO, $2.97)

This was my first face to face meeting with the Company but I have seen previous presentations at other conferences. Their lead product KB001 is an antibody that specifically targets the bacterium Pseudomonas aeruginosa. This bacterium is a major problem in cystic fibrosis patients and a prominent cause in their premature deaths. There is an intriguing hypothesis that the mode of action of KB001 could potentially extend their lives. I am interested, but I am still early in my research cycle.

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