Expert Financial Analysis and Reporting

Report Overview

This blog gives a quick update on my thinking on the 15 stocks which I cover. In most cases, it just offer my opinion with a few supporting thoughts and provides a link to more extensive articles. Also, the reports section of my website has other in-depth reports that you may want to refer to if you are interested in a particular stock. For other companies in which I have been less active, I have written somewhat more detailed discussions to explain my position.

The small emerging biotechnology stocks on which I write are among the most speculative in the market. By intent, many of the companies I cover are involved in paradigm changing technologies in which probably there are going to be more failures than successes. I have seen estimates that only one in ten innovative drugs that go into human studies advance to phase 3 and even upon reaching phase 3, the failure rate remains quite high. Bottom line, there are lots of disappointments in biotechnology drug development and in the universe of stocks which I follow.

Why invest or even should you invest at all in this sector? That is for you to decide. My belief is that there is so much upside in the event of success that one success can offset several failures and have a meaningful effect on a broad, diversified portfolio. See My Approach for Investing in Emerging Biotechnology Stocks  for a more detailed discussion of my asymmetric investment strategy.

My personal strategy is to make investing in this segment about 10% or so of my portfolio. This is because my formal working career on Wall Street is behind me and I rely on the performance of my portfolio for income; this affect my risk tolerance. Ideally, I like to spread my biotechnology investing over as many names as possible so that I might have five to ten biotechnology names in my portfolio that account for perhaps 10% of its total value. This is about the same percentage as my positions in the most heavily weighted stocks in my portfolio. When I establish a position in a biotechnology stock, my belief is that it will be successful. However, the investment amount is such that if I lose all of my investment it won’t affect my life.

In addition to the inherent fundamental risk, there is also the market risk. When there is caution and risk aversion in the market, because of their risky nature, these stocks underperform and we have been in this situation for over a year. This magnifies the downside risk when there is uncertainty or disappointment. However, I have seen this occur many times in the 30+ years I have been following small biotechnology stocks and in every case, these periods of great pessimism are eventually followed by a period of enthusiasm or rampant speculation. Perhaps this time will be different, but I doubt it.

I have also written about another extremely significant risk with these stocks and that is blatant price manipulation by hedge funds. When I first started writing my blog about three years ago, I was unaware of this. However, extensive involvement with many small biotechnology companies convinces me that there are a significant number of hedge funds who conspire and cooperate to manipulate stock prices both to the upside and downside. I refer you to my report Illegal Naked Short Selling Appears to Lie at the Heart of an Extensive Stock Manipulation Scheme that describes the modus operandi of this criminal scheme. Most of these schemes involve driving the stock price down, but this is not always the case. In my article KaloBios: The Fascinating Story of the Takeover of the Company by Martin Shkreli and His Hedge Fund Buddies (KBIO, $18.25, I would not touch this stock), I describe how the notorious Martin Shkreli and other hedge fund operatives temporarily manipulated KaloBios dramatically to the upside.

Taking these and other factors into account, here is my investment approach. I emphasize companies that are at a position in clinical development which will provide strong proof of concept in phase 2b or phase 3 trials or have drugs already approved and on the market. With success in late stage trials or regulatory approval, larger institutional investors usually are attracted to the stock and big biopharma companies have a voracious appetite for acquiring such companies. It is important that Companies have enough capital to fund themselves to and past value creating events. The aforementioned hedge funds jump on companies with weak cash positions knowing that they often can force them into financing at distressed stock price levels that will further pressure the stock. However and most importantly, I am mostly looking for those companies that are developing paradigm changing drugs.

My current Buy recommendations in alphabetical order are Antares, Agenus, Cytokinetics, Relypsa, Repligen and Windtree Therapeutics. If events unfold in certain positive ways I could upgrade Caladrius, Derma Sciences, ImmunoCellular Therapeutics and pSivida. For now, I am just monitoring Alimera, Celldex, Chimerix and Neuralstem. Northwest Biotherapeutics is a Company that I have been closely associated with because I believe that its dendritic cell cancer vaccine technology holds the promise of being a major advance in cancer therapy. Tragically, a still unexplained halt in enrollment screening for its phase 3 trial of DCVax-L in newly diagnosed glioblastoma, has had a devastating effect on the Company. Hedge funds were attacking NWBO before this and afterwards were able to destroy the stock price. I am going to start this blog with a detailed discussion on Northwest.

 

Northwest Biotherapeutics (NWBO, $0.83)

Early last August, NWBO seemed poised for a string of important announcements. The DCVax-L phase 3 trial in newly diagnosed glioblastoma was nearing completion of enrollment and the Company was poised to start phase 2 trials of DCVax Direct in inoperable solid tumors which, if successful, could be the basis for regulatory approval. The Company also seemed close to beginning phase 2 trials of DCVax-L combined with one or more checkpoint modulators that also could lead to approval. The stock was trading at $10 to $11 per share and the equity market at the time was quite receptive to biotechnology offerings. Northwest was in a position to raise perhaps $150 million or more in an equity offering that would have allowed the Company to bring in enough money to finish all of these trials. NWBO had been fighting a brave fight against a savage short selling attack and it looked like it had won.

Then in mid-August, the Company announced that screening in the phase 3 trial of DCVax-L had been temporarily halted, but patients enrolled in the trial would continue to receive treatment in accordance with the trial protocol. The Company offered no reason for the halt but said in the press release that “The Company is in ongoing dialog with regulators, and providing further information. The Company hopes that this issue will be resolved soon.” Northwest seemed to imply that this issue would be resolved by late 2015 or early in 2016 and this was my expectation. Instead, we have now gone nine months where there has been no news on the potential resolution of the screening halt or the beginning of the very important phase 2 trials. Management has offered no explanation for the halt and largely kept silent on all other aspects of the Company until it finally issued an update on May 5, 2016. See my report The Company Provides an Operations Update for more discussion about the update given by the Company on May 5.

The cash balance of the Company in August 2015 was about $20 million and as I previously indicated, it looked like for the first time in its history it could raise cash to build a very strong balance sheet. However, the screening halt prevented this and has left the Company in a desperate cash situation. Also in August 2015, the short sellers launched a heightened attack on the Company. A group of hedge funds writing on Seeking Alpha under the anonymous name Phase Five Research published an obviously contrived and vicious report about the Company which was published by Seeking Alpha without any questions. This was even though there have been reports that one or more of the firms involved in writing this report is under investigation for securities fraud and stock price manipulation. This chain of events opened the way for hedge funds to use naked shorting and other techniques to devastate the stock price.

I believe that Northwest has one of the most exciting technology platforms and pipelines in immuno-oncology and in my opinion has clinical data as compelling as the current engineered T-cell investment darlings Juno and Kite. Juno and Kite sell at market valuations of $4.5 billion and $2.4 billion while the current market valuation of Northwest is about $89 million. This reflects the desperate cash position of the Company; I think that if Northwest had enough cash to fund the conduct of its clinical trials, that the market capitalization could be $500 million or more. However, the Company is in a precarious cash position and the needed capital raises could result in devastating dilution to shareholders.

There is a question as to whether the Company is even viable. Day after day, the naked short selling continues and we are seeing steady decreases in stock price. The obvious goal of the shorts is to drive the Company into bankruptcy and this is a legitimate concern for legitimate investors. Had any of us suspected that in August of 2015 that we were going to go nine months with the screening halt remaining in place and the shorts being able to work their will with no interference, we would all have walked away. From my own standpoint, I will continue to hold the stock and hope that some event or events driven by the uniqueness and promise of the technology will allow the Company to pull a rabbit out of the hat. I have seen it done before, but this is a desperate situation. Is there any hope? In the following section, I raise a number of possible positive events that individually or collectively could have a positive impact and reverse the direction of the stock.

The explanation for the screening halt on the phase 3 trial of DCVax-L might be explained and possibly the enrollment in the trial could be completed.

The phase 3 trial of DCVax-L has probably enrolled as many as 320 of the targeted enrollment goal of 348. Even if the remaining 30 patients are not enrolled, this trial will be completed. This is a high risk trial and there is a real risk that the trial may fail, but there is also a reasonable chance that it could be successful. The trial has to show a four month improvement in median progression free survival over standard of care. Extensive prior studies have established that median progression free survival for standard of care is 6 to 8 months. If this is the case in this phase 3 trial, the trial would be successful if median progression free survival for DCVax-L was 10 to 12 months. See Northwest Biotherapeutics: A Comprehensive Evaluation of Its Lead Product DCVax-L for a detailed discussion.

In small phase 1/2 trials, its median progression free survival with DCVax-L was 26 months. Also we have seen encouraging results in rapid progressors who were not eligible for enrollment in the phase 3 trial See Northwest Biotherapeutics: Promising New Data Was Just Presented on DCVax-L in Recurrent Glioblastoma Multiforme. There are strong reasons to believe that the drug has a meaningful therapeutic effect. Success in this trial would have a very dramatic effect on the stock price.

It appears that the screening halt in the phase 3 trial of DCVax-L has been a gating factor that has prevented the announcement of plans to begin phase 2 trials of DCVax-L in combination with checkpoint modulators and DCVax Direct in inoperable tumors. Such announcements could be forthcoming. However, NWBO may have difficulty in raising money to conduct the trials or if it can raise money, it will result in significant dilution of current shareholders.

Following the Phase Five report, NWBO at the urging of its major shareholder Neil Woodford, formulated an independent committee to look at charges raised in that report. One of the tactics of the short selling conspiracy is to charge that managements (Linda Power in the case of NWBO) are involved in criminal stock manipulation. This is like John Dillinger alleging that Melvin Purvis was the criminal. We should hear the conclusions of this committee in coming months and I expect this to make clear that Phase Five is the John Dillinger in this case.

The Company said that it is recruiting a Scientific Advisory Board that includes some distinguished key opinion leaders in the field of immune-oncology. Phase Five Research and other short sellers have alleged that no reputable scientists are interested in dendritic cell cancer vaccines. This could knock down this straw horse argument of the shorts.

Neil Woodford has probably invested $180 million in NWBO and has taken huge losses, perhaps 90% of the invested money. If the previous issues are favorably resolved, one would think that he would be eager to help provide the capital needed for the phase 2 trials.

There is hope, but my knuckles are white.

 

 

Comments on Current Buys

 

Antares (ATRS, $0.93)

At the beginning of this year, I thought that this would be a great year for the stock. I expected approval of the AB rated version of EpiPen and an improvement in the rate of sales increase for Otrexup. Disappointingly, the FDA issued a CRL on AB rated EpiPen and Otrexup sales were sequentially flat in 1Q, 2016 relative to 4Q, 2017.It is no surprise then that the stock has been a disappointment.

More than offsetting these substantial disappointments has been the emergence of outstanding pipeline prospects which exceeded my expectations. This has encouraged me to maintain my Buy on the stock. In particular work was reported for this first time on a subcutaneous version of Makena, which may be the most important product in the pipeline. The pipeline really becomes a factor in 2018 and the most significant near term event is an AB rated version of sumatriptan that should be launched in 3Q, 2016. For detail on the pipeline, see Antares: An Outstanding Product Pipeline Promises Dramatic Growth Through 2022.

I also maintain hope that the AB EpiPen will yet be approved and Otrexup sales will pick up, but even if this does not happen, I would still be a buyer of the stock.

There is concern that the Company may have to finance in 2017, but I think there is a good chance they can avoid a financing if the AB rated sumatriptan meets expectations.

 

Agenus (AGEN, $3.83)

I think that the Agenus technology platform in immune-oncology will be coveted by major biopharma companies eager to get a position in checkpoint modulation and cancer vaccines, arguably the most exciting areas of cancer research. The Company has a strong cash position of $148 million which can fund the Company through 2H, 2017, but I think that licensing deals and milestone payments can bring in substantial additional amounts of money. I believe that Agenus may be acquired at a very substantial premium to the current price potentially in the next two years. See Agenus: Its Market Leading Position in Immuno-Oncology Makes it A Compelling Investment Story

 

Cytokinetics (CYTK, $8.13)

Amgen and Cytokinetics appear posed to enter phase 3 for omecamtiv mecarbil in congestive heart failure, which could be a catalyst for the stock. Amgen’s R&D head has expressed great optimism for this drug. See  Amgen’s R&D Chief Expresses Great Optimism About Omecamtiv Mecarbil for Treating Congestive Heart Failure.This drug has enormous potential and Amgen will provide most of the cash for development.

In 2H, 2017, we should see the topline results for tirasemtiv in treating ALS. Either one of these products would justify the current market valuation even before considering the potential for CK-107 and an emerging additional pipeline. I don’t see the need to finance until late 2017. See Cytokinetics: An Update Based on CEO Robert Blum’s Comments at BIO CEO Conference on February 8, 2016 for a more detailed discussion on the pipeline.

 

Relypsa (RLYP, $16.30)

The Company is struggling through the first year of the launch of Veltassa. This is due to the hurdles that managed care has erected to slow new product launches that affects almost all new products. Right now, the Company is attempting to develop Veltassa on its own which requires enormous amounts of capital. The launch barriers and capital requirements are negatives for the stock.

The Company has recently financed so that it can see what happens to Veltassa over the next year. I think that the trump card of management is that Veltassa would be a coveted asset for a big biopharma company and if the going gets too rough, the Company will be sold at a substantial premium to the current price.

I think that management’s thinking and investors thinking will be greatly affected by what happens on the May 26th PDUFA date for ZS-9. The potential of the hyperkalemia market is huge and I believe that it is not a zero sums game between Veltassa and ZS-9 so that both products have blockbuster potential in the market. However, the mechanism of action of ZS-9 exchanges sodium for potassium and sodium can cause an increase in blood pressure. Many or most of the patients eligible for potassium lowering drugs have high blood pressure or congestive heart failure or chronic kidney disease and it is possible that ZS-9 could exacerbate these conditions. There has been an enormous amount of speculation and I emphasize the word speculation that this will be an issue for FDA and in the worst case, ZS-9 might be given a black box warning or indicated for acute use or both. I lean to this scenario. This would be a disaster for ZS-9 as hyperkalemia requires chronic treatment.  In this scenario, Veltassa would own the market and this could trigger a major upward move in the stock.

 

Repligen (RGEN, $24.42)

This is one of the best business models that I have seen in my 30+ years as an analyst not only in health care, but across all of the American economy. Most of the Company’s revenues are recurring and have long life cycles. The intrinsic growth rate of the existing products is perhaps 15% to 20%. However, the Company has strong cash flow and there is an abundance of acquisition opportunities and great potential for geographic expansion. The Company is guiding to a 20% increase in sales to $100 million in 2018 and is EPS of $0.48 versus in 2016 versus $0.28 in 2015. The stock is not cheap at a little over 50 times 2016 earnings, but my belief in the sustainability of a very high growth rate makes this a buy for those who are long term investors.

The Company recently announced that it had raised about $111 million in a convertible offering. Added to the $70 million of cash on hand, this gives the Company a $180 million war chest. Acquisitions are an integral part of Repligen’s growth strategy and the Company has had great success with the acquisitions it has made. To date, these acquisitions have been relatively small. With this war chest, the Company is positioned to make one or maybe two really large acquisitions or perhaps a much greater number of smaller ones. This could lead to a dramatic acceleration in sales and earnings growth from the 15% to 20% rate expected from the current product line.

 

Windtree Therapeutics (WINT, $2.62)

The market valuation of Windtree is amazingly low at about $15 million when one considers that management expects that it will be reporting phase 2b data on Aerosurf in 1Q, 2017. The therapeutic goal of Aerosurf is to reduce the rate of intubation and mechanical ventilation in premature babies suffering from surfactant deficiency. If the phase 2b results are positive, Aerosurf would be poised for a pivotal phase 3 trial. An asset with the commercial potential of Aerosurf could be valued at $300 million in my opinion. The Company is in a precarious cash position with just enough cash to last until 2Q, 2017. If the phase 2b results are discouraging, the Company will likely go bankrupt. Please see Windtree Therapeutics: Key Points from Conference Call on 1Q, 2016 Results for a more detailed discussion.

 

Companies I Might Upgrade in the Future

 

 Caladrius (CLBS, $0.55)

I am interested in Caladrius Biosciences primarily because of the potential for its PCT cell therapy manufacturing business. PCT has a rapidly growing sales base that had $13 million of sales in 2014 and $23 million in 2015. Management is projecting $30 million in 2016. These are all revenues from third parties and do not include any development work on internal products being developed by Caladrius.

In March 2016, 19.9% of PCT was sold to Hitachi Chemical for $19.4 million. This valued PCT at $97 million which compares to the current market capitalization of about $33 million. This disparity reflects the market’s concern about the weak cash position. This situation has some parallels to Repligen which has been an exceptional stock. Repligen exited the biotechnology business to focus on bioprocessing. See my December 12, 2012 report  “Repligen: Initiating Coverage with a Buy”

I don’t think that PCT will emerge as attractive a business model as Repligen whose products are incorporated into the manufacturing process of a product and are used throughout the life of the product. PCT will likely develop a manufacturing process through phase 1 and 2 and perhaps phase 3. However, once a product is commercialized the owner of the product will probably want to take over most of the manufacturing and use PCT as a second source. If so, PCT will not enjoy long life cycles of Repligen’s products. Still, this still looks like a very good business model with the extensive amount of research going on in cell based therapies. According to the alliance for regenerative medicine, at the end of 2015, there were 632 regenerative medicine clinical trials underway with 63 Phase III trials and 376 Phase II trials. 62% and 83% increases over 2014 respectively. I am intrigued with the prospects for PCT.

The Company will also take advantage of its manufacturing assets and clinical knowhow to develop certain cell based therapies to the proof of concept stage and then license them to larger companies to conduct the much more expensive regulatory trials. This approach could allow Caladrius to develop a broad portfolio of licensed products. Potentially the expense incurred will be recouped in licensing fees and CLBS will also benefit by providing manufacturing for the product. Caladrius will not be involved in expensive clinical development expenses and will receive a royalty if the products are eventually commercialized.

The current cash position is strained as the Company ended 1Q, 2016 with $25 million of cash and issued guidance that the operating cash burn and capex spending would approximate $23 to $26 million for the remainder of 2016. Clearly the Company needs to raise capital and I estimate later in this report that if they raised $20 million in an equity offering that it could double the fully diluted share count to 114 million. Because of the strained cash position, I remain on the sidelines for now.

See Caladrius Biosciences: The Business Model is Intriguing, But the Cash Position Is Weak for additional information for additional information.

 

Derma Sciences (DSCI, $3.95)

Derma has gone through a repositioning in the wake of the failure of its biotechnology product aclerastide, in phase 3 last year. The Company is guiding for full year 2016 sales of $89.5 (up 5.4%) with Advanced Wound Care sales of $47.2 million (up 13.0%) and Traditional Wound Care sales of $41.9 million (down 2%). It is also guiding for positive EBITDA of $1 million. The Company has a comfortable cash position of $37 million and I think that it will be cash flow positive in 2017. During the 1Q conference call, I was encouraged that the growth drivers of the Advanced Wound Care business-AmnioExcel, TWC-EZZ and Medihoney- all did well in the quarter and that management was optimistic about strong growth potential. Traditional Wound Care will be trimmed of unprofitable segments but has little profit growth potential.

DSCI is an unusual company relative to the other more speculative biotechnology companies I mostly follow. However, I like the direct sales capability brought by 38 reps, the current key products and a proven ability to find promising acquisition opportunities. Based on management guidance, it is currently selling at a market capitalization to sales ratio of 1.2 and market capitalization to Advanced Wound Care sales ratio of 2.2. If you view DSCI as a specialty pharma company, the stock appears very cheap on this basis. The Company is searching for a new CEO having fired Ed Quilty for his failed foray into biotechnology. It will be important to understand what the strategy of the new CEO will be. You can probably sense my interest in the stock. Stay tuned.

For more detail, you may want to look at my latest report on the Company issued on December 11called   Derma Sciences: Close to Upgrading

 

ImmunoCellular Therapeutics (IMUC, $0.22)

The Company carefully analyzed the results of the phase 2b trial of ICT-107 and has identified a sub-group of patients in that trial that appear to respond very well to the drug. These are HLA-2 status patients. In HLA-2 patients with methylated MGMT, there was a strong signal of activity and in unmethylated MGMT patients there also appears to be benefit. I think that there was a strong signal of activity in this sub-group and that a decision to move ICT-107 in this patient population was sound.

Enrollment for the phase 3 registration trial has just started. It is a double-blind placebo-controlled study of about 414 HLA-A2 positive patients. According to Clinical Trials.gov the trial is scheduled to report topline results on the primary endpoint of overall survival in December 2019. Management is also indicating that there could be an interim futility analysis in 1Q, 2018 and an interim efficacy analysis in 3Q, 2018.

I estimate that the phase 3 trial could cost around $40 million to conduct through reporting of topline data in late 2019. In addition, costs of running the Company and doing research on other products could cost about $6 million per year. This suggests cash usage of $58 million from now until December 2019.

IMUC ended 1Q, 2016 with about $18 million of cash. However, in September 2015 management announced that the governing Board of the California Institute for Regenerative Medicine (CIRM), California's stem cell agency, has awarded the Company $19.9 million to support the ICT-107 phase 3 trial. This brings the effective cash balance to $37 million of cash. Assuming that the Company wants to have a cash balance of $10 million at the end of 2019, it will need to raise about $25 million of cash in the period 2016 to 2019. However, there is no immediate need.

I think that ICT-107 has a reasonable chance of being successful in the phase 3 trial and as I noted earlier, I believe that this could be a paradigm changing drug. However, it could be over three years before we know if the trial is successful. I think that I will stay on the sidelines for now.

 

pSivida (PSDV, $3.02)

The first major investment issue for pSivida is the commercial launch of Iluvien which is being conducted by Alimera. The second is the clinical development of Medidur for the treatment of posterior uveitis which affects 175,000 people in the US and causes 30,000 cases of blindness each year making it the third leading cause of blindness. The first of two phase 3 trials of Medidur was very successful, the second should complete this year and an NDA filing is projected for mid-2017.

PSivida is entitled to receive about 20% net profits on a country by country basis from sales of Iluvien whose launch is being handled worldwide by Alimera. In the discussion on Alimera that follows, I discuss my concern with that company’s stretched financial condition. This has the potential to interrupt the launch of Iluvien and I am waiting for this situation to become clearer. It has been rumored that Alimera is seeking a buyer. If so and they find a buyer that has strong marketing and financial resources, this could be a major positive for pSivida. I may be too cautious in not upgrading PSDV now. In the event that Alimera had to declare bankruptcy, Iluvien rights would revert to pSivida. This could be a quite positive event for PSDV.

pSivida announced in December 2015 that the first phase 3 trial of Medidur was successful. Enrollment of the second phase 3 is expected to complete in mid-calendar 2016. With favorable results, the Company will file for approval in the US in mid- 2017. In late December, 2015, they filed for European approval on the basis of the first phase 3 trial.

The first phase 3 trial was a 129 patient, multi-center, randomized and double-blinded trial. The primary endpoint of prevention of recurrence of disease at six months was highly statistically significant with p less than 0.00000001 on an intent to treat analysis. In patients treated with Medidur, 18.4% of patients had recurrence of posterior uveitis versus 78.6% on control. Safety results were also encouraging as the major safety concern is elevated intraocular pressure In the Medidur treated groups 27.6% of Medidur-treated eyes compared to 16.7% of control eyes had experienced an increase in intraocular pressure (IOP) above 21 mmHg for at least one observation. This was comparable to what was seen with Iluvien phase 3 trials.

I am interested in an investigator-sponsored study of the use of a Durasert implant for severe knee osteoarthritis that will begin enrolling this summer. Conceptually, this sounds like a very promising product.

PSivida ended the quarter ending September of 2015 with about $23 million of cash and it is projecting quarterly burn rates of about $5 million. It has cash to last until the fourth calendar quarter of 2017.

 

Companies I Am Monitoring With No Plans To Upgrade in the Near Future

 

Alimera (ALIM, $1.59)

This Company is exclusively focused on the commercial development of Iluvien. It effectively has no pipeline. Iluvien achieved sales of $5.8 million in 1Q, 2016 and management estimates that it need to reach quarterly sales of $15.0 to $16.5 million to breakeven on an EBITDA basis and approach being cash flow positive. US Sales of Iluvien in 1Q, 2016 were $4.1 million and .this compares to 4Q, 2015 ($3.9 million), 3Q, 2015 ($5.0 million) and 2Q, 2015 ($3.8 million). European sales have been roughly flat at $1.9 million. The Company is optimistic that the receipt of a J-code in the US will accelerate US growth, but it seems unlikely that European sales will see much growth. The Company reported they had a strong US sales increase in March, which they attributed to the J code. I agree that sales in the US will accelerate, but I can’t guess how much.

Management says they will be EBITDA positive by the end of the year and cash flow positive in 2017. The Company ended 1Q, 2016 with $23.9 million of cash and a cash burn of $7.0 million. At this rate of cash burn, the Company would run out of cash in 1Q, 2017. However, if Iluvien sales pick up, the cash burn goes down and perhaps sharply

Alimera has roughly $33.6 million of debt outstanding to Hercules Capital. It did not meet covenants of the debt agreement in January 2016 and was technically in default. This was waived by Hercules, but if they recur in the future this may not be the case and in that event all of the debt would be immediately due. Alimera said that it is looking for an alternative debt facility which it hopes to complete by the end of 2Q, 2016. I doubt that Hercules would put the Company in default and demand payment in full as Alimera has less than $24 million of cash. In addition to the debt, Alimera has two series of preferred stock that add up to $69 million.

I am on the sideline until some point in time when the sales trend for Iluvien becomes clearer and the financial position becomes more stable.

 

Celldex (CLDX, $4.21)

The failure of the Rintega cancer vaccine trial in both newly diagnosed and recurrent glioblastoma was a crushing blow to Celldex and it is now focused on two other products although its highly productive research engine has several other drugs in early clinical and pre-clinical development. Its lead product is glembatumumab vedotin; this is a monoclonal antibody that targets the glycoprotein GPNMB which is over-expressed in triple negative breast cancer and other cancers like melanoma. This antibody is conjugated with the cell killing molecule auristatin.

Its second most advanced product, varilumab is a check point modulator that stimulates T-cell activity (hits the immune system accelerator). In contrast, the checkpoint inhibitors BMY’s Opdivo and Merck’s Keytruda (take the brakes off the immune system). Varilumab has completed a phase 1 trial with Opdivo and the combination is beginning to enroll in a phase 2. The study includes cohorts in advanced non-small cell lung cancer (n=35), colorectal cancer (n=18), ovarian cancer (n=18), head and neck squamous cell carcinoma (n=18), renal cell carcinoma (n=25) and glioblastoma (n=20). The study is being conducted by Celldex under a clinical trial collaboration with Bristol-Myers Squibb Company. The companies are sharing development costs.

There is not much near term news flow to drive the stock. According to ClinTrials.gov the METRIC trial glembatumumab vedotin in triple negative breast cancer will complete in November 2018 so that topline data will be available in early 2019. The phase 2 study of varilumab in combination with Opdivo is looking for signals of activity in various cancers that could set the stage for a phase 2/3 pivotal trial. Results from the latter might also be a 2019 event. The Company does plan to release some phase 2 data for a trial of glembatumumab in metastatic melanoma in 2H, 2016.

Management has done an excellent job in keeping the Company well financed, but it also has a ferocious burn rate. Cash at the end of 1Q, 2016 was $254 million and the burn rate in the quarter was $35 million. Management forecasts that current cash will fund the Company into 1H, 2018. This suggests that the Company will have to raise money before the results of the critically important METRIC study and potential pivotal trials of varilumab in combination with Opdivo in yet to be determined cancers are completed.

Celldex’s key technology base is monoclonal antibodies with glembatumumab and varilumab being the first products arising from this base. An investment strength is that Celldex has the potential to create a very broad pipeline of products, especially in the very hot checkpoint modulator space. This would be very attractive to a potential acquirer. However, there is potentially no important news flow for certainly one and maybe two or more years. I am on the sidelines with Celldex.

 

Chimerix (CMRX, $4.76)

I had thought that there was a good chance of approval for brincidofovir for the treatment of disseminated adenovirus infections based on the open label AdVise trial. At the same time as AdVise, the Company did a large retrospective study to try to determine what survival rates were in patients treated with standard of care. The survival rates for brincidofovir in the AdVise trial were encouraging but unfortunately, the results from the retrospective study were unclear. Consequently, Chimerix will have to do another study which delays the potential approval of brincidofovir from 2017 to 2019 or 2020. See Thinking on the Stock in the Aftermath of Results from the AdVise Trial

 

Neuralstem (CUR, $0.33)

I expressed caution on Neuralstem in my January 7, 2016 report  Neuralstem: An Update on Its Pipeline and Supporting Clinical Trials. However, I was startled when suddenly and without any detailed explanation, the Company pulled the rug out from under my long term investment thesis. I had thought along with the Company that the results seen with its NSI-566 neural stem cells in phase 1 and 2 trials would lead to a phase 2/3 trial in 2016 that could be the basis of approval. I was encouraged by the enthusiasm of the lead investigator Eva Feldman and other investigators for NSI-566 in ALS. Management continued to encourage investors that this trial would start in 2016.

Suddenly and without any real explanation, a new CEO was brought in and the Company announced that its lead program has now shifted to the NSI-189 small molecule program which is also a novel approach to treating depression and schizophrenia. I feel like the rug was pulled without warning from under investors. I am extremely interested in NSI-189, but it is a novel and very high risk program and for the next year or so I am just watching it from the sidelines, waiting for phase 2 results in 2017.

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