Last Updated on January 15, 2019 by Sultan Beardsley
Wednesday October 24th, 2018 the stock market was slashed across the board with the DOW erasing all its gains for the year and dripping red. The Nasdaq was hit with equal force. Comments from investment fund managers on CNN Business characterized the downturn as a tech valuation correction. Netflix for instance fell more than 17% last week despite a jump in subscriber numbers. The biotech sector was not insulated from this thrashing.
The three major biotech exchange-traded funds (ETFs) BXI, FBT, and IBB are down about 20%, 30%, and 20% respectfully in the past month. Several biotech stocks tumbled last week even after releasing seemly positive, or at worst, neutral clinical trial data.
Selecta Biosciences Inc. (Nasdaq: SELB) is down 60% since 10/23/18 from ~$13.80 to $5.51 after reporting underwhelming Interim Phase 2 data. Aveo Oncology (Nasdaq: AVEO) also released Interim Phase 2 data from it’s TiNivo Study in Kidney Cancer and saw a 15% sell off despite encouraging data, buy ratings, and increased institutional ownership. Even though its recovered 16% it is still a viable swing trade candidate because there is liable to be a run-up into the release of topline phase 3 data from the TiNivo study in Mid-November.
To top off the week TherapeuticsMD inc. (Nasdaq: TXMD) took a 7% beating on what appeared to be an overreaction to the CEO selling shares in accordance with a rule 10b5-1 trading plan days before TXMD’s PDUFA date. If that wasn’t enough the market punished TXMD again Monday dragging it down 5.8% despite FDA approval of BIJUVA™ Capsules for the treatment of Vasomotor Symptoms related to Menopause. There is one stock though with an upcoming PDUFA date that we believe does not have approval priced in.
AcelRx’s (Nasdaq: ACRX) lead product Dsuvia (pill form of sufentanil), a sublingual (under the tongue) administered opioid medication, is up for FDA approval no later than November 3rd. Under normal circumstances approval should be priced in by now given that over two weeks ago an FDA advisory committee (Adcom) voted 10-3 in favor of approval. Initially the stock behaved as expected climbing to premarket highs near $6 before getting hammered down by shorts to ~$4.20. Since that beating ACRX has bounced between $3.20 and $4.50.
In our opinion the market has failed to price the company appropriately because of negative media attention and criticism stemming from Dr. Raeford Brown, Public Citizen, and Senator Markey. Their sentiments are easily abated with facts and data, but investors are spooked by controversy involving prominent public figures in a nation gripped by an opioid epidemic. Nonetheless, the FDA makes decisions based on merit giving us confidence that DSUVIA will be approved. It doesn’t hurt either ACRX is financially backed by the Department of Defense who wants DSUVIA to phase out morphine for soldiers on the battlefield.
Nearly all over prescription opioid related deaths are from Methadone, Oxycontin, and vicodin. All of which are prescribed for the patient to self-administer outside hospitals and clinics. In contrast, Dsuvia won’t be prescribed in that capacity whatsoever. Patients will only be able to take it under medical supervision. Therefore, it stands to reason there are health and economic incentives to approve Dsuvia; curtailing the prescription frequency of pain medications.
A respectable concern is the possibility of diversion where medical staff move the drug onto the streets. Yet, that concern is actually misplaced and slightly irrational. If anything critics should worry about diversion of intravenous delivered (i.e. liquid) sufentanil which is already FDA approved and used in hospitals. Not 30 microgram pills contained within single-dose Dsuvia applicators.
Ultimately, we feel the mispricing of ACRX so close to it’s PDUFA date has created a buying opportunity. Unless the share price experiences a significant correction (i.e. hits ~$5 or more) FDA approval of Dsuvia would not likely be a ‘sell the news’ event. It’s more probable a hurry up and buy reaction would ensue rewarding investors with existing positions. It should be noted that while approval is likely in our opinion, it’s not a given. The FDA could go against the Adcom or succumb to external forces.
Bleeding Stocks To Watch for Resuscitation
Other biotech stocks declined from combinations of inactivity, short selling, and waning investor sentiments discouraged by market conditions. Shares of Galectin Therapeutics (Nasdaq: GALT) for example are down roughly 30% in October without any negative developments. In late September the company finally released their much anticipated cancer data containing cohort 3 from the phase 1b GRMD02-Keytruda immunotherapy study in advanced melanoma. GALT started to make a strong move up towards $8 before a substanceless early morning tweet by Adam Feuerstein crushed gains induced by the promising data, and recruited shorts. The stock has been in a downtrend since then despite the enormous potential of GRMD02 in cancer combo therapy, NASH-cirrhosis, and countless other disorders where Galectin-3 is implicated. A buyout is still a real possibility this year, although first GALT needs to finalize their NASH-phase 3 trial design and get the green light from the FDA.
Admais Pharmaceuticals (Nasdaq: ADMP) is down 38% from it’s highs in September after a “sell the news” reaction to FDA approval of Symjepi .15mg. In this case approval was already priced in. Without any update on the timeline for commercialization of Symjepi .30 mg or .15 mg, bag-holders sold and no new money influxed in stimulating more selling. However, we are not giving up on ADMP. Their prefilled epinephrine syringes have several competitive advantages in a market environment characterized by high demand and low supply. Their commercial partner Sandoz is one of the best in the world and well equipped to bring Symjepi to market.
Verestem Oncology (Nasdaq: VSTM) got an even shorter end of the stick with arguably more promising news of FDA approval of the first dual PK3 gamma/delta inhibitor, now marketed as Copiktra. Since approval, VSTM has been shorted heavily and weak hands have folded pulling the share price down 45%. Notable developments for VSTM have failed to command market support including an exclusive licensing agreement with CSPC Pharmaceutical to develop and sell Copiktra in China, and addition of Copiktra by the National Comprehensive Cancer Network to their clinical practice guidelines in oncology for Chronic Lymphocytic Leukemia/Small Lymphocytic Lymphoma.
VSTM has an earnings report and sales update on November 5th. Sales numbers could result in more appropriate pricing for an oncology company with a commercialized FDA approved product. Financially speaking, VSTM is in a very strong position. Extrapolating from their most recent 10-Q the and factoring in the $145.4 million generated from an offering of convertible notes the company has $314,092,000 in cash, 86% of its present market cap. Lastly, VSTM only has $46,051,000 in total liabilities.
A Bleeding Blood Company With Promising Potential
In light of recent achievements and potential growth we feel ADMA is positioned to become a formidable force in the immunodeficiency space. They are one of only 8 companies in the U.S. marketing specialty-derived plasma products known a ‘immunoglobulins‘ (IG). IGs are antibodies produced by white blood cells that target pathogens marking them for destruction.
Individuals with Primary Immunodeficiency Disease (PIDD/PI) lack the cellular programming to produce various IGs on their own, making them more susceptible to simple bacterial and viral diseases like pneumonia or the flu. ADMA has devised a patent protected process for extracting IGs from blood plasma and testing for specific concentrations of desired antibodies. The process involves combining plasma from individuals with high concentrations of IGs and normal individuals. The resulting Intravenous Immunoglobulins (IVIG) are used to treat those with PIDD, post-transplant patients susceptible to infection, and down the road, for management of chronic infections.
On October 3rd, 2018 ADMA garnered FDA approval of its third plasma collection center capable of producing over 400,000L of plasma-product. This lowers ADMA’s production costs and increases margins competitively positioning them to supply a growing IG market expected to reach $11 billion in the U.S by 2022. Furthermore, the FDA signed off for ADMA to collect blood from people with rare blood types such as high levels of Anti-D antibodies, the foundation of Rho(D) IGs. The monetary benefit is twofold. On the one hand ADMA can use the Anti-D IGs to generate their own IVIG products for Rho(D) negative blood-types, and they can sell the blood to other plasma refiners for double the price of normal plasma.
Product Portfolio & Revenue Growth
Through Acquisition of certain assets from Bitotest Biotechnology Adma gained two commercial products for marketing in the U.S with more underway. The first Bivigam was developed to treat PIDD/PI (PI is a subtype of PIDD).The combined PIDD/PI global market is projected to reach $7 billion by 2023.
The second product Nabi-HB is actively marketed in the U.S and licensed to Biotest for sale in Europe, North Africa, and the Middle East as a preventative treatment for people exposed to hepatitis-B. The global market value for hepatitis-B is forecasted to hit $25.8 billion by 2025. Additionally, the ‘Biotest transaction’ yielded contract manufacturing services and sales of intermediate byproducts.
An FDA warning letter in 2014 and compliance inspection in 2016 raised issues regarding Bivigam’s purity and manufacturing process; prompting Adma to cease production and focus on needed improvements. Production resumed in the fourth quarter of 2017 and the company submitted a prior approval supplement (PAS) amending their initial biologics license application (BLA). The PAS contained supportive data from 3 conformance batches that demonstrated Bivigam’s stability, purity, and reproducibility. Earlier this month the FDA revised their PDUFA action date to December 18, 2018. Once approved, the company is prepared for a commercial relaunch of Bivigam in the U.S.
Product revenue increased 44% in 2018 year over year from $5,956,855 to $8,627,139. However, net loss is a blemish on the income statement we need to address.
Looking at the Q2 2018 income statement for Adma we see that net loss for the same 6 month period in 2018 vs. 2017 doubled. Alarming? We don’t think so. The increase in net loss was certainly related to the 268% spike in cost of product revenue for 2018. In the past 6 months ending in June 2018 the company expended 478% more capital ($1.3 million vs $225,000) into meeting FDA production and quality control standards at their new facility. Admittedly, that is a small dent in total cost of product revenue. But, at the same time revenue has been restrained.
Production of Bivigam resumed in the Q4 of 2017; meaning the company has since incurred costs related to manufacturing Bivigam, while not realizing any sales because of a concerted effort to remediate Adma’s facility. In fact the majority of revenue has came from licensing Nabi-HB to Biotest and contract services. That could all change in December with FDA approval of Adma’s amended BLA for Bivigam and immediate commercial relaunch in the U.S.
More revenue could also emerge with FDA approval of the company’s lead product candidate RI-002. The product is already sold abroad for the treatment of PIDD/PI through a licensing agreement with Biotest. In the U.S it demonstrated efficacy and safety in a pivotal phase 3 study and in a phase 2 double-blind placebo controlled clinical trial. Yet, in 2016 the FDA issued Adma a complete response letter (CRL). The CRL though only reaffirmed issues raised in the 2014 warning letter pertaining to compliance standards and facility deficiencies. All of which have been rectified as evident by FDA approval this year of the facility under question.
In conclusion, Adma is on the path towards sustained growth and profitability. Over the next few years revenue should continue to increase as the cost of production comes down, Bivigam and RI-002 are brought to market in the U.S., and additional products are developed and new markets penetrated. Also, potential indications for Bivigam and RI-002 are not limited to PIDD/PI.