MBII: Stargus receives California approval. Marrone Bio Innovations extends registration applications.
Stargus, one of Marrone Bios (NASDAQ:MBII) fungicides, has been approved for immediate use in California for use on several crops, including grapes, vegetables and strawberries. Stargus can be applied right up the time of harvesting and it is very effective when combined with traditional pesticides.
The state of California is the largest grower of vegetables in the US, with close to a 40% market share, followed by Florida with 6%. Florida is the largest producer of fresh cucumbers and Michigan is the largest producer of pickled cucumbers so California is a very important market for Marrone Bio.
The company is extending its registration processes to countries outside of N. America. The recent acquisition of Pro Farm (Finland) makes Europe a logical area for expansion by piggy-backing on Pro Farms existing sales and marketing staff.
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TSX:MDNA.TO | OTC:MDNAF
Highly Encouraging Results for MDNA55 When Comparing with Synthetic Control Arm
On January 13, 2020, Medicenna Therapeutics Corp. (TSX:MDNA.TO) (OTC:MDNAF) announced encouraging data for the company’s Phase 2b clinical trial of MDNA55, an IL-4 targeted toxin, in patients with recurrent glioblastoma (rGBM) when compared to an eligibility-matched arm of control subjects (n=81) who were treated with approved therapies, including Avastin®, lomustine, and temozolomide. The control subjects had similar baseline features as patients treated with MDNA55 including de novo grade IV GBM at 1st or 2nd relapse following standard 1st-line treatments with surgery and radio-chemotherapy, tumors between 1 cm x 1 cm to 4 cm x 4 cm, Karnofsky Performance Status (KPS) of ≥ 70, not eligible for surgery/resection at relapse, and no known mutations of IDH1 and/or IDH2. In this study, survival results for both arms were computed from the date of relapse rather than from the date of treatment, which was how results were previously reported by the company.
The results showed that:
• Median overall survival (mOS) for patients with high expression of IL-4R was 15.8 months for the MDNA55-treated cohort (n=21) compared to 6.2 months for the control arm (n=17).
◦ Note: Medicenna only had access to 40 archived tissue samples for the control arm, thus the percentage of patients in that arm who had high expression of IL-4R (43%) was similar to that seen in the Phase 2b trial (48%).
• For patients with high expression of IL-4R, 12-month OS for the MDNA55-treated cohort was 62% compared to 24% for the control arm.
• When considering all patients, mOS in the MDNA55-treated cohort was 12.4 months compared to 7.7 months in the control arm.
• When considering all patients, 12-month OS for the MDNA55-treated cohort was 53% compared to 25% for the control arm.
We believe this data is very compelling, particularly for those patients with high expression of IL-4R. The company will take this data to the FDA as part of the ‘End-of-Phase 2’ meeting that will be taking place in the second quarter of 2020. At this meeting we expect the agency to provide guidance on the regulatory path forward for MDNA55 as well as if the opportunity exists for accelerated approval.
Synthorx Acquisition Puts Spotlight on Enhanced IL-2’s
On Dec. 9, 2019, SynthoRx, Inc. announced it was being acquired by Sanofi for $68 per share, which represents a fully diluted value for SynthoRx of approximately $2.5 billion. SynthoRx’s lead development candidate, THOR-707, is an interleukin (IL)-2 variant that is pegylated at a specific site to block binding to the IL-2 receptor α chain and extend the half-life. It is currently being studied in a Phase 1 clinical trial as a single agent and will be tested in combination with immune checkpoint inhibitors in future trials. SynthoRx also has additional preclinical cytokine variant programs, including an IL-15 and an IL-10 program.
IL-2 is a 16 kDa protein that activates a wide range of leukocytes, including T cells and natural killer (NK) cells through binding IL-2 receptors (IL-2Rα [CD25], IL-2Rβ [CD122], and IL-2Rγ [CD132]), with the arrangement of these receptors dictating the response seen. Binding of IL-2 to a heterodimer consisting of CD122 and CD132 is of “intermediate affinity’, whereas a heterotrimer consisting of all three IL-2Rs is a ‘high affinity’ complex. The heterotrimer is typically found on activated T cells (including regulatory T cells) while naïve T cells and NK cells only express the heterodimer. Thus, modifying IL-2 signaling to enhance binding to the CD122/CD132 complex could enhance T cell activation while diminishing the effect of regulatory T cells. An enhanced version of IL-2 that exhibited increased affinity to CD122 was first described in 2012 (Levin et al., 2012) and additional work has yielded a family of long-acting ‘IL-2 Superkines’ with enhanced features compared to IL-2.
Medicenna previously presented preclinical data for MDNA19, the company’s lead IL-2 Superkine, that showed the compound has no affinity for CD25, enhanced affinity for CD122, and is active as both a monotherapy and in combination with checkpoint inhibitors. The following figure on the left shows decreased tumor growth in mice treated with MDNA19 (green line) and enhanced anti-tumor activity when MDNA19 is administered along with an α-CTLA4 antibody (blue line). The figure on the right shows that MDNA19 achieves similar efficacy to other MDNA109 family members with less frequent dosing in an aggressive B16F10 melanoma mouse model.
Medicenna will be advancing MDNA19 into clinical development as the lead IL-2 Superkine based on the lack of affinity for CD25 and enhanced affinity for CD122. We believe this is the only enhanced long-acting IL-2 in development that combines both of those characteristics, and it likely has potential in a number of therapeutic applications, including in combination with checkpoint inhibitor therapy, as part of an ‘armed’ oncolytic virus, or as a fusion protein with antibodies or other cytokines. Pre-IND work is continuing on MDNA19 such that it can be advanced into the clinic in 2021.
Valuation and Conclusion
The comparison Medicenna performed with a synthetic control arm highlights the effectiveness of MDNA55 treatment in rGBM patients and shows that it could offer a much better option than currently available therapies for this patient population. We are eager to hear the outcome of the ‘end-of-Phase 2’ meeting with the FDA and while we continue to believe the agency will require a Phase 3 trial prior to approval, we will be very interested to learn about the potential for accelerated approval.
The acquisition of SynthoRx is an intriguing development for Medicenna, particularly the price that Sanofi was willing to pay for a lead compound that just began Phase 1 testing. We estimate that Medicenna is approximately one year behind SynthoRx in the development of MDNA19, however we believe MDNA19 offers a number of attributes that could lead it to becoming a best-in-class molecule. Based on the valuation assigned to SynthoRx we have increased our estimated valuation for MDNA19 and the Superkine platform to CAD$500 million, which has increased our valuation to CAD$13 per share. Following the SynthoRx acquisition the stock has advanced >100%, however we believe there is significant upside potential based on the advancement of both MDNA55 and MDNA19.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks provides and Zacks receives quarterly payments totaling a maximum fee of $30,000 annually for these services. Full Disclaimer HERE.
To accelerate growth in the domestic market, SenesTech (NASDAQ:SNES) has launched an online store (https://store.senestech.com) since mid-December 2019. While ContraPest is also available through national and regional distributors, the online offering allows the brand to reach the U.S. consumers located throughout the country.
Products offered online include bait stations, control tanks and feeder trays in both 400 mL and 550 mL capacities. The 550 mL tanks are priced at $35/tank (sold as a single case comprising of eight tanks) and the 400 mL tanks are priced at $30/tank (sold as a single case comprising of twelve tanks).
SenesTech has begun its drive to expand in Southeast Asia by signing a distribution agreement with New Enterprises Ltd for the marketing and sales of ContraPest in Singapore, Malaysia and Indonesia. New Enterprises has agreed to cover the costs of regulatory approval, marketing and importing costs.
Agricultural sector plays an important role in economic development of SE Asian countries. Rat infestation in SE Asia result in 10-20% reductions in rice yield. Chronic loss in rice production caused by rat infestation is estimated to be about 15-17% in Indonesia alone. According to a study conducted by National University of Singapore, estimated the cost of rodenticides and loss incurred by non-native rats to rice production to be about $2 billion in SE Asian countries. Therefore, expansion into Southeast Asian markets is crucial.
Besides reducing the yield, rat proximity to human food poses a serious health concern. Currently employed rodent control strategies, including fumigation, electrocution, zapper traps, glue boards, baits and poisons, are reactive rather than palliative. Despite resorting to such efforts, rats continue to devour crops. Natural rodent predators, including snakes, cats and birds of prey, have been effective especially near grain-storage areas but pose new issues like killing non-target animals and human health risk. We think one of the effective ways to control breeding is using ContraPest. Once the community is convinced of its effectiveness, it could become easier to implement SenesTech’s strategy across affected regions in SE Asia on a broader scale.
Management has realized that there was a real need for curbing rat population in SE Asia. Expansion in the region could help maximize sales and drive repeat purchasing. SenesTech is making small waves by rethinking the approach to minimize rats as well as making it easy for consumers to purchase from their online store.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks provides and Zacks receives quarterly payments totaling a maximum fee of $30,000 annually for these services. Full Disclaimer HERE.
BioXcel Therapeutics, Inc. (NASDAQ:BTAI) is a clinical stage biopharmaceutical company focused on two lead development programs: BXCL501 – a sublingual formulation of the α2a adrenergic receptor agonist dexmedetomidine (Dex) for the treatment of neurological and psychiatric disorders; and BXCL701 – an immuno-oncology agent for treatment of a rare form of prostate cancer and pancreatic cancer. BioXcel has recently initiated two Phase 3 clinical trials (acute agitation in schizophrenia and bipolar disorder) and a Phase 1b/2 clinical trial (acute agitation in dementia) for BXCL501. Each of those trials is expected to report topline data in mid-2020. Positive results from the schizophrenia and bipolar trials will likely lead to an NDA filing in late 2020, while positive results from the dementia trial would greatly expand the potential market opportunity for BXCL501.
Phase 3 Trials in Schizophrenia and Bipolar Disorder Underway
The company recently initiated the pivotal Phase 3 SERENITY (Sub-Lingual DExmedetomidine in Agitation Associated With SchizophRENIa and Bipolar Disorder STudY) trials of BXCL501 for acute treatment of agitation in patients with schizophrenia and bipolar disorder. The primary endpoint of both trials will be a reduction of symptoms of acute agitation using the Positive and Negative Syndrome Scale – Excitatory Component (PEC), a validated regulatory endpoint for quantifying agitation comprised of five elements associated with agitation scored from 1 (minimum) to 7 (maximum) (Montoya et al., 2011), as measured from baseline compared to placebo. A key secondary endpoint will be determining the earliest time where an effect on agitation is apparent by measuring the change in PEC score from baseline. An outline of the SERENITY program is shown below.
Phase 1b/2 Trial in Dementia Initiated
Just recently, the company announced the initiation of a Phase 1b/2 clinical trial of BXCL501 for the acute treatment of agitation in patients with dementia, including Alzheimer’s disease (AD). The multicenter, randomized, double blind, placebo controlled, ascending dose trial is designed to evaluate the safety, efficacy, tolerability, and pharmacokinetics of BXCL501 in patients age 65 and older who exhibit acute agitation associated with all forms of dementia. It is an adaptive trial design and will evaluate multiple doses of BXCL501 or matching placebos. Following the completion of each dosing cohort, a safety and tolerability review will be conducted to determine the next tested dose.
Agitated behaviors (e.g., irritability, restlessness, aggression) are a significant issue in patients with dementia. Reports indicate that agitation occurs in up to 70% of AD patients and is a leading cause of institutionalization (Cohen et al., 1997). These behavioral disturbances have been linked with both cognitive decline (Teri et al., 1990) as well as increased caregiver burden, thus decreasing or eliminating them could be beneficial for both the patients and those taking care of them.
Agitation among dementia patients typically occurs in the late afternoon or evening and thus additional terms used to describe the condition include “sundown syndrome”, “sundowning”, and “nocturnal delirium”. The terms all collectively refer to a set of neuropsychiatric symptoms that occur in elderly patients with dementia near sunset. The International Psychogeriatric Association defines agitation in those with dementia as excessive motor activity such as pacing and restlessness, verbal aggression such as screaming and shouting, or physical aggression such as grabbing, pushing, and hitting that 1) is frequently recurrent for at least two weeks and 2) results in excess disability (e.g., impairment in interpersonal relationships). Due to the lack of a clear definition until recently, some prior studies referring to “sundown syndrome” included behaviors only in late afternoon while some included behaviors occurring throughout the night, thus making it difficult to draw comparisons across different studies.
The symptoms of agitation are generally seen in alterations of three main areas: mood, anxiety, and psychosis.
‣ Mood refers to emotional states such as sadness, happiness, irritability, and lability. In dementia patients, mood is typically dysregulated and in addition to agitation this can also lead to depression.
‣ Anxiety is driven by an overactive “fight or flight” response, which is analogous to what is seen in patients with posttraumatic stress disorder (PTSD), particularly hyperarousal and hypervigilance.
‣ Psychosis, which results in disturbed perceptions, delusions, and disorganized thought processes, occurs in many dementia patients due to paranoid ideation.
There is no agreed upon theory as to the cause of agitation in AD, although there are a number of hypotheses, including:
◦ Disordered circadian rhythm manifested as increased nocturnal activity, later peak of daytime activity, and less correlation in body temperature with a 24-hour cycle (Volicer et al., 2001).
◦ Sleep disorders caused by the degradation of neuronal pathways that initiate and regulate sleep (Bliwise et al., 2004). Staedt et al. provide a comprehensive overview of the biological causes of sleep disruption in AD patients (Staedt et al., 2005). An additional factor affecting sleep may be restless leg syndrome, which was found to correlate with agitation in patients with AD (Rose et al., 2011).
Currently there are no FDA approved therapies for agitation in dementia and the treatments that are used are either not effective, have a number of potential serious side effects, or both. Treatment typically involves changes in the patient’s environment and/or the off-label use of pharmaceutical agents.
For alterations in mood, mood stabilizers (valproic acid or carbamazepine) or antidepressants (typically selective serotonin reuptake inhibitors, SSRIs) are most commonly used. The FDA has not approved any drugs from either class for the treatment of agitation in dementia. There is evidence for efficacy of antidepressants, however their use is also associated with adverse side effects (Porsteinsson et al., 2014).
Anxiety is typically treated with benzodiazepines (e.g., lorazepam). While effective at calming patients, they have serious tolerability issues and can have a negative impact on memory, cognition, balance (potentially leading to falls), and potentially increase the risk of death (Saarelainen et al., 2017).
Antipsychotics are the most common medications prescribed to treat psychosis. While some atypical antipsychotics have shown superiority over placebo in treating agitation in AD (Ballard et al., 2009), in 2005 the FDA published a document regarding deaths related to the use of antipsychotics in elderly patients with behavioral disturbances (FDA, 2005) that led to a “black box” warning for this class of drugs in 2008.
Agitation Market Opportunity
Agitation treatment represents a sizeable market opportunity. The initial focus will be on agitation in emergency departments (ED). Total ED visits associated with mental health disorders increased 44% from 2006 to 2014 (Moore et al., 2017), and a sizeable percentage of mental health patients experience agitation during ED visits (Zun et al., 2008). In addition to EDs, there is the potential to expand treatment to different clinical environments, including urgent care centers, intensive care, medical and psychiatric inpatient units, psychiatric hospitals, and mental health clinics.
For the treatment of acute agitation in patient with dementia, while a large number of these patients are taken to the ED, a potential future opportunity exists in treating patients in a nursing home setting, thus offering a positive pharmacoeconomic benefit as well as easing the burden on the patient and caregiver. In addition, an effective treatment for ‘sundowning’ could obviate the need to move a dementia patient to an assisted living environment, as that condition is heavily burdensome on family members and can often times lead to moving a dementia patient out of the home and into an escalating level of supervision at an increased cost.
For the initial indications that BioXcel is targeting, we estimate there are approximately 3.5 million schizophrenics (SARDAA) and 5.7 million adults in the U.S. with bipolar disorder (DBSA). The company will also be targeting agitation in Alzheimer’s disease (5 million U.S. adults), delirium (3 million U.S. adults), and opioid withdrawal (2 million U.S. adults). Of those patients, we estimate that approximately 1.7 million schizophrenics, 2.3 million bipolar patients, 2.0 million Alzheimer’s disease patients, 1.0 million delirium patients, and 0.5 million opioid withdrawal patients will suffer from agitation, with approximately 60% of them having mild to moderate agitation that would be amenable to treatment. We estimate each patient is likely to have 12-24 episodes of agitation per year (1-2 per month), thus representing tens of millions of potential treatment opportunities. At an estimated launch price of $135 per treatment, the total market opportunity is over $1 billion.
BXCL701 (talabostat) is an oral small molecule immunomodulator designed to activate the innate immune system through inhibition of dipeptidyl peptidase (DPP) 8/9 and fibroblast activation protein (FAP). The drug has been tested in over 700 patients through multiple clinical trials, thus there exists a large amount of data on its safety, tolerability, proof of mechanism, and single-agent anti-tumor activity. BioXcel is developing BXCL701 as a treatment for treatment-emergent neuroendocrine prostate cancer (tNEPC) and pancreatic cancer.
BXCL701 in tNEPC
BioXcel is currently conducting a Phase 1/2 clinical trial of BXCL701 in combination with Keytruda® (anti-PD-1 mAb) in patients with tNEPC (NCT03910660). It is a single arm, open label trial to examine the safety, pharmacokinetics, and anti-tumor activity of the combination of BXCL701 and Keytruda®. An outline of the trial is shown below.
The company presented interim safety and tolerability data from the Phase 1b portion of the study at the 26th Annual Prostate Cancer Foundation Scientific Retreat in Oct. 2019. A total of five patients were evaluable at the time of the presentation (three at 0.4 mg/day BXCL701 + Keytruda® and two at 0.6 mg/day BXCL701 + Keytruda®). Results showed that the combination of BXCL701 and Keytruda® was safe with no serious adverse events (SAEs) or dose limiting toxicities (DLTs). We anticipate additional data being reported in the first half of 2020.
BXCL701 in Pancreatic Cancer
BioXcel is conducting a Phase 1/2 clinical trial of BXCL701 in combination with NKTR-214 and avelumab (anti-PD-L1 mAb). The company has entered into a collaboration agreement with both Nektar Therapeutics, in which Nektar will supply NKTR-214 and share in the costs of the combination trial, and Merck KGaA, which will supply avelumab.
A safety run-in study of NKTR-214 and avelumab is currently being conducted, as those two agents had not previously been studied together. Once the safety of those two agents in combination is established, then additional patients can be treated with all three agents. We anticipate the safety run-in study of NKTR-214 and avelumab to complete in the first half of 2020 and safety data for the triplet combination to be available in the second half of 2020.
BXCL701 in Solid Tumors
On Dec. 11, 2019, BioXcel announced the initiation of a single center, open label Phase 2 trial to evaluate BXCL701 in combination with a checkpoint inhibitor in multiple advanced solid tumors (NCT04171219). The trial is taking place at MD Anderson Cancer Center with the goal of identifying tumor types that are amenable to combination therapy with Keytruda® and BXCL701. Outcomes being evaluated include overall response rate, progression-free survival, and duration of response along with the safety of the combination therapy.
With a Phase 3 data readout in mid-2020 we believe that BioXcel should be on all biotech investor’s radar screens, as the opportunity exists for a significant revaluation of the company on positive results. A good precedent for such an event was set in 2019 by Karuna Therapeutics (KRTX), a biopharmaceutical company developing KarXT, which is a proprietary formulation of two compounds: xanomeline, a muscarinic receptor agonist, and trospium, an FDA approved muscarinic antagonist. Following the announcement of positive results for a Phase 2 clinical trial of KarXT for the treatment of acute psychosis in schizophrenia patients the stock increased >500%, and while it has pulled back some it is still up >300% from where it was prior to the release of the data. KarXT has a number of similarities with BXCL501, including the fact it is a reformulation of an already FDA approved compound, it is targeting the same patient population, and it is being evaluated through a rapid development pathway, thus we believe it provides an excellent case study for how a company’s valuation can dramatically change following positive results for a CNS-targeted therapy.
We have slightly increased our valuation to $24 based on modeling a per dose price of $135 for BXCL501 (up from $130) and moving the DCF model forward a year. While the stock has been on a great run since the beginning of November 2019, we believe there is still a lot of upside left, particularly if the company reports positive Phase 3 data later in the year.
Preparing for OxC-beta™ Approval in China
On December 17, 2019, Avivagen, Inc. (OTC:VIVXF) announced it has entered into an agreement with COFCO Biotechnology Co. Ltd. in which COFCO will assist Avivagen in securing regulatory approval for OxC-beta™ Livestock in China. COFCO is a leading supplier of agriculture products in China, and with 12,000 employees and sales of more than $17.5 billion in 2018 we believe they are a great partner to assist Avivagen in determining what trials of OxC-beta™ Livestock will be necessary to secure approval for use in chicken feed along with advising on other aspects of the Chinese regulatory pathway.
China represents a tremendous opportunity for Avivagen as the Chinese government has announced a plan to ban all antibiotics in livestock feed by July 2020. In addition, African Swine Fever (ASF) decimated China’s swine herd in 2019, with an increase in poultry production set to fill the protein supply gap. This increased demand for poultry is being filled by both increased imports to China as well as increased domestic poultry production, which is up 20% since 2018. Some estimates call for Chinese poultry feed production to nearly double over the next five years (Feed Strategy).
OxC-beta™ Approved in Malaysia
On December 5, 2019, Avivagen announced the approval of OxC-beta™ Livestock for broilers and swine in Malaysia, bringing the total number of countries in which Avivagen has approval to eight, including the U.S., Mexico, New Zealand, Taiwan, Thailand, Australia, and the Philippines. Shortly thereafter, Avivagen announced the first order of 100 kg for OxC-beta™ Livestock in Malaysia.
Malaysia’s government intends to move all chicken production to be antibiotic-free by 2020, thus representing a nice growth opportunity for Avivagen. Most of the 4.8 million metric ton Malaysian feed market is directed toward poultry broilers and layers due to the growing popularity of chicken-based fast food restaurants in the country, including Kentucky Fried Chicken, Nando’s, The Chicken Rice Shop, Kenny Rogers Roasters, and Ayamas (USDA, 2017).
New Distribution Agreement in the Philippines
On December 16, 2019, Avivagen announced a memorandum of understanding has been reached with INPHILCO, Inc., in which INPHILCO will become a new, key distribution partner for OxC-beta™ Livestock in the Philippines. INPHILCO will sell OxC-beta™ Livestock to large integrated feed producers as part of INPHILCO’s premix offerings as well as a standalone product. The memorandum of understanding with INPHILCO is part of the negotiation process toward signing a definitive distribution agreement, which should be completed within the next 60 days.
In addition to the working on a definitive distribution agreement with INPHILCO, Avivagen is also working to finalize rights to sell OxC-beta™ Livestock directly to Universal Robina Corporation, one of the Philippine’s largest integrated livestock producers. Universal Robina’s Agro-Industrial and Commodity Food Groups (URC AIG), one of largest pork and poultry producers in the Philippines, is currently testing OxC-beta™ Livestock in its integrated-feed for use in its internal swine production.
The Philippines had an estimated annual feed production of 19 million metric tons in 2019, which is up from 11.75 million metric tons in 2016, and produces as much pork and poultry as Canada.
On December 20, 2019, Avivagen announced financial results for the 2019 fiscal year ending October 31, 2019. Revenues for the twelve month period ending Oct. 31, 2019 were CAD$0.98 million compared to CAD$1.07 million for the twelve month period ending Oct. 31, 2018. The decrease was due to decreased sales of OxC-beta™ products due to the timing difference on a significant order. Subsequent to the end of the quarter, Avivagen secured a 2.1 metric ton order for OxC-beta™ Livestock from UNAHCO, a distribution partner in the Philippines. Selling, general, and administrative expenses for fiscal year 2019 were CAD$3.8 million compared to CAD$4.3 million for fiscal year 2018. The decrease was due to decreased salaries, professional fees, and share-based payments. Research costs were CAD$0.6 million for the twelve months ending Oct. 31, 2019 compared to CAD$0.5 million for the twelve months ending Oct. 31, 2018. The increase was due to an employee termination expense incurred during the most recent 12 months partially offset by lower product trial expenses.
Avivagen exited fiscal year 2019 with approximately CAD$1.1 million. On January 3, 2020, the company announced the closing of a CAD$1.25 million private placement through the issuance of 2.5 million units at CAD$0.50 per unit, with each unit consisting of one share of common stock and one-half of one common share purchase warrant. The warrants have an exercise price of CAD$0.75. Following this financing, we believe Avivagen is sufficiently financed to fund operations into mid-2020. As of Oct. 31, 2019, Avivagen had approximately 34.9 million common shares outstanding and when factoring the recent financing, approximately 2.3 million stock options, and approximately 6.6 million warrants a fully diluted share count of approximately 46.3 million.
We value Avivagen using an EV/EBITDA multiple based on projected revenues of OxC-beta Livestock. We believe Avivagen is laying the groundwork for a very steep growth rate in revenues in the coming years through a combination of new market opportunities and market expansion. For example, the company is making steady progress on sales in the Philippines and we believe it is only a matter of time before sales begin to ramp up considerably in Asia and other parts of the world, particularly as additional data showing the benefits of the OxBC technology is published.
Due to the fact that Avivagen has a limited commercial history, the financial forecasts we have prepared are educated guesses and are heavily reliant on the company continuing to execute on its business plan to get OxC-beta Livestock approved in as many jurisdictions as possible, signing distribution agreements in each of those jurisdictions, and continuing market expansion through adoption of OxC-beta Livestock by major animal producers.
Our model estimates sales of OxC-beta Livestock of CAD$60 million in 2025, as we believe the company will hit an inflection point following the adoption of OxC-beta Livestock by multiple major animal producers over the next couple of years. Using an EV/EBITDA ratio of 16 (which is derived from the average for pharmaceutical companies found here) and an EBITDA of CAD$23 million leads to an EV of CAD$368 million. Using a discount rate of 20% (derived from CAPM) we arrive at a present day EV of approximately CAD$148 million. The company has approximately CAD$3.5 million in debt, approximately CAD$1.6 million in cash (estimated following the January 2020 financing), and CAD$6.3 million in potential financing from warrant exercises. Accounting for that leads to an NPV of CAD$152 million. Dividing this by the fully diluted share count of 46.3 million leads to a valuation of approximately CAD$3.29 per share. Using the current exchange ratio of $1 CAD = $0.77 USD leads to a valuation for VIVXF of approximately $2.50.
MBII: Marrone Bio Innovations adds to credit facility based on short term assets. Our estimates do not include any financials from the recent acquisitions.
Marrone Bio Innovations (NASDAQ:MBII) has increased its line of credit based on accounts receivable from $7 million to $20 million and has added a line of credit backed by its inventory. Both additional funds will be made available from LSQ Funding Group [https://lsq.com].
Small high growth companies frequently our pace their cash as they try to balance cash/accounts receivable/inventories/accounts payable with operating expenses. This is especially difficult when revenue is highly seasonal and costs occur in different accounting periods than accounts receivable are paid.
Lending organizations have a lot more access to the financials than do analysts so it is encouraging that LSQ Funding has such confidence in Marrone Bio Innovations to guarantee access to $18 million of additional funding.
Our estimates do not include any data from the recent acquisitions since no current or historical data is available at this time. When the impact of the acquisitions becomes available we will adjust our forecasts accordingly.
In a press release issued earlier this week Dyadic International Inc. (NASDAQ:DYAI) provided an update on achievements during the fourth quarter 2019. The summary was provided prior to meetings and presentations at conferences over the next week.
Dyadic announced yet another agreement with a big pharma company which will be the second top 10 pharma partner (“Pharma 5” in the exhibit) in their portfolio. The identity of the partner was not disclosed. The agreement is for proof of concept research for an as yet undisclosed protein. Dyadic has also expanded its relationship with the top tier pharma partner that was announced in August 2019 in conjunction with second quarter earnings (“Top Tier Pharma” in the exhibit). This relationship has multiple parts. The primary component is a collaboration to express three different types and classes of proteins. A secondary focus is the evaluation of C1 for internal use by the microbial fermentation group. The most recently announced and third part of the arrangement is with an affiliate of the company which will allow experiments and manipulations of C1 cell lines to create licensed products. Management had hinted at this possibility in the 2Q:19 conference call. This could potentially lead to third party commercialization of C1 products, which would act as a multiplier for Dyadic’s efforts for adoption of C1 use globally.
Dyadic’s success in the ZAPI program has led to an expansion of this relationship as well. The company recently received positive preliminary results from animal studies that demonstrated strong performance protecting cattle and mice from the Schmallenberg virus. The consortium has since contracted with Dyadic to express two additional proteins in animal health.
The collaboration with the Israeli Institute of Biological Research (IIBR) continues to bear fruit. C1 has been able to express an Fc-fusion enzyme: acetyl choline esterase. It has demonstrated the ability to provide protection against nerve agents including sarin and VX gas. Historically, acetyl choline esterase has been produced in low-yield HEK293 cells which have difficulty producing sufficient quantities of the desired enzyme. C1 may be able to produce the enzyme more rapidly and economically than what is currently being achieved in HEK293 cells or with other expression platforms.
The release reminded us of the November 25th announcement that VTT had achieved an important milestone in glycosylation on Dyadic’s behalf, successfully expressing the core human like G0 glycan structure at high levels. The achievement was presented at the Protein and Antibody Engineering Summit (PEGS Europe) and is a bridge towards the creation of more complex glycoforms such as G0F, G2 and G2F. We discuss this further in our article Glycosylation Milestone Opens Doors for mAb Production.
Dyadic also filed two patents during the last three months of 2019 in metabolites and glycoengineering.
2019 was a year full of achievements for Dyadic and it ended on a strong note. We anticipate the filing of the company’s 10-K in late March along with a financial update. Below is a summary of Dyadic’s collaborations, most of which do not provide the identity of the partner. The partnerships provide a way to leverage the capabilities of C1 and provide funding and expertise to improve the expression system. Stay tuned to management’s participation at upcoming events for further information.
Summary of Collaborations1
1. Copyright Zacks Investment Research. Source: Dyadic Press Releases and Financial Filings and Zacks’ Analysis. Green highlight indicates animal health collaboration. Blue highlight indicates academic collaborator.
SNES: SenesTech launching a collaboration with Island Conservation to develop protocols for using ContraPest in environmentally sensitive areas.
SenesTech (NASDAQ:SNES) has launched a collaborative effort with Island Conservation, a non-profit organization, to deploy ContraPest in environmentally sensitive areas to eliminate invasive species such as rats.
The bait stations and the ContraPest will be sold by SenesTech, which will plan the treatment and support the deployment of the fertility control to reduce and then control the rodent population.
This opens a new avenue of revenue generation and the expansion of operational know how that should benefit SenesTech in working in other environmentally sensitive areas.
Island Conservation has been involved in many projects in partnership with local communities, government agencies and other conservation groups that have worked on saving critically endangered local species at many locations around the world. It has deployed teams protecting over 900 populations of close to 400 species on over 50 islands.
Traditional methods have involved dropping tons of chemical anti- coagulant agents on islands, hoping to kill the rodents without harming the indigent population of birds and other mammals. This causes problems of disposal of residual toxicants and possible harm to other species.
TSX:HBP.TO | OTC:HBPCF
We are initiating coverage of Helix BioPharma Corp. (TSX:HBP.TO) (OTC:HBPCF) with a current valuation of CAD$2.001 per share. This present value is based on our estimates for continued development of L-DOS47 in phased trials and a 2026 global launch of L-DOS47 for non-small cell lung cancer (NSCLC) and pancreatic cancer in conjunction with partners. The clinical-stage company is developing its lead candidate, an enzyme conjugated to a monoclonal antibody (mAb) which can increase the pH of the tumor microenvironment (TME), to provide multiple beneficial effects against cancer. The construct is known as an antibody protein conjugate (APC) and is similar in composition to an antibody drug conjugate (ADC). The candidate is in Phase II studies for NSCLC and pancreatic cancer.
L-DOS47 links the enzyme urease to a mAb which can bind to a tumor marker appearing on lung and pancreatic cancer cells. When the mAb is bound to the tumor cell, the action of the linked enzyme is able to alter the pH of the TME by converting nearby urea into ammonia. The ammonia is cytotoxic to the tumor cells and causes a slight rise in the nearby pH potentially enhancing the efficacy of weak base chemotherapeutics. Preclinical work has also shown that the presence of L-DOS47 can reduce expression of the PD-L1 protein, enhancing the natural immune system’s ability to recognize cancerous cells. The biologic is being developed as therapy in combination with chemotherapy or other immunotherapy in both indications. This approach aims to act against the tumor from multiple directions, enhancing the tumor fighting effect of chemotherapeutics and the natural immune system. While first line therapy is effective in some cases, most patients require second line, which maintains a sizable market in both settings for the APC if eventually found effective and approved. The possibility also exists that the agent may be appropriate for both first and later line treatments in various circumstances.
Helix is conducting several Phase II trials. A combination chemotherapy trial for European and Asian markets and a monotherapy trial which has completed data collection and is now finalizing reports for non-small cell lung cancer (NSCLC). A Phase Ib/II pancreatic cancer trial was recently launched that is expected to read out in 2021.
On October 31, 2019, Helix held approximately $1.7 million in cash on its balance sheet following a $7.0 million capital raise. The availability of these funds has enabled Helix to launch its Phase Ib/II pancreatic cancer study with L-DOS47. However, additional funds will be required in the near term to continue research and development activities. The company currently holds no debt. We expect Helix to consume ~$600,000 in cash per month in 2020 as it advances its Phase II programs.
Based on our review, we anticipate that pivotal data will be available for indications NSCLC and pancreatic cancer by 2025. We expect a submission of a biologics license application (BLA) to regulatory authorities in the US and Europe and a response from the FDA and EMA over the 2025 to 2027 period with the first submission to the FDA in pancreatic cancer. Approval and commercialization are expected one year after submission based on historical precedents. If data from the trial demonstrate a major advance in treatment, Helix may receive a breakthrough or priority review designation, which would advance the drug more quickly through the application process. Pancreatic cancer is diagnosed in between 50 and 60 thousand persons per year which may qualify L-DOS47 for an Orphan Drug Designation.
Helix’ innovative approach to addressing cancer has several synergies with chemotherapeutics, can precisely deliver cancer cell cytotoxicity to target cells and may enhance the body’s immune response. We anticipate a near-term readout for the L-DOS47 monotherapy trial followed by interim readouts for the other studies in progress. The company needs a partner and continued financing to further advance L-DOS47 through 2020 and if data is supportive of continued work we anticipate a BLA submission and ultimate commercialization.
A substantial body of research has shown that the tumor microenvironment becomes acidic as cancerous cells favor metabolism via glycolysis. The high metabolic demand of tumor cells’ fermentation of glucose to lactic acid creates free H+ ions that lower the surrounding pH. As a result of low tissue perfusion due to defective vasculature the acidic environment is not thoroughly flushed with oxygenated blood. Cancer cells can adapt to survive in low pH environments through increased glycolytic activity and expression of proton transporters that normalize intracellular pH. However, the extracellular acidic tumor microenvironment has been shown to be immuno-suppressive. The lower pH inhibits T and natural killer (NK) cells and promotes myeloid derived suppressor cells and T regulatory cells. This lower pH not only increases immuno-suppression around the tumor but also can impact the effectiveness of cancer therapies such as checkpoint inhibitors and chemotherapy by producing an acidic shield around the TME.
To address this imbalance, Helix has designed an elegant solution designated L-DOS47 that conjugates a tumor protein specific monoclonal antibody (mAb) with a urease enzyme to convert nearby urea into ammonia and carbon dioxide. The mAb targets carcinoembryonic antigen-related cell adhesion molecule 6 (CEACAM6), which is expressed in numerous cancers, including NSCLC and pancreatic. The enzymatic reaction’s ammonia production is toxic to tumor cells and also has the effect of increasing the pH, potentially reversing immuno-suppressive effects and allowing weak-base chemotherapeutics to work better. Helix has initiated two Phase II trials and has just begun a Phase Ib/II in pancreatic cancer which are evaluating lead candidate L-DOS47.
L-DOS47’s unique mechanism of action which both raises pH and creates a toxic environment for cancer cells is particularly amenable to combination therapy. Weak base chemotherapeutics such as vinorelbine may show synergistic efficacy with L-DOS47. The candidate may also reduce PD-L1 expression on tumor cells thereby enhancing T cell effectiveness. Studies have shown that raising intratumoral pH can improve responses to checkpoint blockade inhibitor immunotherapy.
Current standard of care for non-small cell lung carcinoma (NSCLC) is dominated by surgery, radiation therapy and chemotherapy; however, targeted therapy and immunotherapy are also appropriate. There are ~228,000 new US cases of lung and bronchus cancer expected in 2019, second in incidence only to breast cancer. NSCLC makes up a large portion of this population and is a particularly attractive indication for Helix as there are many cases that can be addressed. If proven safe and effective, L-DOS47 would be a prime candidate for combination therapy with checkpoint inhibitors in first line therapy or with chemotherapy in second line therapy.
Pancreatic cancer is one of the most deadly cancers in large part due to the difficulty of early detection. Surgery radiation and chemotherapy may be appropriate for the disease when caught in its earlier stages; however, there are few effective treatments for most who are diagnosed with the disease. Pancreatic cancer makes up about 3% of all cancers which is equivalent to ~57,000 new cases per year in the United States. It is a desirable indication to pursue due to the lack of alternative therapies and the severe unmet need. The DOS47 platform may also be appropriate for other cancers.
We take a conservative approach and anticipate the drug to have similar pricing as immunotherapies and oncology biologics in the United States. We expect a discount to these levels in other markets such as Europe and Asia. We make reductions for regions ex-US to reflect relative prices in these economic areas.
While our target price is generated based on L-DOS47 success in NSCLC and pancreatic cancer, Helix has several other assets in its portfolio including V-DOS47 and a chimeric antigen receptor (CAR)-T cell candidate. We anticipate adding a valuation component for these programs as they advance to a more mature stage.
Key reasons to own Helix shares:
‣ Novel mechanism of action that is synergistic with other therapies
‣ CEACAM6 target is specific to tumor cells, especially lung and pancreatic adenocarcinoma
‣ L-DOS47 may reverse acidic extra-cellular conditions favorable to cancer cell survival
‣ L-DOS47 may improve uptake of weak-base chemotherapeutics
‣ L-DOS47 may reduce PD-1 and PD-L1 expression thereby improving immune response
‣ Favorable drug safety profile with no reported drug-related adverse events
‣ Biologic eligible for 12 years of exclusivity in United States and extended protection in other geographies
‣ North American rights to intellectual property
‣ Pursuing multiple indications
◦ Non small cell lung cancer
◦ Pancreatic cancer
In the following sections we review the oncology space and DOS47’s position in it with a discussion of ADCs and their relationship to Helix’ platform. We expect first sales in 2026 following favorable registrational data, the submission of a BLA and regulatory approval. We discuss the assumptions in our appraisal and generate a valuation of $2.00 per share. L-DOS47 may prove to be an excellent complement to chemotherapy and immunotherapy lending significant synergies through the precise mechanism of targeting and reducing the acidity in the tumor microenvironment.
Targeted Therapies for Treating Cancer
Antibody Drug Conjugates
Antibody drug conjugates (ADCs) are monoclonal antibodies (mAbs) chemically attached to a biologically active cytotoxic payload or drug. mAbs are very specific in their targeting and allow the linked payload to be delivered to the desired site thereby limiting off target effects. The precise nature of ADCs allows the use of more potent toxins that would be prohibitive if used systemically. An important component of the ADC is the chemical linker that matches the payload with the mAb. The linker is designed to be either cleavable or non-cleavable, which determines the properties of the drug delivery. The linker also controls the distribution and delivery of the payload to the desired cell and can be designed to deliver the drug over an extended period. In most cases, after binding to surface antigens, ADCs are endocytosed into the cell where they undergo lysosomal degradation and release of their concentrated cytotoxic payload. There are a limited number of cytotoxic payloads that are sufficiently stable to make it to the inside of a cell. The most common attachments include microtubule inhibitors, DNA synthesis inhibitors and topoisomerase inhibitors. If the linked drug has the desired effect, it will cause cell apoptosis and eradicate the cancer.
Helix has introduced a variation on the ADC and maintains the epitope specific mAb and chemical linker, but instead of using a toxic payload, attaches a urease enzyme to create toxic ammonia at the surface of the cancer cell. This is known as an antibody protein conjugate (APC) which functions similarly to an ADC. The L-DOS47 unit developed by Helix consists of a camelid antibody employing a non-cleavable chemical linker to a urease enzyme. A feature differentiating the two structures is that the APC is not internalized into the target cell to release its payload while the ADC is taken inside. L-DOS47 is considered an immunotherapy due to its mechanism of action, which reverses immune system suppression due to acidosis.
Immuno-oncology (IO), or cancer immunotherapy is an approach to fighting cancer that uses the body’s own immune system to attack the disease. Normally, the body’s immune system can eliminate cancer cells, but in some cases, these cells can adapt to hide and proliferate. When IO drugs or biologics are administered, they allow the immune system to recognize harmful cells and destroy them, in many cases with fewer and shorter-lived side effects compared to surgery, chemotherapy and radiotherapy. Immunotherapy is preferred because it is frequently associated with fewer adverse events, maintains its potency, works well in conjunction with other therapies and is also able to better target the disease. Several classes of immunotherapy exist including therapeutic vaccines, checkpoint inhibitors, immune modulators, adoptive cell therapy (CAR-T), antibody drug conjugates and oncolytic viruses among others. Immunotherapy is commonly used and enhanced by other approaches such as chemotherapy and antibody drug conjugates2. In recent years, many of the leading checkpoint inhibitors have advanced towards first line treatment of cancer, despite only working in a minority of cases. One of the goals of approved immunotherapies is to increase their effectiveness by combining with other drugs that enhance the ability of immune system to eradicate cancer.
L-DOS47 is Helix’ first drug product candidate and has recently completed a Phase I/II monotherapy trial. The candidate is currently in a Phase I combination trial with carboplatin and pemetrexed in the United States and a Phase II combination trial with vinorelbine and cisplatin in Ukraine and Poland. The product was recently cleared by the FDA to launch a Phase Ib/II trial for advanced pancreatic cancer in the United States with enrollment and screening beginning in December 2019.
L-DOS47 is an antibody protein conjugate (APC) which provides benefits as compared to other therapies. The candidate makes use of a camelid single domain antibody designated AFAIKL2 that can identify specific antigenic sites on cancer cells and precisely deliver the enzyme to the desired site. L-DOS47 is a chemical conjugate of a recombinant single domain antibody and Jack bean urease which can link multiple antibodies per urease molecule. The urease enzyme is derived and purified from the jack-bean plant, which produces beans that can be consumed by humans and animals, although it can be toxic if consumed to excess. Urease is extracted from the seeds of the plant by using a complex refining process, then is conjugated with an antibody by a chemical linker. After completion of manufacture and administration, the AFAIKL2 antibody binds with the CEACAM6 antigenic site expressed on certain cancer cells.
Antibodies Linked to Urease Enzyme3
Helix is conducting multiple Phase II trials and is expected to provide a readout of the L-DOS47 monotherapy study in the first half of 2020. Below we list key milestones that have occurred in the last year and anticipated future events.
‣ IND clearance by FDA for LDOS006 – August 2019 ($6.4 mm to complete study)
‣ Final clinical study report for LDOS001 – Calendar 1Q:20 (will cost $627,000)
‣ Finalized clinical reports for LDOS002 – Calendar 1Q:20
‣ Completion of first (non-randomized) portion of LDOS003 - Calendar 1Q:20
‣ Advancement of LDOS003 to Part II – Dependent on partnership
‣ Anticipated completion of LDOS006 – year-end 2021
‣ Availability of additional supply of L-DOS47 – Calendar 4Q:20 ($1.64 mm cost)
Helix has demonstrated early safety and efficacy in its lead candidate L-DOS47. The compound may enhance the efficacy of other cancer treatments using a novel mechanism of action that addresses acidosis. Please consult our initiation which provides additional detail regarding the targeted indications in NSCLC and pancreatic cancer, a review of preclinical and clinical work on L-DOS47 as well as a discussion of peers, risks and our valuation justification.
1. Share prices, value references in the text and financial statement items are denominated in Canadian dollars.
3. Source: Helix BioPharma Tumor Defence Breaker Video. http://www.helixbiopharma.com/
PIXY: ShiftPixy Reassigns 60% of its Customer Revenues to Raise $19 Million and Focus On Restaurants
Last night, ShiftPixy (NASDAQ:PIXY) announced it has sold off its PEO business, which was 60% of its revenue base to Vensure Employer Services of Duluth, Georgia for approximately $19 million in cash. This not only raises desperately needed cash, it hits the reset button for the company to strategically focus on its higher margin, value added services for restaurants. The business reassigned is mostly comprised of lower margin customers and those not in the restaurant chain business. The business it kept has double the gross margin of that that it sold, and as a result the company will retain half its gross margin dollars going forward.
This move shows how ridiculously low ShiftPixy’s valuation was at a $7 million market cap, when it could raise $19 million just by reassigning contracts for 60% of its business while retaining all its assets and its technology platform. Even now at $21.20 per share, ShiftPixy is only valued at a $20 million market cap, or subtracting the cash infusion in January of $9.7 million and adding the convertible debt, an enterprise value of $13.7 million.
The transaction was dated January 1, 2020 and on closing ShiftPixy received $9.7 million in cash (adjusted for working capital) with the rest being paid out over time. The remainder will be paid in 48 monthly installments of $197,916.66 (with the exception of the final monthly installment payment, which shall be equal to the remaining adjusted balance), due no later than the 15th day of each month beginning in April 2020 and ending April 2024. Given adjustments this transaction could raise a total of between $18 million and $22 million.
The company has been on boarding a large number of new customers since the beginning of the new year and hopes to be back to past quarterly gross margin dollars as soon as six months from now. Its operating expenses should also go down somewhat. By strategically focusing on chain restaurants, the company should be able to continue to increase gross margins, and upsell its new metered car insurance for delivery drivers, while retaining a meaningful base of restaurant workers to be able to implement shift sharing among the restaurants.
The company will retain the worksite employees in its ecosystem but they will no longer be processing their payroll or providing benefits. That will be provided by the purchasing company. The company will now categorize them as unbilled workers. The worksite employees will still be eligible to sign up for a shift at all of ShiftPixy’s customers if they are qualified for the gig.
We have adjusted our model to reflect this transaction and expect the company to report its November quarter (pre-divestiture) by January 14th for a further update.
MBII: Marrone Bio Innovations pursuing state approvals for biopesticides on the hemp variety of cannabis.
Marrone Bio Innovations (NASDAQ:MBII) has received EPA approval for the use of Stargus and Regalia on both indoor and outdoor hemp plants. The company is actively pursuing state approval to add hemp treatment to the current label and expects to receive these in time for the cannabis growing season.
All of the fungicides that infect cannabis plants are treatable by the two fungicides and Marrone Bio Innovations has products the protect cannabis from other pesticides.
On April 16, 2018 Marrone Bio Innovations announced that Regalia had been approved for control of powdery mildew on Cannabis by Colorado; Oregon; Nevada Washington State and other states where cannabis can be legally grown. The potential opportunity for treating organic hemp for the production of CBD in California could be a significant boost to the company's growth in 2021. Hemp is a major crop worldwide with the main uses as a fibre and a source of seeds for human consumption. China is the largest producer of hemp and hemp products.
Marrone discussed its current position on cannabis in California on Jan. 18, 2019. The California Dept. of Pesticide, CDP, has confirmed that the use of Grandevo CG is consistent with Food and Agriculture code 12973 in that such use would not conflict with registered labeling for Regalia and Grandevo.
In the United States the use of CBD oils has exploded over the past three years, from less than $100 million in 2016 to an estimated $500 million in 2019. Now that hemp products are legal at the Federal level (but not yet legal for FDA legislation) and in most states we expect its growth to accelerate.
NexTech (OTC:NEXCF) released its revenue and gross margin numbers for calendar year Q4 2019. It has just moved to a calendar year and has not yet reported a quarter this way so our model is still using the fiscal year. For Q4 2019 NexTech says it had revenues of $2.58 million and gross margin of $1.34 million or 51.9% right on target with gross margin expectations. This is higher than the $2.38 million we had expected for the quarter ending Feb 28, 2020 and the same gross margin percent we expected. For the Christmas month of December, the company had revenues of $760,000 and gross margin of $453,000 (or 59.6%.) This compares with $700,000 for the month of November with gross profit of $300,000 (or 42.9%.)
It looks like the company reached approximately $6.5 million for calendar year 2019 ($5.0 million US) on target with guidance. Its goal is US$15 million (or $19.5 million Canadian) for revenues in calendar 2020. The gross margin target for 2020 is still between 60-70%.
When the company reports Q4 2019, we will update our model to match the calendar year with what information we are provided.
…Since our last report…
On November 19, 2019 NexTech announced it partnered with LivePerson, to integrate augmented reality (AR) for enhanced product views and 3D advertising into LivePerson’s platform.
On November 22, NexTech closed on a non-brokered private placement of four million units priced at $0.75 per unit for gross proceeds of $3 million. Each unit comprised one common share and one share purchase warrant exercisable at $0.93 per share for a period of two years from issuance, subject to acceleration. All securities issued were subject to a four-month hold period from the date of issuance, expiring on March 23, 2020. Only existing investors and shareholders invested in this round. We believe the company now has over $2.0 million in cash on the balance sheet.
On November 28, 2019 NexTech AR Solutions announced that its 3D augmented reality (3D/AR) solution for eCommerce now integrates seamlessly with Magento 2.0. 250,000 eCommerce sites use Magento.
On December 11th, 2019 it announced plans to launch a stand-alone dual platform app in early Q1 2020 and we believe that is still on track. The app will employ the freemium business model whereby a user gets one free 3-D scan, but is billed for additional scan “packs” as well as charged a monthly subscription fee for hosting the 3-D asset.
On Dec. 20, 2019 NexTech AR Solutions announced that NexTech’s 3D augmented reality (3D/AR) solution now integrates seamlessly with Facebook Messenger. It will work on desktop computers and mobile phones and is device agnostic.
…Still on Track for the Launch of the Ad Network
On October 24th, 2019 NexTech announced that it expects to launch a 3D-AR-360 ad network in Q1 2020. All of its customers have expressed interest in running 3D ads and NexTech is working with Google and others to help facilitate this. NexTech believes it is the only company that will have an end-to-end solution—from creating the 3D assets, hosting them, and then serving up the ads. The company has found AR ads deliver consistently better click through rates than flat 2D ads, and works especially well on mobile phones. The click through rate for immersive ads has been 200-300% higher than the click through rate for standard 2D ads.
On November 27, 2019, Oramed Pharmaceuticals, Inc. (NASDAQ:ORMP) filed form 10-K with financial results for the fiscal year 2019 ending August 31, 2019.
The company reported revenues of $2.7 million for the fiscal year 2019 compared to $2.4 million for 2018. The revenues are related to the license agreement with Hefei Tianhui Incubator of Technologies Co., Ltd. (HTIT) singed in 2015. The revenues originating from that license agreement are recognized through June 2023. The increase in revenues was primarily due to additional milestone payments received during the second quarter of fiscal year 2019.
R&D expenses for the fiscal year 2019 were $13.5 million compared to ~$12 million in 2018. The increase was primarily due to expenses related to the Phase IIb three-month dose-ranging clinical trial and the oral leptin development and is partially offset by a decrease in expenses related to toxicology studies and scale-up process development and production of the oral capsule ingredients. The expense was partially offset by the stock-based compensation. G&A expenses were $ 3.7 million in 2019 compared to $4.1 million in 2018. The decrease was primarily attributable to a decrease in stock-based compensation costs partially offset by an increase in salaries and related expenses. Net loss for the fiscal year 2019 was $14.3 million, or $0.82 per share, compared to a net loss of $12.7 million, or $0.86 per share in 2018.
Close to $13 million of cash was used in operating activities and $11.2 million in investing activities. As of August 31, 2019, Oramed had approximately $33.0 million in cash, cash equivalents, and short-term and long-term deposits and marketable securities. We estimate the company has sufficient capital to fund operations for the near term. As of November 26, 2019, Oramed had approximately 17.4 million common shares outstanding and when factoring in stock options and warrants a fully diluted share count of approximately 21.6 million.
New addition to the Board of Directors: In the beginning of December, the company strengthened its Board with the addition of Arie Mayer, Ph.D. Dr. Arie Mayer is currently the Managing Director and Chairman of the Board of Merck Life Science Israel (formerly Sigma-Aldrich Israel Ltd.,) and has held that position since January 2010. Dr. Mayer has held various roles with Sigma-Aldrich Israel Ltd. since 1995 and was instrumental in introducing and developing the Cell Culture and Molecular Biology business for Sigma Aldrich Israel. Dr. Mayer holds a Bachelor of Science in chemistry from Hebrew University and a Ph.D. in biochemistry from Israel Institute of Technology. In addition, he has publications as a main author in the following journals: Science, Journal of Biological Chemistry, New Scientist and the Journal of Cell Sciences.
ORA-D-007 Phase 2 Trial: The company had previously found a statistically significant improvement in HbA1c following just 28 days of treatment in the company’s prior Phase 2 clinical trial (ORA-D-007 Study). In this randomized, double-blind, placebo-controlled study, ORMD-0801 was evaluated in 180 T2D patients who were also on metformin. Patients were administered 16 mg ORMD-0801 (n=60), 24 mg ORMD-0801 (n=60), or placebo (n=60) once daily at bedtime. The following graphs show that nighttime blood glucose rose statistically significantly less in patients administered with ORMD-0801 than in those administered with placebo.
In addition, the company examined a number of exploratory endpoints, including the change in glycated hemoglobin, HbA1c, over the 28-day treatment period. As discussed above, a 90-day treatment period is required to get an accurate reading on any change in HbA1c, however there was a statistically significant difference in the change in HbA1c after 28 days of treatment when comparing the placebo and ORMD-0801 groups.
Results of the Phase 2b Trial
In order to prepare for a pivotal Phase 3 trial, a Phase 2b study was conducted. On September 17, 2019, Oramed announced that the last patient from the first cohort of the Phase 2b clinical trial of ORMD-0801 had completed treatment. The double blind, randomized 90-day dosing trial, which was funded by ORMD, was designed to evaluate the efficacy of ORMD-0801 in decreasing HbA1c levels, a key clinical measure of blood sugar.
A total of 269 U.S.- based patients with more than 6-months history of T2D and HbA1c levels between 7.5% and 9.6%, were enrolled in the Phase 2b trial. Approximately 70% of the randomized patients were on metformin alone, or metformin with up to two additional oral antihyperglycemic agents. Patients were randomized into three groups (~80 patients in each arm) to assess dosing frequency: once-daily (32 mg/day), twice-daily (64 mg/day), thrice-daily (96 mg/day). Approximately 1/3rd of patients in each treatment arm were assigned to placebo. Two hundred nine (209) patients completed treatment to the 12-week endpoint and were included in the data analysis (24 subjects did not complete the full 12 weeks of treatment). In addition, due to evidence of treatment-by-center interaction, two sites (36 patients (13.4% of enrolled subjects)) were excluded from the statistical analysis. The key outcomes were reduction in HbA1c levels and safety. As expected, topline results were released on November 12th 2019.
Results demonstrated that an optimal dosing of once and twice daily resulted in HbA1c reduction of 0.60% (0.54% with placebo adjustment, p-value 0.036) and 0.59% (0.53% with placebo adjustment, p-value 0.042) by 12 weeks. The thrice-daily arm did not meet statistical significance (p-value 0.093). ORMD-0801 demonstrated an excellent safety profile with no serious drug-related adverse events. Results also demonstrated no increase in hypoglycemic events and no weight gain when compared to placebo.
In normal patients, glucose homeostatis is maintained. A transient increase in insulin secretion occurs just before dawn to control hepatic glucose production and prevent hyperglycemia. A major challenge T2D patients face is that they experience abrupt increases in fasting levels of plasma glucose or insulin requirements or both at dawn. One of the goals in treating T2D patients is to reestablish normal glycemic levels in the morning to lower the mean daily blood glucose and HbA1c levels. By improving night-time glucose levels, a person with diabetes can start the day with improved metabolic condition, which enables better control of blood glucose levels throughout the day. ORMD-0801 has demonstrated an excellent safety profile, specifically with regards to hypoglycemic events.
The company has also initiated a second cohort of patients in the study to evaluate the potential efficacy of multiple lower doses of ORMD-0801 with once daily higher dosing. The study is designed with a sample size of 15 subjects per treatment group to identify the optimal dose of ORMD-0801 for the Phase 3 trial. In the low-dose second cohort, 75 patients have been randomized into five groups: 8 mg dosed once-daily; 8 mg dosed twice-daily; 16 mg dosed once-daily; 16 mg dosed twice-daily; and placebo dosed twice-daily. Oramed expects to announce the results from the second cohort in the first quarter of 2020.
The company hopes to be able to meet with the FDA soon for an ‘end-of-Phase-2’ meeting for feedback on the design for a Phase 3 trial. We believe that the company may look to partner with a larger pharmaceutical company prior to initiating a Phase 3 trial.
Exploratory NASH Trial Ongoing
Oramed initiated an exploratory proof-of-concept study to evaluate ORMD-0801 in patients suffering from nonalcoholic steatohepatitis (NASH). The study will test the ability of ORMD-0801 to reduce liver fat, inflammation, and fibrosis in NASH patients. We anticipate data from the first safety cohort of 10 patients in the first quarter 2020.
NASH is inflammation and damage to the liver brought about by a buildup of fat and is the most severe form of nonalcoholic fatty liver disease (NAFLD). It is often a “silent” liver disease as most patients with NASH feel well and are not aware that they have a liver problem. However, NASH can be severe and ultimately lead to cirrhosis, liver failure, and hepatocellular carcinoma. NASH is currently estimated to affect two to five percent of the U.S. population (NIDDK) with the global market estimated to reach $20 billion by 2025 (Allied Market Research).
ORMD-0901 PK Study Results in the near term
Oramed has completed a Phase 1 pharmacokinetic (PK) study of ORMD-0901, an oral formulation of the GLP-1 analog exenatide. The randomized, single blind, placebo controlled crossover study is evaluating the safety of ORMD-0901 along with its PK compared to placebo and open label Byetta® in 16 healthy subjects. The company is continuing to evaluate the data and we anticipate topline results in the first quarter 2020.
GLP-1 analogs mimic the action of GLP-1 and are currently used in the treatment of T2D, with sales of this class of drugs totaling $8.5 billion in 2018 (EvaluatePharma). On Sep. 20, 2019, the FDA announced the approval of Rybelus®, the first approved oral GLP-1 receptor agonist. We believe the approval of Rybelus® is likely to spur interest in partnering other oral GLP-1 analogs, including ORMD-0901.
Oral Leptin Trial to Initiate in 1Q20
Oramed is planning to conduct an exploratory, proof-of-concept trial to evaluate an oral leptin product for the reduction of glucagon in patients with T1D. Leptin is a 16-kDa peptide hormone that is primarily produced by adipose tissue. It is an essential hormone for maintaining energy homeostasis and body weight, with leptin resistance identified as a key risk factor for obesity (Zhou et al., 2013).
The single-dose safety trial is scheduled to begin in the first quarter of 2020 in 10 patients with T1D and we anticipate topline results in the same quarter. The ultimate goal of the project is to address weight loss in overweight patients.
Conclusion and Valuation
We’re glad to see the results for the Phase 2b HbA1c trial in patients with T2D. While we anticipate data from a couple of other studies before the end of 2019, we view the data from the Phase 2b study of ORMD-0801 as the most important for the company. It seems likely that the company might jumpstart partnership negotiations since we believe Oramed will seek a development partner before moving into a Phase 3 trial.
We value Oramed using a probability adjusted discounted cash flow model that takes into account potential future revenues from ORMD-0801 and ORMD-0901. We currently model for approval of ORMD-0801 in 2024 with first sales in 2025 and approval of ORMD-0901 in 2025 with first sales in 2026. We estimate for peak U.S. sales of ORMD-0801 of approximately $400 million and peak U.S. sales of ORMD-0901 of approximately $500 million. Using a 12% discount rate and a 64% probability of approval for ORMD-0801 and a 45% probability of approval for ORMD-0901 leads to a net present value for those two programs of $213 million and $152 million, respectively. When including the current cash total, potential cash from warrant exercises, and dividing by the fully diluted share count leads to a net present value for Oramed of approximately $23 per share.
The company has announced the signing of a distribution agreement with New Enterprises Ltd, an early investor in SenesTech (NASDAQ:SNES).
New Enterprises will cover all costs of regulatory approval and market development as well as importation costs.
This announcement is further confirmation of the potential of ContraPest in controlling rat infestations.
DNA sequencing has proved that the brown rat originated in SE Asia, migrating through the Middle East and into Europe in about 220 AD.
Rats, in general, are major consumer of rice and in return, are a human food source in parts of Asia. It is estimated that over 12% of the rice grown in SE Asia is consumed by rats and as high as 19% in Indonesia.
In our opinion the impact of this agreement, although it is very significant, will not affect earnings in 2020 or 2021.
Interview with Dr. Richard Straube Regarding Upcoming Phase 3 Data for SGX301 in CTCL
Soligenix, Inc. (NASDAQ:SNGX) recently announced the completion of enrollment in the Phase 3 clinical trial of SGX301 in patients with cutaneous T cell lymphoma (CTCL). The FLASH (Fluorescent Light Activated Synthetic Hypericin) trial is a randomized, double blind, placebo controlled study that was originally expected to enroll approximately 120 subjects with either Stage IA, IB, or IIA mycosis fungoides (the most common type of CTCL) across 30 centers in the U.S (NCT02448381). We anticipate topline results in the first quarter of 2020.
To gain a better understanding of CTCL and what to expect from the upcoming data release, we conducted an interview with Soligenix Chief Medical Officer Dr. Richard Straube. We provide some highlights from the interview below that we think are the most important details for investors, with the full interview following.• “We expect the topline primary endpoint data to be available in the first quarter of 2020.”
• “We conservatively estimate a total global market (in CTCL) of approximately $250M.”
• “There is no cure for CTCL. Further, there is no approved front-line therapy for the disease, making it an area of unmet medical need.”
• “SGX301 (synthetic hypericin) is a topical drug ointment that a patient applies to their lesions and then activates it with light therapy… it is NOT expected to be associated with an increased risk of malignancies nor of long-term skin damage.”
• “Many of the participating investigators have stated that SGX301, if/when approved, will have a definite place in the CTCL armamentarium, where a safe, well tolerated, front-line therapy is currently needed.”
DB: Consistent with the company’s guidance, Soligenix recently announced completion of enrollment in the Phase 3 trial of SGX301 in patients with CTCL. Just to confirm, when do you anticipate topline results?
RS: We expect the topline primary endpoint data to be available in the first quarter of 2020. Additional data reporting on the treatment outcomes at the end of the second and third open-label cycles of the study as well as safety outcomes at the end of the six-month follow-up period, will be available shortly thereafter in the following quarters.
DB: Can you provide a bit of background on CTCL and why it is an area of unmet medical need?
RS: CTCL is a rare type of Non-Hodgkin’s Lymphoma (NHL) and is specifically caused by malignant T cells that are attracted to the skin. There is no cure for CTCL. Further, there is no approved front-line therapy for the disease, making it an area of unmet medical need. Disease management is the key goal for this chronic disease setting.
In the early stages of disease, the malignant T cells migrate to the surface of the skin, causing patches, plaques, and tumors that can come and go at the skin surface. In the later stages of disease, tumors can expand and the T cells can also circulate more systemically. Early stage disease has fairly good survival rates (~88% over 5 years), and is treated more like management of any chronic disease. For example, it may be similar to suffering from psoriasis, which is caused by the migration of non-malignant T cells to the skin surface. If the disease advances, which happens in a subset of patients that can’t be readily predicted, then 5-year survival rates can be very low, around 24%.
For most patients and doctors, managing CTCL is about managing the discomfort of the lesions, which can be very painful, itchy, and are cosmetically unbecoming. The problem is that the treatments themselves are not benign. Cancer treatments are obviously meant to kill cancer cells, but there is often collateral damage, including damage to otherwise normal tissue. This is particularly true in CTCL where most of the current treatments are themselves mutagenic agents – that is, they kill the tumor cells by mutating DNA, and this can cause DNA mutations in the normal skin cells as well, significantly raising the risk for secondary cancers such as melanoma. Thus, patients and their caregivers are faced with trying to treat a less lethal, but difficult disease, with treatments that raise their risk of a more lethal cancer. Aside from the risk of cancer, there is also significant skin damage, which can cause premature aging, as well as allergic and local irritation associate with several of the treatments.
DB: How do you anticipate SGX301 being used in the treatment of CTCL?
RS: SGX301 (synthetic hypericin) is a topical drug ointment that a patient applies to their lesions and then activates it with light therapy. This is a type of Photodynamic Therapy, which is a very common and well known treatment among dermatologists. The first step involves the patient applying the ointment to their lesions at home the day before an expected doctor’s visit. This allows hypericin to be preferentially absorbed by the malignant T cells. The next day, the patient visits the doctor’s office and sits or stands in front of our proprietary, safe, fluorescent light device and the lesions are exposed to a specific wavelength of light for an average of 5-7 minutes.
This combination of ointment application and light exposure constitutes a single treatment. The treatment course in our Phase 3 trial is characterized by two of these treatments per week for a minimum of six weeks.
DB: What is the potential market size?
RS: While CTCL is relatively rare, the prevalence of the disease is estimated to be between 20,000 and 40,000 patients in the US alone. Each of these patients would be eligible for treatment with SGX301 sometime in the long-term management of their disease. Accounting for 20,000 patients in each of the US and Europe, we conservatively estimate a total global market of approximately $250M.
DB: Can you briefly review the type of therapy SGX301 is and its mechanism of action?
RS: SGX301 is a combination product – a topically applied ointment (synthetic hypericin) which is activated by safe, cost-effective fluorescent light, causing it to release free radicals (superoxide) which induce apoptosis (programmed cell death of the lesion cells). Importantly, cell death is NOT caused by DNA mutation, and therefore hypericin is not mutagenic. Moreover, the light source used (fluorescent light) is not carcinogenic. Damage to healthy tissue is minimized by applying the ointment only on the cancerous lesions themselves and selective uptake of the drug preferentially by malignant cells. Thus, compared to other CTCL therapies, SGX301 is uniquely positioned, as it is NOT expected to be associated with an increased risk of malignancies nor of long-term skin damage.
We expect SGX301 to have a significant impact, if approved, since it is expected to be a very safe therapy for a disease which currently has no available first-line therapy and all secondary therapies come with significant safety concerns. Additionally, because of its benign safety profile, we expect SGX301 to be used repeatedly, as needed. We also expect that it can be used in combination with most other therapies for the treatment of more severe, later-stage disease, again because of its benign safety profile and the lack of interference with other CTCL treatments.
DB: Can you briefly review the Phase 3 protocol design?
RS: The Phase 3 trial is actually designed as three distinct cycles of treatment.
The first cycle is defined as the treatment period for the primary endpoint in the trial. Cycle 1 is the randomized double-blind portion of the study with a 2:1 randomization of SGX301: placebo across approximately 160 subjects. The subjects treat their three index lesions twice a week for six weeks, with escalating light exposure until a study defined maximum light exposure is reached. After a 2-week rest period, the size and characteristics of the 3 index lesions are assessed and the improvement in lesion scores for all three lesions are compared to the cumulative score for those same lesions at baseline. An improvement of ≥ 50% is considered a successful response. It is worth noting that this Cycle 1 is placebo-controlled because there is no approved first-line therapy for management of early stage CTCL.
The second cycle of the study is an unblinded portion. All patients treat their three index lesions with SGX301, using the same procedure as in Cycle 1. The lesions are characterized at the beginning and the end (week 8) of the cycle.
The third cycle of the study is also unblinded and is optional. In this cycle, patients can treat all their lesions with SGX301, using the same procedure as in Cycle 1.
Following Cycle 3 (or Cycle 2 if the patients don’t opt into Cycle 3), a six-month follow-up is undertaken.
This study design allows us to evaluate treatment response in the blinded portion of the trial, as well as the effect of extended treatment of some or all cancerous lesions in the subsequent unblinded cycles. This further allows us to assess if some patients (or some lesions with specific characteristics) benefit from longer treatment, as well as assessing safety of prolonged use.
It is important to recognize that while the clinical trial looks at treatment endpoints over specific treatment timelines, for comparison purposes, the realities of clinical use in the dermatological setting will likely dictate more customized treatment until the patient and/or clinician feels there is disease resolution and/or no further improvement. To better inform this clinical scenario, Cycles 2 and 3 were introduced into the study to assess SGX301’s longer term use.
DB: Can you remind us of the outcome of the positive DMC recommendation for the study and why this feedback was important?
RS: The SGX301 pivotal Phase 3 trial was an adaptive trial design, meaning it included an interim analysis that was specifically designed to mitigate risk when extrapolating from the smaller Phase 2 sample size. The interim analysis allowed an independent Data Monitoring Committee (DMC) to review the unblinded data, calculate response rates in the actual trial population, and recommend adjustment in sample size to maintain the pre-defined rigorous 90% statistical power. The DMC could have made a number of recommendations, including stopping the study for futility. In order to recommend enrollment of additional subjects, which they did, they had to have seen a promising signal. Thus, the recommendation to enroll additional subjects actually implies that they saw a meaningful difference with treatment.
DB: What does the competitive landscape look like in CTCL and how is SGX301 differentiated?
RS: As we talked about previously, there is no cure for CTCL and no approved first-line treatment. As CTCL is a chronic cancer, patients may rotate among many available treatments throughout their lifetime, attempting to manage this chronic disease and prevent progression to more fatal advanced disease. Because of this, there is no real “competition” in the market – every available treatment may eventually be used by most patients. However, there is an order of preference for treatment, and as noted, no approved first-line therapy for early stage CTCL. Therefore, SGX301 has the potential to fill this area of unmet medical need. Again, because of side effect profiles of all the currently available therapies, they are all meant to be used when other therapies fail – a bit of a chicken or egg situation that reflects the lack of any “front line” therapy for CTCL.
Our treatment is differentiated primarily on the basis of its expected safety. Using a compound which is not mutagenic, is preferentially absorbed by the malignant T cells and which is highly photosensitive, we are able to utilize a safe light source (fluorescent light vs. ultraviolet light) over a shorter period of time. This means that there should be no significant risk of skin damage or secondary cancers. This safety profile means that SGX301 has the potential to be a preferable long-term treatment approach for many patients at various disease stages, including patients that may be delaying all treatment because of the risk of secondary cancers.
DB: Have you received any initial thoughts or feedback from clinicians participating in the trial? Is there excitement for SGX301?
RS: The short answer is yes, there is excitement. I am hesitant to mention specific names of participating investigators at this time, as I have not received their clearance; however, what I can say is that many of the participating investigators have stated that SGX301, if/when approved, will have a definite place in the CTCL armamentarium, where a safe, well tolerated, front-line therapy is currently needed.
DB: Later in 2020 we expect data from the company’s second Phase 3 program in oral mucositis, which has also received a positive recommendation from an independent DMC. Can you give us an update on the status of that trial?
RS: Our oral mucositis study is actively enrolling in a pivotal Phase 3 clinical trial in patients undergoing chemoradiation therapy for head and neck cancer. With a DMC recommendation to enroll a total of approximately 260 subjects, we expect to maintain our excellent enrollment rate across our US and European study sites, and to provide topline efficacy results on the heels of our Phase 3 CTCL study, in the second quarter of 2020.
We expect the first half of 2020 to be very productive and busy!
We thank Dr. Straube for providing an excellent overview of SGX301 and CTCL and we are looking forward to the results of the Phase 3 trial in the first quarter of 2020. The company will also be reporting data from the Phase 3 study of SGX942 in oral mucositis in the second quarter of 2020. With the stock trading at a significant discount to our current valuation of $8 per share, we believe investors should consider taking a closer look at Soligenix ahead of the very important near-term inflection points.
Encouraging Data for Dose Escalation Run-in of Phase 3 GBM Trial
On December 10, 2019, Diffusion Pharmaceuticals, Inc. (NASDAQ:DFFN) announced the presentation of highly encouraging data from the 19 patient run-in portion of the Phase 3 INvestigating Tsc Against Cancerous Tumors (INTACT) clinical trial of TSC in patients with glioblastoma (GBM). The data was presented by Diffusion’s Chief Scientific Officer, Dr. John Gainer, at the inaugural Glioblastoma Drug Development Summit, which took place from Dec. 10-11, 2019.
Patients in the INTACT trial have GBM but are not eligible for surgery, thus the standard of care treatment is radiation therapy for six weeks, followed by 28 days of rest, and then six cycles of temozolomide (TMZ). The INTACT protocol calls for patients to receive TSC both during radiation treatment and during the chemotherapy phase.
The company recently completed the 19-patient, open label, single arm, dose escalation run-in portion of the INTACT trial, which was required since a higher dose of TSC was to be administered, compared to the dose that was given during the Phase 1/2 trial in 59 newly diagnosed GBM patients (Gainer et al., 2016). The company reported that there were no safety signals associated with administration of TSC. In addition, six of the seven patients that received the highest dose of TSC during their treatment are still alive, as shown in the following Kaplan-Meier survival plot. The current data showing an 86% “fraction surviving” compares favorably to just 38% for the Phase 2 clinical trial and only 13% for standard of care at the same time point.
Patient’s Karnofsky Performance Scores (KPS), which measure the ability to perform daily activities, also increased from baseline following completion of high dose TSC treatment, as shown in the following graph. This contrasts with what was seen in the Phase 2 clinical trial (denoted 100-202) in which KPS began decreasing by week 10 and continued to decrease out to week 18.
Patients with inoperable GBM have a very grim prognosis, thus the data presented by Diffusion is highly encouraging for this group of patients. In addition, there were no safety signals and TSC continues to be very well tolerated. The company is currently seeking a partner to continue development of TSC in GBM.
Phase 2 Stroke Trial Underway
On October 17, 2019, Diffusion announced that the first patient has been enrolled in the Phase 2 on-ambulance trial of the company’s lead asset, trans sodium crocetinate (TSC), for the treatment of stroke. The Pre-Hospital Administration of Stroke Therapy-TSC (PHAST-TSC) trial is expected to enroll 160 patients who will be treated in the ambulance (80 active/80 placebo) within two hours of a suspected stroke on the way to the hospital regardless of whether they are suffering from an ischemic or hemorrhagic stroke. In addition, patients are eligible to receive tissue plasminogen activator (tPA) separately in-hospital if it is determined they are suffering from an ischemic stroke. A total of 23 hospitals, working in conjunction with 150 emergency medical transport groups, are expected to participate in the trial across central Virginia and in Los Angeles County. Enrollment has initiated in Virginia and we expect enrollment to commence at the University of Los Angeles before the end of 2019.
The primary endpoint of the study will be the extent of disability at 90 days using the utility-weighted modified Rankin Scale (UW-mRS) (Chaisinanunkul et al., 2015). Secondary endpoints will examine functional independence, activities of daily living, and health-related quality of life.
Preclinical models show that TSC could be an effective treatment for both ischemic and hemorrhagic stroke (Manabe et al., 2010; Wang et al., 2014). The following figure, shown at the 2019 International Stroke Conference, shows a dose dependent reduction in infarct volume in a rat model of ischemia-reperfusion where TSC was administered 10 minutes following onset of ischemia.
In another rat model of ischemia-reperfusion, which involved two hours of ischemia followed by 22 hours of reperfusion, treatment with TSC one and a half hours after onset of ischemia led to a significant reduction in infarct volume of 32%. In a third model of ischemia-reperfusion, which involved two hours of reperfusion followed by an additional four hours of one vessel occlusion, treatment with TSC significantly reduced infarct volume by 34%. Lastly, in an intracerebral hemorrhage model in which TSC was administered three hours after collagenase injection, there was a significant reduction in hemispheric swelling and hemorrhage volume in animals treated with TSC. It is important that TSC be effective, or at least not detrimental, regardless of the type of stroke. Otherwise, its use would be contraindicated prior to the diagnosis of the type of stroke and by that time it may be too late to be effective.
There are approximately 800,000 strokes every year in the U.S., and they are responsible for the deaths of approximately 140,000 individuals (CDC). Strokes cost the U.S. healthcare system an estimated $34 billion every year (Benjamin et al., 2017).
On November 11, 2019, Diffusion announced financial results for the third quarter of 2019. As expected, the company did not report any revenues. R&D expenses for the third quarter of 2019 were $1.7 million compared to $1.2 million for the third quarter of 2018. The increase was primarily due to increased costs associated with the Phase 2 stroke trial. G&A expenses were $1.3 million during the third quarter of 2019 compared to $1.6 million during the third quarter of 2018. The decrease was primarily due to decreased salaries, wages, and stock-based compensation.
Diffusion exited the third quarter of 2019 with approximately $6.1 million in cash and cash equivalents. On November 15, 2019, the company announced the closing of a public offering that we anticipate will raise net proceeds of approximately $3.3 million through the sale of approximately 5.1 million common shares (with the same number of Series I and II warrants) and approximately 6.3 million pre-funded warrants to purchase a share of common stock (with the same number of Series I and Series II warrants). On Dec. 12, 2019, the company announced a $3.5 million registered direct offering of approximately 6.3 million shares at a purchase price of $0.5585 per share along with approximately 6.3 million warrants with an exercise price of $0.4335.
The company had 24.2 million shares outstanding as of Dec. 10, 2019, thus after the most recent financing we estimate the total shares outstanding are 30.5 million and when factoring in stock options and warrants the fully diluted share count is approximately 54.7 million.
The run-in data for the Phase 3 GBM trial are really encouraging, and we are hopeful that it will be enough to entice a potential partner so that the Phase 3 trial can continue, as there seems to certainly be enough preliminary signs of efficacy to warrant TSC’s advancement in that indication.
Now that the PHAST-TSC trial is underway we look forward to updates regarding patient enrollment and we estimate that topline data will be available in approximately two years. Based on the large number of strokes that occur in the U.S. every year, and the billions of dollars that treating stroke victims costs the healthcare system each year, we believe that TSC could become a blockbuster drug in the treatment of stroke and we estimate for potential peak revenues of over $1 billion worldwide. However, we have reduced the value of the GBM indication in our valuation model as the company will not move forward in GBM without a partner, although with the encouraging data from the 19-patient run-in portion of the Phase 3 trial we believe the chances for a partnership have increased. Our valuation currently stands at $1.50 per share.
ESSA Pharma Inc. (EPIX) is a biopharmaceutical company developing treatments for prostate cancer that is no longer responding to current therapies. The company is developing a series of compounds (‘anitens’) that disrupt the androgen receptor (AR) signaling pathway through a unique mechanism of action that targets the N-terminal domain (NTD) of the AR, as opposed to the ligand-binding domain (LBD) of the AR that is targeted by all other AR-directed prostate cancer treatments. The company has selected a lead preclinical aniten (EPI-7386) to advance to clinical trials, and we anticipate an IND being filed in the first quarter of 2020 such that a Phase 1 clinical trial can initiate shortly thereafter.
The company had previously tested a first-generation aniten compound, EPI-002, in a Phase 1 clinical trial in patients with mCRPC that were progressing after abiraterone or enzalutamide with serially rising PSAs (NCT02606123). While EPI-002 was shown to be safe and well tolerated, the compound exhibited a short half-life and minimal therapeutic exposure that led to suboptimal results. Therefore, ESSA embarked on a new discovery effort to develop next-generation antien’s.
Following the synthesis of >300 compounds the company selected EPI-7386 as the lead IND candidate due to it possessing a number of positive attributes compared to EPI-002, including:
• Increased potency: the following chart shows a cellular inhibition assay in which various AR antagonists were tested along with EPI-002 and EPI-7386. The results show that EPI-7386 has a similar IC50 value compared with enzalutamide, bicalutamide, and darolutamide while EPI-002 had an IC50 value 20X higher than EPI-7386.
• Reduced in vitro metabolism: EPI-7386 exhibits in vitro hepatocyte stability that is approximately 10X greater than EPI-002 based on half-life and similar to what is seen with enzalutamide. In addition, the following graph shows that the PK profile in mice for EPI-7386 is similar to enzalutamide while EPI-002 showed a rapid reduction in plasma concentration over 12 hours.
• Activity against AR-V7 in in vitro models: The following chart shows the results of an AR activity assay in which PSA is coupled to a luciferase reporter and tested against enzalutamide, EPI-002, and next-generation aniten compounds including EPI-7386. The assay was performed using the AR splice variant AR-V7, which shows androgen-independent activity (green bars), and using a combination of AR-V7 and full-length AR (R1881). The results show that EPI-7386 inhibits the activity of both full-length AR and the AR-V7 splice variant. This is in contrast to enzalutamide, which only shows activity against the full-length AR (red bars) but not against AR-V7, where activity is similar to that seen with only vehicle (DMSO) present.
• Similar activity to enzalutamide in LNCaP xenograft models: The following graph shows the activity of both EPI-7386 and enzalutamide in an LNCaP xenograft model, which is driven by a full-length AR. Both drugs similarly inhibit the growth of the tumor in that model.
• Enhanced activity in VCaP xenograft model: The VCaP model is initially driven by full-length AR but is then followed by AR-V7-driven growth. The following graph shows that EPI-7386 shows significant and sustained antitumor activity in this model, while enzalutamide treated tumors show resistance to treatment after day 24. Interestingly, the combination of EPI-7386 and enzalutamide shows even greater activity than either drug on its own.
Looking to Initiate Phase 1 Clinical Trial of EPI-7386 in 1Q20
We anticipate the company filing an IND for EPI-7386 in the first quarter of 2020 and a Phase 1 clinical trial initiating soon thereafter in patients who are resistant to second-generation anti-androgen therapies (e.g., enzalutamide). The trial will include both a dose escalation phase and a dose expansion phase. The primary objective of the dose escalation portion is to establish the safety and efficacy of EPI-7386 with the secondary objective being to determine the maximum tolerated dose and the recommended Phase 2 dose. In the dose expansion portion of the trial, the primary objective will be to further evaluate the safety, tolerability, and preliminary anti-tumor activity of the recommended Phase 2 dose. The company is also planning to initiate a combination trial with EPI-7386 and a ‘lutamide’ (enzalutamide, apalutamide, or darolutamide) in mCRPC patients due to the robust preclinical data showing increased activity with combination therapy. We estimate that the company is fully financed to conduct all three trials (the dose escalation trial, the dose expansion trial, and the combination trial).
On December 19, 2019, ESSA announced financial results for fiscal year 2019 that ended September 30, 2019. The company reported a net loss of $10.4 million, or $1.24 per share, for the year ending September 30, 2019, compared to a net loss of $11.6 million, or $2.55 per share, for the year ending September 30, 2018. R&D expenses for fiscal year 2019 were $6.7 million compared to $4.9 million for fiscal year 2018. The increase in expenses was primarily related to preparation of the IND application for EPI-7386. G&A expenses for fiscal year 2019 were $5.5 million compared to $5.9 million for fiscal year 2018. The decrease was primarily due to a reduction in share-based compensation, rent expense, and professional fees.
As of September 30, 2019, ESSA had approximately $53.3 million in cash and cash equivalents, which includes the capital from the acquisition of Realm Therapeutics in July 2019 and the $36 million financing in August 2019. We estimate that the company has sufficient capital to fund operations for the next couple of years.
As of September 30, 2019, ESSA had approximately 20.8 million shares outstanding, and when factoring in the 12.2 million reasonably priced warrants and the 5.3 million stock options a fully diluted share count of approximately 38.3 million.
We value ESSA using a probability adjusted discounted cash flow model that takes into account potential future revenues for EPI-7386. We model for ESSA to partner the asset and to receive a 15% royalty on net sales.
For EPI-7386, we estimate that the company will initiate a Phase 1 trial in 2020, a Phase 3 trial in 2023, and file for approval in 2025. While the opportunity could exist for accelerated approval with exceptional results, we believe our timeframe is a bit more conservative of an estimate. For the initial indication, which is patients with mCRPC who are no longer responding to therapy, we estimate there are approximately 30,000 in the U.S. and 80,000 in the E.U. who would be eligible for treatment based on the number of deaths attributed to prostate cancer each year. While this represents a potential billion dollar opportunity on its own, we believe the much larger opportunity exists in combination therapy with earlier stage patients. We estimate there are approximately 160,000 patients who have either non-metastatic CRPC, metastatic hormone sensitive PC, or ADT-failing metastatic CRPC. When including these patients in our model we believe EPI-7386 could achieve peak sales of $4 billion worldwide. Using a 25% chance of approval along with a 13% discount rate leads to a net present value for EPI-7386 of $263 million. Combining the net present value of EPI-7386 with the company’s current estimated cash balance and dividing by an estimated fully diluted share count of 38.3 million leads to a valuation of approximately $8.00 per share.
Chesapeake Financial's (OTC:CPKF) third quarter net earnings rose $47,000, or 2%, year over year to $3.2 million, while 2019’s third quarter diluted EPS increased by $0.01, or 2%, to $0.65 from $0.64 posted a year ago. All data in this report have been adjusted for a 6-for-5 stock dividend, paid on October 15, 2019.
This was better than our estimate, which had called for a $0.2 million, or 7%, decrease in net earnings to $3.0 million and diluted EPS of $0.60 (off by $0.05).
The main factors behind the difference between actual results and our estimate were: (1) net interest income that was $0.4 million more than we had estimated due to a net interest margin and average interest-earning asset base that both were higher than expected and (2) compensation costs that were $0.1 million less than estimated. These were offset by: (1) other miscellaneous expense that was $0.2 million more than anticipated and (2) income tax expense that was $0.1 million larger due to higher-than-estimated pretax earnings and a tax rate of 14.4% versus our 13.0% estimate.
We note that in last year’s fourth quarter the Company changed its method of presenting merchant card income and expense from separate line items in noninterest income and noninterest expense, respectively, to a single line item, entitled merchant card income, net, in noninterest income. This change had no impact on the bottom line, though noninterest income and noninterest expense are lower than previously reported, both reduced by the amount of merchant card expense. All data in this report have been modified to conform to this new method of presentation.
The major reasons for the third quarter’s 2% increase in net earnings versus the prior-year quarter were a $1.0 million, or 9%, advance in net revenues due to growth in net interest income (up $0.6 million), net securities gains (up by $0.3 million) and other miscellaneous income (up $0.1 million), partly offset by a $0.9 million, or 11%, rise in total noninterest expense, primarily from greater compensation costs (up $0.6 million) and higher other miscellaneous expense (up $0.3 million).
We are maintaining our 2019 and 2020 diluted EPS estimates at $2.25 each year—for 2019, a $0.08 increase from 2018’s $2.17, and for 2020, flat with our 2019 estimate. We recognize that this is down from the prior two years’ record earnings growth, but there are several factors contributing to this reality.
First, there is pressure on lending rates due to the recent Fed cut in interest rates, though somewhat offsetting influences are reductions in deposit rates and the call of certain higher rate brokered certificates of deposit. This is reducing our NIM estimates to 3.97% in 2019 from 4.10% actual in 2018 and by another 7 basis points, to 3.90% in 2020 from an estimated 3.97% in 2019. Secondly, CPKF expects several new hires to add to compensation costs. Thirdly, CPKF is investing in new technology, leading to higher IT expense. Finally, the Company expects to add a full-service branch to its network late in next year’s first quarter, which will also increase expenses. Positively, loan growth is expected to be solid, though we are cutting our estimate from 10% to 7 ½% in 2019, following a flat third quarter, while continuing our 8% loan growth estimate in 2020.
On October 18, 2019, Chesapeake Financial Shares, Inc. approved a 3% quarterly dividend increase to $0.125 per share from $0.121 per share, payable on or about December 15, 2019 to shareholders of record on December 1, 2019. Notably, CPKF has increased the annual dividend payment every year for the past twenty-eight years since 1991. This follows on the heels of a 6-for-5 stock dividend, paid October 15, 2019, for which all data have been adjusted.
In 2019 for the twelfth consecutive year, Chesapeake Financial Shares, Inc. has been included in the American Banker magazine listing of the “Top 200 Community Banks” in the United States. The bank ranked at #107 in the nation out of approximately 601 publicly traded banks and thrifts with less than $2 billion in assets in the study, up from #148, when CPKF first broke into the rankings in 2008. The ranking is based on a three-year average of return on average equity (ROAE), which for CPKF was 10.59%. Chesapeake Bank again garnered a top ranking in the American Banker’s list of “Best Banks to Work for”, moving up to a #19 spot in 2019, out of the 85 banks listed, from a #25 place in 2018.
In other news, Chesapeake Financial Shares, Inc. graduated from the OTCQB Venture Market to the OTCQX Best Market, trading on OTCQX under the symbol CPKF.
Chesapeake Financial Shares, Inc. (CPKF or the Company) is a financial holding company headquartered in Kilmarnock, Virginia, with $944 million in total assets at September 30, 2019. CPKF is predominantly a small business lender with 15 branch offices and one loan production office that serve customers in the eastern region of Virginia between the Potomac and James Rivers. CPKF, which began as Lancaster National Bank on April 13, 1900, has a long history and strong ties with the communities it serves.
Trading at an enterprise value of $9 million, with a revenue run rate of $62 million and annual results that showed 53% growth, ShiftPixy (NASDAQ:PIXY) certainly deserves a second look. With a new year and a new CFO, the company has put behind it a few of its missteps and has a plan to fix the rest. Clearly investors have been wary of the company, as it has been difficult to assess how much dilution would occur as the result of disputes with the convertible bondholders. But since the dispute with largest holder (CVI Investments) has been settled, wiping out a potential 250,000 shares of dilution, there is more clarity on the range of possibilities for the rest. As it now stands, at most an additional 400,000 shares could possibly be converted putting the all-in share count at 1.3 million shares. Since all the options and warrants are also out of the money, the fully diluted number is currently the same as the shares outstanding of 915,000 shares. Where the company ends up will be somewhere between 1.3 million and the 915,000. Because of this agreement with CVI the company should be reversing the $1.8 million reserve it took below the line in FYQ4 2019, either in FYQ1 or FYQ2, depending on the decision of the auditors.
While the company could use cash and a war chest to grow it has found a source of cash on its own balance sheet. It plans to get a bank loan against deposits for workers’ compensation, which could provide some $3 million in cash. Longer term it will need to raise capital to fund its growth. With normalized expenses its cash burn currently runs about $400,000 a month. It should be able to reach cash breakeven shortly through increased worksite employee numbers, increased average gross margin per employee and reduced baseline expenses as litigation ends.
The company had a delay in the launch of its much anticipated mobile application and technology platform due to a dispute with its outsourced developer that has withheld code and which is ongoing. To avoid further delays, in Q3 2019 ShiftPixy has hired an in-house group to write a lot of the code and is also licensing some software at a cost of $75,000 a month. If possible it would like to settle with the outsourced developer and get the withheld code but is progressing forward with its technology solution, in customer testing at the end of 2019, which will turn on some additional revenue streams for the company in 2020.
Longer term the ShiftPixy should continue to increase margins through economies of scale. Its novel approach to employee management, which enables companies to reduce their insurance and compliance costs by outsourcing the workforce to ShiftPixy, should attract more and more customers. Having delivery sharing and insurance metering should attract more chain restaurants, which are the higher margin customers for ShiftPixy.
Q4 FY2019 Results
Once again ShiftPixy beat our gross billings number, at $104.8 million compared with $73.4 million in FYQ4 2018, up 43%. Revenues were also slightly higher than expected strong at $15.4 million, up 38% year over year and inline with our estimates.
Gross margin dollars increased 68.3%, while the gross margin percentage also increased to 19.9% from 16.3% in 2018. While year over year improvements have been caused by lower insurance costs, the company also experiences seasonal trends. The first quarter always has the highest margins as it pays lower social security as worker max out on contributions at the end of the calendar year. As a result we expect FYQ1 to be much higher than Q4 as well as higher than the year ago period.
Worksite employees rose from an average of 10,860 employees for the three months ended May 31, 2019, to an average of 13,100 employees in this year’s quarter, up 20.4% sequentially and 53.4% year over year.
Source: Zacks Investment Research
Operating expenses were $6.1 million versus $5.5 million a year ago an increase of $582,000. For year end the company added a Sales and Marketing Expense category and rearranged expenses in the stock-based comp, professional fees and general and administrative line items so we cannot analyze the quarterly changes for those categories. In the remaining lines:
• Salaries increased $560,000 with increased headcount mostly driven by bringing software development in-house
• Commissions increased $305,000 with increased sales. The company hopes to bring this down as a percentage as it sells more services to current customers, which will not incur commission payments. Also it is shifting internal resources to more of an internal, lower commissioned sales force and focusing on larger deals with multiple location franchises.
• Software development decreased $1.2 million as the company moved development in-house.
• Depreciation was up $100,000 and will increase with increased capitalized software
• The remaining categories sum increased $878,000.
• The company is working on bringing down expenses particularly in professional fees that have been elevated due to legal expenses that should end once a deal with the remaining two convertible holders have been completed as well as with the software developer. Increased spending on sales and marketing will offset these declines as its new delivery service and staff sharing on its mobile app rolls out to new customers. In these expenses is $430,000 in one-time expenses mostly from legal expenses for the Kadima and note related litigation.
The operating loss was $3.0 million versus $3.7 million loss a year ago and a loss of $3.1 million in FYQ3 2019.
Total other income was an expense of $6.3 million versus $5.3 last year. Interest expense was $2.2 million from amortization expense related to the debt discount and debt issuance costs related to the March 2019 and June 2018 financings. No interest was paid in cash. Two other charges were in other income; a non-cash $98,000 inducement loss from debt and a $2.2 million non-cash gain on the change in fair value of the derivative and warrant liabilities.
With no taxes paid, the company reported a loss of $9.3 million versus a loss of $8.9 million a year ago or a loss of $10.32 per share versus a $12.41 per share loss. On a non-GAAP basis the loss per share was $9.32 versus a loss of $12.14 year ago. In this number we have taken out stock based compensation and the $430,000 in one-time expenses. Average shares outstanding for the quarter were 905,000 million, up 26% from a year ago. Shares outstanding as of December 13, 2019 were 915,000 post split and the all in share count is now 1.3 million, an increase of 39%.
SenesTech (NASDAQ:SNES) has launched a new website aimed at pest management professionals (PMPs) that enables them to buy the company's products. These include bait stations, ContraPest control tanks and ContraPest tanks in both 400 mL and 550 mL sizes.
Pricing per unit for ContraPest is $35 each (sold in lots of 8 tanks) for the 550 mL tanks and $30 each (sold in lots of 12 tanks) for the 400 mL tanks. This compares to a retail price close to $45 and $40 but this varies depending on the seller.
SenesTech continues to move towards a commercial sales approach as opposed to a institutional sales mode.