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Thursday, September 11, 2014

What Will Depomed Do With Half A Billion In Cash?

By Jason Napodano, CFA

  • Thanks to a recent $345 million convertible debt offering, Depomed now holds over $560 million in cash on hand.
  • Based on our analysis of previous transaction, we believe Depomed's model is working. We have identified a few potential targets for the company.
  • Based on the current market capitalization and the potential to acquire new products that plug into the model, we believe Depomed's stock has tremendous near-term upside potential.


Please read the article on Seeking-Alpha: LINK

Friday, September 5, 2014

You're Invited - Zacks Healthcare Meet-Up

By Zacks Small-Cap Research

On September 8, 2014, Zacks Small-Cap Research will host its First Annual Healthcare Meet-Up at the Whiskey Blue Bar in New York City. Investors are invited to attend an informal and social gathering where there will be an opportunity to speak with an interact with Senior Management teams from some exciting small-cap healthcare companies. Also in attendance will be Zacks Senior Biotechnology Analysts Jason Napodano, CFA and Grant Zeng, CFA.


Companies that have been confirmed to attend the event include:

- Tonix Pharmaceuticals (TNXP)
- Amarantus BioScience Holdings (AMBS)
- Sorrento Therapeutics (SRNE)
- Cytomedix, Inc. (CMXI)
- InVivo Therapeutics (NVIV)
- AmpliPhi Biosciences Corp (APHB)
- Immune Pharmaceuticals (IMNP)
- Nuvo Research (NRI.T)
- DARA BioSciences (DARA)
- NanoViricides Inc. (NNVC)
- BrainStorm Cell Therapeutics (BCLI)
- ULURU, Inc. (ULUR)
- Neuralstem Inc. (CUR)
- NeoStem (NBS)
- Replicel Life Science (RP.V)

Additional attendees will be announced shortly.

Registration is free for investors. To RSVP for the event, please visit the Zacks Small-Cap Research website (name and email address required). Open bar and appetizers will be served. Whiskey Blue is located on 541 Lexington Ave, New York, NY 10022. The reception will begin at 7PM.

For additional information, please contact Zacks Small-Cap Research at scr@zacks.com.


Thursday, September 4, 2014

More Data From iDEAL Coming In Q4 From iCo Therapeutics

By Jason Napodano, CFA

On August 29, 2014, iCo Therapeutics (OTC:ICOTF) (TSX:ICO) announced financial results for the second quarter ending June 30, 2014. The company did not report any revenues in the three or six month period ending June 30, 2014. This was as expected. Operating loss in the quarter totaled $0.996 million, comprised of $0.401 million in R&D, $0.570 million in G&A, and $0.025 million in foreign exchange. Net loss totaled $1.276 million during the quarter. Loss for the quarter also included a paper loss of $0.327 million in the company’s investment in Immune Pharmaceuticals (NASDAQ:IMNP). As of June 30, 2014, iCo Therapeutics owns 654,486 million shares of common stock and 123,649 million warrants. Based on Immune’s current stock price, the common stock is worth roughly $2.5 million in value. iCo Therapeutics is also entitled to up to $32 million in milestone payments plus 8.5% royalties on sales of bertilimumab at Immune Pharma. We discuss Immune’s efforts with bertilimumab (previously known as iCo-008) below in this report.

As of June 30, 2014, iCo Therapeutics reported cash of $6.480 million. The company burned $0.785 million in cash from operating activities during the second quarter. During the first half of the year, the company burned $1.562 million. Management’s current financial guidance is that the current cash and investments position is sufficient to fund operations to year-end 2015.

iCo-007: iDEAL Trial Fails

On June 9, 2014, iCo Therapeutics Inc. announced top-line results from the iCo-007 Phase 2 iDEAL study in patients with diabetic macular edema (DME). Results look like a complete failure, not only of the efficacy of iCo-007, but also the active control in ranibizumab (Lucentis®). These are perplexing results, but from these initial data one can only conclude that iCo-007 has no clinical utility or commercial potential. The company will continue to follow patients through 12 months of treatment and plans to present and publish the full data later in 2014. At that time, subset analysis of VEGF-refractory patients may show a niche commercial market for the drug if iCo-007 was helping patients that previously failed drugs such as Lucentis® or Eylea® (aflibercept). However, it is important for investors to understand, as of right now we assign no value to iCo-007.

In the iDEAL study, patients (demographics can be found on the April 2014 ARVO poster) with DME received repeated intravitreal injections of iCo-007 as a monotherapy and in combination with ranibizumab (Lucentis®) or laser photocoagulation, randomized into one of four treatment groups noted below:

1. Intravitreal dosing of 350 µg iCo-007 at baseline and Month-4
2. Intravitreal dosing of 700 µg iCo-007 at baseline and Month-4
3. Intravitreal dosing of 350 µg iCo-007 at baseline + laser photocoagulation Day-7, then another intravitreal dosing of 350 µg iCo-007 at Month-4 + laser photocoagulation at seven days later (if necessary).
4. Intravitreal dosing of 0.5 mg ranibizumab (Lucentis®) at baseline + 350 µg iCo-007 at Day-14, then a repeat dose of 0.5 mg ranibizumab at Month-4 + 350 µg iCo-007 14 days later.

The primary endpoint of the iDEAL study was mean change in visual acuity (VA) from baseline to month eight. Below we have created a table showing the data that iCo Therapeutics released on June 9, 2014. We include only the Last Observation Carry Forward (LOCF) data:


These are very disappointing results. According to the press release, using both LOCF and Multiple Imputation (MI) statistical methods, mean changes in visual acuity (VA) measures in all four groups at both Month 4 and Month 8 were negative. There was no statistically significant difference in mean VA between the 350 µg monotherapy and either 350 µg + laser or 350 µg + Lucentis® arms using either LOCF or MI. Based on Genentech’s READ-2 study with Lucentis® or Regeneron’s Phase 2 DAVINCI study, these results compare rather poorly. For example:

- The READ-2 data with Lucentis® showed +7.2 lines of improvement at Month 6 (dosing 0.5 mg of ranibizumab at baseline and months 1, 3, and 5) vs. -0.4 lines for laser photocoagulation (at baseline and month 3). A combination of ranibizumab plus laser showed +3.8 lines of improvement.
- The DA VINCI data with Eylea® showed between 8.5 and 11.4 lines of improvement (depending on dosing level and frequency) at Month 6 and between 9.7 and 13.1 lines of improvement at Month 12. The control in DAVINCI, laser photocoagulation, showed 2.5 lines of improvement at Month 6 and -1.3 lines at Month 12.

We are baffled by the reported significant declines in the patient population from iDEAL. The poster from ARVO noted above concludes that these are “consistent patient demographics” with other DME studies. The entry criteria for iDEAL(NCT01565148) and READ-2(NCT00407381) and DA VINCI(NCT00789477) can be seen below:


We do not see a discernible difference in the patient population between these three trials. However, we understand the range for Best Correct VA is rather large at 20/32 to 20/320, and it is quite possible that iDEAL enrolled a far more advanced and difficult to treat patient population. The commercial existence of both Lucentis® and Eylea® represents a challenge in enrolling early-stage patients. Although, according to the company, 34% of the patients treated in iDEAL were Eylea® or Lucentis® naïve. Perhaps subset analysis coming later this year will shed some light on this area.

We note that all patients in the study have received their final iCo-007 injections and the last patient 12 month follow-up occurred in June 2014. Keep in mind, iCo currently expects to report overall safety and other secondary endpoints in the fourth quarter 2014. As a reminder, these endpoints include: 1) change in visual acuity from baseline to 12 months, 2) change in central retinal thickness from baseline to month 8 and month 12, 3) duration of effect during 12 month follow up period, 4) safety of repeated injections, and 5) pharmacokinetic assessments.

That being said, we believe the only prudent thing to do from a valuation standpoint is to completely remove any commercial potential for iCo-007 from our financial model. We had previously believed that iCo-007 could be a $500 million drug at peak, and would fetch the company in the range of $50 million in terms of an upfront payment from a larger ophthalmology player seeking to push iCo-007 into Phase 3 trials in 2015.

iCo-008: Banking On Immune Pharma

Candidate iCo-008 a first-in-class fully human IgG4 monoclonal antibody discovered using Cambridge Antibody Technology’s phage display technology, and licensed to iCo in January 2007. The mechanism of action of iCo-008, also known as bertilimumab, has been described in detail by numerous authors in peer-reviewed papers we reviewed in our initiation report. Preclinical work show high affinity and specificity for eotaxin-1, a pro-inflammatory cytokine that plays a critical role in mast cell degranulation and the development of an inflammatory condition known as eosinophilia. Clinical and preclinical evidence proves that by blocking eotaxin-1 can result in effective inhibition of early phase mast cell activation as well as late phase eosinophilia. iCo Therapeutics believes this mechanism of action has clinical utility for the treatment of vernal keratoconjunctivitis (VKC) and wet age-related macular degeneration (AMD).

Beyond ocular indications, iCo Therapeutics has out-licensed bertilimumab to Israeli-based Immune Pharmaceuticals (NASDAQ: IMNP) for the treatment of Irritable Bowel Disease (IBD) and Bullous Pemphigoid (BP). Immune has recently begun patient screening for a Phase 2 study with bertilimumab in BP. A Phase 2 study in Ulcerative Colitis (UC) is also schedule to begin patient enrollment in September or October 2014. A Phase 2 study in Crohn’s Disease (CD) is schedule to begin in 2015.


The clinical data in all indication is a little early-stage, and thus forecasting potential peak sales and probabilities of approval is difficult. As of June 30, 2014, iCo Therapeutics owns 654,486 million shares of common stock and 123,649 million warrants. Based on Immune’s current stock price, the common stock is worth roughly $2.5 million in value. iCo Therapeutics is also entitled to up to $32 million in milestone payments plus 8.5% royalties on sales of bertilimumab at Immune Pharma. However based on modest success in VKC and/or AMD, and blockbuster success by Immune Pharma in IBD or BP, we think iCo-008 is worth $15 million in net present value.

Oral Amp-B: Plan To Monetize

iCo Therapeutics also owns the worldwide exclusive rights to an oral Amphotericin B delivery system for life-threatening infections. Amphotericin B (Amp B), the gold standard for systemic antifungal drugs, is one example of a well-established, highly efficacious systemic antifungal drug that has a 50-year history of intravenous therapy. iCo’s candidate is the company’s oral lipid capsule formulation of AmpB. The company acquired the exclusive worldwide rights to the drug back in May 2008 from the Wasan Labs at the University of British Columbia. In November 2013, U.S. patent #8,592,382 was issued for the Oral Amphotericin B platform providing protection around oral delivery of the drug.

In September 2010, iCo Therapeutics was granted Orphan Drug status by the U.S. FDA for the treatment of Visceral Leishmaniasis (VL). Orphan designation qualifies iCo for tax and marketing incentives, which can include tax credits for clinical research, study design support, exemption from application-filing fees, grant funding for clinical trials, and seven years of marketing exclusivity after the approval of the drug. Animal model studies from 2008 showed a >99% knock-down effect of parasitic infection caused by VL with 10 and 20 mg/kg of oral Amp B (previously known as iCo-009) twice a day for one week.

On August 19, 2014, iCo Therapeutics announced positive results from an in vitro study of oral AmpB targeting latent HIV reservoirs that remain present in individuals despite intensive treatment with antiretroviral therapy. In the study, memory cells, or white blood cells, from eight HIV-infected subjects with a durable viral suppression using antiretroviral therapy (HAART) were obtained and exposed in vitro to various concentrations of oral Amp B. Data demonstrated a reactivation response of HIV viral production in six out of seven in vitro cultures with detectable HIV reservoir. Samples from one patient were determined not to be susceptible to reactivation. The study was conducted by ImmuneCarta, the immune monitoring business of Caprion. Given these promising results, iCo Therapeutics is now evaluating the next steps in the developmental path for oral Amp B.

The results above in both VL and latent HIV reservoirs are encouraging, but at this time we have assumed very modest success for oral Amp B in our valuation model, concluding that without more substantial human clinical data, the candidate is worth roughly $5 million in net present value. We believe the best path forward for iCo would be to out-license the candidate for upfront cash and potential backend milestones and royalties on sales.

What's iCo Worth? 

Sum-of-parts analysis tells us that iCo’s stock is worth roughly $20 million in value. This equates to a target share price of around $0.17 based on ~118 million fully-diluted shares outstanding. This assume no value for iCo-007. At today’s price of $0.06 per share, the stock has greater than 100% upside to fair-value, but investors need to consider the significant risk inherent in investing in a biotech stock at this level. We are hesitant to recommend investment as such, and believe that investors wishing to put money (or keep money) in iCo Therapeutics should do so knowing significant volatility exists in the shares.

Despite what we see as a meaningfully undervalued stock, there are certain risks to consider prior to an investment in iCo Therapeutics shares. iCo Therapeutics exited the second quarter 2014 with CAD$6.4 million in cash, CAD$2.0 million of which will be used to fund the rest of the iDEAL study. The company’s stock in now publicly traded Immune Pharma is worth another $2.5 million. With an operating burn of around $0.75 million per quarter, we believe iCo will be able to fund operations well into 2015. Current guidance is to December 2015.