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Friday, April 17, 2015

Near-Term Catalysts Should Drive Immune Pharma Shares Higher

By Jason Napodano, CFA

Financial and Business Update
On April 15, 2015, Immune Pharmaceuticals, Inc. (IMNP) filed reported financial results for the fourth quarter and full year ending December 31, 2014. For both the fourth quarter and full year 2014, the company reported no revenues. Net loss of in the quarter totaled $7.1 million or $0.32 per share for the fourth quarter and $23.6 million or $1.46 per share for the full year. Net loss for the full year 2014 included $10.7 million in G&A expenses and $5.6 million in R&D expenses. Actual cash burn in 2014 totaled $13.7 million, well below the reported net loss, as the company reported $7.2 million in non-cash charges related to the outstanding value of the derivative liability associated with warrants issued in March 2014.

Immune exited 2014 with $6.8 million in cash and cash equivalents. We remind investors that in April 2014, Immune entered into a three-year, $5.0 million revolving line of credit with an existing stockholder, Melini Capital Corp, who is affiliated to Mr. Daniel Kazado, Immune's Chairman of the Board of Directors. The line of credit incurs interest at 12% per annum, which is payable quarterly. Any amounts borrowed under the line of credit become payable upon maturity, April 7, 2017. The facility is unsecured and subordinated to the senior secured term loan. Immune has the right to terminate the line of credit upon completion of a capital raise in excess of $5.0 million. Access to the company's $5.0 million line of credit could extend the cash runway through 2015.

Update on Bertilimumab

Much of the second half of 2014 was spent working through quality control issues on the manufacturing of bertilimumab that delayed the start of the two planned Phase 2 trials with the drug. In 2014, the company identified the presence of sub-visible particles in the finished product vials, which is a frequent issue with injectable and particularly biologic drugs. This type of issue is resolved in most cases at the site of drug administration through filtering and/or minor formulation changes. Immune initiated in 2014 the development of an enhanced manufacturing process, which has demonstrated by end of first quarter 2015 a higher comparable performance and improved productivity than the previous process. This includes a new cell line which should lower costs and improve margins on the finish goods as well. We suspect that Immune may bridge to the new process before initiation of Phase 3 trials, but as of right now it looks like management is finally ready to initiate the two planned Phase 2 studies in bullous pemphigoid (BP) and ulcerative colitis (UC) here in the second quarter 2015.

- UC trial review

The Phase 2 trial of bertilimumab in ulcerative colitis (UC) is expected to begin dosing patients in the second quarter of 2015 (NCT01671956). This is a randomized, double blind, placebo-controlled, parallel group, multi-center study that will evaluate the clinical efficacy and pharmacokinetic profile of bertilimumab in approximately 42 adult patients with active moderate to severe UC. Eligible patients will be randomly assigned in a 2:1 ratio to one of two treatment groups, either bertilimumab at 10 mg/kg or matching placebo. Importantly, key inclusion criteria include high eosinophilia, as confirmed by eotaxin-1 levels (≥ 100 pg/mg protein) from a colon biopsy. The study will consist of three periods: a screening period of up to two weeks, a 4-week double-blind treatment period (three IV infusions at 2-week intervals), and a safety and efficacy follow-up period of approximately 9 weeks.

The primary endpoint is clinical response using the UC Mayo Clinic Index two weeks after final dosing. The study indicates that clinical response will be measured as a decrease in Mayo score from baseline of at least three points and at least 30%. Secondary endpoints include mucosal injury, eotaxin-1 and eosinophil levels in the mucosa, and clinical remission. We expect results from this trial in 2016.

- BP trial review

The Phase 2a BP trial is an open-label design expected to enroll 10-15 moderately to severely affected patients who have been newly diagnosed with BP, which means they have not received prior treatment for the disease (NCT02226146). All patients will be initiated on low dose oral prednisone (30 mg daily), which is approximately half of what a typical starting dose would be for a BP patient. The patients will also receive two infusion of bertilimumab, at a dose of 10 mg/kg, on days 0 and 14. The dosage of prednisone will be tapered down rapidly beginning as early as week one based on patient response.

All patients will be followed for eight weeks with primary efficacy end points focused on disease control as measured by the Bullous Pemphigoid Disease Area Index (Murrell et al., 2012), a quantitative measure of disease activity that takes into account the number and size of lesions as well as their location (skin vs. mucosa), as well as the percentage of patients who achieve a steroid dose of less than 10 mg per day.

Prior studies of bertilimumab have shown a 100% reduction in eotaxin-1 levels within 24 hours of administering the drug with more than 50% of the inhibition lasting for greater than 50 days. Thus, while only dosing patients two times with bertilimumab may not seem like a thorough examination of the antibody's capabilities, theoretically there could be a rapid and sustained response to treatment if the prior pharmacokinetic (PK) data holds up in a population of BP patients. With the low dose of steroids given to each patient, there is unlikely to be more than one or two patients who respond to steroid therapy. Thus, a successful outcome for the Phase 2a trial could be if four or five patients respond to therapy with bertilimumab, as this would most likely be proof that the drug is working and can be advanced to the next clinical stage.

Development of bertilimumab for treatment of BP is somewhat complicated by the fact that BP is an orphan disease and that no drugs that have gone through the regulatory pathway for approval in this indication. We remind investors that Immune filed seeking Orphan Drug designation for bertilimumab in BP in October 2014. The FDA responded saying they would like to see some (we are not sure how much) patient data from the planned Phase 2a open-label study noted above before they grant the designation. Thus, we believe with encouraging results after the first several patients, Orphan Drug designation is sure to come at some point in the second half of the year.

At this point, we are unsure if Immune will wait to complete the Phase 2a before progressing into a Phase 2/3 study. As a reminder, the Phase 2a study is open-label, so if after 4-5 patients are treated investigators are seeing good results, it may make sense to initiate the Phase 2b or Phase 3 study before the Phase 2a completes. We anticipate initial data from the Phase 2a study in the second half of the year.

- Other Potential Indications

Besides UC and BP, Immune also plans to move bertilimumab into a Phase 2 study in Crohn's disease (CD), a similar inflammatory disease to ulcerative colitis, only with manifestations not localized in the colon, in 2015 or 2016. The company can use the same active IND with the gastro-enterological division to initiate this program. In addition, management has begun discussions with the U.S. FDA to initiate the clinical development of bertilimumab in Non-Alcoholic Steato-Hepatitis (NASH). The company has an FDA advisory board meeting in May 2015. We will likely know more on the path forward with bertilimumab in NASH after that meeting.

Update on AmiKet

Partnering discussions on AmiKet continue. As a reminder, in late December 2014, management initiated a comprehensive process targeting the 20 most likely development and commercial partners with the objective of commercializing AmiKet. According to the April 15th SEC filing, several companies are in advanced due diligence and term sheet discussions. The company continues to anticipate an agreement to develop and commercialize AmiKet during the second quarter of 2015.

In this regard, an important update came in March 2015 when Immune entered into an agreement to develop a topical nanoparticle formulation of AmiKet, which we expect will increase the market exclusivity through novel patents, allow clinical development in additional indications and increase the overall value of AmiKet to potential commercialization partners. New IP on this formulation will push patent protection to 2036, allowing expansion of the clinical program beyond the planned Phase 3 in post-herpetic neuralgia (PHN), an indication for which AmiKet was granted Orphan Drug designation in 2010, to other forms of neuropathy, such as diabetic peripheral neuropathy (DPN) and chemotherapy induced peripheral neuropathy (CIPN), an indication for which Immune received Fast Track designation from the FDA in 2012.

We believe that a partnership deal for Amiket focused on PHN could bring in between $15 to $25 million in upfront money, with an additional $200 million in backend and milestone payments along with low-teens royalties on sales. A large influx of non-dilutive capital would help to shore up the balance sheet long-term and provide the necessary funds to drive bertilimumab forward in clinical testing for UC and BP, as well as CD and NASH.

Other Pipeline

The focus on the company has been squarely on resolving the manufacturing QC issues around bertilimumab and on partnering AmiKet. However, with it looks like the QC issues have been resolved and an AmiKet partner likely in the next few months, we believe Immune will turn its attention to advancing Crolibulin and NanomAbs during the second half of 2015.

- Crolibulin is a novel small molecule vascular disrupting agent, or VDA, and apoptosis inducer for the intended treatment of patients with solid tumors. Crolibulin is being studied by the National Cancer Institute in a Phase 1/2 trial for the treatment of anaplastic thyroid cancer (NYSEMKT:ATC). Crolibulin has shown promising vascular targeting activity with potent anti-tumor activity in pre-clinical in vitro and in vivo studies and in a Phase 1 clinical trial.
- Immune's NanomAbs technology platform is an antibody-drug conjugate (NYSE:ADC) platform capable of generating novel drugs with enhanced profiles, as compared to stand alone antibodies or ADCs. The main advantage of Immunes mAbs is their high selectivity and specificity to their target, which typically results in lower toxicity as compared to small molecule drugs.


We continue to believe that Immune has enormous upside potential based on the development of bertilimumab and the potential to partner AmiKet over the near-term. We are maintaining our 'Buy' rating and our price target of $6 per share. This target is based on NPV analysis for bertilimumab at $185 million, $145 million in UC/CD and $40 million BP, and $35 million for AmiKet (assumes $15 million upfront and then 10% residual value for $200 million back-end). We see considerable upside to this number based on developing bertilimumab in NASH, expanding the AmiKet partnership beyond PHN, and advancing the pipeline to create value with crobulin or Nanomabs.

We look at the current pipeline for Immune Pharma and see real potential with both bertilimumab and AmiKet. With the stock currently trading below $2 per share, a market capitalization of only $45 million, we feel this affords long-term investors in small-cap biotech the opportunity to pick up shares at a substantial discount with the potential for significant returns over the next few years. Near-term catalysts include starting the bertilimumab Phase 2 programs and singing the deal to partner AmiKet. We believe these milestones alone can double the shares.

Thursday, April 16, 2015

Matinas' Pipeline Is Ready To Shine

By Jason Napodano, CFA

On January 30, 2015, Matinas announced the establishment of a lipid-based, anti-infective platform with the acquisition of Aquarius BioTechnologies, Inc. This was the Bioral™ technology previously owned by BioDelivery Sciences International (BDSI) from 2002 to 2009. BioDelivery was unable to move forward with the technology because sourcing the key raw material to create the cochleate technology, dileoylphosphatidylserine, was just too expensive (~$60 per gram). Inventors of the technology have been able to redesign the formulation to source phosphatidylserine from soy protein. As such, the cost is now less than $1 per gram, thus making it viable drug delivery technology worth pursuing in clinical development. Ultimately, BDSI decided to focus on its BEMA™ technology instead of Bioral™, throwing all available resources to obtain approval of BEMA Fentanyl in 2005 and 2006. With the acquisition, Matinas significantly expands its pipeline while complementing the company's focus in lipidomics.

Quick Review of the Aquarius Cochleate Formulation Delivery Platform

The drug delivery platform developed by Aquarius is centered on the use of cochleates, which are stable, crystalline phospholipid-cation delivery vehicles that are composed of soybean phosphatidylserine (PS) and calcium. The compounds have a unique multilayered structure and no internal aqueous space. "Encochleated" molecules within the interior of the cochleate structure remain intact resulting in an increase of oral bioavailability, lower toxicity, and the opportunity for intracellular targeting. As the following figure shows, cochleates are produced from a large, continuous, solid, lipid bilayer sheet rolled up in a spiral or as stacked sheets, with no internal aqueous space.

The unique structure of the cochleate means that the compounds inside are protected, even though the outer layers of a cochleate may be exposed to harsh environmental conditions or enzymes. The figure below shows how cochleates deliver target drug within the cell. Macrophages readily engulf (phagocytosis) cochleates into vesicles (endosomes), which become free in the cytoplasm and can merge into lysosomes. Cochleates open when exposed to the cytoplasmic low calcium concentration, releasing the entrapped target drug.

Cochleates themselves appear to have a nontoxic profile and to improve the safety of toxic drugs. They are composed of safe products: phosphatidylserine and calcium. Phosphatidylserine is a natural component of all biological membranes and is most concentrated in the brain. In fact, it has been studied as a potential nutrient supplement that may play a role in the support of mental functions in the aging brain (Engel et al., 1992). Thus, there is little worry for adverse effects from the cochleates themselves.

CAmB (MAT2203)

The most advanced product in Aquarius' pipeline is a lipid-crystal nano-particle formulation of Amphotericin B (CAmB) that Matinas has labeled as MAT2203. Amphotericin B (AmB), the gold standard for systemic antifungal agents, is a well-established, highly efficacious drug with a 50+ year history of intravenous (IV) therapy. The drug is highly potent and has utility as an anti-parasitic agent as well. Intravenous formulations such as AmBisome® and Fungizone® remain among the most effective agents in the treatment of life-threatening systemic fungal infections, including aspergillosis, cryptococcosis (torulosis), North American blastomycosis, systemic candidiasis, coccidioido-mycosis, histoplasmosis, zygomycosis including mucormycosis due to susceptible species of the genera Absidia, Mucor, and Rhizopus, and infections due to related susceptible species of Conidiobolus and Basidiobolus, and sporotrichosis.

No oral formulations of AmB are currently commercially available given the poor bioavailability of the drug. Although some patients are able to tolerate the IV injection, many experience localized and systemic side effects associated with IV administration of the drug. For example, the Side Effect & Drug Interactions section of the AmBisome® prescribing information includes warnings on renal impairment, hepatic impairment, febrile reactions, fever accompanied by shaking chilies, normochromic and normocytic anemia, musculoskeletal pain, anaphylactic reactions, dermatologic reactions, including Steven-Johnson syndrome, neurologic reactions, including convulsions, tinnitus, and vertigo, hematological reactions, and injection site reactions. Sales of the perceived "least toxic" formulation of AmB, AmBisome®, were $388 million in 2014, up 10% from 2013.

Some of the above side effects can be eliminated or reduced, specifically the injection site reactions and potentially the hematological, hepatic, and renal impairments, by oral administration. As such, we believe there would be a significant market for an orally-available AmB product that offered superior convenience of dose, superior tolerability and safety, and comparable efficacy.

- CAmB Proof-of-Concept

We found several papers showing the efficacy and CAmB in murine models of Aspergillosis and Candidiasis. The graph on the left below shows the efficacy of CAmB in a murine model of Aspergillosis. Survival of mice pretreated with cyclophosphamide at 200 mg/kg and then infected with A. fumigatus and given oral CAmB daily at a dose of 5, 10, 20, 30, or 40 mg/kg/day was compared to intraperitoneally-delivered amphotericin B (DAmB, Fungizone®) at a dose of 4 mg/kg/day. Results show a significant increase in survival relative to that of untreated (sham-treated) control animals, with high statistical significance (Antimicrobial Agents and Chemotherapy, August 2002: 46,8:2704-2707).

The graph on the right below shows the survival of mice infected with C. albicans, treated oral CAmB at 5, 10, and 20 mg/kg, compared to oral liposomal amphotericin B (LAmB, AmBisome®) at 10 mg/kg and intraperitoneally-delivered amphotericin B (DAmB, Fungizone®) at a dose of 1 mg/kg per day. The results show impressive survival for the oral CAmB formulation, superior to both the LAmB and DAmB formulations (Antimicrobial Agents and Chemotherapy, Sept 200: 44,9:2356-2360).

A single dose, double blind, dose escalating Phase 1 human clinical trial was conducted by BioDelivery Sciences International with oral CAmB (Bioral™) designed to assess the safety and pharmacokinetics of the compound in 2008. A total of 48 subjects were planned for participation across three dosing cohorts, with 16 subjects per cohort. Within each cohort, 12 subjects received active drug (200, 400, or 800 mg CAmB) and four received placebo. Results show that CAmB was well tolerated at single oral doses of 200 and 400 mg, with good dose proportionality and pharmacokinetics.

All treatment-emergent adverse events (TEAEs) were mild except for one instance of "upper respiratory tract infection" that was moderate in a patient taking 800 mg CAmB. In addition, a number of subjects in the 800 mg dosing cohort reported mild gastrointestinal tract adverse events, but no laboratory abnormalities or other serious safety issues were reported in the Phase 1 study. The study provides support for a planned multi-dose pharmacokinetic study and Phase 2 efficacy studies.

- Planned Phase 2a Study

The next step in the clinical development of CAmB is to move into Phase 2a study in the second quarter 2015. The company is working with the National Institutes of Health to fund the planned Phase 2a study. The NIH will provide funding, clinical sites, physicians, and patients. Matinas only has to supply drug. That's a heck of a good deal, as it not only greatly reduces the cost to the company but also provides access to some of the best doctors and facilities in the country to run the trial.

The final protocol is still being agreed upon with the NIH, but we suspect that the study will enroll roughly 25-30 patients in a dose titration, open-label format where each patient starts out on 3 mg/kg CAmB, with the potential to up-titrate to a higher dose after two weeks of treatment based on the physician's discretion.

The initial target population will be those patients with refractory mucocutaneous candidiasis infections. These infections no longer respond to azole treatment and typically occur in patients who are immunocompromised (e.g advanced cancer, organ transplant, or viral infection). When this occurs, a patient will typically be treated with IV antifungal agents that are more likely to have toxic side effects. This dose optimization will help guide the design of future clinical studies with CAmB. We believe the trial will take only a few months to complete, and that data will be available by the fourth quarter 2015.

- How Big is CAmB?

Compounds like amphotericin B work by binding to ergosterol, a component of the fungal cell membrane. This binding leads to increased cellular permeability and inhibition of fungal cell growth. Amphotericin B has activity against a broad spectrum of invasive fungi, and thus it is the standard of care for many systemic fungal infections. The drug is fungicidal, which means it kills the invading fungal infection, as oppose to azoles like fluconazole or voriconazole that are fungistatic (only halt the spread of the infection). Unfortunately, the high toxicity of intraperitoneal amphotericin B, which shows up at around 1 mg/kg is roughly equal to the therapeutic dose, thus creating a very small therapeutic window for DAmB use.

Gilead's liposomal formulation, AmBisome® (LAmB) has improved tolerability up to the 10 mg/kg range. However, work done by BioDelivery Sciences shows that oral delivery of CAmB resulted in no overt adverse events at doses up to 90 mg/kg in animal studies.

We believe amphotericin B, a broadly effective and power drug, has limited use today ($388 million in sales in 2014 for AmBiosome®) because of the nasty and sometimes lethal side effects of the drug, including nephrotoxicity, hepatotoxicity, risk of anaphylaxis, and anemia. As a result of this toxicity, amphotericin B is primarily used either very early on in the treatment paradigm until toxicity shows up, or as a last resort for patients with few other options. Because the drug is administered via intravenous infusion, there is no out-patient use. As a result, when patients leave the hospital, they often leave on less effective azoles or echinocandins.

In 2013, Pfizer (PFE) reported $775 million in sales of voriconazole (Vfend®), while Merck (MRK) reported $309 million in sales of posaconazole (Noxafil®). The former market leading product, Pfizer's Diflucan® (fluconazole), now available as a generic, reported peak sales of $1.17 billion in 2003. In 2013, Merck reported $660 million in sales of caspofungin (Cancidas®) while Astellas reported $307 million in sales of micafungin (Mycamine®). These are less effective drugs with usage far greater than AmB due to the fact that they are much less toxic.

We believe the value proposition for CAmB - being able to prescribe an oral amphotericin B product both in the hospital and after the patient goes home, in a broad population, without overt fears of nephrotoxicity or anaphylaxis - is rather powerful. CAmB, a fungicidal drug, has significantly less developing resistance, unlike what is now being seen with azoles and echinocandins (Kauffman A, et al, 2015). We believe this is something payors will look very favorably upon, as long hospital stays and resistant infections add significant cost to the system.

Depending upon the efficacy and safety profile, we believe an orally-available encochleated amphotericin B could have tremendous uptake. As noted above, Pfizer's Diflucan® (fluconazole) posted peak sales in excess of $1.1 billion, and we see the drug as far less powerful than amphotericin B. There is potential for paradigm shift in how invasive fungal infections are treated in this country based on the concept of CAmB. Of course, this is all highly contingent upon clinical trial results. This is why we see the Phase 2a data coming in the fourth quarter 2015 as a significant catalyst for Matinas shares.

CAK (MAT2501)

MAT2501 is a lipic-crystal nano-particle formulation of amikacin that is currently in preclinical development. Amikacin is an aminoglycoside antibiotic most commonly used to treat severe, hospital-acquired infections, including Gram-negative infections. The drug is administered via IV or intramuscular administration. All aminoglycosides carry the potential risk of nephrotoxicity, with the risk being greatest in those with impaired renal function. A reduction in dosage is usually necessary if evidence of renal dysfunction occurs. In addition, treatment with aminoglycosides can cause neurotoxicity in the form of hearing loss, numbness, skin tingling, muscle twitching, and convulsions.

Due to the fact that the drug can generally only be tolerated at low doses, and the inherent difficulty in treating Gram-negative infections, amikacin is often used with other antibiotics, such as beta lactams. For these reason, an improved formulation of amikacin that would reduce the potential for toxicity and allow for oral dosing is clearly warranted. Formulation work with amikacin and the cochleate technology has been optimized to achieve maximum efficiency for delivery of the target drug.

Proof-of-concept testing in animals has been conducted with C-amikacin by testing the efficacy of the compound in mice infected with Mycobacterium avium complex (MAC), a group of genetically related bacteria belonging to the genus Mycobacterium. Twelve mice for each tested group were infected by tail vein injection. After seven days, six mice were harvested and the number of MAC in the spleen was quantified to establish bacterial load. The mice were then treated with various amikacin preparations for two weeks, after which time the mice were harvested and the bacterial load in the spleens was quantified. The results shown below indicate that encochleated amikacin was just as effective as free amikacin when administered intraperitoneal (IP), and far superior to non-optimized orally administered amikacin or an "empty" cochleate control.

The concept of CAK is similar to that of CAmB. Amikacin is a powerful, effective drug with low use today due to the toxic effects of the drug and the rather poor in vivo efficacy compared to the in vitro efficacy. Matinas believes that formulating amikacin with the cochleate technology has the potential to greatly improve the in vivo efficacy of the drug while reducing the toxic side-effects.

Management is currently conducting pre-clinical toxicology studies with MAT2501. Similarly to MAT-2203, Matinas is working closely with the NIH on MAT2501 development. We anticipate the company wrapping up the animal toxicology studies this summer, which could position management to meet with the U.S. FDA for a pre-IND meeting in the third quarter 2015. If all goes well, we could see the U.S. IND filing before the end of the year.

Next-Gen Omega-3 (MAT9001)

Clinical development of MAT9001 continues on plan. As a reminder, MAT9001 is a uniquely engineered omega-3 fatty acid formulation that Matinas is developing for the treatment of severe hypertriglyceridemia. A differentiating aspect of MAT9001 from other omega-3 prescription products is a focus on docosapentaenoic acid (DPA). DPA is a key component of MAT9001, with preclinical studies suggesting that DPA has the potential to confer a unique therapeutic profile compared to commercially available omega-3 products, particularly in its ability to exert synergistic anti-hyperlipidemic effects in combination with statins.

- Quick Background Info

Lipids have historically been regarded as mainly having structural and functional roles. They serve as part of cellular and organelle membranes and as metabolic intermediates for energy production and the formation of signaling molecules. The omega-3 and omega-6 fatty acids have additionally been understood to serve as inhibitors of enzymes involved in triglyceride processing. But importantly, recent discoveries have pointed toward the ability of certain omega-3 fatty acids to modulate the expression of genes involved in lipid synthesis.

The gene regulatory effects of DPA in rat liver cells include the down-regulation of genes such as SREBP1c, acetyl coenzyme-A carboxylase, ChREBP, and fatty acid synthetase that are known targets of other omega fatty acids. Notable, however, is DPA's unusual potency in reducing the expression of RNA encoding HMG-CoA reductase, the enzyme target of statins. By down-regulating gene expression DPA has the potential to act synergistically with statins in reducing the activity of this well-established drug target. Reduced enzyme production is a result of the action of DPA at the gene level, and the protein that is produced is inhibited by the statin.

- The Path Forward

Currently, Matinas is conducting a pharmacokinetic and pharmacodynamics crossover study of MAT9001 versus an active comparator in 42 patients with high triglycerides (200-499 mg/dL) in Canada. Enrollment completed in late March 2015. The goal of this study is to demonstrate better bioavailability than a commercially available prescription omega-3 comparator (either Lovaza® or Vascepa®), along with providing data on the ability of MAT9001 to yield distinctive therapeutic response properties and an improved therapeutic profile. As a point of reference, Glaxo sold $1.1 million of Lovaza in 2013 before the first generic approval in April 2014; Amarin sold $54 million of Vascepa in 2014. Top-line results of the Canadian pk/pd study are expected in late April / early May.

Matinas filed an investigational new drug (IND) application for MAT9001 in the fourth quarter 2014, with an initial indication for the treatment of severe hypertriglyceridemia. The path forward in the U.S., following the completion of the comparative bioavailability study being conducted in Canada discussed above, will include a quick Phase 1 study, followed by the initiation of the Phase 3 registration program.

The U.S. Phase 1 study will be a 4-way crossover single dose Fed/Fast pharmacokinetic study. Management will also conduct a 28-day toxicity study in rats. We suspect these programs will take three months to complete. After the FDA has reviewed the results of those two studies, which we estimate will take approximately 2-3 months, Matinas will be able to initiate a Phase 3 trial, which is likely to start in the first quarter of 2016.

Financial Update

On March 31, 2015, Matinas Biopharma Inc. (MTNB) filed its Form 10K reporting financial results for the year ending December 31, 2014. The company did not report any revenues in 2014. This was in-line with our expectations. Net loss for the full year 2014 was $10.2 million, or $0.32 per share. Cash burn was $8.0 million, of which $2.1 million took place in the fourth quarter. Matinas exited 2014 with $2.6 million in cash on the books.

On April 9, 2015, Matinas closed on an $8.5 million private placement financing that included significant insider participation. The company issued 20.0 million shares of common stock at $0.50 per share. The company also issued 20.0 million five-year warrants to investors at $0.75 per share. The warrants are callable by Matinas if the stock trades above $3.00 per share for 20 consecutive days. If exercised, the warrants would provide an additional $14.25 million in cash to the company. The placement agent, Aegis Capital, also received 2.0 million warrants at $0.50 per share and 2.0 million warrants at $0.75 per share. We believe the company now has enough cash to fund operations for the next twelve months.

Valuation and Recommendation

We are very pleased to see Matinas secure roughly $8.5 million in cash. The poor balance sheet was likely restricting broad-scale investment from institutional investors into the Matinas story prior to completing that financing. Based on our financial model, we believe the company now has enough cash to fund operations over the next twelve months, but more importantly, over these next twelve months we see several catalysts on the horizon that could lead to valuation expansion and position the company for a NASDAQ listing and public offering in 2016. These catalysts include:
Comparative bioavailability and pk/pd data with MAT9001 vs. Lovaza®/Vascepa®
Approval from the U.S. FDA to begin the Phase 3 registration program with MAT9001
Initiation of a Phase 2a study with MAT-2203, with data expected in the fourth quarter 2015
Pre-IND meeting and U.S. IND filing on MAT2501 in the fourth quarter 2015

In terms of valuation, successful completion of the CAmB Phase 2a study would validate the opportunity that Matinas has with MAT2203, and we believe that an encochleated amphotericin B could be a potential $500 million to $1 billion drug if commercialized with the right pharmaceutical partner. Post the Phase 2a data, we believe MAT2203 will begin to factor more into the market value of Matinas. For example, if we assume MAT2203 gets approved in 2019 and has peak sales of $500 million in 2024, with a 25% discount rate and price/sales ratio of 5x, with only a 20% probability of success to the program, the asset is worth approximately $65 million in value. We see CAK, another potential $500 million or more opportunity, as worth $25 million today given the early-stage nature of the compound.

For MAT-9001, we are concerned with the fact that Amarin could only muster $54 million in sales of Vascepa in 2014. As of right now, it is difficult to say just how differentiated MAT9001 will be from branded Vascepa, Epanova®, and generic Lovaza®. We understand the attributes of DPA, specifically the symbiotic effect the drug seems to have when coupled with statins, but at this time we are just not convinced there is sufficient differentiation between MAT9001 and commercially avialable Omega-3 products to drive meaningful market share much beyond $200-250 million in sales. Nevertheless, NPV analysis pegs the drug at around $55 million in value right now given the high likelihood of approval (~50%) and the relatively straightforward path to market with a Phase 3 registration trial planned for 2016.

Summing up these parts, we believe that Matinas is worth approximately $145 million in total value. We note that the company has significant potential to raise additional cash through calling outstanding warrants. Our calculated fair-value equates to a target price of $2.25 on a basic share count (does not include adding in $29 million from warrant exercising of approximately 39.25 million shares).

Wednesday, April 15, 2015

Initiating Research Coverage On Can-Fite Biopharma

By Jason Napodano, CFA & David Bautz, PhD

We are initiating coverage of Can-Fite Biopharma Ltd. (NYSE: CANF) with a Hold rating and a price target of $3.00. Can-Fite is a biopharmaceutical company focused on the development of orally available small molecule therapeutic products for the treatment of autoimmune-inflammatory, oncological, and ophthalmic diseases.

The company has three lead candidate products: CF101, CF102, and CF602. Can-Fite recently completed a Phase 2/3 trial of CF101 in psoriasis patients and will be initiating a Phase 3 clinical trial in rheumatoid arthritis (RA) later in 2015. The company is currently evaluating CF102 in a Phase 2 study in hepatocellular carcinoma patients. CF602 is in pre-clinical development as a treatment for sexual dysfunction.

Targeting the A3AR

All of the company’s products target the A3 Adenosine Receptor (A3AR), which is overexpressed in a number of cancers as well as the peripheral blood mononuclear cells (PBMCs) of patients with various inflammatory conditions including rheumatoid arthritis, psoriasis, and Crohn’s disease. The A3AR is expressed in very low levels in normal tissue, thus making it a compelling target for pharmaceutical intervention as the receptor affects pathological and normal cells differently. While specific A3AR agonists, such as CF101 and CF102, and allosteric modulators, such as CF602, appear to inhibit growth and induce apoptosis of cancer and inflammatory cells, normal cells are refractory, or unresponsive to the effects of these drugs. To date, the A3AR agonists have had a positive safety profile as a result of this differential effect.

CF101 is in development for the treatment of autoimmune-inflammatory diseases (psoriasis and RA) as well as the ophthalmic disease glaucoma. The compound has been evaluated in approximately 1,410 patients in multiple Phase 1 and Phase 2 clinical trials and has had a very limited side effect profile. While an interim data analysis was quite encouraging, the company recently announced that CF101 did not meet the primary endpoint in a Phase 2/3 trial in psoriasis patients, thus whether the compound will be developed further for psoriasis is currently unknown. Can-Fite has completed the study design for a Phase 3 clinical trial in RA that should initiate before the end of 2015.

CF102 is in development for the treatment of hepatocellular carcinoma (HCC), the most common form of primary liver cancer and the third leading cause of cancer death in the world. If found early, liver transplantation offers a potential curative therapy, with 5-year overall survival of 75% and a tumor recurrence rate of less than 15%. However, there is no cure for advanced HCC. The only chemotherapeutic agent approved for use in advanced HCC is sorafenib (Nexavar®), and that offers only limited efficacy. Can-Fite has initiated a multi-center, randomized, double blind, placebo controlled, Phase 2 trial of CF102 in patients with advanced HCC and Child-Pugh B cirrhosis. The first patient was dosed in December 2014 and enrollment should be completed by the end of 2015.

CF602 is an allosteric modulator that enhances the affinity of the natural ligand, adenosine, to the A3AR. Preclinical studies in an experimental animal model of diabetic rats showed improvements in a physiological index of erectile function, results that were similar to that achieved by sildenafil (Viagra®) in preclinical studies. In addition, treatment with CF602 reversed smooth muscle and endothelial damage, in a dose dependent manner, leading to the improvement in erectile dysfunction. After completion of all pre-clinical testing, Can-Fite intends to file an IND with respect to CF602 and initiate Phase 1 studies in 2016.

CF101 - A Huge Opportunity in RA

In 2017, global sales of RA therapeutics are estimated to generate over $38 billion in revenues. The top-selling medications for treating RA are the TNF-α blockers Humira®, Enbrel®, and Remicade®, although there are a number of other medications available including disease-modifying anti-rheumatic drugs (DMARDs), the CTLA-4 agonist Orencia®, IL-6 antagonist Actemra®, and anti-B-cell agent Rituxan®. In addition, the first highly efficacious oral drug, Xeljanz®, was introduced a few years ago.

While there are a number of medications currently available there still exists a significant need for effective therapeutics with a benign side effect profile. There are drawbacks to each of the medications listed above, most notably “black box” warnings for the TNF-α blockers due to an increased risk of serious infection and lymphoma. Thus, a medication that has comparable efficacy in RA, even if it is modestly less than the biologics, but with a strong safety record would likely experience wide acceptance by patients and physicians and could likely generate peak revenues in excess of $1 billion.

We believe that CF101 could be successful because of the personalized medicine approach Can-Fite is taking, based upon data showing that RA patients have increased A3AR expression compared to healthy controls (Madi et al., 2007), and the proof-of-concept data showing that screening patients for A3AR expression level results in a statistically significant difference in ACR20 between CF101 and placebo treated patients. 

CF101 - Still Hope In Psoriasis

On March 30, 2015, Can-Fite announced topline results from the Phase 2/3 study evaluating CF101 as a treatment for psoriasis. The results showed that treatment with CF101 did not achieve the study’s primary endpoint. The proportion of patients treated with CF101 who achieved PASI75 was 8.5% compared to 6.9% in the placebo group. With respect to PGA, 6.4% of patients treated with CF101 achieved a score of 0 or 1 compared to 3.4% of placebo patients. Based upon the encouraging interim data from the Phase 2/3 psoriasis study, we were fairly confident that the trial was going to be a success, thus we were quite surprised that the study did not meet the primary endpoint. 

We have a number of questions regarding the trial, the most important of which is why did the second cohort of patients respond so poorly to CF101? We believe further analysis of the data may show trends in the company's favor, and that it was likely the short time period - only 12 weeks - that lead to the missed primary endpoint. We believe new trials will likely focus on longer duration of response, with endpoints out at 16 or 20 weeks. The company is continuing to go through all the data and will be announcing their final conclusions in the next couple of weeks, at which time we hope to get a better understanding of what may have gone wrong. 

In prior studies, CF101 did not appear to be as efficacious as the biologic psoriasis treatments, however it did appear to have a similar efficacy profile to Otezla®, a drug that Celgene believes could generate over $1 billion in revenue in 2017. Following the clinical trial failure we are unsure of the path forward for CF101 in psoriasis, however we are not ready to completely disregard the possibility that the company may be able to determine what occurred in the Phase 2/3 trial such that the compound can be advanced into a Phase 3 trial and eventually gain approval.

CF102 - A Unique Opportunity

When detected early, Hepatocellular Carcinoma (HCC) is quite treatable through surgical resection. Unfortunately, most cases of HCC are not caught early, and there is currently only one chemotherapeutic option available to these patients (sorafenib, Nexavar®). Sorafenib only extends the overall survival of advanced HCC patients by approximately 2.5 months. Patients who fail sorafenib therapy have no treatment options, thus a drug that shows even limited efficacy in this patient population could become quite successful very quickly.

Can-Fite previously tested CF102 in a Phase 1/2 trial in HCC patients. The open label, dose escalation study was undertaken in 18 HCC patients with results showing that median overall survival for all 18 patients was 7.8 months. In a subpopulation of patients (n=5) who were Child-Pugh B (liver disease staging system; indicative of significant liver disease), median overall survival was 8.1 months. This compares to historical median overall survival rates in this patient subpopulation of approximately 4 months.

The company is currently testing CF102 in a multi-center, randomized, double blind, placebo controlled, Phase 2 trial in patients with advanced HCC and Child-Pugh B cirrhosis. A total of 78 patients are expected to be randomized 2:1 to receive 25 mg of CF102 or placebo twice a day for consecutive 28-day cycles. The primary outcome of the study is overall survival, which will be evaluated after 75 deaths have occurred. The first patient was dosed in December 2014 and enrollment should be completed by the end of 2015. Can-Fite recently announced that CF102 was granted orphan drug status for the treatment of HCC.

Valuation Methodology

We value Can-Fite using a risk-adjusted discounted cash flow model that takes into account the potential for CF101 in RA and psoriasis and CF102 in HCC. For all indications, we estimate that Can-Fite will sign partnership agreements that will generate royalty income based on revenues of each product, with a 15% royalty assumed for each indication. At this time, our model as no value assigned to preclinical candidate, CF602, for erectile dysfunction.

For RA, we estimate the company will initiate the Phase 3 trial in late 2015, file an NDA in 2017, and receive approval in 2018. We model for peak worldwide revenues of $2.5 billion in 2022 and apply a 25% discount rate along with a 10% probability of approval. While some could argue a 10% probability is too low for a Phase 3 product, we believe it is justified based on the lack of a finalized clinical protocol and the increased risk brought on by the recent clinical trial failure of CF101 in psoriasis. This gives a net present value for CF101 in RA of $30 million.

We have decided to include CF101 in psoriasis in our valuation model pending the final analysis of the Phase 2/3 data. We model for a Phase 3 trial to begin in 2016, with an NDA filing in 2018 and approval in 2019. We estimate peak worldwide revenues of $1.1 billion in 2023 and apply a 25% discount rate along with a 10% probability of approval. This gives a net present value for CF101 in psoriasis of $10 million; however, it should be understood that If Can-Fite decides not to pursue CF101 in psoriasis we would immediately remove this from our valuation model.

For CF102, we estimate that upon completion of the Phase 2 trial a Phase 3 trial will be initiated in 2017, with an NDA filing in 2019 and approval in 2020. There is a very slim chance that the data from the Phase 2 trial will be good enough to request approval, however we do not see this as likely enough to include in our model. We estimate peak worldwide sales of $400 million in 2024 and apply a 25% discount rate and a 20% probability of success. This gives a net present value for CF102 in HCC of $15 million,

We combine the net present values for each indication with the company’s current cash position ($9.3 million) and an estimated $25 million in capital requirements, which gives a net present value for the company of $40 million. There are approximately 12.97 million shares on a fully diluted basis, which leads to a fair value of approximately $3.00 and we are assigning a ‘Hold’ rating to the stock. We believe investment in Can-Fite will likely make more sense after the full analysis of the Phase 2/3 psoriasis data on CF101, or when we gain greater visibility on the outcome of the Phase 3 RA trial with CF101 or the Phase 2 data with CF102 in HCC.