RegeneRx: A Beaten Down Biotech

Investors wise enough to go to cash when their stocks hit recent exit zones should now be exploring ways to recover. Major indexes (and their underlying stocks) will be a long time regaining previous heights; so astute investors will be looking for opportunities off the beaten paths. If you are seeking to re-build a battered portfolio, consider putting a bit of risk capital into this small bio-tech.

Thompson Reuters rated it as= "Outperform" on 11/18/08.

RegeneRx Biopharmaceuticals, Inc. (RGN) is a biopharmaceutical company focused on the discovery and development of molecules to promote tissue and organ repair. The Company has formulated three drug products based on Thymosin beta 4 (Tβ4), a 43 amino acid peptide. Research suggests that these drug products may prove efficacious for multiple medical indications when administered either topically or systemically. Therefore, RegeneRx is developing several Tβ4-based therapeutic drug candidates:

• RGN-137, a topically applied gel product for hard-to-heal chronic dermal wounds;
• RGN-259, a sterile, preservative-free topical eye drop for ophthalmic wounds;
• RGN-352, a parenteral (injectable) formulation for systemic delivery for treatment of patients with an acute myocardial infarction (AMI), or heart attack. Overview from E-Trade Info Page

Why might RGN be a winner? Normally we would refrain from recommending any stock with such a small market cap, $62.91 million, and an average daily trading volume of only 15,000. However, several positive factors brought RegeneRx through our radar screen.

Positive factor #1: RGN is expected to report major news early in 2009.

1. The Pressure Ulcer Phase 2 should be reported a few weeks from now. All patient dosing was completed around Nov 12.
2. More patient results from the Compassionate Use IND for eyes are expected by mid December.
3. The Phase 2 Venous Ulcer trial will finish dosing around Dec. 12. Trial results should appear about four weeks later.
4. The Phase 1b trial in heart disease should be done by February.
5. The Phase 2 in Ocular issues should be done in first Q 2009.
6. The Epidermolysis Bullosa phase 2 trial may finish by late 1st Q or 2nd Q, 09.

Sources:

Healing Non-Healing Corneal Ulcers

Unclogging and Healing Arteries

Positive factor #2: Four institutions bought just over 52,000 shares of RGN in the 3rd quarter 2008. One institution sold 11,400 in the third Q. Almost 5 shares bought for every one sold.

Positive factor #3: It has significant insider purchasing, with both Sigma Tau and the Cavazza brothers, Claudio and Paolo as major shareholders.

The last RGN insider buys occurred when 2 insiders purchased a total of 5,000,000 shares on February 28, 2008. In the last 5 years insiders have on average purchased 3,842,128 shares each year. Source: E-Trade Info Page

Positive factor #4: Insiders, Officers, and Directors own 53% of the company. One of the directors, Joseph C. McNay, is a very successful biotech investor.

Positive factor #5: RGN has targeted Dermal, Ophthalmic, and Internal Indications in the Pharmeceutical Products category, and has continued to protect its development with patents in each of them. Additionally, these same applications can be applied in over-the-counter consumer products for skin and eye care. As such, RGN could become an acquisition candidate sought by Pfizer (PFE) or by Johnson & Johnson (JNJ). Both of these companies could make good use of RGN's pipeline of patents and products.

Positive factor #6: RGN is managing its cash outflow very aggressively.

As of June 30, 2008 RGN had $7.6 million of cash on its books. For the first half of the year RGN was spending about $1 million month. By the end of November RGN would have roughly $2.6 million left. Still, it is doing 4 clinical trials as its G and A overhead expenses continue. Thus, by mid-February it could be out of money. What does RGN management know that we do not?

In similar straits several years ago, the company did a disastrous PIPE deal, thoroughly diluted the stock, and brought share price down below $1.00. Last year, to raise needed cash, the Cavazzas gave a remarkable deal to RGN. They bought 5 million RGN at $1....then immediately gave RGN the right to buy back those 5 million shares at $2. It is this money that is funding RGN thru current trials. If RGN share price goes up, the Cavazzas still make $5 million (but they take ALL the risk)...and if TB 4 does well and shares rise a lot, RGN buys back the shares at $2...and the dilution disappears.

Another part of this agreement states that when RegeneRx completes positive Phase II clinical trials in the United States, Defiante (a division of SigmaTau, a C. brothers company) must either pay RGN $5 million or initiate pivotal Phase III clinical trials in Europe to maintain its license for Europe.

Absent that $5 million, or another sweetheart deal from the Cavazzas, RGN could also secure its next cash infusion by partnering with a major pharmaceutical company. Even the newest of MBA's would agree that to run cash down to this level without some contingency financing would be corporate suicide. Thus, it is safe to assume management has discussed more financing with either their major shareholders, or with a major pharm company like JNJ or PFE - - - AND that they are confident the coming trial reports will be positive.

Now the downside factors: The company has never made a profit, has no marketable product, and is running out of cash. It is possible that none of the trials will pan out; there is no cash infusion from Defiante, or further loans from the Cavazzas. No partnership funding from a major pharm company. What is left? The only assets that might still have some worth would be the 60 or so world-wide patents on the use of TB4. We believe the bottom of share price range in this event could be $0.50, or less.

Summing up: We like the risk/reward ratio, and the fact that right now the stock is very thinly traded. If you do consider making an investment in RGN, be certain you are buying when the price is inside the Entry Zone, and use a limit order, not a market order. During the past several weeks there has been a shortage of shares on the Sell side, and the Bid/Ask spreads have been overly large.

Disclosure: Long RGN.

Comments

[stock trader:]

Really, is this the time to be buying anything? At least anything with a long term horizon?

2008 Nov 30 07:14 AM

[User 161034:]

I believe he meant this as a shorter term, risk trade - - - one with more upside than downside. There can be times when price of a stock is so low that profit can be made, given the potentials in place - - - and it is those potentials that were enumerated.


On Nov 30 07:14 AM stock trader wrote:

> Really, is this the time to be buying anything? At least anything
> with a long term horizon?

2008 Dec 01 10:10 AM

[sacking:]

The upside reward is greater than the downside risk for RGN. Within the next few weeks, some of the results to its studies should be released.

2008 Dec 02 02:11 PM

[1967:]

Fritz - what is your take on RGN today? thanks.

May 11 05:48 PM