We've investigated Ampio Pharmaceuticals (NASDAQ:AMPE) and found many items that we find questionable. There is the all-too-similar comparison to Isolagen (ILE: delisted), a company originally run by Michael Macaluso (now Chairman of Ampio) in the early 2000s which was sued for deception and fraud (after he left the company), and went bankrupt. There are the many questions regarding the current drugs being tested and the clinical trials. There is the Luoxis spinoff, where the financial transactions appear to be less then shareholder friendly. Finally there is the current stock price set-up which looks very familiar to the set-ups in Ampio's history right before it issues a secondary offering. In this article we raise many questions, and in our opinion, they give the appearance of a company that, in our opinion, is not being run in the best interests of its stockholders.
In December 2012, a series of articles published on Seeking Alpha showed the similarities between Ampio and Isolagen. Here is an excerpt from the first article:
Isolagen was a hot stock in the early 2000s. To its customers, it offered a miraculous anti-aging process that was all but certain to be approved by the FDA. To its investors, it offered the promise of exponential returns as it captured the aging baby-boomer market. The stock traded as high as $8, as management touted how it's "Isolagen Process" was successfully marketed and used in the U.K., and how FDA approval was imminent in the U.S. It issued numerous press releases to this effect. For example, the March 3, 2004 publication states:
The Company anticipates that the Isolagen Process could be commercially available in the United States as early as 2005.
The February 25, 2005 press release states:
Since its launch in the U.K. in 2001, Isolagen has received resounding endorsement from surgeons, patients and medical bodies and demand is growing at an increasing rate.
In the meantime, insiders knew the truth was quite different - that the treatment was not working well for younger people, and did not work at all for people over age 45 (how many baby-boomers do you know younger than 45?). Furthermore, there were flaws in the treatment regimens so that even if treatments were successful, the FDA would not accept the results of the trials. There was no chance for FDA approval, and Isolagen's doctors repeatedly told them this. In the meantime, insiders sold large portions of their stock as part of a secondary offering as Isolagen continued to pump out press releases of the treatment's success, and imminent FDA approval.
But the trials couldn't go on forever and the truth came out - the treatments did not work. The stock plunged down to the pennies and was finally delisted. The CEO and other Isolagen insiders were sued for deception, fraud and many other acts of wrongful and illegal conduct. The case summary from the plaintiffs' attorneys states:
Defendants' scheme to mislead the investing public concerning Isolagen's chances of obtaining FDA approval of the Isolagen Process and to mass produce its sole product inflated the price of the Company's securities and allowed Isolagen to sell millions of dollars of new securities to investors - even while the Company's executives were dumping their own Isolagen stock at artificially inflated prices.
Well a number of those same executives were the original founders of Ampio Pharmaceuticals.
Ampio Pharmaceuticals has turned a micro cap stock investment into a company with a $250 million market cap. Management was savvy enough, before this idea got off the ground, to issue themselves 7.35 million shares of stock for a penny a share in April of 2009 (Macaluso owns roughly 2 million shares, he used to own a lot more). Of course Ampio had no assets so it needed some cash. So the insiders brought in friends and relatives, and issued another 15 million shares at $1.75 per share plus warrants. At the time of this actual raise the stock dropped from $9 to $2.
Turning to the present, Ampio just announced the formation of Luoxis along with a private placement offering. From its recent 10-Q:
Note 2 - Formation of Subsidiary
On January 24, 2013, Ampio formed a wholly-owned subsidiary, Luoxis to focus on the development and commercialization of diagnostics utilizing Ampio's Oxidation Reduction Potential (ORP) technology platform and all related patents. The lead asset utilizes the ORP technology to indicate disease severity and progression across a wide range of critical and chronic illnesses.
Luoxis has been initially funded through a private placement launched on February 15, 2013. On March 15, 2013, an initial closing was completed. A total of 3,465,000 shares were issued at $1.00 per share resulting in $3,465,000 of gross proceeds. Net proceeds were $2,934,040 after placement agent and legal fees. The placement agent will also receive 346,500 warrants to purchase
Luoxis common stock valued at $226,298 in connection with the closing, which amount has been included in total offering costs in the consolidated statement of changes in stockholders' equity (deficit). The warrants have a term of 5 years and an exercise price of $1.00. The warrants are issuable at the final closing and exercisable one year thereafter. Concurrent with this closing, $330,000 was paid to Trauma Research LLC and 50,000 shares of Luoxis common stock valued at $50,000 was issued to Institute for Molecular Medicine, Inc., both related parties, for assignment of all diagnostic patents previously licensed by Ampio. The patents will be amortized over an overall estimated life of 15 years.
As a result of the initial private placement closing, on March 31, 2013, Ampio owned 85.02% of Luoxis. The consolidated financial statements include Luoxis since Ampio has a controlling financial interest, however, the third-party holdings (14.98%) are referred to as "non-controlling interests"
So, Ampio forms this subsidiary and funds it with $3.465 million taken from investors, giving them 15% of the company. This values the company at $23.1 million. The underwriters take $531,000 of the raise or 15.3% !! Then the first thing they do is pay $330,000 to Trauma Research LLC. Trauma Research is run by David Bar-Or, M.D. Bar-Or is the Chief Scientific Officer of Ampio and does most all of the research for Ampio.
From the 2012 annual report
Through a sponsored research agreement, our discovery activities are conducted by Trauma Research LLC, or TRLLC, a limited liability company owned by Dr. David Bar-Or. Under the research agreement, TRLLC conducts drug and biomarker discovery and development programs at its research facilities, and we provide funding and some scientific personnel. Intellectual property from discovery programs conducted by TRLLC on our behalf belongs to us, and we are solely responsible for protecting that intellectual property. While we have the right to generally request development work under the research agreement, TRLLC directs such work and is responsible for how the work is performed.
For the years ended December 31, 2012, 2011 and 2010, we recorded $7.5 million, $6.6 million and $2.0 million, respectively, of research and development expenses. Research and development expenses represented 63.1 %, 59.6% and 29.4% of total operating expenses in the years ended December 31, 2012, 2011 and 2010, respectively.
But Dr. Bar-Or is also paid well by Ampio. The 10-K also states that he made $812,645 in 2012 in compensation from Ampio. We wonder how much he made from TRLLC in addition.
Not only does Dr. Bar-Or run Trauma Research, his son, Raphi Bar-Or, is one of only a handful of its employees - he works there as the Computational Biologist. Note that Raphi is also a non-executive officer of Ampio. The 2012 10-K states that Raphi owns 945,283 shares of Ampio.
When Luoxis was formed, another 50,000 shares of stock was granted to the Institute for Molecular Medicine . This is a nonprofit run by Dr. David Bar-Or.
To get a better feel for the current state of Ampio's clinical studies and outlook, our group engaged the assistance of a hedge fund manager who specializes in Pharma stocks to review them. Here are his comments:
Zertane: A phase 3 clinical study of application of Tramadol to treat PE was published on-line. Data did show that the drug was effective, prolonging Intravaginal Ejaculation Latency Time (IELT) by ~40 seconds, compared to placebo, when dosed at 62 mg (p = 0.04) or 89 mg (p = 0.03). DMI licensed Zertane to Biovail in 2007. Biovail began two 1050 patient studies (one each in Eastern and Western Europe) in 2008. Both studies were discontinued in 2009. In a 10-K filing, VRX reports that the studies were discontinued due to difficulties in enrollment and lack of commercial interest. They specifically stated in their Q3 2010 Conf call
Based on a reassessment of the commercial opportunity for the product, and taking into consideration the slower than expected enrollment rate in the Phase 3 trials, a decision was made to terminate its development. A charge of $2.8 million was accrued in the second quarter for the expected wind-down cost of the two European studies that were underway
AMPE's plans for Zertane seem a bit slippery. In a June 21 2012 press release, Ampio announced that it had had a pre-IND meeting with the FDA on June 15, and that
The FDA provided all the necessary guidance on the design and conduct of two concurrent phase III pivotal clinical trials of approximately 15 weeks duration. Successful completion of these trials, powered adequately (based on the phase 3 European trials), will allow for FDA clearance to market Zertane™ as a treatment for life-long premature ejaculation (NYSE:PE)
On September 19, AMPE issued a press release stating
that it has entered into a definitive agreement with Ethypharm Ltd for the manufacturing of Zertane™, Ampio's drug for the treatment of premature ejaculation
In a November 14 2012 Press release, AMPE stated
Ampio is poised to file an IND for pivotal trials under the 505(b)2 pathway in the USA adhering to the guidance provided by the FDA during our Pre-IND meeting
and in its November 2012 Investor update AMPE proudly declared that
two concurrent Phase III pivotal trials set to begin enrollment in 1Q13
In the recent June 3 press release, there was no mention of any clinical studies for Zertane beginning, as the company had touted, and the company stated "Ampio is in late-stage negotiations to license Zertane, for treatment of premature ejaculation, and Zertane-ED, for treatment of concomitant premature ejaculation and erectile dysfunction". So a full year after a pre-IND meeting with the FDA, AMPE has not even begun the phase 3 studies planned, and are trying to partner the drug. I'm pretty sure no partnership will ever materialize, and Zertane will be brushed aside as AMPE management realizes it's as worthless a "drug" as I think it is. It's worth noting that in its Q2 2011 10-Q, AMPE stated
management has been contacted by numerous potential marketing partners concerning Zertane
Two years and we've gone from contacted by numerous potential partners to "in late-stage negotiations"? That doesn't sound too promising.
Aside from the clear problem that low enrollment often does not bode well for market potential, the study cited above included pooled data from 677 patients (418 from Western Europe study and 186 from Eastern Europe study) even if Zertane were approved to treat PE, how it would possibly result in any sales, given that MDs could just as easily use currently available generic Tramadol (the differences between doses used in phase 3 and the 50 mg commercial pills is less that the variation in weight of males. Ampio's IP (they did file a patent in 2005) will likely work as well as SOMX' Doxepin patent. SOMX's attempt to patent Doxepin did not work. This Seeking Alpha post from June 24, 2010 explains that in attempting to patent Doxepin, SOMX was
a company that takes an old, off-patent drug, packages the drug in a new dose, and then tries to convince the world that it has on its hands a new drug for a new indication…
Can you see the analogy to what Ampio is trying to do with Zertane?
Our biotechnology fund manager continues:
Optina: Repurposed Donazal (available as a generic in 50, 100, and 200 mg capsules) for treatment of diabetic macular edema (DME). A phase 2 study was being carried out at St. Michael's hospital in Toronto. According to AMPE's investor presentation from June 2011, this was to be a 60 patient placebo controlled study looking at two oral doses of Optina. On March 3 2012, Ampio issued a press release from this study, stating
A preliminary assessment, of the primary end point (OCT) indicates a beneficial and consistent effect with the ultra-low dose of Optina™ at 4 and 12 weeks of treatment and no apparent benefit at the high dose. These preliminary results are in keeping with the in-vitro data, which demonstrated a biphasic effect of the drug (effective in reducing vascular permeability at very low doses and cessation of these beneficial effects at the higher doses, which are used clinically for other approved indications).
From this press release, it's unclear to me what was measured, or in how many patients it was measured in.
On June 6 2012, Ampio released another press release about its Optina phase 2 study, this time from 32 patients. Recall from June 2011 investor presentation this was supposed to be a 60 patient study. AMPE stated
At one of the low doses, regardless of BMI, there was a reduction of the subfield central retinal thickness of approximately 20% at 4 and at 12 weeks, which was statistically significant from placebo for the higher BMI group (p = 0.01). The lowest dose of Optina™ showed a trend towards statistically significant reductions in central retinal thickness in the lowest BMI groups (p = 0.11 and p = 0.13) at 4 and 12 weeks, despite the small number of patients randomized to this dose.
Maybe this is a good result, but given that baseline data for treatment and control groups were not provided, it's impossible to tell. It's also strange to blame small patient numbers for not achieving p < 0.05 in a study that only enrolled half the planned patients.
On July 9 2012, AMPE issued a follow up press release on this study, in which it was stated
An alpha of 0.20 was selected a priori for all analyses and any p value of less than 0.2 is considered statistically significant.
Interesting. Typically clinical studies are considered effective with a p value of less than 0.05. The approach of declaring after the study that you has prospectively declared a p of 0.20 of be valid is novel, and would have more credibility had AMPE previously mentioned this. To the best of my knowledge, they did not.
Ampio is currently enrolling a phase 3 study of Optina to treat DME. (The primary endpoint in this study is Improvement in Best Corrected Visual Acuity (BCVA) at 12 weeks, a secondary endpoint in the phase 2 study. AMPE has not, to the best of my knowledge, disclosed the change in BCVA in the phase 2 study. One can assume that had the change been positive that it would have been disclosed. Even with the ridiculouness of AMPE's phase 2 Optina study, the phase 3 design is even sillier. Adam Feuerstein explained this succinctly, and it's worthwhile to read his take. Suffice it to say, AMPE appears to have deliberately run a study with no chance of obtaining FDA approval.
Ampion: ASP-ALA diketopiperazine (DA-DPK) to treat osteoarthritis via intra-knee injection. DS-DPK is found naturally in albumin as a decomposition product. AMPE did report data last year on a phase 2 clinical study of Ampion to reduce pain associated with osteoarthritis. In this study, according to AMPE's most recent investor presentation, there was no statistically significant change in difference in pain 3, 8, and 30 days post injection, but magically at day 84 there was a change in pain with p = 0.04! I'm pretty impressed that a small, highly polar molecule (which should have a half life in the body of minutes) magically provided a benefit 84 days post dosing. Aside form the ridiculousness of believing a small molecule drug would suddenly show benefit at 84 days, it's unclear if that was even a prespecified endpoint. Looking at the clinical trial registry from Australia (https://www.anzctr.org.au/Trial/Registration/TrialReview.aspx?id=343138), it appears that observation in this study was supposed to be at day 2 and day 4. To be fair, AMPE was slippery about the details initially (typical) and could have changed the endpoint, though it's odd that it wasn't updated on the clinical trial website.
AMPE announced in in May 2012 that it had met with the FDA to obtain guidance for its phase 3 clinical trials, and announced
The Company agreed with all the guidance for Ampion™ provided by CBER and believes the regulatory path described is both reasonable and manageable by the Company. The results of these trials (two phase III, well conducted, placebo controlled trials, run concurrently) will form the basis for a BLA submission.
AMPE further stated in its November 2012 investor presentation
anticipate that US trial will begin at the end of 2012
Oddly, eight months after the May meeting in which AMPE agreed with the FDA's guidance, in February 2013 , Ampio announced it's Phase III clinical study of Ampion™ for the treatment for osteoarthritis of the knee
will include a dose-escalation run-in study as recommended by the FDA
Now, perhaps I'm outdated, but it seems to me that a study that informs the result of a phase 3 study is a phase 2 study, which AMPE deftly does not refer to this as. Regardless, it does strike me as peculiar that AMPE would have agreed with the FDA guidance in May, and then changed the design. To be clear, the dose finding study AMPE anticipated would begin by the end of 2012 began in April 2013, and data are expected by Q3. The primary endpoint of this study is improvement in knee pain at 12 weeks. In theory, this small molecule could well provide 12 weeks of pain relief but it would have to be "one magic loogie".
In AMPE's Feb 25 2013 8-K they do state
However, the formal guidance the Company received from the FDA indicated that the Company should conduct a dose ranging study "as a Phase II dose-escalation study or as a run-in study for one of the Phase III studies.
In other words, they dropped the charade that the current ampion study was a phase 3 study.
On April 2, AMPE announced that it had started enrolling patients and had enrolled 15 patients as of that date.
On April 25 , AMPE announced that its dose finding study for ampion had enrolled in excess of the targeted 320 patient goal.
The number of sites for the study is not listed. Does it seem odd to you that AMPE was able to enroll greater than 305 OA patients in 17 days (assuming no patients were enrolled on weekends)?
Finally, in his communication with us, our fund manager states
really remarkable how they're reproducing the Isolagen experience of constantly misleading. Amazing that it's working so well for them
AMPE has a ton of, in our opinion, potentially worthless research studies in front of it! The big question here is how the company will pay for these research studies?
The Q1 2013 balance sheet from the 10-Q shows the company finished the quarter with almost $16 million in cash in the first quarter of 2013. The company is spending $4 million a quarter in research currently. Our best guess is that the company will tap Aegis or Fordham for a secondary offering 8.25M shares at $4.25 in the next few days.
Historically, in the days preceding an Ampio secondary offering, there are a number of press releases and the stock price increases dramatically. In late May and June of 2012, Ampio issued a number of press releases, including:
Ampio Pharmaceuticals Reports Pre-IND Meeting With the FDA to Obtain Clinical Path Guidance for Ampion™ for the Treatment of Chronic Pain of Osteoarthritis of the Knee and Schedules May 16th Webcast to Update Shareholders
The stock price reacted accordingly. From late May thru June 2012, it went from the mid $2 range to $5.50. Here is chart of the price reaction:
Then, in early July, Ampio announced a stock offering
And the stock reacted, dropping quickly back down to below $3.
Now, Ampio will need funds soon to continue to fund Dr. Bar-Or's research. The press releases have started to come out, and the stock price has reacted, going from $4.25 to over $7:
What do you think will happen next?
There are just too many unanswered questions for this company to command the share price it currently has. Here are just a few:
1. If you look at their November 2012 investor presentation it said they would start 2 pivotal phase 3 studies in Q1 13---this has apparently been forgotten, and the company is waiting on a partner which it says it is in late stage negotiations for given zertane is a generic drug for which the prior clinical study was stopped due to lack of commercial interest this seems unlikely ampe has also fooled people into thinking they have 2 drugs in pivotal studies ampion is in what's really a phase 2 study (i.e. dose finding) that will determine dose for a phase 3 study given the laughable data from the phase 2 study (sta sig, p = 0.04, only at 84 days post dosing this seems ludicrous ampe did start a phase 3 study of optina, with a 12 week endpoint. There is no current drug for dme approved on such a short timeframe
2. How will Ampio raise the amount of capital it needs and not dramatically affect the stock price?
3. If Zertane/Tramadol works, why did the Journal of Sexual Medicine conclude that it didn't? If it works, why did Valeant Pharmaceuticals and DMI Biosciences abandon it?
4. If Zertane/Tramadol is safe, why did the FDA send the Warning Letter to Johnson and Johnson (NYSE:JNJ) demanding that it disclose the risks?
5. Even if somehow Zertane proved successful and safe, and received approvals in Europe or North America, why would a doctor prescribe it when generic Tramadol is available?
6. If the demand for Tramadol as a cure for PE is so large, why couldn't Valeant enroll enough participants to complete its study? Why
7. Why is only one hedge fund holding AMPE. By the way, we believe that this fund has about 84% of its capital in one investment and no surprise - its not Ampio.
There are a lot of questions and very few answers. Greenwich may do a follow up on this company after we see the final prospectus from the next offering.
Disclosure: I am short AMPE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This is my first of several articles on Ampio. The author, Joe Dredly and his research group takes full responsibility for this article. We may short additional shares or cover shares depending on what we see in the future.