Amarantus Fundamentals Are Improving

Nov.19.13 | About: Amarantus Bioscience (AMBS)

Third Quarter Financials Show Improved Financial Metrics

On November 18, 2013, Amarantus Biosciences Holdings, Inc. (OTCQB:AMBS) reported financial results for the third quarter 2013. The company reported no revenue for the quarter, as expected. Total operating expenses in the quarter were $679K, comprised of $288K in R&D and $390K in G&A. Both expenses came in well below expectations in the quarter, as the company focuses on reducing costs and executing on near-term objectives with respect to the pipeline. Interest expense in the quarter totaled $518K, primarily due to the convertible note financings consummated early in 2013 that included amortization of debt discount. The company also record $829K in change in fair value of warrant and derivative liability.

Net loss for the quarter was $2.025 million, or $0.00 per share based on 478.9 million average shares outstanding during the quarter. Actual cash burn during the quarter totaled only $980K, as amortization of debt discounts, stock-based compensation, and change in fair-value of warrant and derivative liability are all non-cash expenses.

Cash at September 30, 2013 totaled $1.015 million. During the quarter, the company received $1.928 million in cash from financing activities. Transactions entered into during the quarter include:

  • August 19, 2013, the company entered into a securities purchase agreement, Series-D 8% Convertible Preferred Stock financing, with Dominion Capital, LLC to issue an aggregate of 1,300 shares of Series-D convertible preferred stock (stated value $1,000 per share) in exchange for Dominion assuming certain former trade payable obligations of Amarantus $1.169 million. The shares are initially convertible at $0.03 per common share which equals 33,333 shares of common stock for each share of Series-D convertible preferred stock. Dominion received a 10% original issue discount and will receive an 8% annual dividend payable quarterly.
  • September 4, 2013, Amarantus entered into a Securities Purchase Agreement with certain investors pursuant to which the company issued and sold an aggregate of $1,544,443 in principal amount of 8% Original Issue Discount Senior Convertible Debenture due September 2014 and a common stock purchase warrant to purchase 38.611 million shares of common stock. Net proceeds from the offering were $1.390 million.

Subsequent to the close of the quarter, on October 2, 2013, the company received gross proceeds of $1.610 million in connection with a second private placement built off the September transaction noted above. Amarantus issued an aggregate of $1.789 million in principal amount of 8% Original Issue Discount Senior Convertible Debentures due October 2014 and common stock purchase warrants to purchase 44.722 million shares of common stock.

Based on the above three transactions, Amarantus should be sitting on an estimated $2.625 million in cash prior to factoring in operating burn for the fourth quarter. Assuming the company burns roughly $750K in the fourth quarter 2013, we believe Amarantus will exit 2013 with roughly $1.875 million in cash on the books. Although net working capital remains negative, Amarantus has seen a net $2.5 million improvement in its financial position since the beginning of 2013. We believe these improvements allow the company to keep pipeline products, MANF and LymPro, on track for key developmental milestones in 2014.

MANF Update

Amarantus is moving forward with translational development and preclinical toxicology work on MANF prior to filing the first investigational new drug (NYSE:IND) applications to being human clinical studies. This work is being headed up by Dr. David A. Lowe, PhD, the company's most recently appointed Board member. Dr. Lowe comes to Amarantus with over 35 years of experience in central nervous system (NYSE:CNS) drug discovery and development within the biopharmaceutical industry. He has served in senior roles with various major biopharmaceutical companies, as well as emerging biotechnology companies. Dr. Lowe's has development expertise within the areas of neurology, endocrinology and ophthalmology.

In August 2013, the company announced positive data for MANF in the degenerative disease known as Retinitis Pigmentosa (NASDAQ:RP). The study concluded that Intravitreal injection of recombinant human MANF protein protects both rods and cones from retinal degeneration in an animal model of RP. RP is a degenerative disorder of the eye that affects roughly 100,000 people in the U.S., meaning that it qualifies as an orphan disease under FDA guidelines. A little about RP:

RP refers to a group of inherited diseases causing retinal degeneration. The cell-rich retina lines the back inside wall of the eye and is responsible for capturing images from the visual field. People with RP experience a gradual decline in their vision because photoreceptor cells (rods and cones) die. Symptoms include a progressive degeneration of peripheral and night vision as well as the degeneration in color perception and central vision; night blindness is one of the earliest and most frequent symptoms of RP. RP is typically diagnosed in adolescents and young adults. The rate of progression and degree of visual loss varies from person to person. Most people with RP are legally blind by age 40. It is estimated that the market opportunity for Retinitis Pigmentosa exceeds $10B annually.

Orphan indications represent an attractive opportunity for Amarantus because they potentially speed the path to market while reducing costs to develop. Large pharmaceutical companies have also demonstrated keen interest in orphan drugs over the past few years. The preclinical data with MANF in PR is encouraging. Back in 2012, an abstract was presented by Wen et al from the University of Miami's Bascom Palmer Eye Institute at the Association for Research in Vision and Ophthalmology annual conference in 2012. The results show that recombinant human MANF significantly protected rod and cone photoreceptors from degeneration.

Amarantus tells us there are additional orphan indications planned for MANF. According to CEO, Gerald Commissiong, the company has entered into several non-disclosure agreements with potential development partners on MANF in new orphan indications. We are hoping to hear about one or more new orphan indication opportunities with MANF during the first half of 2014. Dr. Lowe believes that MANF represents "breakthrough biology" in areas of neurology and ophthalmology.

With respect to MANF in Parkinson's disease, we remind investors that back in October 2013, Amarantus entered into a letter of intent with Renishaw PLC for the use of Renishaw's proprietary implantable neurosurgical products and systems, including the neuromate® stereotactic robot, neuroinspire™ surgical planning software, and neuroinfuse™ - intraparenchymal delivery system for the delivery of MANF in Parkinson's disease and other neurological conditions. Over the course of the next 12 months, the companies plan to collaborate to conduct certain feasibility studies to ensure the long-term viability of delivering MANF using Renishaw's product line to key brain structures. If successful, the companies expect to enter into a definitive agreement to support human clinical studies and commercial use.

In the next few months we are expecting privately-held MedGenesis Therapeutix Inc. to release Phase 2 results of GDNF in Parkinson's disease. In this trial, MedGenesis is delivering GDNF via convection enhanced delivery (CED). The Phase 2 trial is being funded by a grant awarded by the Deutsche Parkison Vereinigung e.V. We believe if this Phase 2 trial is successful, it fares well for Amarantus given all the existing preclinical data showing MANF's superiority to GDNF.

Finally, we remind investors that back in September 2013, Amarantus hired F. Randall Grimes as Director of Sponsored Research. Mr. Grimes has been focused on working with Amarantus' scientific team, Board of Advisors and outside collaborators to support the acquisition of non-dilutive funding from disease foundations, non-governmental and governmental organizations to advance Amarantus' pipeline. According to the company (as of the third quarter update conference call on November 18, 2013) the company is aggressively pursuing grants and a number of applications have been drafted.

LymPro Update

In October 2013, Amarantus announced positive analytical performance data for the LymPro Test. The data produced by the Custom Technology Team at Becton, Dickinson and Company (BD) demonstrates that CD69 was increased in response to mitogenic stimulation with both pokeweed mitogen (PWM) and phytohaemagglutinin (PHA) across all control samples. Amarantus is now in a position to embark, on long-term stability controls of the assay to ensure commercially-acceptable reproducibility, as well as enter into agreements with leading clinical sites to obtain additional clinical performance data for LymPro. This begins the process necessary to establish long-term analytical performance to support commercial launch in the 2nd half of 2014, and allows Amarantus to start focusing on the clinical performance data package management believes will be required for a successful product launch. The goal going forward is to mitigate any potential variability of the assay and establishing long-term reproducibility in a clinical setting.

Amarantus expects to be in a position to submit the necessary data package to CLIA to support the intended use statement: "Aid in the diagnosis of Alzheimer's disease," and commercial launch of LymPro in the second half of 2014 as a Laboratory-Developed Test (LDT) through CLIA. Following clearance under CLIA, Amarantus will focus on gaining U.S. FDA approval for multi-lab use. This could occur in 2015. Once enough clinical utility data has been generated, Amarantus can approach the Center for Medicare and Medicaid Services (NYSE:CMS) and gain reimbursement for broad-scale use. This is an important step, especially in light of the fact that CMS has denied reimbursement for Eli Lilly's Amyvid given a lack of clinical and pharmaco-economic evidence.

The ultimate goal for Amarantus with LymPro is to gain approval as a companion diagnostic paired with a therapeutic for the treatment of Alzheimer's disease. However, as noted on the most recent conference call by the CEO, therapeutic developments for the treatment of Alzheimer's disease are the rate-limiting step. Therefore, we believe Amarantus has the right strategy in pursing CLIA approval in 2014. We believe this data could be generated and presented in the second quarter 2014 given that diagnostic clinical trials move quickly and data analysis takes only weeks rather than months. In the meantime, the company notes that it is in talks with potential partners on the companion diagnostic / therapeutic side. Although we are not expecting an announcement over the near-term, this presents enormous upside for shareholders.

We see a significant market need for an Alzheimer's diagnostic product like LymPro. Specifically, the goal of any Alzheimer's disease diagnostic should be to distinguish between patients with Alzheimer's disease and other degenerative dementias, such as Parkinson's disease dementia (PDD) or psychosis, and mild cognitive impairment (NYSE:MCI) or age-related memory loss (AAMI). A simple and economical test that can accurately and reliably do such would have a number of benefits, including:

1) Significantly expedite diagnosis, allowing for earlier treatment in the primary practice setting.

2) Significantly simplify the diagnosis process, allowing for meaningful economic savings to the healthcare system.

3) Improve outcomes by allowing for a more focused treatment based on the type of cognitive impairment, and

4) Distinguish between patients for clinical trials and therapeutic development.

For additional detail on LymPro, we encourage investors to read our Seeking-Alpha Pro article outlining the history and clinical data to data published in October 2013.

Final Thoughts

We believe fundamentals are improving at Amarantus Bioscience, both with respect to the development of MANF and LymPro, and on the balance sheet. These improvements are the primary reasons why we believe investors should buy the stock today. Yes, the company still has significant challenges with respect to clinical development of its products and in securing long-term financial flexibility. Keep in mind, this is a $0.04 stock ($24 million market value), so set expectations accordingly! But stock prices tend to follow fundamentals, and right now the fundamentals are pointing to a potential breakout in 2014.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.