The wound therapy industry may not be the most thrilling biotech niche on the surface, but the multi-billion dollar market's need for innovation has created an opportunity for small prospecting companies operating in the space. Research from the Kalorama Institute forecasts the wound care segment of medicine to reach approximately $21 billion by 2015, a 25% growth from 2012's figure at $16.8 billion, presenting vast potential for companies who can differentiate their technology from the standard of care in the respective division. Dominant players in the space like Johnson & Johnson (JNJ), ConvaTec (former division of Bristol-Myers Squibb), Kinetic Concepts (KCI) and Smith & Nephew (SNN) make up over half the overall market, subsequently drawing attention away from the up-and-coming companies innovating the industry. The opportunity for investors to realize compound growth as the market cultivates, lies in the success of smaller companies penetrating the market, potential not offered from larger corporations whose stock performance can be diluted from a diverse product portfolio stretching across different market segments.
Is Alliqua Poised To Penetrate The Wound Care Market?
Alliqua (ALQAD) is a biopharmaceutical corporation focused on the development, manufacturing, and distribution of proprietary transdermal wound care and drug delivery technologies. Their proprietary technology platform produces hydrogels, a 3-dimensional cross-linked network of water soluble polymers capable of numerous chemical configurations. In the area of transdermal drug delivery, the hydrogel technology can be used to deliver therapeutic compounds through the skin. Key benefits of the delivery platform include stability of form and composition, purity, reproducibility, and compatibility with various active ingredients, sporting multiple advantages over oral drug delivery or injections.
In addition to the four products the company already derives revenue from; SilverSeal, Hydress, Sorbion Sachet S and Sorbian Sana (FDA 510k approved with Medicare reimbursement), the real buzz surrounding the company stemmed from the announcement on Tuesday, November 19th, when Alliqua entered into a licensing agreement with the pharmaceutical giant Celgene Cellular Therapeutics, a subsidiary of Celgene Corporation (CELG), whereby Alliqua received the exclusive right to develop and market the advanced wound care products Biovance and Extracellular Matrix (ECM). Biovance is a collagen-based decellularized and dehydrated biologic wound covering produced from human amniotic membrane while ECM is a suite of advanced wound management products made from extracellular matrix derived from the human placenta. Together, the two wound care products will be developed harnessing Alliqua's proprietary technology, offering a product with immense potential to penetrate the market with the support and conviction from one of the utmost trusted names in the industry, Celgene.
Concurrent with the licensing deal, Alliqua entered into an agreement with Celgene to sell 1,672,474 shares of common stock, at a purchase price of $3.59 per share and a five-year warrant to purchase an additional 836,237 shares of common stock at an exercise price of $5.69, in exchange for $6.0 million. In addition to the transaction with Celgene, several unrelated funds led by Broadfin Capital LLC and Perceptive Advisors LLC, invested $7 million on comparable financial terms that was announced earlier in the month. The recent influx of capital has removed concerns over the company's financial situation (Cash on hand was only $420,000 in September), while ensuring that Alliqua will have significant capital to bring its business objectives to fruition.
Reverse Stock Split and Bolstered Cash Position: First Steps To Uplist
Disclosed in a press release a day prior to the deal with Celgene, on Monday, November 18th, Alliqua outlined its intentions to uplist to a national securities exchange whilst announcing that there will be a 43.75:1 reverse stock split. As a result of the Reverse Split, the number of outstanding common shares was reduced from 310,993,023 to approximately 7,108,412, ultimately bringing the share price to an open price of $5.00/share, which satisfies the condition of a minimum share price required by all national exchanges. Uplisting to a national exchange like the NYSE-MKT or NASDAQ-CM generates advantages in broader visibility, increased liquidity and accessibility to the deep pockets of institutional investment firms and retail brokers. This has been witnessed many times throughout the past, with a great example of the benefits uplisting offers being realized by Organovo (ONVO), a company whose share price soared from $3.90 to $8.50 on the news of the uplist alone. This was accommodated with an influx of institutional investment and substantial increase in the trading volume, facilitating the stock to trade at its current levels today. In the case of Alliqua, there seems to be a sort of anomaly where institutional investment has already made its way in, uncommon as many institutional investors stray away from OTC securities. At the same time, while it's promising seeing institutional money flow in, it simultaneously gives the company the opportunity to uplist bringing the cash balance high enough to satisfy national exchange requirements.
Alliqua's Management Team: One of the Company's Strongest Assets
Putting the vast implications of the deal with Celgene into perspective, it may not come as a surprise to learn that Alliqua's Chairman is Jerome Zeldis, the Chief Medical Officer veteran of Celgene since 1997. From that time, Celgene's market capitalization grew from $100M to over $60B, attributed greatly due to the efforts and hard work of Mr. Zeldis. Of equal magnitude, the CEO David Johnson, was the former CEO of Bristol-Meyers Squibb's ConvaTec (Wound Care & Ostomy segment) where he grew revenues to $1.7B and oversaw its sale for $4.1B. With the combined background of expertise, connections and immense relevant credentials supported by both executives in conjunction with the company's expanding proprietary technology portfolio, Alliqua arguably has all the key ingredients that formulate a successful biopharmaceutical company. With Biovance poised to launch in Q2 of 2014 and ECM in Q2 2015 respectively, alongside with anticipated uplisting, retail investors seeking exposure to the niche markets of innovative wound care still have a chance to invest before the monetary benefits of the aforementioned events come into play.