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Two Companies for the Price of One

Every once in a great while you can find a diamond hidden among the lumps of coal in the OTC BB markets. Even more seldom you can find two great companies in one. I submit Adamis Pharmaceuticals (ADMP) is both, but as with most such stories, "It's complicated" or this gem would already have been discovered.

Adamis Pharmaceuticals consists of two very different companies, covering both the Specialty Pharmaceutical (Adamis Labs) side developing respiratory and allergy products, as well as the traditional biotech side (Adamis Therapeutics) developing therapeutic vaccines and drug candidates.

Superior Drug Delivery System

First let's cover the "steak", which could generate enormous revenues for Adamis. On August 9th, 2013 Adamis announced they acquired exclusive license to 3M Company's (MMM) Taper Dry Powder Inhaler (DPI) technology. In layman's terms, Adamis now has its hands on a drug delivery system to rival Galaxo's (GSK) Diskus device used for their Advair product, which exceeded $6B in sales last year in the USA alone.

TEVA (TEVA) spent a fortune to develop "generic Advair" before calling it quits, saying it was too difficult to copy the Diskus device. 3M spent nearly ten years developing a device not just the equal of Diskus, but superior in nearly every category. TEVA correctly understood that the magic was in the inhaler device and now Adamis has the keys to the kingdom with their 3M designed inhaler.

The 3M design is brilliant, using a tape technology, something 3M knows more than a little about and the advantages are legion. The drug is held in blisters on the tape keeping it moisture proof avoiding clumping issues and allowing the drug to remain pure and not cut with the usual ingredients such as lactose which can cause problems for end users. The blisters can be filled with single or multiple drugs. The inhaler utilizes patented breath actuated technology for simple open, inhale, dose functionality and integrates a dose counter to ensure patients know how many doses remain. The inhaler is simple in action, the patient opening the device fully and inhaling, advances a section of the tape while a spring impactor strikes the tape, releasing the drug into the patient's airstream. The drug is further deagglomerated as it passes through the mouthpiece. Since the drug particulate size can be made smaller than Advair's, the drug can penetrate to the lower lung causing a more rapid response and requiring less of the drug for the same effect, both major marketing advantages.

Revenue Potential in Huge Markets

The Adamis inhaler will give Adamis a shot at a $6B market controlled completely by Glaxo presently and further, Adamis will be the only supplier of "generic Advair" with little chance of competition due to the high barriers to enter the market. By offering a cheaper and more effective alternative to Advair, Adamis should have no problem capturing their estimated 10% share of this market. With sales of respiratory products being so price sensitive, it's easy to imagine a scenario with much higher penetration possible. A recent NY Times article discusses how costs are soaring for a "simple breath" as the author puts it, creating a perfect storm for a lower cost alternative.

Advair is not the only market Adamis intends to pursue with their inhaler. The tape design makes it easy to substitute different drug formulations, allowing them to address many different markets. Licensing the inhaler to other pharmaceutical companies is another option CEO Dr. Dennis Carlo expects the company to pursue with partnership revenues possible as early as mid-2014.

Secondary Offering / Use of Funds to Generate Revenues

The company is currently in the middle of raising capital through a Secondary offering expected middle of December, where they will raise up to $25M, making a final payment of $7M to 3M for the inhaler device as well as operating funds for other products and drugs studies. CRT Capital Group is the lead Underwriter in the Secondary offering and the capital raise will be coordinated with a simultaneous reverse-split to raise the share price high enough to qualify for immediate Nasdaq uplisting. Nasdaq listing will of course bring institutional investments, analyst coverage and with the higher share price, a broader shareholder base since many retail shareholders are unable to buy low priced securities through their Brokers.

Funds from the secondary will be used for final FDA approval allowing re-launch of their Epinephrine PFS product with first revenues expected in 2014. The Epinephrine PFS market is largely controlled by Mylan Labs (MYL), with sales of approximately $800M last year for their widely known Epi Pen. Adamis expects to maintain at least a 10% share of this growing market by providing a cheaper alternative to the costly Epi Pen, one that health insurance companies and government agencies are sure to favor. Adamis also intends to introduce the Epinepherine PFS world-wide via licensing agreements.

The shares of Adamis are currently trading near a 52 week low. One could argue the planned reverse-split would be a reason to avoid the stock until at least after it occurs, but I would argue the current depressed share price will cause a move back to realistic market valuations following the uplisting to Nasdaq. Adamis will then have zero debt, cash on the books and a clear path to substantial revenues beginning as early as 2014. Adamis closed last Friday, Nov 22nd with a market cap under $25M. Given the company expects revenues exceeding that over the next 12 months, I would argue Adamis is presently seriously undervalued.

Deep Pipeline / Blockbuster Potential

Now for the sizzle. A quick check of the Adamis website reveals a stunning pipeline of Tier one drug candidates. While most small Biotech companies have one or two possible drug candidates at best and market caps of hundreds of millions, Adamis suffers with an absurdly low market cap yet a pipeline that many mature Biotech companies would be jealous of.

In addition to the Epinepherine PFS product that is expected to generate revenues in 2014 and make the company cash flow positive after its first full year of sales, Adamis Labs Specialty Pharmaceuticals has 3 generic drug candidates ready to enter phase III trials: APC-1000 for Asthma/COPD ($2.7B market), APC-3000 for Allergic Rhinitis ($4B market), and APC-5000 as a generic version of Advair ($6B market). They also have C31G, a spermicide product that has already passed phase III successfully and is awaiting submission for final FDA approval. C31G was also proven active against Herpes in a recent study making it a dual market candidate. From the biotechnology side, Adamis Therapeutics has 3 world class prostate cancer drugs acquired from University of Wisconsin: APC-100, APC-200, APC-300. Both APC-100 and APC-200 won the RAPID award given only to the most promising new cancer drug candidates. Last, but certainly not least, TeloB-Vax designed by Doctor Zanetti at UCSD a potential breakthrough in immune based therapy that could be the holy grail for cancer treatment, Hepatitis C, Influenza, as well as Herpes and HIV.

Simply put, TeloB-Vax works by telling the bodies own immune system to create custom t-cells. These t-cells can be designed to kill up to 85% of all cancers. The process is relatively inexpensive and would be an off the shelf treatment. Dendreon (DNDN) has a similar product they call Provenge, but the process is quite expensive to administer and is a custom event for each patient causing the prices to skyrocket. TeloB-Vax is not some lab rat theory but in fact has completed a Human testing phase I trial successfully with a phase II trial waiting for the financing to be launched. The entire reason Adamis exists is due to that phase I trial data CEO Dr. Dennis Carlo saw, which convinced him to pony up nearly $2M to found the company to begin with.

Dendreon's Provenge has proven there is a market for immune based therapies. Adamis's TeloB-Vax is a more direct stimulation of the immune system which should cause a greater effect than Provenge but is not a custom approach for each patient, so should enjoy dramatically lower pricing.

Opportunity Moving Forward

If you're thinking all of this sounds too good to be true, especially for a small company such as Adamis, then you're not alone. Most of my friends have had similar initial reactions. My response has been, sometimes the market gets it terribly wrong and this would seem to be one of those cases. The 3M opportunity has consumed all of Adamis's efforts and focus for almost 2 years, meaning these other products were on hold and investors seem to have forgotten the potential of each one. Now that the 3M deal is behind them, expect to see that change rapidly after the upcoming Secondary financing.

Biotech IPO's are pricing at $200M to $500M for companies with only a single product or idea and a long ways from human trials. With just a $25M market cap, either of Adamis' two companies is sharply undervalued compared to many biotech companies. The fact that you get two great potential companies included at its current, severely undervalued price makes Adamis a two for one bargain.

Source: Adamis Pharmaceuticals: Two Companies For The Price Of One