Tekmira's Shorter Path To Profitability

| About: Arbutus Biopharma (ABUS)

Tekmira (TKMR) is to biotech what overnight shipping is to Amazon. When a patient is injected with a drug, it can dissipate before the medication can work its magic. In order to be effective, some times, the medication needs an escort to deliver it to the specific organ or system that is targeted. Without this protection, the response rate would drop off substantially. In biotech speak, it is referred to as Nucleic Acid Delivery or LNP for lipid nano particle. This is the secret sauce where Tekmira's profits are derived, not creating the drug but providing the delivery mechanism. When a drug absolutely, positively has to be delivered, companies like Boehringer Iingelheim call Tekmira.

Tekmira has long been a partner for the biotech companies receiving royalties for products relying on its delivery technology. However, that changed with the announcement Monsanto (MON) would be licensing Tekmira's intellectual property to develop weed and pest control and virus suppression products. In return for a near term payment of $16.5 million and ongoing future payments as milestones are met, Tekmira is providing lipid formulations to Monsanto along with the option to purchase the worldwide rights to its technology. In all, the contract could potentially be worth $86.2 million over the four year option period.

The $16.5 million payment is 35% greater than Tekmira's trailing twelve month revenue, and depending on profitability levels, could dramatically shorten the company's path to profitability. The street consensus for 2014 is currently -$0.38 (according to Yahoo Finance) but this estimate may change significantly after guidance on the next earnings call.

This payment provides a stable base for a longer term and larger opportunity: expanding its own product line. The bulk of Tekmira's revenue comes from developing an anti-Ebola therapy under the sponsorship for the Department of Defense. It is seeing early signs of success and is anticipating testing a new formulation that the company believes is significantly more potent. The new formulation is expected to achieve greater levels of anti-viral activity and 100% survival at significantly lower doses than earlier generation products. Tekmira plans to begin dosing patients in 1Q14 and have clinical data in the second half of the year. Overall, the contract value of this relationship is expected to be north of $100 million.

Tekmira's other key product, PLK1, comes from its Oncology unit. PLK1 is a protein inside tumors that causes cell division and consequently tumor growth. At this time, there are 36 patients enrolled in a phase 1 trial that showed 75% achieving stability including one patient that had almost a 20% reduction in tumor size. By the first half of 2014, the company expects results from a Phase 1/2 trial with a more extensive evaluation of 20 patients with advanced Gastrointestinal Neuroendocrine tumors or Adrenocortical Carcinoma. If this data is positive, a pivotal trial is expected to begin before the end of 2014.

Tekmira has a riveting business as a partner to drug manufacturers but up to this point, it has not had the profitability to stand alone. This is key risk with early stage biotech companies that setbacks in development will cause the start-up to run out of cash before the bonanza treatment is fully developed. The cash injection from the option purchased by Monsanto could represent the turning point for Tekmira. When combined with the ongoing revenue received from the Department of Defense, this contribution could carry the company through the ongoing Ebola and PLK1 trials. Investors are likely looking forward to the company's upcoming fourth quarter earnings call which should provide updated profit expectations.

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.