Outside of the energy sector, there probably hasn't been another under more pressure in the past year than that of biotechnology. As an example of the bearish bias, the ProShares Ultra NASDAQ Biotechnology ETF (NASDAQ: BIB) has slumped from a record high last July at $106.10 to as low as $33.97 late in June, representing a top-to-bottom decline of 68%. For the most part, biotechs of all sizes have felt the pain. Markets are always cyclical and I believe that the biotech beat down is reaching its bottom and will soon begin to reverse the trend. From a technical perspective, I think that BIB breaking over $50 again will be a sign of the reversal (it's currently around $43).
In my healthcare research, I try to stay diverse - i.e. finding small molecules, immunotherapy, devices, etc. - with large market potential. I think that with the recent rapid drop in the value of Endonovo Therapeutics (OTCQB: OTCQB:ENDV) that the company is worthy of additional due diligence. The company is developing innovative bioelectronics devices and therapies built upon its Time-Varying Electromagnetic Fields (TVEMF) technology for regenerative medicine. One of Endonovo's lead programs is the Immunotronics platform, a non-invasive, non-implantable bioelectronic device for treating and/or preventing vital organ failure via inflammation reduction, cell death and the promotion of cell regeneration. The initial focus of the company is to use the Immunotronics platform to treat acute and chronic inflammatory conditions of the liver.
The other is called the Cytotronics platform, which is designed to expand and manipulate cells using simulated microgravity and TVEMF for expanding and manipulating cells and biologics for tissue engineering and cell-based therapies. Cytotronics aligns Endonovo as potentially an influential emerging player in the biologics space if it can produce fully human glycoproteins through a more efficient and effective process than today's methods, as the company believes it can.
You'll notice that both Immunotronics and Cytotronics are "platform" technologies. Gateway indications, such as liver failure or graft versus host disease (GvHD), which is the first target for Cytotronics, leaves the door open for other large, addressable markets and potential partnering opportunities in the future for Endonovo.
Heralded for their therapeutic benefits, magnets have been a part of human medicine for centuries. They're still critical today in things like bone growth simulators, imaging and cardiac pacemakers, to name a few applications. Their benefits have more recently become a topic of research for how they can be used to better manage pain and treat notoriously difficult diseases and conditions, such as cancer, epilepsy, psoriasis, arthritis and other indications where inflammation plays a leading role in disease progression.
TVEMF: A Brief History
TVEMF is based on the physics of electricity, magnetism and the physiology of cells and tissues. The concept of the TVEMF technology employed by Endonovo was the brainchild of NASA as it sought to develop cell therapies to treat diseases and conditions, including bone density and muscle mass loss, for astronauts during space missions. During research, NASA scientists realized that cellular growth increased as the space shuttle flew over the earth's magnetic poles, which eventually led to development of a device to replicate the phenomenon. After years of experiments, NASA identified the exact magnetic field format that increased cell growth 400% and upregulated over 200 growth factors and cytokines (G-CSF, GM-CSF, IL-2) in its rotating wall bioreactor. Since then, several studies by NASA and independent firms have confirmed the safety of TVEMF technology while highlighting many possible areas where it could provide a clinically meaningful benefit in a non-invasive manner with no risk for drug contraindications.
TVEMF technology is superior to pulsed electromagnetic field (PEMF) devices that are FDA approved for reduction of swelling and joint pain, bone fusions and more. Endonovo's patented square waveform, as opposed to sine, triangle or sawtooth waves, creates a faster rate of induction (called the "slew rate") to penetrate deep into tissue and promote cell growth and production of growth factors and cytokines, as shown by NASA. The technology features intense, very short pulses (0.0001 seconds wide) in specific patterns modeled after known motor-neuron stimulation patterns to illicit a cellular response.
TVEMF builds upon decades of well-documented research showing the healing powers of electromagnetic fields [EMF]. An informative read with a plethora of links (152 references) on EMF can be read here. In the comprehensive article, scientists from Wake Forest Institute for Regenerative Medicine note, "certain field strengths and frequencies of PEMF ap pear to be disease modifying. For example, treatments of 10-25 Hz frequency decreased pain and improved range of motion for osteoarthritis patients, improvement of cognitive development reversal of brain amyloid-β (Aβ) deposition in Alzheimer' s patien ts using 25-50 transcranial electromagnetic field treatment (TEMT), improved function, pain and fatigue in fibromyalgia patients using 25-50 Hz field, and a 27.12MHz field tuned to tissues specific field strengths has been shown to block tumor growth in cancer patients. PEMF devices can be attuned to certain vibrational frequencies and field strengths in order to stimulate hormones, growth factors and interleukins. PEMF has also been reported to reduce pain and inflammation after traumatic brain injury, decrease osteoarthritic inflammation, and reduce neuropathic pain, as well as control the growth of lymphocytes."
I share this to put a light on possibilities for TVEMF as an alternative or adjunct to traditional pharmaceuticals.
Endonovo is preparing to make advancements with both the Immunotronics and Cytotronics platforms. As mentioned, the first target for Immunotronics is acute liver failure, with a pre-clinical study in a rat model expected to be conducted by the end of the year. Upon successful completion of the study, Endonovo says that it will be seeking an Investigational Device Exemption [IDE] and move into a clinical trial during 2017 after securing the IDE. Acute liver failure (fulminant hepatic failure) is the rapid loss of liver function in patients that typically don't express any pre-existing liver conditions. Often times a liver transplant is the only option for the rare, but life-threatening condition. Acute liver failure affects about 2,000 Americans annually.
Because this is a medical device for a rare disease, clinical development is much shorter than that of traditional pharmaceuticals. With successful outcomes in the clinical studies, it seems plausible that an FDA marketing clearance could happen in about three years for Endonovo.
Importantly, acute liver failure is a gateway indication for Endonovo. Other chronic liver conditions, such as non-alcoholic fatty liver disease (NAFLD), have much larger patient populations spanning from children to the elderly, with limited effective therapies, especially if not caught early. NAFLD, ranging from early detection (hepatic steatosis) to the most serious version (non-alcoholic steatohepatitis), is estimated to affect about 90 million Americans. Fatty liver leads to inflammation in the body and then a host of cascading issues, including putting a person at higher risk for diabetes, heart attack and cancer.
The rat study, IDE and clinical trials of Immunotronics are each important to Endonovo for these liver-related opportunities and also to allow for vertical expansion into other organ failure indications. The heart, lungs, kidney and pancreas are all prime future targets and should get the attention of potential partners if the initial work validates effectiveness of the treatment.
On the Cytotronics front, Endonovo is planning to seek an Orphan Drug designation from the FDA for treating GvHD. The goal here for Endonovo is to create optimized cell-based therapies with greater therapeutic potential than the un-modulated cells currently being used in regenerative medicine. Much different that its competitors, which use genetic modification and pharmacological modulation to alter the biological properties of cells, Endonovo uses TVEMF in its platform. This allows the company to quickly (less than a week) create cells that express higher levels of genes integral to stem cell health, growth, homing and engraftment.
GvHD is a good starting point, as regenerative medicine has been trumpeted for its strong potential against this problem that plagues those facing stem cell or bone marrow transplants. In GvHD, a recipient's (the "host") immune system recognizes the cells in transplanted tissue (the "graft") as foreign and attacks them. GvHD is associated with high morbidity and mortality in transplant procedures. Endonovo's off-the-shelf product utilizes stem cells from a portion of the human umbilical cord co-cultured with fat-derived stem cells along with cord blood cells to create a perivascular cell mixture. Using the perivascular co-culture in the 3-D bioreactor mimics the innate way the body creates and maintains blood-forming hematopoietic stem cells, thus reducing risk of rejection and immune system attack.
Much like liver failure for the Immunotronics platform, the GvHD market is significant on its own merit for Cytotronics, but a gateway play for the company. Cytotronics is a step towards the next generation of biologics that analysts at Visiongain estimate is going to grow into a $30 billion market by 2024.
Pending Acquisition Slid Under Wall Street Radar
With these upcoming catalyst on the horizon, there has been surprising little market reaction to Endonovo on Monday announcing a binding letter of intent to acquire Rio Grande Neurosciences for $21.5 million. The acquisition dovetails perfectly with Endonovo's mission and trajectory. Rio Grande Neurosciences (RGN), as a clinical stage developer of non-invasive Electroceuticals™ for treating neuro-inflammation and central nervous system diseases and disorders, should deliver immediate value to Endonovo as an emerging company in bioelectronic medicine. In order to be executed, a definitive agreement needs to be consummated through both companies by garnering shareholder approval and Endonovo raising additional capital, but the parties seem intent on completing the transaction this quarter. Endonovo has already put up $500,000 towards the acquisition via issuance of a note. Endonovo, which also is required to pay RGN a 10% royalty on commercialized products and assume RGN's senior debt, intends to fund the purchase through cash, $15 million in common stock and $5 million in ENDV stock warrants.
With the purchase, Endonovo takes control of RGN's intellectual property, product portfolio and pipeline, including FDA-cleared devices for treating pain and edema (swelling). These devices are being adapted to treat neuro-inflammatory conditions, including traumatic brain injury, acute concussion, post concussion syndrome and multiple sclerosis, all hot-button indications as areas of unmet medical need. Endonovo also snags RGN's multi-coil rTMS (Transcranial Magnetic Stimulation) technology, which uses multiple magnetic coils non-invasively to stimulate activity in specific regions of the brain for the treatment of resistant major depressive disorder that has a 510(k) marketing clearance pending with the FDA. Other assets that will be brought under Endonovo's umbrella include closed-loop Transcranial Electrical Stimulation (cl-TES) technology, supported by a grant from DoD for enhancing learning and several clinical studies for the treatment of neurological diseases. cl-TES technology is a non-invasive approach in which electrodes are placed at different points on the head, allowing current to be delivered to the brain in order to modulate neural activity.
Endonovo also brings on board RGN's R&D and clinical development team and should continue to provide access to RGN's extensive list of advisors, collaborators and partners. Interested parties should review publications on RGN's technology here.
I view this as a significant move forward for Endonovo to grow shareholder value as it positions the company to generate revenue from approved devices, greatly bolsters Endonovo's portfolio of non-invasive bioelectronic technology in development and adds more seasoned leadership.
Risks of an Emerging Company
Endonovo is a young company developing novel technology and that always equates to a high risk/high reward scenario. For starters, while backstopped by leading researchers at the heart of development, the TVEMF technology of Endonovo has yet to be evaluated in human trials. The company has a low asset base and only about $108,000 in cash, according to the 10-Q filed with the SEC on May 20, 2016. The company posted a net loss of $903,436, adding to the total shareholder deficit now at $9.01 million and supporting a "going concern" statement in the filing.
Those figures aren't the end of the world for an upstart, but with human trials expected in 2017 and the pending acquisition, Endonovo is simply going to have to raise capital and doing so at $0.14 per share certainly creates challenges with respect to any type of favorable terms that aren't highly dilutive. The company previously said it plans to raise $5 million by the end of the first half of 2017, which will be enough to get some studies underway and fund the cash portion of the acquisition, but the company has only raised $3.5 million since its inception. On a positive note, Endonovo has retired a few convertible notes in recent months, preventing some dilution and, as the company puts it, "sets the stage for a new financing plan." The new financing plan needs to be defined and executed. Investors will want to pay attention to market reaction to any preclinical data or FDA designations, which should support a larger raise in the future to fund clinical studies.
Endonovo is a reporting company with the SEC, but still trades on the OTC markets, which is frowned upon by many on Wall Street. Further, with a share price in the pennies, larger investors are generally forbidden to even invest in the company. A move to a national exchange (even if it requires a reverse split) will help with transparency, institutional and retail support.
The Value Proposition
Endonovo is clearly differentiated from most biotech peers with its technology, so it can be argued that it may face limited competition and get on the radar of larger biotechs looking to offer new alternatives through their distribution channels. Of course, that's all predicated on clinical trials proving management's convictions about the efficacy of the two platforms, but speculation underscored by research is what any pre-revenue biotech is about. More basic EMF technology is used today, functional by the fact that every mammalian system reacts to the influence of electromagnetic fields, with cell membranes, mitochondria and nuclei being the most sensitive at the cellular level. It's hard to ignore what Endonovo is doing on this front.
After trading consistently over 25 cents per share, with a top end of the range around 85 cents for about six months, shares of ENDV took a nosedive in June. The decline seemed to be motivated by a battle with Kodiak Capital over a $3 million equity purchase agreement. Endonovo has withdrawn its S-1 and is demanding that Kodiak return 1.89 million unpaid shares. In June, Endonovo was awarded a preliminary injunction by the Superior Court of California against Kodiak, et al to keep any shares from hitting the market.
I mention this because Endonovo has lost more than half what the market had deemed as the low end of its value in the matter of a couple days without any apparent impactful fundamental changes. Now the company is trading with a market capitalization of approximately $15.6 million, which doesn't seem to accurately reflect the value of existing assets, much less the RGN acquisition. The long-term success of Endonovo is still to be determined, but they are addressing tremendous market opportunities with a novel approach and have the benefit of accelerated pathways to market as a device maker. If this latest fallout in price was just someone losing faith and unloading stock, it seems that the market will correct itself in short order.
Disclosure: I/we 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.
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