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John H. Ford
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For the past 30 years, I have been involved in startups, as a founder, and active investor. My first company was purchased by Johnson & Johnson, which set the foundation for future investments. My level of trading escalated after graduating from college, primarily as a result of my... More
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    Nov 02 5:26 PM | Link | Comment!
  • Telesta Therapeutics: Near-Term Catalyst Could Provide Multi-Bagger Returns

    On November 18, a major catalyst could generate multi-bagger returns for Telesta Therapeutics (OTCPK:BNHLF) shareholders. This Phase 3 company will be reporting whether or not the FDA's advisory committee has recommended the FDA approve Telesta's lead drug; MCNA. If FDA approval is recommended, Telesta will be worth at least 6 times today's valuation.

    The advisory committee's decision is important because the FDA follows the committee's recommendation 88% of the time, so a thumbs up for Telesta's drug will mean probable FDA approval. It also explains why investors could see such dramatic share price appreciation following a positive decision.

    But what makes this such an exceptional trade is that Telesta is so undervalued that it should be trading significantly higher even without the upcoming catalyst. The company is currently valued at $90 million, and when we look at similar comps, fair valuation for Telesta should be at least $600 million. This is an extreme level of mispricing and creates an ideal trade; undervaluation combined with a near-term catalyst. It's also important to realize that we could see a significant run-up in anticipation of a positive decision.

    Telesta's drug should capture major market share

    Telesta's MCNA appears to be the most effective and safest second-line treatment for non-muscle invasive bladder cancer. When a patient is diagnosed with bladder cancer, he is given the first-line treatment, BCG. Approximately 60% of these patients ultimately relapse and at that point the best option is to remove the bladder and surrounding organs. Most patients decline surgery for obvious reasons.

    For patients who are not eligible for the surgery, the only option is to use FDA approved Valstar, which has a 10% disease-free 12 month survival rate, and creates chemotherapy induced side effects.

    MCNA provides a much better option for all patients because clinical studies have demonstrated that 25% of the patients treated with MCNA survive disease-free for 12 months. In patients with papillary only tumors, the disease-free survival rate was 32% at 2 years. That's more than 3 times the efficacy of Valstar.

    For second line cancer treatments, 25% is considered a home run because the alternative is usually near-term death. That's why the FDA approved Valstar with a 10% one year disease-free survival rate.

    I believe Telesta will become the market leader, because my research has demonstrated most people would choose the MCNA option over surgery or Valstar, I certainly would.

    MCNA is virtually without side effects

    What makes MCNA particularly valuable is that in the oncology world, with chemotherapy creating unbearable side effects, MCNA is virtually side effect free. This not only makes it more attractive to patients, but in my opinion it will also weigh heavily with the FDA when making a decision. The FDA puts a high value on safety and negligible side effects is almost unheard of in the cancer world.

    High margins and a $400 million market suggest large profits

    This is a big market, with US peak sales estimated to be $400 million annually. The total addressable market has been estimated to be over $1 billion. But what really makes Telesta such a compelling trade is that the margins for MCNA are in the 90% to 95% range. It costs very little to make the drug.

    Also, this is a focused market, requiring a minimal sales force to address the entire market. In other words, a handful of salespeople will be able to cover the whole market. I like this business model because it keeps costs down and profits up. This is about as good as it gets in the Pharma world.

    Bladder cancer basics

    Bladder cancer is the 4th most common cancer in men. Over 74,000 new cases are reported annually in the US. Bladder cancer has the highest lifetime treatment cost of $230,000 per patient. There have been no new therapeutic options since 1998, so physicians are desperate for something as effective as MCNA.

    First new treatment since 1998

    Physicians and patients are desperate for an improved 2nd line bladder cancer treatment because the current standard of care, Valstar, is using an 18-year-old technology with 10% efficacy and chemotherapy side effects. With such a critical need, and MCNA's stellar safety and efficacy profile, in my opinion the FDA should approve the drug. Approval will relieve much suffering, create a better quality of life for patients, and reduce healthcare costs. Everybody wins.

    More about MCNA

    MCNA was discovered by Telesta and is manufactured at the company's facility. It is a biologic therapeutic prepared from the fractionation of a pure culture of Mycobacterium pheli, a nonpathogenic bacteria. It's prepared in sterile water and delivered, like BCG, intravesically, directly into the bladder. No special handling procedures are required. In other words, it's easy for doctors and nurses to handle and administer, a big plus.

    Third-party study indicates urologists are bullish on this drug

    Telesta conducted a third-party market assessment and it was determined that MCNA will be very well received by urologists. That's important because urologists will be making the final recommendations to their patients. With urologists on board, MCNA should become the new standard of care.

    Urologists on the advisory committee should recommend approval

    I expect one or more urologists to be on the advisory committee, and given that urologists have already given MCNA a thumbs up, it's likely that the urologist on the committee will recommend approving the drug. In other words, the urologists will be advocating the drug and that should have a major influence the committee. In fact, if you think about it, the committee will probably heavily rely on urologists decisions because who knows more about the need for a new bladder cancer drug than urologists?

    Reimbursement should be easy to obtain

    The forementioned study also concluded that there shouldn't be any reimbursement issues. That makes sense because with a $230,000 lifetime treatment cost, insurance companies should be in favor of reimbursement because MCNA's improved efficacy and safety should significantly reduce treatment cost. Just process of eliminating these complicated surgeries will have a positive impact on reducing costs. Insurance companies should love this drug.


    The only competition comes from $14 billion Endo Pharmaceutical (NASDAQ:ENDP), with Valstar. Valstar was approved by the FDA based on a 10% one year disease-free response rate. It's also a chemotherapy drug, so the side effects can be problematic.

    MCNA demonstrated more than twice the efficacy, at 25%, and has minimal side effects, given that it's not a form of chemotherapy. For that reason I believe that if approved, MCNA will rapidly capture most of this market. In fact I would be surprised if Endo didn't try to buy Telesta.

    What is Telesta worth today?

    The best way to value Telesta is by comparing it to the valuation of similar companies. These comparisons focus on the following 3 criteria:

    Number 1: single precommercial/commercial product.

    Number 2: either under review by the FDA/EMA or recently approved.

    Number 3: comparable anticipated peak sales.

    Example number 1: Santhera

    · Public European biotech company with no previous commercial experience.

    · Rare orphan drug recently approved in EU, September 2015. Planning on FDA filing in the US.

    · Unpartnered asset.

    · Hired chief commercial officer in January 2015 to build commercial infrastructure.

    · Valuation: $600 million.

    Example number 2: Sarepta

    · US-based NASDAQ listed company.

    · Orphan disease drug under FDA priority review, anticipated advisory committee review.

    · Filing based on limited Phase 2 data.

    · Unpartnered asset.

    · Valuation: $1.3 billion.

    Example number 3: Sprout Pharmaceuticals

    · Private company developing single drug which received FDA approval in August 2015.

    · The company is preparing for a US commercial launch.

    · Valuation: over $1 billion based on Valeant buyout.

    Sarepta presents the best comparison given that both Telesta and Sarepta are currently under FDA priority review. Telesta is in a stronger position because it's filing is based on Phase 3 data, and Sarepta's data is based on limited Phase 2 data. This comparison implies that Telesta should currently be valued somewhere in the $1.3 billion range.

    Santhera is a good comparison because it's not as advanced as Telesta in terms of FDA filing, but it does have EU approval, so from that standpoint it's further along than Telesta. Taking that information into consideration Telesta should be similarly valued at $600 million.

    Sprout Pharmaceuticals gives us an idea of what Telesta could be worth immediately following FDA approval. Sprout was purchased by Valeant for over $1 billion so we can assume that Telesta will be worth over $1 billion following FDA approval.

    Using these 3 comparative valuations, Telesta should be valued somewhere between $600 million and $1.3 billion today. Those are completely defensible numbers.

    However, in order to keep estimates very conservative, I'm going to give Telesta a fair valuation of $300 million. Yes, I realize that some of you will argue that we should give Telesta a valuation of at least $600 million today, I don't disagree. But I'd rather give Telesta an ultra low valuation and benefit from higher-than-expected upside movement.

    What will Telesta be worth with a positive advisory committee recommendation?

    With Telesta's current fair valuation at $300 million, with a positive advisory committee recommendation, fair valuation for Telesta will be at least $600 million. This is because a positive advisory committee recommendation almost guarantees FDA approval, and with FDA approval, Telesta should be worth over $1 billion.

    However the most significant impact of a positive recommendation is that it will increase Wall Street's awareness of a probable FDA approval this February. The combination of extreme undervaluation and probable FDA approval could take Telesta viral, bringing in waves of institutional and retail investors. In other words, Telesta will no longer be under the radar. That's good!

    What will Telesta be worth if the advisory committee suggests another Phase 3 trial?

    If another Phase 3 trial is recommended, Telesta's shareprice will probably take a hit. This would be considered negative news, because it would delay commercialization.

    But Telesta would still be an advanced Phase 3 company that's addressing a large market, so fair valuation at that point should be at least $150 million. Today's extreme level of undervaluation offers some downside protection, so if there was a dip in the company's valuation, it could be temporary.

    What will Telesta be worth if the advisory committee suggests another Phase 3 trial, but allows Telesta to immediately commercialize the drug?

    It's possible that Telesta could be allowed to immediately start selling MCNA, but concurrently conduct another phase 3 trial. Since everyone benefits by having this drug on the market as soon as possible, this could definitely be an option. Telesta would be able to generate significant revenue, while conducting the 2nd phase 3 trial.

    At that point, Telesta should be valued in the $400 million range, given that it would be a full-fledged commercial company. What pulls the valuation down a bit is the cost of the 2nd phase 3 trial. But as the company begins generating serious revenue, the cost of the trial will be small in proportion to revenue, and will be less of an issue in the future.

    What will Telesta be worth with FDA approval?

    With FDA approval, Telesta should immediately be worth over $1 billion. I would expect buyout offers in that range following approval.

    Longer-term, with peak sales of $400 million annually, and margins of 90% to 95%, the company should easily generate $300 million in EBITDA. With companies selling between 10X and 15X EBITDA, that would give Telesta a valuation of $3 billion to $4.5 billion as the company approaches peak sales.

    What's important to remember is that peak sales could be achieved relatively quickly because the market is so concentrated, and a small sales force can cover the entire market. Also, because there is such an intense need for this drug, adoption should be almost immediate. Patients and doctors will not want to wait for this drug, which is another reason I believe the FDA will approve it.

    Valuation summary (all share prices in US dollars)

    · Fair valuation today: $300 million. Shareprice: $1.04.

    · Fair valuation following positive advisory committee recommendation: $600 million. Shareprice: $2.08.

    · Fair valuation following 2nd Phase 3 trial recommendation: $150 million. Shareprice: $.52.

    · For valuation following 2nd phase 3 trial recommendation with concurrent FDA approved drug sales: valuation $400 million. Shareprice: $1.38.

    · Fair valuation following FDA approval: $1 billion. Shareprice: $3.47.

    · Fair valuation long-term following FDA approval: $3 billion to $4.5 billion. Shareprice: $10.41 to $15.62.

    Telesta is currently trading in the $.30 range in the US, so any of the above scenarios would provide significant returns. The only caveat, is that if a 2nd phase 3 trial is recommended, the company could trade well under fair valuation for a period of time.

    3 trading opportunities

    · The first trading opportunity occurs with a shareprice run-up in anticipation of a positive advisory committee recommendation. Conservative traders could buy shares now and sell just before November 18. Double-digit gains chould be achieved, and the risk is minimal.

    · The 2nd opportunity is riskier, but could generate much greater profits. This involves holding shares until after the advisory committee results are reported. If the results are positive Telesta should be valued in the $600 million range, and investors who get in at today's level could realize 6X returns within 2 weeks. That's a good trade.

    · The 3rd opportunity provides the greatest opportunity; waiting until the FDA decision is announced in February. If the FDA approves Telesta's drug, the company should be worth at least $1 billion, potentially giving investors a 10X return within 4 months.

    I intend to be long on November 18 and in February, because those catalysts provide the greatest potential short-term returns.

    The FDA follows the advisory committee's recommendation 88% of the time

    FDA advisory committee meetings are high-stakes interactions involving years of effort, millions of dollars of investment, and potentially billions of dollars in sales for Big Pharma. The McKenzie Center for Government conducted an intensive analysis to determine the outcomes of advisory committee meetings in relation to FDA approvals.

    After studying 10 years of publicly available data, including meeting minutes on the FDA website, McKinsey concluded the following:

    The FDA approved 88% of the original NDA's or BLA's that were endorsed by its advisory committees.

    In other words, if the advisory committee gives a drug a thumbs up, there's an 88% chance of FDA approval.

    A separate 5 year study demonstrated that with oncology drugs, the FDA follows the advisory committees positive recommendations 100% of the time. Since Telesta's drug is treating cancer, a positive advisory committee recommendation implies FDA approval.

    This five-year study also demonstrated that companies that receive priority review status achieved a higher level of FDA approvals than companies that only have standard status. Since Telesta did receive priority review status, this also increases the chances of FDA approval.

    This is why the committee's decision in a couple of weeks is so important for Telesta and shareholders. Probable FDA approval will increase Telesta's value tremendously.

    Ipsen deal further validates Telesta's drug

    Telesta just signed a $137 million licensing deal with Ipsen, including a $10 million upfront payment and meaningful double-digit tiered royalties. This gives Ipsen the right to sell the drug everywhere except in the United States and Japan. Ipsen would not have agreed to pay $10 million upfront unless it was confident the drug would be a commercial success. This is a huge validation for Telesta and its technology. Also, in my opinion Ipsen would not have partnered with Telesta unless it was confident of FDA approval in the United States. It would be difficult for Ipsen to be successful worldwide if the drug isn't approved in the US.

    Telesta's strong balance sheet

    Telesta just raised $28 million on very favorable terms; no discount to market and no warrants. The Ipson deal brings in another $10 million. This cash should be sufficient to take the company well into a high level of commercial sales, or a second Phase 3 trial. The company has some debt that should be eliminated through an asset sale which should be concluded in the next 18 months. At this point I don't see any risk of near-term dilution.

    Telesta's IP position

    Telesta's technology is protected until 2031, which gives the drug a long runway. This also makes Telesta a very attractive buyout candidate.

    Telesta trades in the US and Canada

    Telesta trades on the Toronto exchange, under the symbol of TST.TO, and in the US on the over-the-counter exchange under the symbol BNHLF. It's more actively traded on the Toronto exchange, with about 500,000 shares trading per day. Once Telesta up lists to NASDAQ, the volume should increase in the US as well.

    Telesta should receive a thumbs-up from the advisory committee and the FDA

    In my opinion this is a no-brainer. The FDA has already approved Valstar which demonstrated a 10% one year disease-free response rate even with its chemotherapy induced side effects. MCNA with its 25% one year disease-free response rate and minimal side effects should be very attractive to the FDA and I believe the drug will be approved. It appears MCNA is a superior drug when compared to the standard of care, Valstar, so why wouldn't the FDA approve it?

    Also it's important to remember that drugs that make it through Phase 3 trials and file with the FDA, have a 90% chance of FDA approval. This is not like a high risk Phase 1 or Phase 2 drug. Getting to filing is a major accomplishment and historically has proven a high degree of success.

    In case you haven't seen these numbers, here's a rundown on clinical development and the subsequent probabilities of FDA approval:

    Development Phase Probability of FDA approval

    Preclinical, 1%

    Phase 1, 10%

    Phase 2, 30%

    Phase 3, 70%

    FDA filing, 90%

    As you can see, by the time you get to an FDA filing, a lot of clinical obstacles have been overcome, and the probability of commercial success is very high. That's one of the primary reasons that Phase 3 companies and companies that have filed with the FDA are so highly valued.

    What does it take to get FDA approval?

    With all the mystery and drama surrounding the FDA, what the FDA looks for in a new drug is really very simple. The following is straight from the FDA's website:

    "If the FDA decides that the benefits of a drug outweigh the known risks, the drug will receive approval and can be marketed in the United States."

    That's all there is to it, the benefits simply need to outweigh the risks. If a drug works, and the risks don't outweigh the benefits, it will be approved. What's beautiful about the Telesta trade is that both requirements are met; the drug works and the side effects are minimal. That's why I believe the FDA will approve Telesta's drug.

    NASDAQ up listing should occur following FDA approval

    Another event that will be positive for the share price is when Telesta up lists to NASDAQ. I expect this to occur following FDA approval, although the timing is uncertain.

    What's the risk?

    The obvious risk is that I am wrong, and the FDA requires Telesta to complete one more Phase 3 clinical trial. Telesta will still be a Phase 3 company, just further away from commercialization.

    If that occurs, even though Telesta is already extremely undervalued, the company's valuation could drop even lower, at least temporarily. That's the primary risk.

    Could the FDA deny approval rather than recommending a 2nd phase 3 trial?

    I realize investors are wondering whether or not the FDA would completely deny approval at this point rather than requiring a 2nd phase 3 trial. From what I can determine, that won't happen near-term, but it could occur following a 2nd phase 3 trial. That's what I like about this trade; with the worst-case scenario, Telesta is still in phase 3 company with a major drug that could be approved following a 2nd phase 3 trial.


    Telesta provides 3 opportunities that could generate short-term multi-bagger returns:

    · Telesta is so undervalued that with any level of Wall Street awareness, the share price could be driven higher. As we get closer to November 18, the shareprice could rise in anticipation of a positive recommendation.

    · When the company reports the results of the FDA's advisory committee, if the results are positive, the share price should rise again.

    · In February we will learn whether or not the FDA has approved Telesta's lead drug. With FDA approval, Telesta should be worth at least $1 billion and I would expect buyout offers in that range.

    FDA precedent has already been established with Valstar's approval, and I believe MCNA with its superior clinical results will be approved in February. In effect, this is an opportunity to buy a soon to be $1 billion company, for $90 million, a true Buffett trade.

    Disclaimer and disclosure: It is probable that the author and his associates have a position in the subject securities consistent with the opinion expressed in this article and they reserve the right to buy and/or sell the securities mentioned in this article, at any time without further notice. For complete disclosure and disclaimer information please click here.

    Tags: BNHLF
    Oct 28 10:54 AM | Link | 114 Comments
  • Chanticleer's Share Price Could Surge Next Week

    I just more than doubled my position in Chanticleer (NASDAQ:HOTR) based on a short-term trade that could generate significant profits.

    Chanticleer is in the process of purchasing the Little Big Burger chain in the Pacific Northwest. Take a look at the Yelp reviews, Little Big Burger is very popular and will be a phenomenal asset for Chanticleer.

    Little Big Burger is generating $6 million in revenue and $1.2 million in cash all of which will be accretive to Chanticleer's top and bottom lines. Most importantly, Chanticleer negotiated a very good purchasing price.

    The addition of this chain will be transformational for Chanticleer, helping to generate revenue of $60 million annually, and $6 million-$8 million in positive EBITDA. Keep in mind that Chanticleer generated $30 million last year, so jumping to $60 million is significant.

    Chanticleer is raising money via a rights offering in order to complete this purchase. The offering is priced at $1.35 and yesterday shares traded up to $1.53 after hours. With that level of arbitrage the company should have no trouble raising capital. I subscribed to the rights offering at a level of 100%, plus an additional 50%, because even without the arbitrage $1.35 is dirt cheap.

    If you recall investors who participated in the last rights offering saw more than a 100% short-term return.

    Once the company announces the completion of the Little Big Burger purchase, the share price should surge. That's why I have more than doubled my previous position.

    But what makes this a home run trade is that with over 1 million shares short, the short squeeze could be epic and could push the share price much higher than anyone expected. If you recall, following my last Chanticleer article, the shares went from $2 to $4, and that was without a short squeeze.

    But what will really kill the shorts is that following the purchase of Little Big Burger, Chanticleer should be a self-sustaining company, growing organically with cash flow. In other words, the company will be able to open new restaurants with internally generated cash, rather than capital raises.

    Following a successful rights offering, Chanticleer will be valued between $25 million and $30 million, depending on the shareprice and how much capital is raised. If we conservatively use the $30 million figure, that gives Chanticleer a ridiculously low price to sales ratio of .5, assuming $60 million in pro forma annual revenue which is what the company has already projected.

    Compare that to Shake Shack's (NYSE:SHAK), price to sales ratio of 4, or Good Time's (NASDAQ:GTIM), price to sales ratio of 2. Even if we use a sector conservative price to sales ratio of 2, that would give Chanticleer a valuation of $120 million, and a shareprice in the $6 range, based on $60 million in revenue. That's for stock that's trading in the $1.50 range.

    Just to give you some perspective, the average price to sales ratio for the restaurant sector as a whole was 2.9, as determined by NYU, and is confirmed here. Another smaller sample puts the average at 3.8. Chipotle (NYSE:CMG), has a price to sales ratio of 5.1. I'm just making the point that if Chanticleer traded at $6 with a price to sales ratio of 2, many would consider that a conservative valuation.

    What makes this rights offering particularly attractive is the overallotment clause. I was able to place an order for an additional 50% beyond my original holdings. The process of subscribing was easy, simply a matter of calling my broker and placing the order, much like an IPO.

    The subscription period expires today at 5 PM Eastern time, but I wouldn't be surprised if there was an extension in order to fill late orders, not uncommon with these types of offerings. Some brokers require investors to subscribe a day or 2 before the expiration period, so an extensions helps fill these orders. I would like to see an extension because it would provide an opportunity to further increase my position.

    There were some very large bids yesterday (20,000 shares to 100,000 shares), so Wall Street is just waking up to the fact that Chanticleer is extremely undervalued, and with the Little Big Burger near-term catalyst, it provides an exceptional short-term trade. Wall Street interest was confirmed after hours yesterday, when almost 200,000 shares were traded.

    Disclaimer and disclosure: It is probable that the author and his associates have a position in the subject securities consistent with the opinion expressed in this article and they reserve the right to buy and/or sell the securities mentioned in this article, at any time without further notice. For complete disclosure and disclaimer information please click here.

    Sep 18 9:05 AM | Link | 8 Comments
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