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Joseph Krueger
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Disclaimer: This blog is an expression of my opinion on a particular company or matter. I am not a financial advisor or professional analyst. This is not a solicitation to trade any security. Although I rely on company approved public documents and make all reasonable efforts to confirm the... More
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  • Penny stocks or penny slots?
    I would like to take the time to release a two-part article for my readers to discuss the potentials profits and pitfalls in penny stocks, and how to invest in them. Readers of my blog who may have watched the stocks I have profiled have had the opportunity to witness the extreme gains and losses that are inherent in penny stock trading. Penny stocks are only for the most aggressive and watchful investors, and should only be a very small part of a portfolio. Traditionalists would advise to avoid them all together, but the profits are too great to resist, and a smart investor can avoid the pitfalls. The recent downturn in the market sell-off of more speculative investments has created many “new” penny stocks out of many good companies This time is a unique time, in that the lack of ability for companies to raise necessary capital has turned many cash poor companies into penny stocks. For example, I will remind readers that earlier this year, Citibank (NYSE:C) was technically a penny stock. In fact, if you look at virtually every penny stock from July 2008 until July 2009 they have nearly identical declines and patterns in price as the major indices have, with the important difference that many of them have not recovered at all like the broader markets have. 
    A stock price recovery for many companies has not occurred because these companies will most likely (statistically) suffer the fate of withering away, and are thus ignored by investors. Yet there are still there are many viable penny stock companies that remain unfairly valued, in my opinion. These companies may be hanging on the results of an important clinical trial, or turning the corner into profitability, or simply under the radar due to exchange de-listing or lack of investor interest. These kinds of extreme small cap value type investments are the ones that I write about and the ones that I feel that penny stock investors may find to be the most rewarding with the least amount of risk. Keep in mind by no means the risk is trivial with these companies, but yet given their low valuation, the risk is worth the reward. That being said: It is a jungle out there. For every good penny stock company there are 100 lousy ones, and many penny stock companies are worthless shells or deliberate scams. So the penny stock investor must be extra astute, and make extra efforts into research to ensure they are not falling victim to investment which had risks they did not understand. 
    Penny stocks are quite popular, with good reason. Many penny stock holders can see regular gains of 50% to 100%, with occasional gains up to even 1000% in a single day. Penny stocks can range in price from one hundredth of a penny (.0001) to one dollar (or more, depending on your perspective). Often it is within an average investors reach to purchase a million shares in a company for $1,000-$10,000. Not only does this number of shares look impressive in your portfolio, it is conducive to dreams about each share reaching one dollar and allowing you an early retirement. But penny stocks have a well deserved reputation for an extreme level of risk, as many penny stock holders have seen losses of 50% to 80% in a day. Penny stocks are extremely susceptible to the influences of traders who can work together, or independently, to drive prices up by buying mass amounts of shares for relatively low amounts of money; or drive prices down by shorting massive amounts of shares. Penny stock traders en masse can drive the price of a stock in either direction at a whim leading to massive gains or losses without warning. There are also many “pump and dump” schemes or outright fraud scams run for the sole purpose of fleecing investors. There are hundreds of zombie ticker symbols that continue to trade on the Pink Sheets that have no company behind them, and are just the defunct shell of a company long since gone or bankrupt. Indeed, “reputable” brokers avoid penny stocks altogether, but there are indeed hundreds of viable, growing companies that are trading as penny stocks. All of these companies are trading for pennies rather than dollars with good reason, but occasionally you can find good SEC reporting companies that are truly undervalued or have unrecognized potential and are indeed the proverbial “diamond in the rough”. With careful action, the average investor can include penny stocks in their portfolio as part of a healthy balance of risk-weighted assets.      
     
    Lesson one: Why is the stock a just a few pennies?
     
                The first thing to consider about a penny stock company is quite basic, and may ironically be the thing investors think about the least: Why are they trading in the pennies (or below)? I will discuss the three primary reasons below:
     
    1)      The company is not viable.
    2)      The shares have been diluted.
    3)      The company is a scam or is cheating shareholders.
     
    The first reason the most common, and can be deduced quickly by examining a company’s history. A company with no cash, no revenue, and no growth potential should be avoided, unless it is developing a new technology. Biotech is a perfect example of this. However, whether or not the technology is viable may take quite a bit of understanding which the average investor lacks. For example, running a car on hydrogen derived from water to increase fuel economy is indeed possible and is an exciting thing to an investor. But only investors who have done significant research into the matter might realize that physics actually prevents the burning of hydrogen from the electrolysis of water to be a net positive energy reaction. Thus, the technology is not viable. This kind of determination is difficult to make, and if you are investing in a technology you do not understand, do so with the understanding that you may lose all of your money because there is a flaw in the technology you didn’t see.
                But the average investor can make fair determinations about if a company seems competently managed and if they have the potential to meet their stated goals.
    Review the company’s stock price history, SEC documents, their press releases, and quarterly statements and you will be able to put together the reasons why the company is trading in the pennies. Often this is simply because, over time, a company was never able to attain profitability and ran out of money. They may not have been able to raise more money to continue on, and with no product or revenue, they sit idle, seemingly caught in “stock purgatory” waiting for something to happen. Other times, a company’s future was dependant on a last-ditch effort for FDA approval, and did not receive it, and with no place to go from there it languishes in oblivion. These companies may continue operations with 1-2 employs, and may or may not ever be able to revive themselves. Eventually these companies will most likely file for bankruptcy, sell off their assets, dissolve the management and disappear.
    In fact, some companies are a few pennies because they are indeed bankrupt. Bankrupt companies should always be avoided- there are very very few examples in all of history where the shares in a company that went bankrupt (“Q” shares) were ever worth anything after a company exits bankruptcy. 99.9% of the time, any equity in the company goes to the creditors, the old shares are wiped away, and new shares are issued- the “Q” shareholders get nothing. Never invest in a bankrupt company, or a seemingly defunct company that does not report to the SEC, update its shareholders with press releases, or at minimum file updates and financial statements with www.pinksheets.com
     
    The second reason for a stock to be trading in the pennies or even sub-pennies is just as common as the first. Rather than give up and close their doors, these companies in “stock purgatory” will often attempt to raise capital for continued efforts to revive themselves. Unable to raise capital through a private equity raise (no investors will take the risk), they utilize a publicly traded companies legal right to issue new shares. They can only do this within the limitations of their capital structure (number of authorized shares), but they can sell these on the open market to the average investor. In this case, the stock trades as if a large holder of stock is always selling- it is hard to see upward momentum this way as there are more sellers than buyers. This has the effect of a slow, downward trend in share price, and may not be obvious in the short term. Traders know how to recognize this using the accumulation indicator. In the long run, this effect can be so dramatic, that stocks trading for $1 can be driven to $.001 with dilution. SEC reporting companies are required to report this regularly, but many companies who do not report to the SEC will often fail to report this all together. 
                Struggling companies often are forced to do this to continue operations. They will issue shares and sell them on the open market to raise money to pay vendors, their own salary, etc. Most companies will never be able to pull themselves out of this downward spiral, but occasionally a company can, and despite the dilution this means wild success for shareholders. But only the most astute investor must invest working against the overwhelming force of dilution. To determine the degree of dilution happening, investors can compare current 10Qs with previous 10Qs to see how many new shares were issued in the last quarter. More proactive investors can call the transfer agent who manages the companies shares. This is usually listed on the company’s website. If the transfer agent will not disclose the amount of outstanding shares (as instructed by the company), contact investor relations at the company and demand a current report. If they do not respond with a share count, stay away: The company is defunct or is intentionally diluting.
    Follow carefully the comparing a company’s outstanding share count and capital structure. For example, if a company has 100 million shares authorized, and 1 million outstanding, they could potentially issue 99 million more shares without changing their capital structure (although having many more authorized than issued shares is quite common and it does not mean they will issue the full amount of shares they are allowed to). On the other hand, if they have 100 million shares authorized and 99 million shares issued, they could only potentially issue 1 million more. However, if they are not an SEC reporting company, they could change their capital structure without warning., For companies who are incorporated in Nevada (as many are due to its lax regulatory rules), you can track changes in capital structure in the state database (https://esos.state.nv.us/SOSServices/AnonymousAccess/CorpSearch/CorpSearch.aspx).
    Also, beware of “dilution traps”. These are legal (and common) ways companies can issue massive amounts of shares. One such common dilution trap is a reverse split. In this case, a company may have 100 million outstanding shares and only 100 million authorized shares; so they cannot issue any more shares. One way around this is to declare a reverse split of 10:1 (1 share for every 10 shares), thereby decreasing the share count from 100 million down to 10 million. This will also have the effect of increasing the share price by the same ratio. So in this example, a 1 cent stock will now become a 10 cent stock.. However, the stock price may then be easily driven back down to a penny by dilutive selling of shares, and you will lose 90% of your investment. Many unreputable companies will perform this over and over again; be sure to look up the company’s history on www.pinksheets.com if they are traded on the OTC.
    Another dilution trap is convertible preferred shares or convertible notes. In this case, outstanding debt or preferred shares is converted into common shares. This dilution can be devastating: If a company’s stock is trading at 10 cents, and they owe one million dollars to their creditors, they could issue 10 million new shares in the conversion. In the case of preferred shares, at the time of the sale the convertible shares have a pre-determined conversion rate. Lets say that a cash-poor company who needs money sells $1 million worth of preferred shares that can convert into common shares. At the time of the sale, the common share price is 10 cents, and the conversion clause states that the preferred shares can convert at this price. This would mean that if all the shares were converted, it would add up to 10 million shares ($1 million divided by 10 cents). Now let’s assume the company has some positive news and the shares in this company go up to $1. At this time, those preferred share holders would be looking at a 1000% percent gain in their investment if they just converted their shares. If they were to do so, the company would have to issue the shares upon conversion and 10 million shares would flood the market, driving down the stock price and changing the calculated market capitalization unfavorably.
                In the third example, where the company is a scam or cheating investors, is far too common these days. It seems that as of late, the SEC has been cracking down hard on penny stock companies who do this, but it still is rampant. How do you recognize a company who is doing this? It is usually obvious- if it is too good to be true it probably is. If a company has no cash in the bank announces it is acquiring a $10 million company, how do you think they could pay for this? If a company has sold  their skin cream product for years, then all of a sudden announces a $100 million military contract to build jet planes, would this make sense? If a company is in the travel business and all of a sudden announces that they have a miracle cure for cancer, how likely is this? Usually in these cases, greed will cloud investors judgment, and people will knowingly buy into the scam hoping for a positive return with stock momentum. But if you choose to stay away from these obvious scams, it may be tough to sit back and watch the share price rise 1000%. But I assure you, when the SEC steps in without warning and halts trading of this companies shares as has happened several times recently, you will be happy you stayed away.
    Keeping these things in mind is important for deciding to invest in a penny stock. 
    Most of the time with penny stocks, you are investing in the future potential of a company, not the current status of a company. Things like revenue, market share, and so on are irrelevant because the do not exist for a developing company. You need to ensure that you have enough information for the critical factors. Here are 10 questions you should find answers to before investing is a speculative penny stock:
     
    1. Has the company stayed focused on their core development goals (positive)? Or has the company dramatically changed business plans (negative)?
    2. What is the likelihood that the technology or product will be successful?
    3. Do they have the knowledge and experience necessary to be successful?
    4. Does the company make any financial information publicly available?
    5. Does the company have sufficient cash to continue with their plan? If not, how will they get it?
    6. Is the company currently massively diluting shares, has in the past, or is likely to in the future?
    7. If the company associated with known stock scams or promoters? Are all of its “partners” companies with no information available?
    8. Is the company’s market cap extremely overvalued (number of shares times price per share)?
    9. Is the stock being massively self-promoted (new PR every week)?
    10. Does the stock have frequent sell offs upon news (key signal for dilution)?
     
    There does not necessarily have to be a satisfactory answer to all of these questions; if there was, the stock would not be trading at an undervalued price. But negative answers to these questions will raise potential red flags. As with all stocks, you should weigh the risk against the reward. You must be realistic about your goals. You need first decide how much money you want to make on your investment in dollar value. For example, you decide you want to make $1000 on a stock. If you feel the stock will double, then you can put $1000 into the stock to meet your goal. If you feel the stock will go up 50%, then you need to put $2000 into the stock to see the same return.  If you feel the stock will give you a 1000% return, you only need to put in only $100. Keep in mind the greater the return, the greater the risk. The other half of this equation is to decide how much money you are willing to lose. If the potential upside is a 100% return, and the potential downside is a 50% loss, your potential risk is 50% of your potential return. If the potential upside is 1000%, and the downside 90%, the risk equals the reward. If you are comfortable with that ratio you can make the investment.
     
    There are indeed many “diamonds in the rough” out there, and a careful analysis will help you decide if you should be involved in the stock or not. But given the volatile price movements in penny stocks, it can be difficult to decide what is a good price to buy, where the stock price is likely to go in the near and distant future, and at what time you should leave with profits or walk away with losses. Formulating an entrance and exit strategy is key to making money in penny stocks and you should have this reasonably well planned out before you own the stock. The next article will discuss these issues.
     
    Next week: Part 2: When to buy, when to hold, and when to sell a penny stock

    Disclaimer: This blog is an expression of my opinion on a particlular company or matter. I am not a financial advisor or professional analyst. This is not a solicitation to trade any security. Although I rely on company approved public documents and make all reasonable efforts to confirm the accuracy of my statements, the comments made in my articles should be considered only as opinion and should not be considered as current or as absolute fact. All investors are strongly encouraged to not rely entirely on any single opinion and perform their own due dilgence when investing. Investing in equities includes considerable risk, and investors should be prepared for the risk of capital loss.
    Oct 25 9:07 PM | Link | 5 Comments
  • Medicure: Buried Alive
    On Monday, Feb 25th 2008 Medicure, (TSX:MPH; OTC:MCUJ), a Canadian pharmaceutical company traded on TSX and OTC, had a heart attack. That day, its stock price dropped from about 90 cents to 25 cents after announcing negative results from its pivotal phase 3 trial of MC-1. Medicure had invested heavily in the MEND-CABG II clinical trial of 3,000 patients to demonstrate a benefit of MC-1 in the incidence of cardiovascular death or nonfatal myocardial infarction up to 30 days following coronary artery bypass graft (CABG) surgery. Because the trial did not meet its primary endpoints, the company did not submit an application for MC-1 marketing approval to the FDA. After this “heart attack”, Medicure was effectively pronounced dead: The stock price floundered into oblivion, it was delisted from AMEX to the OTC where it continued to whither on low volume. The funeral was planned for Medicure when its stock price eventually fell well to less than a penny during the market downturn last fall. Medicure seemed to buried and forgotten on the Pink Sheets. But don’t be fooled- despite the fact that its stock price is well below that of many bankrupt companies (“Q” stocks), Medicure is not dead, and was in fact buried alive and is digging itself out of the grave. Medicure is in fact generating significant revenue, continues to find new life for MC-1, and even is runing clinical trials for its main clinical candidate Tardoxal. Medicure is indeed quite alive and active, as a fully SEC reporting company, who has sufficient promise to turn into a profitable, growing pharmaceutical company in the near future.  
    Medicure has a growing revenue base from its core commercial business of selling Aggrastat (tirofiban), a GP IIb/IIIa inhibitor (anti-coagulant). Aggrastat is sold by Merck (NYSE:MRK) outside of the US, and Medicure bought exclusive rights to sell Aggrastat in the US from MGI Pharmaceuticals in 2006. In this short time, Medicure has been quite successful in capturing a market share for this drug. US revenue from sales of Aggrastat grew for the fifth consecutive quarter, and year to date revenues are over triple the revenue seen in the previous year. Medicure shows continued improvements to their sales and marketing organization, and they are betting that the lower cost of Aggrastat compared to its competitors, Reopro [(abciximab); Johnson and Johnson (NYSE:JNJ)], Angiomax [(bivalirudin);The Medicines Co (NASDAQ:MDCO))], and Integrelin [(eptifibatide); Schering-Plough (SGP)] will drive sales. Aggrastat is half the price of these drugs, and has been shown repeatedly to be as effective as these drugs.  Medicure is betting (rightfully so, I believe) that healthcare reforms and the current economic downturn will increase Aggrastat sales.  This gives sufficient reason to believe that Aggrastat sales and its share of the US $450 million market for this drug will continue to grow at its current pace. This alone would turn Medicure profitable.
                However, beyond this, Medicure is seeking new indications for Aggrastat to increase its market share. In September 2008, Medicure announced the results of their “3T/2R Study” which demonstrated that Aggrastat significantly lowers the incidence of heart attack after elective coronary angioplasty in coronary artery disease patients who have shown poor response to standard oral antiplatelet agents, aspirin and clopidogrel.The study, which involved a high dose bolus administration of Aggrastat in patients undergoing angioplasty and/or Percutaneous Coronary Intervention (NYSE:PCI) in patients who do not properly respond to standard oral antiplatelet agents. Although the study's dosing and patient population is outside of the current indicated use of Aggrastat, the results supports the further investigation of the use of Aggrastat in this manner. I would expect to hear about a phase III trial investigating this use in the near future.
                In addition to their bread-and-butter sales of Aggrastat, Medicure is currently running phase II trials for Tardoxal to meet the unmet need of treating tardive dyskenisia (NYSE:TD), a common side effect of antipsychotic medications which are used to treat schizophrenia and schizoaffective disorders. Approximately 4 million people in the United States receive antipsychotic drugs of which approximately 5 to 20% have TD. Medicure received approval to run a Phase II clinical study of Tardoxal in Canada.
    This 12-week study period will evaluate the safety and efficacy of Tardoxal and assess the beneficial effect of Tardoxal on the reduction of expressed symptoms of TD. The study will enroll approximately 140 patients. The trial began enrollment in March 2009 and has a planned interim analysis in early to mid 2010.
    In addition to all this, Medicure continues to seek a partner for its cardiovascular franchise to support clinical trials and assist with the commercialization of a new indication for MC-1. Medicure is currently planning a phase II study for MC-1 in lipid lowering during metabolic syndrome. Metabolic syndrome is a name for a group of symptoms that occur together to promote the development of coronary artery disease, stroke, and type 2 diabetes. If you keep up with the news, you know that the represents an incredible potential multibillion dollar market in our aging population, where the incidence of all these diseases are increasing and is considered a major health care crisis. If Medicure could gain even a small percentage of this massive market with MC-1, it would be a boon to the company’s revenue. Finally, according to Medicure, they continue to hold discussions with potential partners with the intent to secure a formal partnership agreement for and its other pipeline compound, MC-45308, an anti-thrombotic.
    There is no question that Medicure has a lot going for it. The big question is: Can Medicure meet their goals to sell enough Aggrastat to become profitable? Can Medicure gain FDA approval for new indications for Aggrastat, Tardoxal, MC-1, or MC-45308 in time before they run out of cash? With any biotech company, the key issues are always pipeline development and cash burn. Medicure is no different. However, a look at the balance sheet suggests that they can see these promising drugs through phase III to possibly gain FDA approval. As with most small pharmaceutical companies, Medicure has substantial debt, and they are currently operating at a loss.   But it is not all doom and gloom: According to the latest 10Q Medicure had over $4MM in cash, $1.5MM in accounts receivable from its Aggrastat sales. Even though this is not enough cash to keep them around for long at their current burn rate, they continue to generate significant cash flow from Aggrastat sales. They have revenue of about $6MM annually from Aggrastat sales, increasing nearly 300% since last year, including a 100% increase from last quarter. With the weaker dollar this quarter, Aggrastat revenues should get an added boost. Continued increases in Aggrastat sales as they have already shown would lead them to profitability in a very short amount of time.
    So Medicure seems to show promise in obtaining a net positive cash flow in the near future. But how does it manage its debt load? During its “heart attack” in March 2008, the Company announced a corporate restructuring which included a significant reduction in number of staff and in resources allocated to certain programs. Since then, Medicure has been successful in reducing its ongoing cash requirements through implementation of a restructuring plan. Part of this plan was to defer principle payments on its $25MM of outstanding long term loan facility from Birmingham associates, which were related to the costs of Aggrastat licensing and MC-1 trials. Under the terms of the agreement, Birmingham will receive a payment based on a percentage of Aggrastat net sales until 2020. In November 2008 they also repaid $12MM of other outstanding debt from Merrill Lynch. Medicure continues to deal with its immediate debt burden by deferring payments with its lenders until the end of this year. To meet short term demands, Medicure announced a plan to raise up to $3.0 million to improve its financial position through a private placement of common shares. 
    In contrast to last quarter, Medicure says that based on their current operating plan, they estimate its existing working capital is sufficient to meet the cash requirements to fund the Company’s currently planned operating expenses, capital requirements, working capital requirements and long-term debt this quarter.   With increasing Aggrastat revenues and continued competent management of their debt, there is good reason to believe that Medicure will continue on next quarter and well beyond; continuing long enough to become profitable. Although MCUJ share price is clearly beaten down to bankruptcy levels, any number of announcements would give the share price a healthy boost: A continued increased Aggrastat revenues, profitability, a partnership for MC-1 or MC-45308; clinical developments in Tardoxal, or even a capital raise, to name a few. Given the absurdly low price per share and unjustifiably low market capitalization of $5MM for MCUJ, I think it is worth the risk to see them through it. There are many biotech companies, in worse financial shape with less promise than MCUJ, that have market capitalizations 20 times that of MCUJ. In contrast to other biotech companies, Medicure generates significant revenue, shows the promise of profitability in the short term, with clinical expansion in the medium term.  I give MCUJ a very strong (but very speculative) buy. MCUJ has tremendous potential to pay off in many multiples of ten over the current share price in the coming months and years.  If you are comfortable with this level of risk, I think you will be repaid in more than sufficient reward. Visit www.medicure.com/ yourself and see the extremely strong signs of recovery now, and the brightness on the horizon for Medicure.

    NOVEMBER UPDATE:

    Medicure's third quarter results showed relatively flat sales of Aggrastat.  The loss for the quarter decreased their cash position to below $1 million.  With their inability to pay interest on their debt to Birmingham Associates, I fear forebearance is in the near future followed by bankruptcy.  With no shareholder equity, I would not anticipate shareholders to receive any benefit from bankruptcy.  As such, I have eliminated my position in MCUJ. 


    Disclosure: I do not hold a position in MCUJ.  I do not have positions in any other of the companies mentioned.

    Disclaimer: This blog is an expression of my opinion on a particlular company or matter. I am not a financial advisor or professional analyst.  This is not a solicitation to trade any security.  Although I rely on company approved public documents and make all reasonable efforts to confirm the accuracy of my statements, the comments made in my articles should be considered only as opinion and should not be considered as current or as absolute fact.  All investors are strongly encouraged to not rely entirely on any single opinion and perform their own due dilgence when investing.  Investing in equities includes considerable risk, and investors should be prepared for the risk of capital loss. 
    Oct 06 11:00 AM | Link | 6 Comments
  • Soligenix: The Next Cell Therapeutics Comeback Story?

    Soligenix, formally named Dor Biopharma, has changed their name.  But has anything else changed?  At first glance, Soligenix (OTC:SNGX) appears to be the old story of yet another fledgling biotech company, which burned through more than $100 million over 20 years and has nothing to show for itself except a NDA rejection from the FDA for their sole late pipeline drug, orBec.   Like many small biotech companies, the other components of their pipeline appear to be in too early of a stage for approval of any kind before SNGX burns through its remaining funds. It is easy to assume that its destiny will be that of so many other biotech companies- a slow downward spiral into oblivionLong term SNGX shareholders have seen a perpetually declining or stagnating share price, in the face of dilution and clinical trial failure.  In the last few years,  the share count has increased from about 90 million before the failed orBec application in 2007 to nearly 200 million shares due to its recent equity financings.   With the 52 week low of 4 cents in the beginning of this year, in January of this year SNGX appeared to be suffering the same predicted fate as Cell Therapeutics (NASDAQ:CTIC) was facing at the same time:  At this time, both SNGX and CTIC were perceived to be out of chances, out of money, out of time, and ultimately destined for bankruptcy and sale of their assets. 

    The comparison between SNGX and CTIC is an interesting one:  CTIC never changed their name, but as you may know, CTIC bounced from its 5 cent low in January this year to a high of $2.23 in June, upon the release of results from its Pixantrone phase III trial and NDA filing.  Although SNGX shares have appreciated from their low of 4 cents to 25 cents, they have not seen the level of interest and share appreciation that CTIC has.  SNGX’s comparatively modest gains compared to CTIC can be in part explained by the fact that SNGX already filed an IND and was rejected; in contrast to CTIC who is awaiting on its April 2010 PDUFA decision date.  So clearly massive speculation is fueling CTIC’s share price, and few are speculating on SNGX.  However, timing with their name change, SNGX currently is beginning to enroll in a new, restructured phase III trial to again gain approval for orBec.   So can SNGX make a CTIC style comebackIndeed, a quick look at SNGX shows many similarities that poise SNGX for a CTIC type share price come-back with phase III trial news.  However, a closer look under the SNGX and CTIC hood show marked differences that suggest SNGX has even a better chance at a CTIC style comeback than even CTIC itself ever did in the first placeBeyond this, the continued success of SNGX appears far more likely than the continued success of CTIC, given the history of CTIC management compared to SNGX management.  As such, it is my opinion that SNGX investors will see far more return on their investment, both the form of short term share price appreciation, as well as a long term return on their equity stake.

    In January 2009 before its comeback, CTIC’s balance sheet for the first quarter of 2009 showed a meager $1 million in cash and an astounding $119 million in long term debt. CTIC didn’t even have enough money to fund operations for 3 more months, and couldn’t possibly borrow any more to continue on in the middle of the credit crisis.  The entire survival of CTIC was hinging on the phase III trial outcome of Pixantrone.  As you may know, this was the comeback story of a lifetime:  Down and nearly out, in its darkest hour, CTIC announces positive phase III results for its last chance and pulls itself out of the grave.  For CTIC investors who bought shares in the pennies or even dimes range, they were handsomely rewarded for their appetite for risk.  But past and current CTIC shareholders still have paid a price for all of the past transgressions of Cell Therapeutics: CTIC share count went from to nearly 15 million from its IPO in 1997 to 550 million shares in August 2009. This share count is not including the previous reverse splitsAccounting for all  the capital structure changes, the split-adjusted share price for CTIC from about $650 in 1997 (reaching a high of about $3000 in the biotech run-up of 2000) to its current price of about $1.25; a -99.9% return from its highsThe current accumulated shareholder deficit for CTIC is a stomach wrenching $1.4 billionCTIC has burned through almost $100 million per year, and offered nothing in the form of positive shareholder equity in return.  Even now, it is hard to imagine that CTIC ever will show positive shareholder equity on the balance sheet, since they continue to exploit the shareholders to raise money to finance operations. Since the share price comeback, CTIC has been massively and diluting shareholders by converting $53 million in existing debt in exchange for common stock in May, selling 33 million more shares of common stock in July, followed by selling $30 million in preferred shares in August.  An almost comical twist to this story is that in 2007, CTIC offered to buy SNGX for 29 million shares of CTIC stock. It is hard to applaud CTIC management for their ability to provide shareholder value; had they completed the acquisition of SNGX in 2007, perhaps I would not be so critical of CTIC's management. 

    In contrast to CTIC, SNGX does not have to make such valiant efforts to have a dramatic comeback.  Maybe changing their name is indeed enough.  The latest DORB 10Q shows nearly $5 million and cash and absolutely no long term debt whatsoever. DORB currently burns cash at a rate of about $1.5-1.7 million per year, allowing SNGX to survive 3 years off this $5MM; a far cry from CTIC’s last 3 months in January.  This does not include the recent announcements of $10 million in NIH grants to be paid over the next 5 years, a recent private equity deal of $3 million, and a large ongoing partnerhsip and equity deal with Sigma Tau Pharmaceuticals worth up to $30 million to gain approval for orBec.   Already, Sigma Tau has bought $10 million in equity in the form of SNGX common shares.  So needless to say, SNGX is not going to run out of money for quite some time. 

    Even having 10 years in age beyond CTIC (from 1987 vs 1997 for CTIC), DORB only has an accumulated deficit of $100 million (compared to CTIC’s startling $1.4 billion)The equity deals do dilute shares, but in return give SNGX the partnership it needs to gain orBec approval.  SNGX has not had any reverse splits, and even after the equity financing with Sigma Tau the current share count remains at about 200 million; a far cry from CTIC’s dilutionBoth SNGX and CTIC currently only have one significant asset close to FDA approval and are both employing the same strategy:  Focus on their most developed asset, gain approval in the US and Europe; and second to that continue on to develop their pipeline.  They both intend to accomplish this by finding a niche indication for approval of their drugs in the US and EU.  In the case of CTIC, they are trying to gain approval for Opaxio for the relatively rare ovarian and esophageal cancers, and Pixantrone for the relatively small group of refractory NHL patients.  In the case of SNGX, they are trying to gain approval for orBec in GVHD and radiation induced enteritis.  

    So it seems that CTIC and SNGX are similar in their strengths, but SNGX does not many of the weaknesses CTIC does.  So why are the market capitalizations so different?  The current market capitalization of CTIC is about $700 million, compared to the current SNGX market capitalization of about $40 million.  Yet like SNGX,  CTIC has yet to bring pixantrone or any of their other of their current pipeline to approval.  CTIC sold off their only money-making asset Zevalin to Spectrum Pharmaceuticals (NASDAQ:SPPI) this year, and besides Opaxio, has had no other drug in clinical trialIn contrast, SNGX continues to clinically develop orBec into other indications such as radiation induced GI inflammation in the DOR201 trial.  SNGX continues to bring in significant revenue through government grants, and is clearly poising itself for more lucrative government contract revenue in the defense arena with its NIH-sponsored work on ricin vaccine, stemming from its successful work on botulism toxin vaccines (more on this below).   SNGX also owns key patents to make injectable drugs into oral medications that could be licensed from major pharmaceutical companies

    To date, SNGX has managed to have the same or even greater level of success as CTIC, spending only about 7% as much cash.  Even if CTIC pulls ahead of SNGX by gaining the pixantrone approval, the clinical data from the failed phase III trial of orBec strongly suggests that it will succeed this second time around as orBec increased survival 46-37% over placebo from 1-3 years after treatment.  Unfortunately, this was not the outcome which determined approval, so the trial is being run again (more on this below).  Utilizing the FDA's Orphan Drug program, SNGX has done all that it can to ensure that orBec will gain its indication quickly.  Investors are not recognizing the potential in the orBec trial and other components of the SNGX pipeline, causing a disconnect of perceived shareholder value and a low price per share of SNGX stock.  SNGX is in fact much better position than CTIC to give shareholders a larger return on their investment, since the approval of pixantrone is likely already priced into the cost of CTIC share; but the likely outcome of orBec approval is not priced into SNGX shares.  If investors have placed a market cap of $700MM for CTIC, SNGX should be trading with a similar market capitalization; especially given the clean balance sheet, government and corporate partnerships, future pipelineprospects, and commitment to shareholder value.

    What would it take to see SNGX to have a market cap similar to CTIC?  Perhaps the name change is a good start; but clearly SNGX stock needs recognition of SNGX’s strong fundamentals by investors.  As an OTC stock, SNGX does not have the exposure of NASDAQ listed CTICBut as investors gain awareness of SNGX and its strengths, the share price will certainly appreciate.  The dramatic run-up in price of CTIC shares can be attributed mainly to the buzz from retail investors about CTIC:  The phase III trial results for pixantrone and the notice of intent to file a NDA for pixantrone were released in the middle of February when shares were trading at 5 cents.  The share price didn’t budge much until March when an run-up to 35 cents was caused by investors newsletters and stock promoters announcing the results. The official announcement of their NDA filing for pixantrone caused a run-up to its 52 week high, fueled by eager investors and technical traders.

    In contrast, SNGX hasn’t seen any net share price increase since the rejection of the orBec NDA.  It has seen some appreciation in its share price since its February lows which have been consistent with the recovery of the markets as a whole.  But it has yet to gain the attention that CTIC and share price appreciation.  A technical trader would tell you that the SNGX chart shows strength all it needs is a little attention.  Admittedly, SNGX does not have an impending PDUFA date for orBec like CTIC does for pixantrone (April 2010).   However, with the continuing developments over the last year SNGX continues to show for all its programs, more and more attention is coming in.  Given the strong technical signals of the SNGX chart and the steady stream of news coming from SNGX, a CTIC like feeding frenzy could begin and SNGX stock recovery could begin. 

    But despite the lack of frenzy surrounding SNGX, tens of millions of dollars continue to pour into SNGX from partners, investors groups and government grants.  Why is this?  Perhaps the individual investor should follow the cues of people who know what is going on inside the company best:  The insiders, the National Institute of Health, Sigma Tau Pharmacueticals, and the private equity investors who are staking tens of millions on the success of SNGX.  Clearly the smart money is already flowing into SNGX; now if the rest of us could follow suit, we will see a  market cap of SNGX similar to CTIC.  In order to see a dramatic comeback of SNGX share price like CTIC, retail investors need to move to where the institutional investors already have.  In the case of SNGX, it should be even easier given the strong fundamentals of the company and their rich pipeline.  The research and development activity of SNGX will hopefully lead to FDA approval of orBec and its other pipeline drugs, followed by profit generating drug sales. 

    Here is a description of SNGX's pipeline and lead clinical candiate orBec:
    OrBec is a highly potent corticosteroid called beclomethasone dipropionate (BDP).  BDP has been marketed in the U.S. and worldwide since the early 1970'sBDP is used in topical applications such as creams (eczema), and inhalers (asthma, allergies).  Already marketed drugs which use BDP or a related compound have the names Beclometasone, Becotide, Qvar, Beconase, Vancenase, Propaderm, and others.  SNGX owns IP rights for formulation to make it orally bioavailable.  The problem with BDP is that since it is used topically, it cannot act on internal organs and tissues.  What SNGX has done is developed it as a two-pill system with dual release characteristics that initially begins to release BDP in the stomach, and continues to release BDP as it travels down the GI tract for broader coverage in the intestines.  Thus, orBec can be used various gastrointestinal tract inflammations, which is exactly where they are trying to get orBec approved.  If approved by the FDA, orBec would be the first and only oral formulation of BDP available in the United States.

    SNGX’s plan has been to market potential for orBec for the treatment of acute GI Graft-Vs-Host Disease (GVHD).  GVHD occurs after any tissue from another donor is transplanted into a recipient.  This includes all types organ transplants, but the main emphasis SNGX is pursuing is hematopoietic cell transplantations, which are performed after a patients immune system is wiped out from high dose chemotherapy.  Since the GI tract is rich in immune cells, GVHD in the gut occurs in approximately 50% of hematopoietic cell transplantations.  There is no effective treatment for this, so  orBec received orphan drug designations in the US and in Europe for the treatment of acute GI GVHD, which provides for 7 and 10 years of post-approval market exclusivity, respectively. orBec has also been granted fast track designation by the FDA. In the US, orBec has been granted orphan drug designation for the prevention of acute GVHD.
    SNGX completed the first orBec trials in 2006 and filed a new drug application (NDA) for oBec in GVHD in late 2006.  The NDA was based on the results of the Phase 3 study which enrolled 129 patients across 16 leading HCT centers.  The study’s primary endpoint was time-to-treatment failure through Day 50.  In this study, orBec® did not achieve statistical significance in the study’s primary endpoint ([p-value 0.1177]) (it would likely need a p value of 0.1 or less, so it almost made it).  However, it did achieve statistical significance in key secondary endpoints including the proportion of subjects GVHD-free at Day 50 (p-value 0.05) and Day 80 (p-value 0.005); the time-to-treatment failure through Day 80 (p-value 0.0226); a 66% reduction in mortality 200 days post-transplantation (p-value 0.0139); and a 46% reduction in mortality at 1-year post-randomization (p=0.04).

    The FDA did not approve orBec since it did not reach its primary endpoint, but requested data from additional clinical trials to demonstrate the safety and efficacy of orBec for these secondary endpoints and other sections of the NDA.  In response to gain approval, SNGX planned to begin a confirmatory Phase 3 clinical trial of orBec® for the treatment of acute GI GVHD in 2H 2009. This confirmatory trial was agreed to by the FDA through its Special Protocol Assessment (NYSE:SPA) procedure. The primary endpoint of the study will be to replicate the statistically significant endpoint Treatment Failure rate at Day 80 from the previous Phase 3 study where a p-value of 0.005 was achieved.

    So in a nutshell, SNGX has to perform another phase III trial with its primary endpoint being a secondary endpoint of the previous trial, which already showed success.  This is why they are repeating it, with significant financial backing from investors, with approval being far more likely than not.  SNGX sought the GVHD indication first because it could obtain Orphan Drug status, which gave SNGX exclusivity for up to 7 years after approval, and has significant tax benefits.  This is a key part of the business strategy.

    SNGX published the results of the failed trial in the prestigious journal Blood in 2007. Some interesting observations from the phase I-III trials were made which were not criteria in the NDA: Increased survival: OrBec(r) showed continued survival benefit at one year when compared to placebo.  Overall, 18 patients (29%) in the orBec(r) group and 28 patients (42%) in the placebo group died within one year of randomization (46% reduction in mortality, hazard ratio 0.54, 95% CI: 0.30, 0.99, p=0.04).  Similar results from the Phase 2 trial also demonstrated enhanced long-term survival benefit with orBec(r) versus placebo.  In that study, at one year after randomization, 6 of 31 patients (19%) in the orBec(r) group while 9 of 29 patients (31%) in the placebo group had died (45% reduction in mortality, p=0.26).  Pooling the survival data from both trials demonstrated that the survival benefit of orBec(r) treatment was sustained long after orBec(r) was discontinued and extended well beyond 3 years after the transplant.  As of September 25, 2005, median follow-up of patients in the two trials was 3.5 years (placebo patients) and 3.6 years (orBec(r) patients), with a range of 10.6 months to 11.1 years.  The risk of mortality was 37% lower for patients randomized to orBec(r) compared with placebo (hazard ratio 0.63, p=0.03, stratified log-rank test).

    In simpler, more exciting terms, orBec increased survival 46-37% over placebo from 1-3 years after treatement.  That is quite a robust result indeed, and shows how orBec is a potent drug for all the outcomes examined except for the predetermined outcome for which approval was based on. 

    SNGX is also exploring the features of several formulations of oral BDP in the setting of radiation injury, since one of the immediate consequences of radiation exposure is gastrointestinal inflammation and loss of intestinal epithelial functions. The local anti-inflammatory action of BDP is anticipated to mitigate the tissue damage following radiation exposure due to excessive influx of neutrophils and cellular damage caused by release of cytokines.  The DOR202 Radiation Injury Therapy trial is currently in phase 1/2. 

    This trial is funded by a $0.5 million grant from NIH.  It is designed as a multicenter, open-label, sequential, dose-escalation study in approximately 36 patients. Patients with rectal cancer who are scheduled to undergo concurrent radiation and chemotherapy prior to surgery will be enrolled in four dose groups. The objectives of the study are to evaluate the safety and maximal tolerated dose of escalating doses of DOR201, as well as the preliminary efficacy of DOR201 for prevention of signs and symptoms of acute radiation enteritis. The study is expected to be initiated in 2009.

    SNGX has received a European patent for its Lipid Polymer Micelle (LPM(NYSE:TM)) technology for the improved oral delivery of drugs (EP 1460992).  The LPM(TM) technology is a platform technology that uses reverse micelles stabilized by polymers. In the LPM(TM) system, water-soluble drugs are contained in the water space in the core of the micelles and are protected against degradation.  Preclinical results clearly show that it is a competitive system for oral delivery of drugs, especially those biotechnology products derived from synthetic peptide chemistry or recombinant DNASNGX anticipates proceeding towards clinical development of an oral form of the peptide hormone drug leuprolide using the LPM(TM) technology. Leuprolide is a synthetic peptide agonist of gonadotropin releasing hormone (GnRh) that is used in treatment of endometriosis in women and prostate cancer in men. Injectable forms of leuprolide, for which an oral delivery system has yet been developed, are marketed under tradenames such as Lupron and Eligard had worldwide sales of approximately $1.8 billion in 2006. The utilization of LPM techonology to create an oral form of these drugs will benefit the patients using them as well as DORB and the companies currently selling these drugs.

    SNGX has also developed BT-VACC,  a multivalent vaccine against botulinum toxin that is based on formulation technology and inherent properties of the attenuated forms of botulinum toxin. Botulinum toxin is a bacterial toxin that exists as seven serotypes, and is a neurotoxin that is considered the most potent toxin. Consequently, a vaccine will need to contain a majority of the seven serotypes expected to induce protection against those serotypes causing the most prevalent disease in humans. Protection against botulinum toxin is antibody mediated, and can be induced by vaccination with non-toxic subunits of each of the serotypes. SNGX is exploring the feasibility of combining at least three serotypes of the subunits for oral or nasal delivery. The oral delivery of botulinum toxin subunits is anticipated to result in a vaccine that induces not only systemic antibodies to prevent damage to peripheral nerve cells, but also antibodies at mucosal surfaces where they are expected to neutralize botulinum toxin prior to entry into the body.
    SNGX’s progress with BT-VACC prompted a large investment from the National Insitute of Health in the form of a grant to develop a ricin toxin.  RiVax is DOR's proprietary vaccine developed to protect against exposure to ricin toxin and is the most advanced vaccine product in the company's portfolio. With RiVax, DOR is the world leader in ricin toxin vaccine research. The immunogen in RiVax induces a protective immune response in animal One human Phase I clinical trial was completed, and a second trial is currently being conducted. The development of RiVax has been sponsored through a series of overlapping challenge grants (UC1) and cooperative grants (U01) from the NIH, granted to DOR and to the University of Texas Southwestern Medical Center (UTSW) where the vaccine originated. The second clinical trial is being supported by a grant from the FDA Orphan Products Division to UTSW. DOR and UTSW have collectively received approximately $15 million in grant funding from the NIH for RiVax. DORB will receive $9.4MM of the $15MM grant. 

    The results of the first Phase I human trial of RiVax established that the immunogen was safe and induced antibodies anticipated to protect humans from ricin exposure. The outcome of the study was published in the Proceedings of the National Academy of Sciences (Vitetta et al., 2006, PNAS, 105:2268-2273). The second trial, sponsored by the University of Texas, is currently evaluating a more potent formulation of RiVax that contains a conventional adjuvant (salts of aluminum), anticipated to result in higher antibody titers of longer duration in human subjects. SNGX has adapted the original manufacturing process for the immunogen contained in RiVax for large scale manufacturing and is further establishing correlates of the human immune response in non-human primates.

    NOVEMBER UPDATE:
    Princeton, NJ – November 13, 2009 - Soligenix, Inc., (Soligenix or the Company) (OTC BB: SNGX), formerly known as DOR BioPharma, Inc., a late-stage biotechnology company, announced today its financial results for the third quarter of 2009.

    Note: Some of the content describing Soligenix clinical progress is paraphrased from SNGX press releases.
    The author holds a position in SNGX. The author does not hold any position in CTIC or SPPI.

    Disclaimer: This blog is an expression of my opinion on a particlular company or matter. I am not a financial advisor or professional analyst.  This is not a solicitation to trade any security.  Although I rely on company approved public documents and make all reasonable efforts to confirm the accuracy of my statements, the comments made in my articles should be considered only as opinion and should not be considered as current or as absolute fact.  All investors are strongly encouraged to not rely entirely on any single opinion and perform their own due dilgence when investing.  Investing in equities includes considerable risk, and investors should be prepared for the risk of capital loss. 


     
    Highlights and Recent Developments:

     
    ·  
    The initiation of enrollment in its confirmatory Phase 3 randomized, double-blind, placebo-controlled, multicenter clinical trial evaluating orBec ® for the treatment of acute gastrointestinal Graft-versus-Host disease (GI GVHD). The initiation of this trial also triggered a $1 million milestone payment from Soligenix’s partner Sigma-Tau Pharmaceuticals, Inc. (Sigma-Tau).
    ·  
    The appointment of Robert J. Rubin, MD, to its Board of Directors.
    ·  
    The completion of a corporate name change to Soligenix, Inc. from DOR BioPharma, Inc.
    ·  
    The completion of a $4.4 million financing with institutional investors including its partner Sigma-Tau.
    ·  
    The award of a $9.4 million grant from the National Institute of Allergy and Infectious Diseases (NIAID), a division of the National Institutes of Health (NIH). This grant will fund, over a five-year period, the development of formulation and manufacturing processes for vaccines,  including RiVax TM , that are stable at elevated temperatures.
    ·  
    The award of a $500,000 NIH Small Business Innovation Research (SBIR) grant to support the conduct of a Phase 1/2 clinical trial evaluating SGX201, a time-release formulation of oral beclomethasone dipropionate (oral BDP), for the prevention of acute radiation enteritis.
    ·  
    The granting of Orphan Drug Designation by the FDA’s Office of Orphan Products Development for oral BDP (beclomethasone 17,21-dipropionate, or orBec ® ) for the treatment of gastrointestinal symptoms associated with chronic GVHD.
     
    “By any measure, the third quarter of 2009 was a pivotal one for Soligenix,” stated Christopher J. Schaber, PhD, President and CEO of Soligenix.  “With the initiation of our confirmatory Phase 3 clinical trial of orBec ® in acute GI GVHD, orBec ® is poised to potentially be the first FDA approved therapy for this unmet medical need.  Additionally, Soligenix received significant new grant funding for its biodefense and radiation enteritis programs, as well as new equity financing and a $1 million milestone payment from our North American partner Sigma-Tau.  We are looking forward to completing a productive 2009 and continuing that positive momentum in 2010.”
    Sep 26 7:07 PM | Link | 10 Comments
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