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Former bulge-bracket sell side analyst at Morgan Stanley and Merrill Lynch for 7 years focusing on special situations, deep value, and other catalyst-driven names.
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  • Thoughts On Ampio's Recent Developments

    Since my first article on the company on August 15th, Ampio (NYSEMKT:AMPE) has decliend from $11 to $7, owing to some questions regarding its flagship data efficacy. Reviewing the data again leads me to believe that the market opportunity is still intact, and recent press releases over the past few weeks that will both help tell a better story in 2014 to the market, as well as offer financial benefits, appear to have gone un-noticed by the market despite substantial market potential.

    A Closer Look at the Osteoarthritis Data: 80% of Relevant Market Still Intact

    This summer, AMPE announced positive topline data from its SPRING study in patients with osteoarthritis of the knee (NYSE:OAK). Ampio's trial results confirm the pain reduction benefits of Ampion observed in a previous Phase I trial, and setting the stage for a pivotal Phase III trial and possible NDA filing next year. The SPRING study hit its primary endpoint of pain reduction using the WOMAC A scale from baseline to 12 weeks compared to placebo (p = 0.0038), and also hit the secondary endpoints.The results are clinically meaningful, and could differentiate the product from hyaluronic acid (NASDAQ:HA) treatments, which are not recommended by the American Academy of Orthopaedic Surgeons (AAOS) due to a lack of clinically meaningful effectiveness.

    Last month, AMPE announced positive results from the 8 week extension of the 12 week SPRING study previously reported in August (see above). The results of the extension study are significant in that at week 20, 50% of the patients with severe osteoarthritis (Kellgren-Lawrence grades of 3 and 4) had improvement of 40% or more in the WOMAC A pain scale compared to 25% in the vehicle control group, and there was a statistically significant improvement in pain (WOMAC A) compared to the vehicle control both at week 20 (p=0.02) and over the whole period of 20 weeks (p=0.005). Also in these same grade 3 & 4 patients, there was a statistically significant improvement in function (WOMAC C) compared to vehicle control both at week 20 (p=0.05) and over the whole period of 20 weeks (p=0.04).

    Last week, AMPE confirmed that the FDA had accepted the Spring Study as pivotal and that it had received guidance for the design of the 2nd and final pivotal trial of Ampion for OAK. Specifically, the FDA concluded that the # of patients (n=329) and the control (saline) are acceptable, and that the preliminary study had met its primary endpoitn (WOMAC score change at 12 weeks).

    Spin Off

    This week, AMPE announced that it had spun off its sexual dysfunctionbusiness into a new entity called Vyrix Pharmaceuticals. The assets will include Zertane and Zertane-ED (men's health). AMPE is expected to own between 50-80% of the new entity which is expected to have an IPO in 2H/14. The size of the AMPE investment is likely not going to be financially material, but in my view, the key is that this allows Ampio to have a greater focus on its core assets, those in osteoarthritis, and potentially have a cleaner monetization of the men's health assets which were not given lead burner access previously.

    Putting it all together

    The FDA confirmation that the trial is validated, and the confirmatory data from last month likely gives the company better visibility into potential penetration of the 27mm osteoarthritis patients that will form its key target market, initially. I believe that the market size can realistically be >$500mm, as this is the sales that its competitor Sanofi (NYSE:SNY) has with its Synvisc suite of products.

    With AMPE current market cap at $300mm, this implies that even on a top line basis (again, not adjusting from the stronger margin profile the company will likely see due to its HSA sourcing advantages) that the discount rate on launch is >50% on a DCF basis, which appears fairly severe given the data presented to date.

    With a cash position pro forma at $5 per share, and secondary done at $5.50 per share, the downside support appears in place at -20% levels. On the upside, a positive progression and incremental market capture could place the market cap around $600mm, or +100% from current levels, and has already been somewhat de-risked.

    Tags: AMPE, Healthcare
    Dec 20 12:11 AM | Link | Comment!
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