Michael Catalin Vlaicu's  Instablog

Aradigm Corporation

(Public, OTC:ARDM)

Aradigm is a company with a lot of potential positive long-term gains, especially with regards to its product pipeline involving the inhaled Cipro product (ILCH) for BE and CF, however the short-term play is a very different story. This company lacks visibility and the ability to fully utilize press release syndication to maximize potential reach for investors, and also engages in massive dilution in order to maintain ongoing operations. Moreover, the financial position also suffers as the company is enduring a heavy amount of cash burn every year with zero revenues as of Q1 (Mar’09). There is also a big question mark when it comes to partnerships — who will step up to the plate and infuse the cash which is so badly sought after?

About

Aradigm Corporation is a specialty pharmaceutical company focused on the development and commercialization of drugs delivered by inhalation for the treatment of severe respiratory diseases by pulmonologists. Product candidates in development include both the Company’s own products and products under development with collaborators. They consist of approved drugs combined with the Company’s inhalation delivery and/or formulation technologies. The Company’s programs under development include ARD-3100 (Liposomal ciprofloxacin), ARD-3150 (Liposomal ciprofloxacin), ARD-1100 (Liposomal ciprofloxacin) and ARD-1600 (Nicotine). Its collaborative programs under development include ARD-1550 (Inhaled treprostinil), ARD-1500 (Inhaled liposomal treprostinil) and ARD-1700 (combination products).

Products

Inhalation drug delivery is the preferred method of treatment for many respiratory diseases and it is gaining acceptance as a route of delivery for the treatment of systemic diseases. Currently, Aradigm on its own or with partners has respiratory inhalation products in preclinical and clinical development which are used for the treatment of cystic fibrosis, bronchiectasis, inhalation anthrax and tobacco smoking cessation. These products are designed to improve patients’ quality of life and overall treatment outcomes by enabling them to safely and painlessly self-administer aerosolized liquid medications directly to and through the lungs. All of these products utilize the Company’s proprietary drug delivery technologies.

ARD-3100 and 3150

(Liposomal Ciprofloxacin)

Development of a new way to treat chronic debilitating and life-threatening respiratory infe

ctions in cystic fibrosis.

This product candidate is currently in Phase 2 programs for respiratory infections associated cystic fibrosis and bronchiectasis. Ciprofloxacin has been approved by the FDA as an anti-infective agent and is widely used for the treatment of a variety of bacterial infections. Today ciprofloxacin is delivered by oral or intravenous administration. We believe that delivering this potent antibiotic directly to the lung may improve its safety and efficacy in the treatment of pulmonary infections. We believe that our novel sustained release formulation of ciprofloxacin may be able to maintain therapeutic concentrations of the antibiotic within infected lung tissues, while reducing systemic exposure and the resulting side effects seen with currently marketed ciprofloxacin products. [ source ]

ARD-3100 and ARD-3150 – Liposomal Ciprofloxacin for the Treatment of Infections in Cystic Fibrosis and Non-CF Bronchiectasis Patients

We have two proprietary liposomal ciprofloxacin programs for the treatment and control of respiratory infections associated with chronic diseases – one common to patients with cystic fibrosis, or CF, and the other for infections associated with non-cystic fibrosis bronchiectasis.

CF is a genetic disease that causes thick, sticky mucus to form in the lungs, pancreas and other organs. In the lungs, the mucus tends to block the airways, causing lung damage and making these patients highly susceptible to lung infections. According to the Cystic Fibrosis Foundation, CF affects roughly 30,000 children and adults in the United States and roughly 70,000 children and adults worldwide. According to the American Lung Association, the direct medical care costs for an individual with CF are currently estimated to be in excess of $40,000 per year.

Phase 1 and Phase 2 Data on Inhaled Liposomal Ciprofloxacin

The results demonstrated in both healthy volunteers and cystic fibrosis patients similar pharmacokinetics of inhaled liposomal ciprofloxacin, with a long systemic elimination half life (t_½) of ~10.5 hours supporting a once-daily dosing allowing for less frequent dosing than current inhaled antibiotic regimes. As reported before, this treatment was effective to result in highly significant reduction in the sputum of Pseudomonas Aeruginosa colony forming units (CFU), an objective measure of the reduction in pulmonary bacterial load in the CF patients. The promising efficacy data is also supported by the high concentration of ciprofloxacin found in the sputum of CF patients following treatment with inhaled liposomal ciprofloxacin. [ source ]

Financial Analysis

A quick glance at the balance sheet shows that they have just about as many liabilities as there are assets — a very bad position to be in for any company, never-mind one that is not making any revenues.  Moreover, ARDM’s Debt-to-Equity ratio (total liabilities / total shareholders equity) is a high number, but what does this really mean? The Debt-to-Equity Ratio measures how much money a company should safely be able to borrow over long periods of time. It does this by comparing the company’s total debt (including short term and long term obligations) and dividing it by the amount of owner’s equity. (17,7/7.67)*100 yields us a staggering 230%! They owe 230% more of what they own in equities!

The next issue at hand is the net profit margins, operating margins ect., which are all well in the negative percentages, however when it comes to small BioPharmas involved with PDUFAs, these should be overlooked due to the fact that if one of their products sees FDA approval, these numbers will once again begin to see a positive value.

The short interest has also changed by a staggering 45,526.01% to 371,852 shares out of 2,138,748 total shares traded per avg. daily volume according to Pinkheets.com

Expect Continued Dillution

ARDM already gave investors a scare with an 82% dilutive offering in February 2009. At this point it is not out of the question think that management is going to have to raise as much as $30 – 40 million over the next 3+ years in order to get to cash flow positive operations and positive EPS in 2013.

Hopefully the bulk of this will come in the form of an upfront payment on ARD-3100/3150. Other potential non-dilutive cash raising opportunities exists from Zogenix, the anthrax program, or through partnering ARD-1600 or ARD-iDMS.

Zegonix Royalties ( from May/12/09 10-Q)

Source: Pinksheets.com

The possible revenues from this, however, will be small in comparison to the amount of cash Aradigm will need to focus on its real core objective: the development of their liposomal ciprofloxacin hydrochloride (ILCH) program for non-cystic fibrosis bronchiactisis (BE).

This product, known as ARD-3150 is now the key focus for the long-term growth of the company. What we all can hope for now is that Aradigm finds a partner to help commercialize this product in 2010 if the results from Phase IIb are positive. We will know the results of Phase IIb towards the end of 2009. That being said, the July 15 decision could very well have a positive impact on the stock price, but we personally do not see ARDM trading at anything above 0.35 — 0.40 before the results of the ILCH for BE are out late 2009.

July 15th Royalty & Impact

Migraine patients: 26M
Sever migraine patents need injectable treatment: 11M
US market size for injectable treament : $215M

Currently Par Pharma has Imitrex® Injection, injectable sumatriptan treatment available on market since late last year. Since Imitrex is not a drug has been in market for years, the potential for taking over the portion of injectable sumatriptan injecton treatment market by ARDM can be challenging, but could be good very good.

Let’s assume if Sumarvel DoesPro from Zogenix can take over 7% of
injectable sumatriptan market by
end of next year and ARDM gets one digit royalties, let’s say 4%;
0.07 * 215M=15.05M
15.05 * 0.04=0.6M annually from 2012 which is equal to about 2% of
annual net income loss to cover.

As we can see from this, the much anticipated July/15/09 PDUFA for Zegonix is a mere illusion when it comes to playing a significant role in pulling ARDM back on its feet. It will take a heck of a lot more revenue than this in order to cover the heavy cash burn incurred on a yearly basis.

Some really questionable analysis was done by Ladenburg Thalmann giving Aradigm a price target of $6.00. Take this with a grain of salt, and do your own due diligence before following any advice like a mindless zombie. In order for this to happen, all of the products would have to see approval, the company would have to establish a number of partnerships in order to fund mass production and marketing, and these are not as easily accomplished as it may initially sound.

Overall Sentiment

As a long-term play, Aradigm shows potential to add decent value to your portfolio. All of the products are in Phase I & II thus the hype has yet to be generated. Given that they survive and find ways to infuse cash, this company should stride past hurdles and see the light at the end of the tunnel. Conversely, as a short-term investor there is no ‘diamond in the rough’ to be found here. The royalty payments on July/15/09 from Zegonix are infantile and insignificant and are merely a distraction from the overall problem. Aradigm is the type of company you buy and forget about for the next couple of years, it is not for the faint at heart — playing with fire.

Disclosure: No Positions