Emisphere: A Big Year Coming Up

| About: Emisphere Technologies, (EMIS)
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Emisphere restructured their debt, buying financial stability through 2017.

This frees Emisphere to negotiate Eligen B12 licensing and other potential collaborations with a strong hand.

Emisphere will have a big 2017 if anticipated 2016 catalysts shift into next year.

Emisphere Technologies (OTCPK:EMIS) is a micro-cap pharmaceutical company with a niche platform that permits oral versions of injectable drugs. It has a marketed prescription product, Eligen B12, that provides a replacement for B12 injections. And EMIS is partnered with Novo Nordisk (NYSE:NVO) in the development of the oral form of their next-generation GLP-1 type-2 diabetes treatment, semaglutide.

Emisphere Technologies provides an oral solution to injectable biologics.

Anticipated Catalysts

Emisphere has several business opportunities in the works, some of which I expected to come to fruition in 2016 but did not. It looks like these will all shift to 2017. Here is my list of key potential developments that I now expect to occur in 2017.

  • Eligen B12 big-pharma partnership, either licensing or sale.
  • Novo Nordisk new-oral-molecule advancement milestone.
  • New big pharma partnership for an existing injectable product being transitioned to oral form.

EMIS needed to shore up their near-term finances to make it through 2017 and achieve these catalysts. They recently restructured their debt to strengthen their balance sheet and provide financial stability through the end of 2017.

The Deal

EMIS just closed a deal with its primary financier, MHR, a $5B investment fund, that eliminates $7M of long-term debt and waives the payment of obligated funds, also $7M, owing to an agreement to pay half of Novo Nordisk's most recent GLP-1 milestone payment. It also waives prior agreed upon Eligen B12 sales milestone obligations that could not be met at current sales levels.

These agreements provide EMIS with sufficient working capital and stability to operate through 2017. EMIS believes these developments will provide an opportunity to achieve 2017's growth initiatives.

Of course, these agreements come at a price. MHR will get 0.5% of all oral GLP-1 net sales from EMIS' partner Novo-Nordisk in exchange for the aforementioned deal. MHR will not have any claims on development or milestone payments.

Valuation Based on Oral GLP-1 Alone

Importantly, the agreement provide the details of this arrangement and we now know that EMIS will receive 2.5% of net sales of Novo Nordisk's oral GLP-1. EMIS has cited a UBS report indicating peak sales estimates of $3.4B and I have speculated it could reach much larger sales, potentially greater than 3x this. But even at this lower value, peak royalty income from oral GLP-1 could reach $85M. The remaining milestone payments of over $50M will add to this.

Oral semaglutide is currently in Phase 3 trials. Injectable semaglutide is done being developed and was submitted to the FDA for regulatory approval earlier this month. IF all goes well with the injectable version, there is little reason to suspect the oral version to have issues getting approval either.

Assuming a reasonable sales and milestone spread with a 2020 launch, I estimated the Net Present Value using a 10% discount rate. I assumed $5M operating costs/year escalated 5%/year, took into account Net Operating Loss carry-forwards, and used a 140M diluted share count to accommodate outstanding warrants, notes, etc.

The Net Present Value of EMIS stock based on oral-GLP alone is approximately $1.36/share by my calculation. I view this to be a baseline value that could easily exceed that amount by over 3x depending on how well oral GLP-1 sells. This valuation is around twice the current stock price of $0.62 and it doesn't include any value for the catalysts I mentioned above.

The bottom line is that oral GLP-1 provides EMIS with a strong base to serve as a safety net to investors should any of the other catalysts misfire.

Catalyst Valuations

Here's a brief description of the potential catalyst 2017 values, that is, revenue that might be brought in during 2017 owing to new or existing business agreements:

Eligen B12 sale/license: $50-100M. EMIS at one time had $75M/year as a sales milestone in their plan. Details of the particular sales/partnership terms will determine the near-term additive value of this asset. 2017 could see a large lump payout followed by sales royalties and milestones.

Novo Nordisk new-oral-molecule milestone payment: $2-6M. EMIS signed a four-molecule agreement (apart from their earlier oral insulin and GLP-1 agreements) with Novo Nordisk in October 2015. Some of these should be selected to advance and maybe even enter Phase 1 trials in the next year. The agreement called for milestone payments for development selection that I estimate at $1-2M each and Phase 1 start that I estimate at $3-5M each. Suppose two reach the first milestone and one reaches the second, on average that would be around $2M minimum and $6M on the high end. Perhaps most importantly would be clarity of the potential revenue stream from a new product announcement.

New partnership(s): $5-20M. EMIS has stated they are working with multiple pharmaceutical companies to assess their delivery technology with already-approved active pharmaceutical ingredients. This could result in one or more new partnership agreements. Such agreements have in the past had $5-10M up front payouts.


Regarding funds and operations, EMIS says they have sufficient funds to get through 2017. This will be extended with any of the catalysts coming to fruition.

Nevertheless, EMIS is a thinly traded micro-cap that has large price swings and investors need to be aware what they are getting into. This is likely a multi-year play, especially if the catalysts get delayed out further than 2017. I don't expect this though, since I thought at least some of them would arrive in 2016, but it is a possibility.

Investor Implications

EMIS has a strong base valuation based on their potential royalties and sales milestones from the oral GLP-1 partnership with Novo Nordisk. EMIS also has very strong sales possibilities from an upcoming Eligen B12 deal. Other catalysts, such as new oral molecule developments, are likely to support 2017 revenues and extend future business growth.

While 2016 didn't see much advancement for EMIS' products, 2017 should be a year in which expansion and growth will extend the value of its oral platform. The market will eventually reward this progress, and I anticipate that 2017 will be a big up-year for EMIS.

Disclosure: I am/we are long EMIS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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