Seelos Expands Its Pipeline But Shrinks Its Bank Account

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About: Seelos Therapeutics, Inc. (SEEL), Includes: LGND, ORPN
by: Biologics
Summary

Seelos Therapeutics recently finalized its merger with Apricus Biosciences, and the combined company is now expanding its pipeline through acquisitions and licensing.

The Seelos pipeline is now broadening and has now added rare diseases to the company's description. Although the pipeline is growing, I am concerned with the paired costs and downside risks.

The company had about $18M in the bank at the close of the merger. The company has yet to perform any fundraising, yet it is making deals with limited funds.

In my previous Seelos article, I presented three scenarios that would trigger an entry into a long position in SEEL. I review these scenarios and explain why I am still on the sidelines.

I take a look at the charts and see how the recent developments have impacted the charts. In addition, I aim to identify key areas for investors looking to start a position in SEEL.

It has only been a few months since my first Seelos article (SEEL), but the company has been negotiating two deals to expand its pipeline and areas of study. The first deal was made in February with Bioblast Pharma (ORPN) concerning their mutant protein stabilization solution called Trehalose. Recently, the company signed a deal with UCLA for their peptide-inhibitor family for Parkinson's disease "PD".

It appears the company has added to its pipeline without committing to a large financial transaction. Then again, the company wouldn't be able to afford to give any substantial payment with only $18M in the bank. It is this weak financial position that has me on the sidelines at the moment. In my previous article, I proposed three buy scenarios for SEEL and conditions needed to trigger a buy. These conditions primarily focused on the company's cash position and management's ability to fund the company's operations. The company has expanded the pipeline but has yet to address its weak financial position. I don't know if any of my three buy scenarios are applicable anymore. Did these deals provide value to the company? Should I buy SEEL based on the newly acquired pipeline candidates? I feel as if Seelos just kicked down my door and ripped my game plan right off the board and set it ablaze.

Consequently, I have to review these deals and see how these new programs will fit into the current CNS pipeline. Ultimately, I intend to assess my three scenarios and see if I can generate a fourth scenario to deal with the recent developments.

Company Overview

Seelos Therapeutics is a biopharmaceutical company determined to develop innovative therapeutics to address unmet needs in CNS disorders and rare diseases. The company's pipeline comprises of several late-stage candidates that are anticipated for psychiatric disorders, movement disorders, and rare diseases.

Seelos Logo

Source: SEEL

Expanding the Pipeline

On February 19, Seelos Therapeutics publicized they had reached an agreement with Bioblast Pharma for the rights to develop and commercialize Bioblast's Trehalose solution. Bioblast's Trehalose has previously demonstrated both safety and efficacy in two Phase II trials in two rare diseases (Figure 1).

Figure 1: Bioblast Pipeline (Source: OPRN)

Seelos has already selected to pursue Sanfilippo syndrome or Mucopolysaccharidosis-III "MPS-III" and will be working to develop Trehalose in collaboration with Team Sanfilippo Foundation for the treatment of this rare disease. The foundation expects to run a Phase IIb trial for Sanfilippo syndrome, while Seelos will supply the Trehalose that they acquired from Bioblast. Seelos has designated its Sanfilippo program to be SLS-005.

I find the Bioblast deal to be a smart move for Seelos at this stage in its development. Not only is management adding another intriguing program to the pipeline but also the compound has already demonstrated safety and efficacy in other indications. This provides me some confidence the management is actively looking to find new pipeline candidates that are already into the regulatory process and are less of a risk than pre-clinical agents.

Seelos would strike again with the acquisition of the intellectual property to a family of peptide inhibitors that prevent the accumulation of alpha-synuclein aggregates in the CNS. The company acquired these rights from The Regents of the University of California located at UCLA. In return, Seelos has made an upfront payment to UCLA for $100K and will provide royalty payments if their peptide inhibitors can make it to commercialization. Seelos proposes to study alpha-synuclein in PD with an SLS-007 designation in the pipeline.

What is next for SLS-007 for PD? According to the company press release:

SLS-007 is a peptide-based approach, targeting the NACore (nonamyloid component core). Recent in-vitro and cell culture research have shown the ability to stop the propagation and seeding of α-synuclein aggregates against increased monomeric alpha-synuclein expression, fibril preparations of seeded alpha-synuclein, and alpha-synuclein seeds derived from patients diagnosed with Parkinson's disease or Lewy Body Dementia. Seelos will evaluate the potential for in-vivo delivery of SLS-007 in a PD transgenic mice model. The goal will be to establish in-vivo PK/PD and target engagement parameters of SLS-007, a family of anti-alpha-synuclein peptidic inhibitors."

The company has been able to grab the rights to this peptide-inhibitor family at an attractive price. However, this family of peptide inhibitors is still in pre-clinical and will require some time before the PK/PD studies are complete. Once the company completes these trials, they will start preparing an IND package to submit to FDA to get consent for clinical trials. If the company can get an IND for SLS-007, investors should look for Seelos to implement their anti-alpha-synuclein peptide inhibitors to other neurodegenerative disorders.

Figure 2: Seelos Pipeline (Source: SEEL)

The majority of the company's pipeline (Figure 2) was acquired in a product partnership with Ligand Pharmaceuticals (LGND). The license agreement gave Seelos the worldwide rights to develop and commercialize SLS-006, SLS-008, SLS-010, and SLS-012 from Ligand. In return, Ligand has provided shareholder equity in Seelos at the closing of the merger with Apricus. In addition, Ligand has privileges to potential milestone and royalty payments if their partnered programs continue through regulatory actions.

Looking at Figure 2, we can see that Seelos has a diverse pipeline with some candidates moving closer to their pivotal studies. I see the SLS-002 program for preventing suicidality in post-traumatic stress disorder "PTSD" and major depressive disorder "MDD" to be the most alluring. According to the company, at the moment, there are no drugs approved for suicidality-PTSD in the emergency department. Their product has the potential to treat roughly 600K cases of suicidality in emergency departments each year in the United States. Now add in SLS-007 as a potential agent to thwart the progress of Parkinson's disease and you have a potent and promotable pipeline that could build a lot of hype if these candidates are successful in pivotal studies.

Revisiting My Three Buy Scenarios

In my previous SEEL article, I had three Buy scenarios for SEEL. One was to enter a starter position under $3.50 per share with the intention to hold for a potential short-term trade. The second scenario required the share price to remain above $3.50 with a secondary offering at or above $3.50 per share. The third scenario required Seelos to sell all the Apricus assets, execute a substantial secondary offering, and have initiated at least one clinical trial. Since none of these scenarios have occurred, I still remain sidelined for SEEL but looking for entry.

Should I buy after the latest developments? It is tempting... Seelos has increased its appeal with a pipeline expansion and has opened a new front in the rare disease arena. However, by accumulating pipeline candidates and starting new programs, the company just ballooned their future operating expenses and potential downside risk. The company is going to need a substantial amount of cash to get these new products through the regulatory process and to the market. Therefore, I am going to stick to my guns and hold off on a buy until I see the company perform a fundraising event.

How much will they need? That is hard to calculate at the moment due to lack of official SEC documents and filings. Seelos recently became a publicly-traded company and has yet to have an earnings report to disclose their current financials and balance sheet. The only number we have is $18M that was accounted for after the company's merger with Apricus but that was before both of these acquisitions. In addition, we don't know what the company's current operating expenses are or what these programs are expected to cost in the near term. Without having the specifics, we will continue to wonder how much will the company need and when will they need those funds.

Charts

Prior to March 7th, SEEL has been trading down for several weeks. Looking at the daily chart (Figure 3), we can see the share price was able to hit a 52-week low of $1.32 and plunge into the oversold territory on the RSI.

Figure 3: SEEL Daily (Source: Trendspider)

Typically, I would expect some buyers to step in once the share price was in the oversold territory for a few days but this wasn't the case. SEEL was able to grind down on low-volume with no uptick in the Hull Moving Average. As a result, I decided to stay away from the stock until I saw a positive change in the technicals.

The alpha-synuclein news has provided an injection of positive changes in the hourly chart (Figure 4). If the share price can hold over $3.00 in the coming days, we could see a long-term change in the chart pattern and a potential change in the stock's sentiment. This could lead to a continuation in the coming weeks, however, investors should expect multiple pullbacks if it decides to rescale its recent highs.

Figure 4: SEEL Hourly (Source: Trendspider)

On the other hand, if the share price falls below $3.00, we could see a return to the downside as fresh investors second guess their new long position. For those of you who are looking to bottom feed, I would look if the share price is able to rebound off the recent 52-week low. This could create a classic double bottom formation on the hourly chart, which might be a great opportunity for a technical buy.

Overall, investors looking to enter a position in SEEL need to time their entry properly. SEEL is a low-float stock that can move 100% up and 50% down in just a few hours. I suggest writing down your buy conditions and setting up a buy alert based on those conditions... and only buy when your conditions are met.

Conclusion

The stock has experienced a period of high volatility as a result of its low float created from the reverse merger. As the market struggled to find a value to the newly public company, management was working to secure two intriguing acquisitions to their pipeline. Prior to these deals, I was already impressed with the company's pipeline, but I wasn't ready to commit to a long position due to the looming fear of a secondary offering. Following these deals, I find myself performing the same assessment and coming to the same conclusion. I will wait for the company to address the need for funding. Once the company has disclosed its plans to fund the company, I will be able to outline a fourth scenario.

Yes, the company's pipeline does show some potential, but long-term investors need to see if Seelos can progress their pipeline toward regulatory approval without punishing their current investors with dilution. Haphazardly, buying into a company that has a limited public record and is executing acquisitions with a small bank account is not recommended. Determining if and when to buy into a biotech stock should not be based on pipeline potential but on a clear path of commercialization. By adding more pipeline programs, Seelos has created more paths to get to commercialization, but they have many obstacles along these paths as the rest of the pipeline. Essentially, the company has broadened out but did not move forward. These unknowns have prevented me from creating a fourth buy scenario and the other three appears to be in the wastebasket. Therefore, I will continue to sit on the sidelines until Seelos has clearly mapped out its plans and has the funding to mobilize the pipeline towards a defined destination.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.