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Adamis: Overdue ZIMHI Decision Puts The Brakes On Stock's Downward Trend

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About: Adamis Pharmaceuticals Corporation (ADMP)
by: Biologics
Summary

Adamis Pharmaceuticals has been expecting an approval letter from the FDA regarding its naloxone product candidate, ZIMHI. Unfortunately, the FDA is several days late leaving the company and investors waiting.

The stock has experienced a strong PDUFA run-up but the prolonged wait has kept the share price elevated enough to break out of its extended downward channel.

At this point, the FDA can either approve ZIMHI, send a CRL, or extend the PDUFA. I discuss these scenarios and how they could impact the long-term outlook for the company.

Adamis Pharmaceuticals (ADMP) announced that it still has “not received any notice of action” from the FDA regarding ZIMHI’s NDA. The FDA set ZIMHI’s PDUFA date for October 31st, but it looks like the FDA is running a bit behind schedule. I have to applaud the company for providing an update to its investors. Although it was essentially a “still waiting” communication, it did alleviate some of the fears that the FDA already sent a complete response letter (CRL) and the company was concocting a press release to disseminate the bad news to the market.

While investors continue to wait to hear ZIMHI’s fate, the battle for the share price has been underway with the stock experiencing a strong increase in trading volume and volatility over the past week. The prolonged wait for approval news appears to be putting the brakes on the downward trend that has plagued the stock for over five months. I believe these developments show how the stock’s performance is going to be linked to ZIMHI despite the company’s other sources of revenue. Could a ZIMHI approval reignite some hype in the stock? What happens if ZIMHI is denied? Or receives a PDUFA extension?

I intend to present some hypothetical ZIMHI-related scenarios and how they will impact the company’s overall outlook. In addition, I take a look at the charts to find updates in the technicals and identify key areas for investors. Finally, I discuss my plans for my ADMP following a potential approval, extension, and CRL.

What is ZIMHI?

ZIMHI is a high-dose naloxone injection product utilizing the company’s SYMJECT PFS technology intended to provide an answer to potent synthetic opioid overdoses. Despite the government’s attempts, the opioid crisis continues to plague the U.S., which resulted in approximately 72K deaths in 2017, with ~28K of them related to synthetic opioids - that is more than 195 deaths per day. Sadly, drug overdoses are now the leading cause of death under 50, and the drugs are only becoming more potent, which makes a higher-dose product like ZIMHI a potential game-changer in the fight against the opioid crisis.

Scenario 1: ZIMHI Approved

A ZIMHI approval will be a transformative event for the company, investors, and the medical community. Obviously, an approval will permit the company to market ZIMHI in the U.S., but ZIMHI would be the first high-dose naloxone device/drug product to be launched in the middle of the opioid crisis. As I mentioned above, the CDC has reported a growing use of synthetic opioids that are extremely dangerous and can require multiple doses of the contemporary naloxone drug/device product to revive the patient. This growing segment of opioid overdoses could provide an opportunity for ZIMHI to immediately establish market share and start collecting meaningful revenue.

If approved, ZIMHI would be the second SYMJECT product to be approved in the United States behind SYMJEPI. With two SYMJECT products approved, the platform would be validated and would become a valuable asset in the future as the company initiates new SYMJECT candidates.

What is more, the company expects to secure a commercial partnership for ZIMHI in the United States. Unfortunately, the company was planning on securing a partner prior to ZIMHI’s approval, which doesn’t appear like that goal is going to happen. Regardless of if the partnership is signed before or after ZIMHI’s approval, a commercial partner should come with an upfront payment, milestone payments, and royalty stream - all of which should drastically impact ADMP’s fundamentals and valuation metrics.

Scenario 2: ZIMHI CRL

If ZIMHI receives a CRL, I expect a significant and extended sell-off as long-term investors fold after years of disappointments. I wouldn’t expect the CRL to be due to SYMJECT PFS, so the FDA would most likely have an issue with ZIMHI’s 5mg dose of naloxone or the general lack of data to support approval. Obviously, we have to expect partnership talks to be put on hold until the company can address the issues in the CRL, which would put the company's financial outlook in worse condition than it already is in. Essentially, I believe a ZIMHI CRL would be catastrophic to the company and its investors.

Scenario 3: ZIMHI PDUFA Extended

If the FDA decides to extend ZIMHI's PDUFA date, I expect a sharp selloff as short-term investors jump ship and shorts flock to the wounded stock. However, an extension is not the same as a CRL and in fact, it often is a good sign for a product candidate as many extensions end up in approval. Extensions typically occur when the FDA is unable to review NDA by the PDUFA date or shortly after. If the extension is due to a major amendment, the FDA moves the PDUFA date back 90 days, which should provide the FDA enough time to fully review the candidate's NDA.

Adamis did have to perform at least one additional PK study for ZIMHI as a result of its agreement with Kaleo. Although PK data for naloxone should require extensive analysis, the company revealed that it submitted the study data fairly late in the review cycle, so it is possible it could trigger an extension.

Charts Showing a Breakout

ADMP’s charts are starting to show a bit of hope that the ZIMHI’s PDUFA run-up could help the stock break out of its prolonged downward spiral (Figure 1). Month after month, the share price would meet the channel’s resistance and would be strongly rejected. Following those rejections, the stock would find its way to a fresh 52-week low.

Figure 1: ADMP Daily (Source: Trendspider)

Now, I am starting to see signs that the stock has started to break out of this downward channel. Looking at the 2-hour chart (Figure 2), we can see the stock abruptly rising from the depths and testing $0.91 resistance. I expected a strong selloff following the resistance rejection but the share price settled in the $0.75 area and has remained there for several days. I believe the lack of a selloff following a technical rejection indicates there is some demand for ADMP shares. In fact, if you look at the daily chart, you can see an abrupt spike in trading volume over the past weeks.

Figure 2: ADMP Daily (Source: Trendspider)

The lack of a selloff and high trading volume provide me some confidence that investors are stepping in and this is not just short-term traders looking to play the catalyst. Obviously, I can’t confirm this but I would have expected a stronger selloff on Monday as the impact of the binary catalyst begins to lose its potency.

What's My Prediction?

The company's communication tells me the FDA is just behind schedule but hasn't found a reason to send a CRL or is so far behind it has to notify the company of a PDUFA extension. This delay makes me believe that the FDA is close to making a decision on approval. As a result, I expect the stock to remain in its current trading range as longs hold their shares and shorts become conservative in fear of being caught off guard by a sudden approval announcement.

At some point, the FDA is going to have to communicate its decision to the company and the stock will act accordingly. Until then, both bulls and bears will remain vigilant by constantly refreshing the FDA's approval webpage and the NASDAQ's halt webpage.

What is My Plan?

I haven’t considered adding to my ADMP position in months; however, I have been adding in very small amounts to take advantage of the discounted price. Now that we know the FDA has not communicated its ZIMHI verdict with the company, I intend to add on the dips in anticipation of a potential approval. If ZIMHI’s PDUFA is given a 90-day extension, I will wait for the sell-off and will add once the share price shows signs of despondency. If ZIMHI is given a CRL, I will sell a large portion of my ADMP position upon news release and will hold off on adding to my position until the company can address the issues stated in the CRL.

Disclosure: I am/we are long ADMP. 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.