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Adamis Pharmaceuticals: ZIMHI's CRL Forces Investors To Reexamine Their Position

About: Adamis Pharmaceuticals Corporation (ADMP)
by: Biologics
Long/short equity, Deep Value, Growth, biotech

Adamis Pharmaceuticals received a CRL from the FDA in regards to their naloxone product candidate, ZIMHI. Consequently, the share price has been cut in half as investors lose hope.

I review the company's press release and why I think ZIMHI got the CRL.

I discuss some of the potential consequences of the CRL and how I will manage my ADMP position accordingly.

Adamis Pharmaceuticals (ADMP) received a Complete Response Letter from the FDA in regards to the company's ZIMHI product candidate. Following the press release, the share price was decimated and is now trading around $0.60 a share. This leaves ADMP with a tough decision about how they are going to manage their ADMP position in the coming weeks and months.

I intend to analyze the company press release and see if we can come to some speculative deductions about the CRL. In addition, I discuss the fallout and the downside risks generated by the CRL. Finally, I reveal my plans for my ADMP position following the rejection and the foreseeable future.

Figure 1: ADMP Daily (Source: Seeking Alpha)


According to the company's press release, the FDA "generally" cited Chemistry, Manufacturing and Controls "CMC" issues in the CRL. Adamis stated that the "plan is to expand on the CMC testing that has already been provided to the FDA to satisfy the CRL items." It looks as if the company will have to perform additional testing to address these issues and add it to their open NDA. On the bright side, the company revealed there was no clinical safety or efficacy issues mentioned in the CRL.

CRLs due to CMC issues are often due to missing data relating to formulation problems, inadequate stability data, and discrepancies in inactive ingredients that are beyond the parameters found in RLD. Most of these issues are cleared up in a bridging clinical study, which can verify the 505(b)(2) product candidate is equivalent to the original RLD. Any changes in the formulation or manufacturing process will most likely require the company to perform another study to prove it is the same. The company mentioned they have worked with their manufacturing partner to upgrade their manufacturing for Symject, so perhaps the issues are related to that new process.

Unfortunately, we don't know what exactly needs to be done to address the CMC issues. Whatever it is, Adamis has to run some additional tests which could be done in a short period of time, on the other hand, it could take months. Sadly, this is not Adamis' first CRL for a Symject product. Symject's first CRL was due to CMC issues, which involved verifying Symjepi's ability to deliver the volume of epinephrine.

It took 8 months for Adamis to address the issue and resubmit Symjepi's NDA. Whatever the issue is, it looks as if the FDA is not concerned with the clinical data, which would require a clinical trial.

Personally, I am leaning toward Adamis needing to verify that their new manufacturing process is able to produce Symject devices that will deliver the required dose of naloxone. The FDA took over 3 additional weeks to provide a CRL, so I can't imagine there were any glaring issues in the NDA. Of course, I wouldn't need to guess if the company would host a conference call discussing the CRL and providing some commentary on how they are going to address the issue, but investors shouldn't be surprised the company is electing to just stick with a vague press release.

Figure 2: ZIMHI Overview (Source: ADMP)

CRL Consequences

Obviously, the CRL had a negative impact on the share price and it's pushing potential ZIMHI related revenue back at least several months. Unfortunately, the ZIMHI CRL will have other consequences that will require the company to make some tough decisions in the coming months. First and foremost is the financial fallout from a potential ZIMHI partnership going awry. I can't say that the CRL disrupted the ongoing partnership talks, but I have to believe it didn't help with negotiations. I can't imagine the company will finalize a commercial partnership until the company is able to address the issues cited in the CRL. A commercial partnership is not only needed to get ZIMHI on the shelves, but it should come with an upfront payment that should help bolster the dwindling $10.1M cash position; which is going to take another hit with the required CMC testing. The weakening financials does increase the likelihood of a secondary offering, which will be a mess with the stock trading under $1.00 per share. The company will either have to perform a reverse split "R/S" to bring the stock above $1.00 per share to remain in compliance with being listed on the Nasdaq and then perform a secondary… or, execute the secondary and then R/S. Either way, Adamis' management has to figure out a way to get through 2020 and still be a listed company.

Any Other Options?

Admittedly, there are plenty of other options left for the company besides an R/S and dilution. In my previous ADMP article, I mentioned the possibility of Adamis selling U.S. Compounding for a premium price. The subsidiary just broke even and is close to becoming profitable, so a pharma or biotech that has some spare cash could make a sizeable offer for U.S. Compounding.

Another option is selling or out-licensing the company's inhaler products and technology. Adamis has struggled to keep their inhaler program moving through the FDA and has been on the back burner as the company focuses on Symject related programs. Selling or out-licensing these products will provide a quick cash infusion and will eliminate the pain of further development.

In addition to selling or out-licensing efforts, the company could close one or more Symjepi related partnerships. The company did hint at the potential of more ex-U.S. partnerships, which should provide upfront payments, milestone payments, and royalty streams. Not only will an ex-U.S. partnership provide some funds, but it could also push the share price back above $1.00 per share.

I believe the company will pull the trigger on at least one of these options. It is possible one or more of these options could provide enough cash and momentum in the share price to thwart an offering or R/S, but investors shouldn't rely on the company or these catalysts to save the day.

What's My Plan?

After reading the points above, one can say that investors have to make some tough decisions between now and the end of 2020. I understand if ZIMHI's CRL was the last straw for some investors and they have liquidated their position. However, I still see a case for holding onto ADMP in hopes the management will be able to finally bring some value to its shareholders.

My ADMP investment has been painful but those pain receptors have become worn and I have become accustomed to Adamis related setbacks. Despite the unrelenting disappointments and blunders, I still see ADMP to be undervalued. ADMP's market cap is about $38M with a <2x price-to-sales, so I won't be jumping ship anytime in the near future. If the company is forced to execute an R/S and secondary offering, I will consider liquidating my position and returning to the ticker at a later time.

In the meantime, I will be on the lookout for an update related to ZIMHI's NDA and whether the FDA considers the company's plan to be a Class 1 or Class 2 response. If the FDA considers the response to be a Class 1, the review cycle would only be two months, whereas a Class 2 response is a 6-month review cycle. If it is a Class 1 response, I will consider adding to my extremely oversized ADMP position. If it is a Class 2 response, I will hold off on adding to my position and will debate on using call and put options to manage my position.

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.