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Innocoll (NASDAQ: INNL) May Start Your 2017 Very Green!

|Includes: Innocoll (INNL)

Action Plan:

If you are not draped on the couch moaning of too much OPHT and or PRTO eaten, and if you are not carrying a Kate Spade handbag from that failed reverse bounce, then you may be a lucky one to have enough cash to catch the continued recovery of INNL.

With a small share structure, the share price galloped up 21% when it started back up Friday afternoon, between 1:40-1:55PM.

I estimate we will witness a further fast recovery of 50% this week from Friday's close

- Despite about a 17% recovery by close, the share price was still down 61% from the prior night's, before the news close (1.77). That is way overdone for what is a delay for a product likely to pass FDA, characterized one way or another.

- After Hours session evoked an additional 6.9%.

- A delay for an unsuccesful gambit by the company is probably worth a 15-25% haircut, not the 61% as it stands now

Summary

Innocoll met its endpoints for Phase 3. Consensus is it will gain FDA approval, at least as a drug/ medical devise.

The company has a pipeline, including another phase three candidate, COLLAGUARD (INL-003), a barrier for the prevention of postsurgical adhesions.

Approved products include: COLLAGUARD® (ex-US), COLLATAMP® G, SEPTOCOLL® E, REGENEPRO®, COLLACARE®, COLLEXA®, and ZORPREVA®.

I believe Innocoll may already have enough money and information at hand to gain approval of Xaracoll. If it does not not, it can gain the necessary funds through partnerships for marketing Xaracoll outside of the United States.

The only product on the market similiar to Xaracoll, Exparel from Pacira Pharmaceuticals is more costly to produce and thus vulnerable. Largely on the strength of Exparel, Pacira (NASDAQ:PCRX) has a 1.2 billion dollar market capitalization. Last quarter, Pacira earned 64.9 million.

I believe Innocoll attempted to gain FDA acceptance for strategic economic benefit, was prepared for the possibility of rejection and will either prevail in its forthcoming Meeting A with the FDA or simply re-submit as a drug/ devise, as FDA wishes.

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Friday's precipitious drop in the share price can be explained by any of the following reasons:

- Panic selling by those who either mistook "Refusal To File" for a "fail" for candidate Xaracoll or simply could not deal with the uncertainty of whether the company has the money and necessary information to reach PFUDA and FDA dates.

- Because I am on numerous stock boards I can attest that traders are currently loaded with recent plumetting bio stocks OPHT and PRTO. There was little immediate stomach Friday, the last trading day of the year, to enter another falling bio.

- This stock has a very small share structure- it moved down fast, taking out stop loss orders, little doubt helped along by never short on tricks market makers.

- Sensationalism, exampled here by a Seeking Alpha's editor's headline:

"Innocoll sized up after devastating FDA development"

Dec. 30, 2016 9:58 AM ET|About: Innocoll (NASDAQ:INNL)|By: Clark Schultz, SA News Editor

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Background:

Innocoll (INNL) announced Thursday after hours it had received a "Refusal To File" (RTF) letter from the FDA for its lead candidate Xaracoll. The market reaction was a two thirds drop in the price per share (1.77 to .59) Friday.

We will examine why the precipitous drop was overdone and presents a great opportunity for the intrepid but first a brief synopsis of the company and its product Xaracoll.

Innocoll went public in July 2014 at $9. Here is how the company describes itself:

Innocoll is a global, specialty pharmaceutical company with late stage development programs that is dedicated to engineering better medicines to help patients get better. Our proprietary, biocompatible, and biodegradable collagen products are precision-engineered for targeted use. Applied locally to surgery sites, they are designed to provide a range of benefits. The company's late stage product pipeline is focused on addressing large unmet medical needs, including: XARACOLL for the treatment of postsurgical pain and COLLAGUARD (INL-003), a barrier for the prevention of postsurgical adhesions.

Here is how it decribes its lead candidate:

XARACOLL® is a surgically implantable and bioresorbable bupivacaine-collagen matrix that utilizes our CollaRx® proprietary collagen-based delivery technology and is being developed to provide sustained postsurgical pain relief directly into the surgical site. XARACOLL is also designed to reduce the need for systemic opioids and their associated risks.

According to the company announcement,The RTF letter stated, " the FDA determined that the application, which was submitted in October 2016, was not sufficiently complete to permit a substantive review". Further, " the FDA indicated among other things, that XARACOLL should be characterized as a drug/device combination, which would require that the Company submit additional information".

The company did not elaborate on the "other things", leaving the impression the mis-characterization was the main problem.

In the release, the company stated what it intends to do, "The company will request a Type A meeting with the FDA to respond to several issues believed to be addressable and seek clarification of what additional information, if any, will be required."

According to the FDA, a "Type A Meeting" is, "Immediately necessary for an otherwise stalled drug development program to proceed. Type A meetings may include:

  • Dispute resolution meetings as described in the Code of Federal Regulations (NYSE:CFR), and in the Guidance for Industry Formal Dispute Resolution: Appeals Above the Division Level
  • Meetings to discuss clinical holds in which development is stalled and a new path forward should be discussed
  • Special protocol assessment meetings that are requested by sponsors or applicants after receipt of FDA evaluation of protocols under the special protocol assessment procedures
  • Post-action meetings requested by the sponsor within 3 months after an FDA regulatory action other than an approval

Further, the FDA states, "Type A meetings should be scheduled to occur within 30 days of FDA receipt of a written meeting request."

Tony Zook, CEO of Innocoll indicated in the company communication the company intends to take fast action, stating, ""We expect to work with the FDA over the coming weeks in an effort to address the open issues and to define a path forward for a successful re-filing of our application at the earliest point in time."

I wish to make this conjecture: I do not believe the FDA decision to reject Innocoll's Request For Drug Approval was a surprise to or unexpected by Innocoll. I belive the application for "drug" approval was a gambit by the company to have a preferential status versus being approved as a drug/ device. As a swing trade I will not go deep into the weeds on this but my guess is it has to do with patent protection. While a drug generally affords 20 years protection a medical devise can face a tougher challenge to achieve the same. Consider this from the MDI (Medical Device and Diagnostic Industry):

In the United States, two important requirements of patentability for a medical device (and related methods) are novelty and non-obviousness. Under 35 USC §§102, 103, an invention must be novel and non-obvious to be patentable. The requirement of novelty means that the invention (medical device or method) must be new, i.e., not previously known or used by others. The requirement of non-obviousness means that the invention must not be an obvious variation or combination of subject matter previously known to those of ordinary skill in the art.

Whatever the rational that propelled the company to pursue drug approval, the FDA's response was, "no".

Knowing this a likely outcome, the company continues to exude confidence, now it its recent release, "to respond to several issues believed to be addressable" and previously in its latest 10Q, "

".... As mentioned I expect that our rate of expense will decrease significantly as our clinical study for COGENZIA has concluded and we finalized the expansion of our Saal, Germany manufacturing facility.

Our cash position should enable us to manage our resources, to extend the cash runway, and to offer the anticipated XARACOLL PDUFA action date expected in the third quarter of 2017." (my underscores).

Can the company prevail in its meeting to be designated a drug or if not does it have the additional information required at hand? We will know better in "the coming weeks", per CEO Zook.

It is a pretty safe bet that should the worst situation for the company result- resubmit as a drug/ devise and needs to work up more information, it will not be doing a raise anytime before it can generate some good news to get the share price up, to make it worthwhile.

I believe the company expected this contingency and has enough information and money to see it through late summer, 2017. If it does need more money before then, I believe it will secure partners to market Xaracoll. It said as much in the Q & A following the 10Q in November, "

(Analyst)

Sure. And I guess last question just opportunities whether it's ex-U.S. or better than reapplication to sort of extract value from XARACOLL in terms of non-diluted sources through partnership?

Tony Zook

Yes, Ken, we have -- been having conversations about licensing partnerships in the EU. As we have stated in the past, it's our intent to commercialize products in the U.S. on our own if that is the most efficient way to build shareholder value.

We knew that ex-U.S. that we would not be commercializing our sales. And so we are in a process now having conversations with potential partners about XARACOLL in the EU and we'll update you as appropriate.

Disclosure: I am/we are long INNL.