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George Ronan
George Ronan
Articles (67) 

Here's Why the 2 Latest Hemispherx BioPharma Announcements Are Important

A look at the latest news from Hemispherx and what it means for the company

January 19, 2018 | About:

Hemispherx BioPharma Inc. (HEB) had a strong start to 2017. The biotechnology stock gained more than 82% between Jan. 2 and Jan. 17 and, at time of writing, midsession on Friday, is trading around 20% off these highs having corrected into the end of the week.

While this price action has been playing out, the company has announced two key developments, both of which relate to the production, commercialization and ongoing regulatory and development activity of its lead asset – a drug called Ampligen.

Each of the developments could play a role in Hemispherx's growth potential heading into 2018 and beyond but, as yet, and against a backdrop of the above-mentioned end-of-the-week correction, markets don't seem to have absorbed the implications of the developments in question.

With this in mind, here's what happened and how it plays into this company's prospects longer-term.

By way of a quick introduction to Hemispherx, this is a biotechnology company that has developed the above mentioned Ampligen as a treatment for what's called Myalgic Encephalomyelitis, which is commonly known as Chronic Fatigue Syndrome or ME/CFS.

ME is a long-term illness with a wide range of symptoms, the most common of which is extreme tiredness. In the U.S., it affects up to 3% of the population but, as things stand, there exists no cure or even any real effective standard of care therapy on the market.

Ampligen is Hemispherx's attempt to change that and, as mentioned, the company has already picked up a regulatory approval for the asset in this ME indication. However, the regulatory approval is in Argentina, which is a far smaller potential market than that which exists in the U.S.

The Argentinian approval serves as validation of the asset, however, and, while the company is yet to pick up a regulatory green light from the FDA, that the drug is already approved internationally serves to reduce the risk an investor is taking on ahead of a future FDA decision when he or she picks up an exposure to the program.

It doesn't negate the risk entirely, of course, but it goes some way to support a safety and efficacy argument for the asset – a key part of any development program based allocation.

So what's the risk here?

Back in April, the FDA turned down a regulatory approval application from Hemispherx for Ampligen, suggesting that the company needs to conduct at least one additional clinical trial, complete various nonclinical studies, and perform a number of data analyses before resubmitting.

Basically, the agency didn’t think that the application in its then-current iteration put forward a strong enough argument that the drug can be effective in this population. The risk, then, is twofold. First, that Hemispherx won't be able to build on the existing efficacy data with its additional study. Second, that there is a degree of uncertainty associated with how long any additional clinical activity might take and this, in turn, brings with it capital consumption concerns.

Which brings us to the most recent developments.

First, on Jan. 11, Hemispherx announced that it had successfully tested a new chemical catalyst used in the manufacturing process of Ampligen. As per the announcement, the new development can provide a consistent enzyme product, uninterrupted production of Ampligen, and, in the long run, reduce production costs.

In order to both meet the demands of the Argentinian market (and, at the same time, to collect crucial real-world data from this market) and to create drug product for clinical trials in the U.S., Hemispherx is going to need as much Ampligen as it can manufacture at the lowest price possible.

This development reduces the cost of production and, perhaps more importantly at this stage, speeds it up, meaning the company can both launch in Argentina and fill the demand for its clinical trials sooner than might otherwise be the case. Less time means less money, which, in turn, means a reduced capital burn risk going forward.

The second development came on Jan. 18, when Hemispherx announced that it had entered into a sale and leaseback agreement for the property that houses the company’s development and production facilities.

The sale brings in a $4 million injection of cash while only increasing the company's burn rate by a small amount (rooted in the lease payments associated with the deal), alleviating any immediate capital requirement concerns and strengthening Hemispherx's balance sheet ahead of both its key Argentinian launch and its pivotal U.S. trials.

Again, this serves to further reduce capital burn risk, making the risk-reward ratio on the stock more attractive to an investor looking to pick up an exposure ahead of this program maturing towards a revised regulatory decision in the U.S.

This is far from a risk-free exposure, of course, so keep that in mind.

Sure, the drug is approved in Argentina, but the FDA is known for its rigorous standards, and Hemispherx is going to have to build on its existing data if it's going to get this drug past the agency. With that said, however, there is also a very large ME market waiting for a treatment to hit shelves in the U.S. and globally, meaning that, for anybody who is willing to shoulder the risk, this company (and, specifically, this development program) could be a potentially rewarding allocation long-term.

Disclosure: The author has no positions in any of the stocks mentioned in this piece.

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