Research

Lpathomab Offers Hope In Billion-Dollar Neurotrauma And Pain Markets

Thursday, October 25, 2012 No Comments by LastFinancier

Earlier this year, I wrote an article on Lpath Inc. (LPTN), the market leader in lipidomics-based therapeutics. That article discussed the promising trial results demonstrated by Lpath’s lead product, iSONEP, as well as its $500 million partnership with Pfizer (PFE). Since the writing of that article, Lpath has continued to make strides as a company.

Since Then

On Aug. 27, the FDA decided to lift the clinical hold on Lpath’s lead product, iSONEP. In addition, Lpath has recently received confirmationthat its application to list the company’s common stock on the Nasdaq Capital Market had been approved and is expected to begin trading on the index on Oct. 22, 2012, under the ticker symbol LPTN.

Lpath’s President and CEO Scott Pancoast commented on the up-listing:

We believe a Nasdaq listing will provide greater visibility in a larger universe of investors, as well as better liquidity and efficiency in trading. Given our progress toward regulatory approval and commercialization of our novel therapeutics, including enrollment of our Nexus Phase II trial for iSONEP in partnership with Pfizer, the timing seemed right to raise our profile in the investment community.

Lpathomab: Addressing Unmet Clinical Needs

While the majority of the Lpath’s exposure has been focused on iSONEP, there is much to be said about its pre-clinical drug Lpathomab. Lpathomab is an antibody that works as a molecular sponge by soaking up lysophosphatidic acid (LPA), a molecule that can damage neurons and promotes scarring in the central nervous system. LPA plays a significant role in neurotrauma and neuropathic pain. Strong, repeatable, third-party data suggests that Lpathomab holds promise in treating these conditions.

Neuropathic Pain: Lpathomab and Market Data

Study data suggests that Lpathomab could be used in treating neuropathic pain related to diabetes and rheumatoid arthritis. In separate collaborations with the Nagasaki University and the University of California San Diego, Lpathomab has demonstrated excellent results in animal models of diabetic neuropathy and neuropathic pain. An estimated 26 million Americans have diabetes and 60%-70% of them have some form of neuropathy. According to DataMonitor, the market for drugs to treat neuropathic pain is currently worth approximately $2.3 billion globally and is expanding rapidly to more than double — exceeding $7 billion by 2016. As there are currently no proven treatments for the prevention or cure of neuropathic pain, Lpathomab presents a lucrative opportunity.

Neurotrauma: Lpathomab and Market Data

Study data suggests that Lpathomab could be used in treating neurotrauma, such as traumatic brain injury (TBI) or spinal cord injury (SCI). In collaboration with the University of Melbourne, an Lpath studydemonstrated Lpathomab’s ability to significantly lower the infarct size in mice suffering from TBI. According to The National Institute of Neurological Disorders and Stroke:

TBI costs [Americans] more than $56 billion a year, and more than 5 million Americans alive today have had a TBI resulting in a permanent need for help in performing daily activities. Survivors of TBI are often left with significant cognitive, behavioral, and communicative disabilities, and some patients develop long-term medical complications, such as epilepsy.

In research papers published by the American Journal of Pathology, Lpathomab has demonstrated its ability to reduce the size of a spinal cord injury and improve functional behavioral outcomes in experimental animal models. Spinal cord injuries are extremely debilitating and costly.Data shows that 250,000 Americans have spinal cord injuries, with approximately 11,000 new injuries occurring each year. The average lifetime costs for paraplegics injured at the age of 25 is $428,000, while the average lifetime costs for quadriplegics injured at the age of 25 is $1.35 million. As there are currently no FDA-approved drugs for the treatment of TBI or SCI, Lpathomab presents a source of hope for those suffering from this devastating condition.

Ongoing studies are directed toward examining Lpathomab’s activity against a range of central nervous system disorders in which cell death is observed, including Alzheimer’s and other neurodegenerative diseases.

Lpathomab Trial Enrollment Rates

Lpathomab is currently conducting pre-clinical trials and is expected to begin Phase I trials in 2014. At the onset of recruitment for participants in Lpathomab Phase I trials, an opportunity presents itself. Given the lack of treatment options available to individuals who suffer from neurotrauma and neuropathic pain, opportunities to enroll in Lpathomab trials would provide a chance at relief for those who would otherwise be left hopeless. Investors are urged to keep an eye on recruitment for upcoming Lpathomab studies, as previous “high risk, no alternatives” scenarios have resulted in faster than expected enrollment rates. These quick enrollment rates demonstrate a sense of urgency in the market and have boosted trading levels upon announcement. Examples of companies that have had their share price benefit from the announcement of rapid enrollment rates include Orexigen Therapeutics (OREX) for its obesity trials of Contrave, ImmunoCellular (IMUC) for its glioblastoma (brain cancer) trials, and others. This signals that Lpathomab could be received even better than expected.

Amira Acquisition Indicates Lpath Is Undervalued

In July 2011, Bristol Meyers Squibb (BMY) acquired Amira for $325 million up-front and potential additional milestone payments totaling $150 million. Amira’s lead asset is a product called AM152, which has completed Phase I clinical trials. AM152 was an LPA1 receptor antagonist, blocking one of more than eight LPA receptors identified. Bristol-Myers Squibb also obtained Amira’s preclinical autotaxin program, which was targeted to the treatment of neuropathic pain. It is worth noting that AM152 targets one of numerous receptors whereas Lpathomab goes straight to the source of the problem by soaking up the LPA itself. This lofty price tag was placed on the AM152, which, like Lpathomab, does not (yet) possess human efficacy data. Comparisons between Lpath and Amira indicate that Lpath is severely undervalued and validates Lpathomab’s target and pathway.

Conclusion

While this particular article has focused on the efficacy of Lpathomab, the market potential, and comparisons to competitors, Lpath Pharmaceuticals has proven itself a valuable company in many other regards. For example, Lpath’s partnership with Pfizer has provided it with sufficient funds to engage in R&D through to Q2 2014. This provides ample time for its lead product, iSONEP, to provide further insights — a product that has already yielded results superior to current treatment methods in its Phase II clinical trials. I strongly urge investors to view my previous article on Lpath’s lead product, iSONEP, and perform due diligence of their own. Lpath paints the picture of a company that is currently priced as a bargain.

Tagged Bristol Meyers Squibb, LPTN, Pfizer

Pivotal News From Sunshine Heart as FDA Approves IDE Application

Monday, October 1, 2012 No Comments by LastFinancier

Years of research and development have culminated this morning with the announcement that the Food & Drug Administration (FDA) has approved Sunshine Heart’s (SSH) Investigational New Device (IDE) application for ‘C-Pulse’, a device which proposes to solve the leading cause of hospitalization in the United States. To be precise, C-Pulse is being developed for the treatment of Stage III Heart Failure, which accounts for 25%-30% of heart failure cases or 1.5 Million patients. The news, among other things, is a major de-risking event for shareholders and investors in the company. I use the term ‘among other things’ because the breadth of the market, the need for a robust therapy, and encouraging data from Sunshine Heart’s feasibility trial suggest the IDE approval is about more than just ‘news’. This is a major milestone which will inevitably lead investors to assign a higher valuation to the company and force analysts to revise their models upwards, in order to reflect the company’s success.

Sunshine Heart is a compelling opportunity in a space where its nearest peer, Heartware International (HTWR), is assigned a $1.37 Billion valuation. Heartware manufactures miniature left ventricular assist devices (LVADs) for Class IV Heart Failure, which is about 1/7 the size of the Class III market. As with Sunshine Heart’s ‘C-Pulse’ device, Heartware’s LVAD is approved in the European Union (EU) for ‘bridge to transplant therapy in stage IV patients’. But here’s the catch: in the 137-patient trial that supported this approval, 11 patients who received Heartware’s device had ischemic strokes (per a disclosure in the annual report). It is not known how this compares to other technologies in this class because stroke data was not tracked in the control registry of patients receiving other LVAD devices. This means Heartware’s product carries safety concerns, particularly in relation to stroke rate. Data from Sunshine Heart’s feasibility study with C-Pulse showed improvement in heart failure patients’ functional class at 12 months. There were no stroke or thrombus events (source).

To further the case that Heartware’s product is unsafe, particularly when compared with Sunshine Heart’s C-Pulse device, an important distinction arises from the method in which the respective devices are implanted into patients. Heartware’s LVADs are implanted via sternotomy, which is an invasive procedure that involves separation of the sternum. Due to the turbulent movement of blood there is an increased risk of blood clots. There is also increased risk of infection because of the outside drive line. Sunshine Heart is taking a different approach. Because the technology is completely external to the circulatory system, there is no need for open heart surgery or entrance to the pericardial space to place the device. The device does not come into direct contact with blood, which is important because there is no risk of clot formation. This, of course, is evidenced by the strong safety data from Sunshine Heart’s feasibility trial.

What’s interesting, then, is what drives a $1.29 Billion wedge between the two companies…either Heartware is grossly overvalued or the market is implying tremendous upside for Sunshine Heart. But before we move on and make the case for C-Pulse, there’s another name you need to know to really understand the upside here that I’m implying.

Thoratech (THOR). In 2009, the market-leader for LVADs (yes, left ventricular assist devices) attempted to consolidate its position by bidding for Heartware. The FTC blocked what would have otherwise been a $300 Million takeover (in today’s dollars). The reasoning was that “the transaction would substantially reduce U.S. competition for LVADs”. This would be an unlikely case if Thoratech were to bid for Sunshine Heart. As it happens, Thoratech’s growth has slowed, but operations continue to yield considerable cash flow. Not to be suggestive, but Thoratech could buy Sunshine Heart 4x over at its current price. The opportunity for a robust device in Class III heart failure therapy and the C-Pulse’s safety profile make it an ideal takeover target, not just for Thoratech, but larger device manufacturers like Boston Scientific (BSX), who, by the way, recently saw a heart device of their own approved by the FDA [As a side note, the device that was approved is an external defibrillator developed by Cameron Health, who was acquired by Boston Scientific earlier this year for $1.35 Billion].

In Class III Heart Failure, patients are at increased risk of death and lead a very poor quality of life. It’s characterized with “marked limitation of activity and the development of fatigue, palpitations, and dyspnea with very limited physical activity”, according to the New York Heart Association (NYHA).

Standards of treatment include medications and cardiac re-synchronization therapy (CRT), though these treatments are limited by the practical realities of treating heart failure. For instance, patients are placed on several medications that must be taken at specific times during the day. Some of the medications have side effects that make compliance even more difficult. Many patients are unable to tolerate the doses of medications that have been demonstrated to have a meaningful effect on morbidity and mortality for heart failure [Thus, these medications are benign for those patients]. Studies also suggest at least one-third of patients are not compliant with medication regimens; this leads to de-compensation and hospital admission. The other option, CRT, involves implantation of a pacemaker that sends impulses to the right and left sides of the heart in an attempt to better coordinate the pumping action of the heart muscle. Current research suggests that 30% of patients do not respond to CRT. Furthermore, many patients with stage III heart failure may not qualify for device placement due to the unique characteristics of their case.

Sunshine’s Heart’s C-Pulse is the closest solution for Class III Heart Failure available today. This makes the company a compelling takeover target. IDE approval for C-Pulse from the FDA is a major de-risking event that makes Sunshine Heart an attractive investment opportunity to investors. Importantly, these news follow on the tail of approval of the device in the EU and a successful raise of over $20MM to fund the final stage of development before submitting to the FDA for marketing approval in the United States. Sunshine Heart is targeting a market worth no less than the ‘obesity’ markets targeted by Vivus (VVUS), Arena (ARNA), or Orexigen (OREX). In fact, the roadmap to commercial development is relatively straightforward and far less muddled with competition.

What tends to happen to once ‘hot’ stories is that investors rotate out of those names and into new and exciting opportunities. For a myriad of reasons, I can’t help but think that the FDA has just given Sunshine Heart the thumbs up to start one of the most exciting studies this year; perhaps even this decade.

For the purposes of disclosure, I will be taking a long position in Sunshine Heart and intend to hold such position(s) for the foreseeable future.

How Intuitive Surgical’s Success Suggests The Next Paradigm Shift In Neurosurgery

Monday, October 1, 2012 No Comments by LastFinancier

Treatment of prostate cancer has spawned wildly successful innovation, from drugs like Dendreon’s (DNDN) Provenge, Johnson & Johnson’s (JNJ) Zytiga, or Medivation’s (MDVN) Xtandi, but no less, lesser known surgical systems. While surgical systems initially were utilized by a small subset of doctors, the amount of prostatectomies performed increased dramatically with the birth of an all-encompassing system of not only surgical instruments but also camera/scopic utensils. The rise of prostatectomies was closely connected to the revolutionary Da Vinci surgical system, made by Intuitive Surgical (ISRG) that forever changed how prostatectomies were performed. The way that the Da Vinci system impacted the prostatectomy space in the US has implications about the way that MRI Intervention’s (MRIC.OB) Clearpoint will, perhaps, shape the neurosurgery space.

The beginnings of the Da Vinci system date back to the late 1980s/early 1990s and the US Department of Defense. The Defense Advanced Research Project Administration (DARPA) funded several US research centers to develop tele-presence surgery systems for remote surgery that could be utilized for battlefield triage. The aim of these efforts was ultimately disrupted, (the robots could be tracked by enemies and policy changed regarding wounded soldier treatment) but the technology had made its mark. The Stanford Research Institute (SRI) had successfully developed a tele-presence surgical system and in 1994, Dr. Frederick Moll of Guidant would learn about the novel system.

After finding backers, Dr. Moll resigned from Guidant, starting Intuitive Surgical in 1995 to build on the possibilities of tele-presence surgery that he wanted to explore. After incorporating technology from other research centers that were involved in the DARPA effort (MIT and IBM specifically), Intuitive Surgical brought the first Da Vinci system to market in 1999. In 2000, the Da Vinci system became the first medical robot surgical system to receive FDA approval. Complete with the capability of 3D vision in a patient’s body and with surgical instruments that bended and rotated beyond the limitations of the human hand, it was a groundbreaking platform. There are presently 3 types of Da Vinci systems: standard, Da Vinci S, and Da Vinci Si, with the S offering higher resolution and the Si offering higher resolution and the ability for two surgeons to collaborate on an operation. The Da Vinci system is a minimally invasive surgery system that is predominantly used for gynecologic, colorectal, thoracic surgery as well.

After Intuitive Surgical acquired a competitor and added a fourth arm to the system, (2003) their foothold in the prostatectomy market had started to increase, an occurrence evident both in the rise of Robotically Assisted Laparoscopic Prostatectomies (RALPs) that were performed and in the uptick in prostatectomies. From 1997-2004, there were about 60K prostatectomies annually in the US, with the large majority of them being traditional laparoscopic surgery or open prostatectomies (invasive). In 2004, the American Cancer Society estimated that there were about 230,000 new cases of prostate cancer, and 60,000 prostatectomies, with 9,000 robotically assisted laparoscopic prostatectomies (RALPs) taking place. Over the next few years, the number of prostatectomies and RALPs would increase, with prostatectomies increasing from 60,000 annually in 2004 to 88,000 in 2008 and RALPs increasing from a modest 9,000 in 2004 to a whopping 58,000 in 2008. It’s estimated that in the past few years, around 90,000 prostatectomies were performed and of those prostatectomies, more than 70% of them were RALPs.

The increase in RALPs is undoubtedly an effect of the prevalence of Da Vinci, a phenomenon noted by doctors and patients who laud the effectiveness of the system and even push for it in the case of the latter. Some doctors have gone as far as to opine that they feel that traditional laparoscopic and open prostatectomies have faded. Studies have shown that prostate cancer patients have migrated in large numbers to hospitals with the Da Vinci surgical system. Doctors at the Huntsman Cancer Institute at the University of Utah mentioned that patients will often come in to the office knowing that they want a prostatectomy with the robot, a sentiment echoed by doctors at the University of Texas Southwestern Medical Center at Dallas and at Massachusetts General Hospital (Source).The system delivers on the claim of less blood loss, fewer complications, and shorter hospital stays.

It’s estimated that 90,000 prostatectomies are carried out annually in the US, which translates to a treatment option used in about 38% of the estimated annual 240,000 cases of prostate cancer. Prostatectomies went from being a treatment method in about 26% of estimated cases in 2004 to being used in 38% in the modern time. There was a 33% uptick in prostatectomies from 2004 to 2009 on the strength of the Da Vinci machine, but what is telling is that the Da Vinci tool not only increased prostatectomy incidence, but also became the predominant method to perform prostatectomies, going from pedestrian use to the standard of care. The case of Da Vinci surgical and prostatectomies clearly and strongly indicates that surgical system innovations can alter the treatment landscape of a therapeutic area if a surgical system is revolutionary and effective enough to carve out a significant share of the therapeutic market that it targets.

Clearpoint arrives as such a surgical system, already backed by large medical device companies, drug companies, and leading doctors. Clearpoint seeks to achieve a market share of 10% of the 124,000 non-invasive brain procedures performed in the US; Intuitive Surgical achieved and then surpassed that 10% market share figure in the prostatectomy realm within four years after FDA clearance. If Da Vinci is a predecessor to Clearpoint in terms of influential surgical systems that brought about a paradigm shift, then Clearpoint should be well on its way to achieving the desired market share and, by extension, becoming profitable.

There are numerous similarities between the two platforms in terms of the value that they add and the deep implications of such cutting-edge innovation. Like Da Vinci, Clearpoint represents a clear innovation that has multiple applications: urology, gynecology, thoracic surgery, etc vs. focal ablation, deep brain stimulation, target drug therapy, etc. Both systems offer greater precision and intraprocedural visualization but to different areas of the body, and key benefits over the “old” method of conducting procedures by limiting blood-loss, shortening hospital stays, and making the procedures safer. Some could argue that Clearpoint may be better positioned for success than Da Vinci was, with a more affordable cost (anywhere from 1/6th to 1/8th of Da Vinci’s price) and the fact that it builds on the MRI portal that most hospitals in the country already have (no suites would have to be made for the system). Clearpoint also does not suffer from Da Vinci’s notoriously steep learning curve, providing a higher comfort level with neurosurgery, as it opens up surgical procedures to more neurosurgeons due to its ease of use. According to the company, the system is fully installed in an MRI suite within a few hours.

Intuitive Surgical’s initial public offering (IPO) in late 2000 valued the company at over $300M in its debut. It happened the same year that the company received FDA approval for their robot surgical system, but years before the product truly gained traction. By mid-decade, shares of Intuitive Surgical had returned more than 400% to initial investors, as the Da Vinci system saw growing adoption and use of their platform in surgeries. On a parallel timeline, MRI Interventions, today, is the Intuitive Surgical of the early 2000s. But investors, participating with caution, value the company at less than a third of the valuation assigned to Intuitive in its IPO. All else equal, this suggests that MRI Interventions could outperform even those returns seen from Intuitive Surgical last decade. In particular, MRI Interventions’ CEO, Kimble Jenkins, said in a recent interview that their platform’s adoption would arrive with increased exposure, new cases, and word-of-mouth among neurosurgeons, who according to the company tallied only a couple thousand in all of the United States.

It is remarkable to consider how profound of an impact Clearpoint can have making neuro-drug therapies pinpoint accurate, ablating neurological tumors and extending life, and stimulating the brain as a therapy of late-stage neurological maladies given that it targets. With a patient class more open to new ideas than most, (due to the nature of the ailment) Clearpoint is the only innovation for these aims and thus can become incredibly profitable as people clamor to use the innovation in the same manor that people flocked to the Da Vinci surgical system for prostatectomies, as well as other surgeries not discussed here. It’s important to note that ClearPoint enjoys a monopoly as a real-time visualization platform for minimally invasive brain procedures. Its closest competitor, IMRIS (IMRS), offers a surgical theatre that, among other things, does not provide real-time visualization during surgery and costs more than 25X what ClearPoint costs. MRI has at least 60 issued and 110 pending patents protecting their disruptive technologies. These circumstances create substantial barriers to entry for competitors. In the same way that Da Vinci shifted the prostatectomy space by extension the prostate cancer treatment space, Clearpoint could do the same for brain cancer, Parkinson’s Disease, Alzheimer’s, and other neurological ailments that its platform precisely targets.

Inovio Appears To Be A Promising Long-Term Investment

Wednesday, September 5, 2012 No Comments by LastFinancier

San Diego-based Inovio Pharmaceuticals, Inc (INO) is the research and development company that is aiming to revolutionize conventional vaccines. They intend to achieve this through a combination of their proprietary SynCon vaccine design process and their patented Electroporation delivery method. Thanks to this powerful technology platform, Inovio has a growing pipeline of potential vaccines for the prevention and treatment of cancers and infectious diseases. Inovio’s patent estate boasts over 400 issued or pending patents worldwide.

The use of conventional vaccines has saved countless lives, but in the process has also revealed potential areas for improvement. Firstly, conventional vaccines focus on matching a single vaccine to a single pathogen strain to instigate an immune response. This approach fails to address the issue of newly emergent and frequently changing strains of virus. Furthermore, current vaccines’ use of live or weakened viruses limits their utility against diseases such as HIV and hepatitis C due to the potential risk of infection from an improperly inactivated vaccine.

The Technology: SynCon and Electroporation

Inovio’s SynCon vaccine design process has proven its ability to address these issues in numerous human trials. This process involves the development of a synthetic consensus gene from multiple strains of the target pathogen (hence the name, SynCon). Thus, while the SynCon antigens may not be exact matches to the pathogenic strains, they have demonstrated their ability to protect against multiple existing as well as evolving strains of a virus. This provides an important step towards the development of a “universal” vaccine that improves on conventional methods. HIV, hepatitis C virus (HCV), human papillomavirus (HPV), and influenza are examples of diseases subject to frequent changes and therefore require more universal protective capabilities.

Improving the vaccine itself is just one of Inovio’s goals – another is improving the delivery. Getting vaccines into cells has long been the primary barrier to conventional vaccination. This is because cells are designed to resist the entry of foreign materials through their outer membrane. In response, Inovio has developed their patented electroporation technology which involves use of controlled, millisecond electrical pulses to create temporary pores in the cell membrane. This results in a significant enhancement of cellular DNA uptake. Numerous human studies have demonstrated best-in-class immune responses from DNA vaccines delivered using electroporation. Both SynCon and electroporation are supported by intellectual property and patent estate.

Lead Products

Inovio boasts an impressive product pipeline whose lead products consist of 3 programs in Phase II of clinical development.

VGX-3100:

VGX-3100 is a SynCon therapeutic DNA vaccine developed for the treatment of cervical dysplasia/cancer. Cervical cancer is a potential outcome of various types of HPV and is unique among all cancers in that there is an identifiable, slow-progressing precancerous stage. Current methods of treatment include Gardasil from Merck and Co. (MRK) and Cervarix manufactured by GlaxoSmithKline (GSK). However, Gardasil and Cervarix are only designed to prevent against HPV infection – therefore an individual who has already established HPV infection would not be protected from the potential development of cervical dysplasia. VGX-3100 is designed to stimulate the body’s immune system to clear HPV 16 and 18 as well as any precancerous cells of the cervix. In phase I studies, injections of VGX-3100 followed by electroporation have yielded best-in-class immune responses. VGX-3100 was recognized as the most promising research at the 2011 Global Vaccine Congress, winning first prize in the Edward Jenner Award Competition.

Upcoming Milestone: VGX-3100 is expecting Phase 2 results in late 2013.

WT1 Vaccine:

Inovio`s next lead product is a DNA vaccine that is encoded for Wilms` Tumor gene 1 (WT1), which is highly associated with leukemia. This vaccine was developed by the University of Southampton with funding from Leukemia and Lymphoma Research (LLR) and Cancer Reseach UK (CRUK) and is delivered using Inovio’s ELGEN-1000 automated Electroporation device. The current phase II clinical trial aims to assess the WT1 vaccine’s treatment of acute and chronic myeloid leukemia (AML and CML). For individuals diagnosed with AML between 18-60 years old, only about one-third can be cured. With conventional chemotherapy, 70% of the patients in the group under study will relapse within two years, and current therapy is devastating in older adults.

For individuals diagnosed with CML, approximately 85% of patients are in the chronic phase at the time of diagnosis. Current treatments include; Sprycel, which is produced by Bristol-Myers Squibb (BMY), and Imatinib and Tasigna both of which are manufactured by Novartis (NVS). However, due to the lack of curative treatment, CML progresses to an accelerated phase where expected survival is around three to five years. The only known cures for CML involve a stem cell transplant or a high-dose chemotherapy and radiation followed by a bone marrow transplant – approximately 30% of patients die from this procedure.

The WT1 vaccine’s preclinical data from mice demonstrated strong induction of antigen-specific CD8+ T cells and the ability to kill human tumor cells expressing WT1.

Upcoming Milestone: WT1 vaccine is expecting interim phase 2 data in Q4 of 2012.

ChronVac-C:

ChronVac-C is a vaccine developed by ChronTech Pharma AB (CTEC.ST) to target chronic hepatitis caused by the hepatitis C virus (HCV), genotype 1. ChronVac-C is injected into muscle tissue and followed by Electroporation using Inovio’s MedPulser DNA Delivery System. The goal of this treatment is to attain expression of and T-cell immune response to the NS3/4A antigen. NS3/4A is essential viral replication and suppression of the host immune system. The current standard-of-care treatment usually results in about 40-50% of patients being cleared of the virus. In the phase 1 study, 83% of participants who received the ChronVac-C and electroporation treatment were cleared of the virus – a significant improvement over the current standard of care.

Upcoming Milestone: ChronVac-C is expecting interim phase 2 data in Q4 of 2012.

Inovio’s potential human products are all in research and development phases. Furthermore, Inovio has not generated any revenues from the sale of their products, nor do they expect to for “at least the next several years”. So, the question remains: how much longer can the company operate for at its current rate?

Based on management’s projection, Inovio is expected to meet its planned working capital requirements into the third quarter of 2013. This provides ample time for the interim data from both the WT1 and ChronVac-C vaccines to reveal more to stakeholders.

Secondary Indicators

The Right People for the Job

On March 27^th 2012, Inovio announced the appointment of ex-President of Merck & Co., Dr. Adel Mahmoud to its Board of Directors. Dr. Mahmoud is a global infectious diseases and vaccines expert who has a successful track record with the development and commercialization of vaccines, such as Gardasil®, Zostavax®, Proquad® and Rotateq®. The appointment of Dr. Mahmoud sends a strong message to stakeholders that Inovio is committed to the development and commercialization of their products. Furthermore, Inovio’s management has been engaged in increasingly aggressive discussions with large pharmaceutical companies. Their goal is to advance the development and commercialization of their SynCon vaccines.

Analysts’ Forecasted Value

Analyst expectations for Inovio are overwhelmingly positive. The average 12-month price target is approximately $2.50, a significant increase over its current price of $0.54.

Insider Transactions

In the last 8 months, Inovio has experienced a persistent flow of insider purchases. The purchases were made by Kim Jong Joseph, Sardesai Niranjan, Kies Peter, and Cabrera Angel. While the existence of insider purchases by itself is not an indicator to buy, it certainly supports the decision, knowing that the management of Inovio are expecting an increase in value. In addition, the short percent of Inovio float is 0.10% as of August 15^th, 2012. This indicates that there is also a strong belief among investors that shares are going to increase in value.

Conclusions

Inovio’s current partners and collaborators include; The University of Pennsylvania, Merck, ChronTech, National Cancer Institute, U.S. Military HIV Research Program, National Institute of Health, HIV Vaccines Trail Network, University of Southampton, US Department of Homeland Security, and PATH Malaria Vaccine Initiative. Given their wide array of partnerships, patented technologies, upbeat analyst expectations, and impending milestones, Inovio appears to be a promising long-term investment.

DMRJ Debt Conversion Signals Confidence, Lifts Burden from Shareholders as IMSC’s Only Debtholder Joins their Ranks

Wednesday, September 5, 2012 No Comments by LastFinancier

Implant Sciences (IMSC.PK) announced some good news for shareholders and the company alike on Wednesday morning that demonstrates extensive confidence from its biggest debt-holder. The DMRJ Group holds all $27.5M of IMSC’s debt, due September 30, of which $23 million is in the form of a revolving line of credit. Wednesday’s agreement extends the due date of IMSC’s indebtedness to March 31 of next year, but more importantly reconstitutes $12M of IMSC’s line of credit into a senior convertible secured note, essentially convertible into IMSC common stock at $1.09 per share. The deal demonstrates confidence on behalf of the DMRJ Group, which has been a long-time backer of Implant Sciences and is now increasing its potential equity stake in the company. In fact, DMRJ’s Managing Director David Levy said as much in Wednesday’s press release:

Implant Sciences continues to solidify its position as an emerging leader in the Explosives Trace Detection market.The Company has attracted top industry talent, built an international sales presence and is moving through the regulatory process. Renegotiating a portion of our line of credit with Implant Sciences into a term loan that is convertible into equity in the Company clearly shows our confidence in the continued success of Implant Sciences.

DMRJ sees the opportunity to become a major shareholder as a much more lucrative position than as a debt holder. Although prior manoeuvres demonstrated as much (earlier debt-to-equity conversions), the venture capital firm’s interests are now directly in line with those of shareholders, and investors see the importance; IMSC was up 9% in afternoon trading on Wednesday.

In 2008, Implant Sciences entered into the first debt agreement with DMRJ that originally consisted of a senior secured convertible note and warrants to purchase common stock. In 2009, a $3M line of credit was added, opening up a more substantial avenue for IMSC to obtain necessary development capital, which was increased later that year to $5M. Again, in early 2010, DMRJ doubled the amount borrowable under the line of credit to $10M and pushed back all due dates to September of 2010. After subsequent increases to $15M and then $23M by February of 2012, the line of credit was extended and all debts were slated to come due in September of this year. Today’s announcement, however, not only converts that debt but delays repayment another six months to allow IMSC time for a major domestic launch.

While IMSC has been gaining market traction abroad in security indications, its biggest potential market may exist domestically in transportation and cargo facilities. Implant Sciences develops explosive trace detection devices for use in security and screening. The technology, available in the handheld Quantum Sniffer H-150 and the benchtop QS-B220 unit, improves on other systems by reducing the cost of ownership and risk of radiation exposure. Existing products on the market use a small amount of radioactive material in the detection process, making field repair near-impossible and long-term or repeated use a risk in the eyes of the public. The final catalyst for a major domestic debut is around the corner with a certification from the Transportation Safety Administration’s (TSA) testing lab. Recently IMSC announced, “[the QS-B220 completed] certification readiness and verification testing and has now been accepted into final validation testing with the TSL,” which will allow the TSA to use the product in regulated transportation settings, from airports to cargo facilities. Legislation set to go into effect on December 3 should not be lost on IMSC investors either – it requires all cargo on international passenger flights to be screened for explosives. Final TSA certification should come before the end of the year, making the Quantum Sniffer systems obvious as security organizations cast about for new technology to assist in increased regulation for explosive detection.

As I noted in a previous article, the parent company of the DMRJ Group is a very successful U.S. hedge fund. Platinum Partners has had annualized returns of 20% since inception in 2003 due to a strategically diverse investing approach. According to an article from HedgeFundsreview.com, “Over the years Nordlicht [chairman and Chief Investment Officer] has shown a knack for identifying unconventional investment opportunities and devising strategies to capture profits with significant downside protection.” To say that Implant Sciences is a result of this approach would be a stretch, but as the parent company of IMSC’s debtor – and now future shareholder – Platinum Partners certainly has a stake in DMRJ’s investment strategies.

Tagged Implant Sciences IMSC, IMSC DebtHolder Converts to Stock

MRI Interventions: Growth Still Strong Four Months After IPO

Monday, August 27, 2012 No Comments by LastFinancier

In recent months, MRI Interventions (MRIC.OB) has been making headway – and headlines – with their proprietary MRI imaging technology for use in neurological diseases. Their marketed ClearPoint system allows doctors a real-time view of intracranial procedures that previously required complicated, time-consuming invasive techniques. But more important for investors, the company went public just earlier this year on the OTC markets and has made notable gains in a short time period. Since debuting in May of this year, share price has more than doubled from a $1 initial price offering. And unlike many overbought biotech IPOs that shortly thereafter plummet on unrealized dreams, MRIC has made steady gains as the company’s technology finds footing in the marketplace. Just last week, First Analysis Securities initiated coverage of MRIC with a Buy rating and a twelve-month $4 target price. Here are some of the company’s most recent highlights.

On August 14^th, MRI Interventions announced that the ClearPoint system is being used in a clinical trial to treat pediatric brain cancer at the Memorial Sloan-Kettering Cancer Center. In the trial, a cancer-fighting agent called 124I-8H9 was administered directly to the brain tumor utilizing MRIC’s three-dimensional, MRI-guided system. The case involves a rare form of brain cancer known as a diffuse infiltrative pontine glioma (DIPG) tumor, which is inoperable due to its location on the brain stem. Previous attempts to inject the immunotherapy directly have failed, as have traditional radiation treatments. Pediatric patients diagnosed with the cancer usually die within a few months, but the success of the procedure where previous administration attempts have failed offers hope. The lead surgeon in the trial, Dr. Mark Souweidane, said:

It’s a departure from the standard therapy and has the potential to create a whole new paradigm in brain tumor treatment.

Along the same thread, ClearPoint was recently utilized in the administration of a development-stage product from Tocagen called Toca-511. The product is a replicating retroviral vector that selectively targets cancer cells and must be applied directly to the brain tumor. In this trial, the treatment is being testing against glioblastoma multiforme, the most aggressive form of brain cancer, along with an oral flucytosine prodrug from Tocagen. If trials involving direct application of cancer treatments prove effective, opportunity exists for ClearPoint to become the standard-of-care in these procedures. As a relatively inexpensive addition to existing MRI suites, ClearPoint reduces procedure time and cost, while improving surgeons’ ability to properly implement treatments of these types.

The company released its second quarter earnings report in August, detailing income and financial balances. A cursory glance at the balance sheet reveals a bleak outlook for the young company. But the company’s actual cash position is poorly reflected due to a major omission, made necessary by timing alone. Just five days after the end of the second quarter on June 30, the company issued a public offering of common stock that grossed a cool $6 million in capital for sustained operations. The balance sheet should more accurately reflect $6 million in cash (after expenses of the offering and existing cash) and more than $8 million in current assets. MRIC burned through roughly $2MM in the first six months of 2012, but it should be noted that revenues are growing, up 50% this quarter over last year’s second quarter. Research and development expenses have dropped by 50% as well since the same time last year as the company moved from development to commercialization of ClearPoint. It is now installed in 15 medical institutions in the U.S., two in Europe (ClearPoint is approved domestically and in the EU), and the company is increasing its sales force and utilization of ClearPoint as a platform technology.

While ClearPoint adoption grows, the company is pioneering a second platform using similar hardware. ClearTrace, like ClearPoint, uses MRI-guidance for minimally-invasive procedures in the heart that have traditionally been performed in a fluoroscopy suite. Catheter-based cardiac interventions such as stent placement and cardiac ablations will benefit from the use of ClearTrace by allowing high resolution imaging in real-time. And unlike a Cath Lab, providers use ClearTrace alongside an MRI suite, where there is no radiation exposure, or more importantly, risk of overexposure as with X-rays, standard in fluoroscopy. Doctors are moving more exclusively towards minimally-invasive procedures, specifically in cardiology, and MRIC’s technology allows for more options with future technology in the field.

The company has a strong partnership history with industry providers like Siemens AG (SI) and Boston Scientific (BSX). And ClearPoint is compatible with MRI providers Imris (IMRS) and GE Healthcare (GE) among others. It is also worth noting that while ClearPoint implementation begins with the up-front hardware purchase, the company’s primary income-generation comes from the disposable facet of the system. The SmartFrame is a single-use module with high margins that will create lasting revenue for the company; every ClearPoint case requires a separate SmartFrame. In its most recent investor presentation, MRIC revealed a utilization goal of one ClearPoint case per week; two of its 17 current sites are already operating at this rate. This razor-blade model will maintain the lasting revenue that investors look for in the healthcare industry, while ClearTrace presents the next platform technology for this maturing company.

For the purposes of full disclosure the author of this report is long shares of MRI Interventions (MRIC.OB). Further, the author does not intend to transact in said securities in the next day, week, or near future, for that matter.

Implant Sciences Approaches August-September Catalysts: Final Hurdles?

Thursday, August 16, 2012 1 Comment by LastFinancier

As we near the end of August, it becomes a particularly exciting time to be an investor in Implant Sciences (IMSC.PK), an emerging safety, security, and defense company whose explosive trace detection (ETD) products have now been deployed across the world with increasing utility. By month’s end, the Transportation Security Administration (TSA) is expected to rule on Implant’s proprietary handheld ETD system, the Quantum Sniffer, which could open doors for the company to sell its products to large entities in both the private and public sector (who are otherwise indispensable).

It’s at that point that the pieces of a long-coming puzzle will suddenly fit together — beginning with orders for domestic airports, train stations, and maybe even distribution centers run by couriers like FedEx (FDX) or UPS (UPS). This, in itself, is far nearer realization than most might think, as I looked at how a piece of legislation requiring 100% of global air cargo entering the United States after Dec. 3, 2012, to be screened would create a significant market opportunity for ETD technologies here. This — and another catalyst expected in late August to early September — could continue to reward investors’ patience well into 2013.

Implant Sciences has gained notable traction in the People’s Republic of China recently with major market exposure, singularly in event-based purchases and through recurring transactions with the government. In 2008, the Chinese granted IMSC an opportunity to demonstrate the efficacy of its Quantum Sniffer technology at the Beijing Olympic games. The Beijing Police purchased six of the company’s benchtop ETD devices for security screening along with a small arsenal of previously purchased handheld devices. The systems performed so well that the Chinese government has become a major client of Implant Sciences since the games, as different facets of the governing body make recurring purchases. The PRC extended orders into 2010 with an $850,000 buy that brought the total number of Quantum Sniffer devices deployed in China to 650, followed shortly there after by orders specifically for use in the Beijing subway, one of the largest public transportation systems in the world. The China Railway Administration is a long-time proponent of these ETD devices (since 2007) and continues, along with local law enforcement, to implement the technology in security screening and bomb detection.

China’s expanding aviation infrastructure and industry represent an enormous market for explosive detection equipment. The International Trade Administration reports that global airline infrastructure is growing at astonishing rates, and that China alone may build 50 airports in the next decade to accommodate its burgeoning transportation demand. Post-recession air travel rebounded with a 6% passenger increase in 2010, and a 25% increase in cargo traffic, which will soon require screening as well. But alongside the growing industry come tighter security and safety expectations. The airport security equipment market was projected to grow to $137 billion in 2010, with particular emphasis on explosive detection. China’s 175 civil airports have already begun implementing the technology — many include Implant Science’s systems — and more orders are expected. An official with the Civil Aviation Administration of China said last April that the country has plans to build an additional 56 airports by 2016.

I recently came across this article (and there are many like it) that details the dangers of existing security screening devices. People across the country question both the privacy violations and the health risks of existing screening technology; every week a new story reveals the inadequacies of the TSA’s techniques. An article in the Huffington Post explains not only the privacy implications of full-body scans, but also cancer and radiation problems. Former Miss USA Susie Castillo even joined in the outrage last year after opting out of an X-ray screener in favor of a pat down. With mounting pressure from the public, the TSA may be forced to shift technologies and methods. Implant Sciences’ is an obvious choice in the search for a safer, swifter alternative. Unlike products from American Science and Engineering (ASEI) and Rapiscan (OSIS), Implant’s technology lacks any form of radiation; it is the only explosive detection device that utilizes zero radioactive material. While the Quantum Sniffer is still in the TSA approval process — for which analysts expect a decision this month — its approval may be the final nod for the TSA to begin implementing safer screening methods.

Implant’s next catalyst arrives under the guise of uncertainty. In September, the company’s largest debt fixture will mature. The DMRJ Group holds roughly $25 million — all — of Implant Sciences’ credit facility. The group already expresses full faith in IMSC, having increased its credit limit last year and extended its maturity date for the second time in February. With significant weight behind the company and improving revenue, DMRJ will most likely convert the debt into common shares at a discount, or simply extend the maturity date; the group has nothing to gain by forcing immediate rectification. DMRJ’s parent company, Platinum Partners, was one of the best-performing mid-sized funds through the economic recession, with annualized returns of 20% since inception in 2003. Platinum’s President, Uri Landesman, recently told Fox Business that while he is bearish on the broader market, he sees opportunity in specific micro-cap equities, particularly in “software and security.”

TSA approval is the last barrier to entry for Implant Sciences and sales generated post-approval will ratchet quickly upwards. If the company can capture even a fraction of the $137 billion-plus aviation security market, it will be a significant windfall for IMSC and shareholders alike. Taser International (TASR), a developer of self-defense products with a similar business model to IMSC, trades at 3 times sales revenues; other comparable small-cap in the SS&D sector trade between 3 times and 5 times last 12 months’ sales. If, for example, Implant Sciences grows to generate $50 million in sales in the next 12-24 months the company could swiftly jump to a $150 million to $200 million valuation, depending on growth trajectory. Taser, for example, generates roughly $100 million in sales and is valued at a 3 times sales multiple, arguably on the lower end because an argument can be made that the company has “peaked.” TSA approval will inevitably promote sales for Implant Sciences on a global scale, which could prove my estimate conservative. However, with these facts in mind 2012 may be the final year of uncertainty for Implant Sciences as two major catalysts approach and pass in late August and into September.

Tagged Implant Sciences, IMSC

Why Lpath Shares Could Soar Ahead Of ISONEP Trial

Friday, July 27, 2012 No Comments by LastFinancier

San Diego-based Lpath, Inc. (LPTN.OB) is the leader in the discovery and development of monoclonal antibodies targeted to bioactive lipids. Lpath derives its unique position from its proprietary ImmuneY2TM platform – a drug-discovery process that generates antibodies against bioactive lipids. Thanks to this proprietary technology, Lpath’s pipeline has a wide range of potential novel antibody-based drugs that are involved in a variety diseases such as asthma, sepsis, inflammation, cancer, and more. The company boasts over 100 issued or pending patents in the U.S., with corresponding international applications, the majority of which were developed in-house using their proprietary technologies.

Wet AMD and Conventional Treatment Limitations

Lpath’s product pipeline‘s lead monoclonal antibody product candidate is iSONEP, a drug being developed for the treatment of wet AMD (late-stage, age-related macular degeneration) – a progressive retinal disease wherein new blood vessels grow beneath the retina and leak blood and fluid. This leakage subsequently causes permanent damage to the retinal cells, creating blind spots in central vision.

Current methods of treatment consist of VEGF (vascular endothelial growth factor) inhibitors, photodynamic therapy, or photocoagulation therapy. While photodynamic and photocoagulation therapies are both valid treatment methods, they are less frequently used due to the useful drugs available and the higher level of risk inherent in laser treatments. Consequently, the majority of wet AMD treatments involve VEGF inhibitors – in layman’s terms, inhibitors to the growth of new blood vessels. The current leading VEGF inhibitors are Lucentis, Avastin, and Macugen. Lucentis and Avastin both belong to the Swiss drug-maker, Roche Holding AG (RHHBY.PK), while Macugen is a product of EyeTech Inc., which was acquired by Valeant Pharmaceuticals (VRX) in February of 2012. Eylea, a recent FDA approved product of Regeneron Pharmaceuticals (REGN), has provided similar results to Lucentis in the treatment of wet AMD.

However, none of the existing methods of treatment address the underlying lesion or resolve RPE (retinal pigment epithelium, or PED) detachment. This is where iSONEP proves itself unique.

iSONEP’s Superior Performance

While Phase 1 testing is primarily concerned with dosage and safety, iSONEP generated some shocking data. After being exposed to a single dose of iSONEP, both patients with RPE detachment experienced near-complete to complete resolution of the condition.

Additionally, a single dose of iSONEP also caused a regression in CNV (choroidal neovascularization) – the underlying cause of wet AMD. Also of significance, seven out of nine patients, who proved unresponsive to conventional treatments, benefited from a decrease in retinal thickness when given iSONEP. As neither the reduction in lesions nor the resolution of RPE detachment has been previously attainable through the use of conventional VEGF inhibitors, these findings could place iSONEP in a monopoly position.

Wet AMD tends to occur in individuals 55 and older (with multiple environmental and genetic factors). An estimated 24 million Americans are currently afflicted with wet AMD according to the National Institutes of Health and the National Eye Institute. These numbers are expected to increase with the aging baby-boomer population.

Landmark Agreement with Pharmaceutical Giant

In December 2010, pharmaceutical giant Pfizer, Inc. (PFE) entered into an agreement with Lpath under which the smaller company was paid an upfront option payment of $14 million, with the potential for a total of $497.5 million in milestones if Pfizer decides to license rights to iSONEP, as well as being entitled to receive tiered double-digit royalties based on sales of iSONEP. Included in the agreement, Lpath has granted to Pfizer a time-limited right of first refusal for ASONEP, Lpath’s product candidate that is being evaluated for the treatment of cancer (entering Phase 2 in 2012). Furthermore, Pfizer will share the cost of the “PEDigree” and “Nexus” clinical trials for iSONEP.

The fact that a pharmaceutical giant like Pfizer has made such a large commitment to an early-stage biotech speaks volumes in regards to their confidence and forecasted value in Lpath’s ImmuneY2′s capabilities.

Lpath’s Extended Operations

As a younger company focused on drug discovery and development, Lpath has operated at a net loss since its inception. This is the case for many early-stage R&D companies. So, a major concern is: How much longer can Lpath stay in the game?

As of March 31st 2012, Pfizer has provided Lpath approximately $17.2 million, with an additional $2.8 million expected to be received in the second quarter of 2012. Given these major cash inflows (and NIH grants), Lpath’s R&D activities are projected to have sufficient funds to operate through to the second quarter of 2014 - ample time for iSONEP’s resumed clinical trials to reveal more to stakeholders.

This estimate not only includes the cost of iSONEP’s clinical trials, but also the costs of manufacturing ASONEP’s clinical material, initiating ASONEP’s Phase 2a trials, and conducting cell-line development for Lpathomab.

Analysts’ Forecasted Value

In September 2011, Morgan Joseph put an 18-month price target of $8.00 per share on Lpath as well as a “Buy” rating based on the market potential of the pipeline, the ImmuneY2 technology, and the partnership with Pfizer. Morgan Joseph notes that their calculation does not factor in the value of the Pfizer Agreement milestones or the potential for iSONEP™ to be marketed in areas outside the U.S. Equity researchers at Aegis commenced coverage on shares of Lpath in a report released on Monday July 16th 2012. The firm issued a “buy” rating and set a $6.00 price target on the stock.

Despite the substantial price increase forecasted by analysts, it is widely believed that Pfizer would attempt an outright purchase of Lpath prior to reaching these price-targets. An acquisition by Pfizer would depend on continued encouraging trial results, as that would indicate the ImmuneY2 technology’s performance matches its claims. This would provide Pfizer with a much-needed source of patents to resist the detrimental effects of the “patent cliff.”

ISONEP’s Halted trials – Unlucky but Resilient

On January 26th 2012, Lpath announced the PEDigree and Nexus trials would be temporarily halted as their fill/finish contractor, Formatech, Inc., was found to not be in compliance with FDA’s current Good Manufacturing Practice (cGMP) requirements during the August 2010 period that the iSONEP clinical vials were filled. At the time of halting, iSONEP was well tolerated by all patients in the Phase 1 trial and by all patients thus far in the PEDigree and Nexus trials. Though completely unrelated to the performance of iSONEP, this caused the share price to drop from $1.29 to the mid-$0.90s. (Based on the price range from late December to late January, it would seem safe to consider the pre-halt price approximately $1.22. Given price range from late January to late February, it would seem safe to consider the post-halt price approximately $0.95). Given the external nature of this price-drop, it can be considered a temporary dip until clinical trials resume.

March’s Share Dilution

On Friday March 6th 2012, the share price took a further plunge as Lpath agreed to raise $9.3M through the sale of 12,392,667 shares of Class A common stock at $0.75 per share. This dilution resulted in the share price falling from $0.98 to high-$0.70s. (Based on the price range from early February to early March, it would seem safe to consider the pre-dilution price approximately $0.95. Given the price range from early March to early April, it would seem safe to consider the post-dilution price approximately $0.77). Unlike the temporary decrease brought on by the halted trials, this dilution represented a warranted price-drop.

Conclusions

Based on these major events, it would seem logical to conclude that upon trials resuming, the price of LPTN would be approximately equal to the price prior to trials halting (approximately $1.22/share) adjusted for dilution, which conservatively work out to be approximately $0.95 per share. The current price of $0.85 per share would suggest that LPTN is currently undervalued. However, this estimate assumes progress is at a standstill, which is a very conservative way of valuing Lpath ahead of key milestones.

The terms of Pfizer’s agreement has ensured Lpath’s operations continue until Q2 of 2014 – providing iSONEP with plenty of time to prove to investors just what it’s made of. Further trial results, consistent with those we’ve already seen, would place iSONEP not merely in-line but ahead of all current market competition. In that not-so-unlikely scenario, those ambitious price-targets and Pfizer acquisition speculations seem very appropriate.

Unsurprisingly, Lpath’s share price has exhibited a continued upwards trend in the last 30 days (nearing the expected restart of iSONEP’s clinical trials in Q3 of 2012).

With all of these considerations and (as importantly) interest surrounding Lpath, the current price of $0.85 per share appears like a good time to get in at a discount.

Lpath has proven to be resilient and is no doubt benefiting from both the experience and financial support of Pfizer. While iSONEP’s resumed trials will play the lead role in influencing Lpath’s movement in the coming months, investors should not overlook the other drugs in its product pipeline. Additional discoveries and patents brought about by the ImmuneY2 technology would further validate this already promising technology.

Tagged Lpath, LPTN

LRAD Corporation (NASDAQ: LRAD) Is Being Undervalued

Thursday, March 15, 2012 No Comments by LastFinancier

California-based LRAD Corporation (NASDAQ: LRAD), a maker of directed sound products, ended Wednesday at $1.58 per share, down 1.25%. Trading the last few months primarily comprised a downtrend; however, there are numerous reasons to believe that LRAD is being undervalued by investors.

1) LRAD is a prime example of a thinly traded stock.

Normally exchanged in low volumes, LRAD’s price becomes volatile when there are fluxuations in volume traded (as seen above). Roger Ibbotson, a 67-year-old finance professor at Yale University and founder of Zebra Capital Management, studied stock returns dating back to 1972 and concluded that thinly traded stocks beat highly liquid ones of equal market values in all four quartiles ranked by size. Thinly traded equities tend to be priced at a discount to compensate for the added risk of liquidity. Consequently, liquid issues tend to trade a premium.
Interestingly, investors awarded LRAD a higher price-to-earnings multiple in the first half of 2011, where baseline volume was more than twice the average over the last 3-months.

2) LRAD’s current shareholder composition and its movement over time show no signs of distress.

LRAD’s Insiders hold a respectable 12.39% of shares issued and outstanding, with no change in composition over the last 6 months. Institutions hold a reassuring 27.1% of the company, where the last 6 months have brought about a net increase among institutional investors.

3) LRAD encompasses predominately highly liquid assets.

For the quarter ended December 31th 2011 LRAD boasted a current ratio of 18.2, where cash and equivalents made up the vast majority of assets. The company appears structured in a manner to easily meet debt obligations, have the ability to finance by issuing debt, and be able to expand business by means of acquiring new technologies, competitors, or establishing ground in a new market. The composition of the firm’s finances largely averts risks associated with balance sheet liquidity.

4) Projected EPS for FY 2012 suggests higher valuation

In fiscal year 2011 (period ending September 31st 2011), LRAD reported record revenues for the fourth straight fiscal year. Resultantly, LRAD has seen a steady growth in earnings. Through extrapolation, we can estimate LRAD’s EPS (fiscal year ending September 30th 2012) to be approximately $0.23/share, using a conservative average between the polynomial projection (high estimate) and linear projection (low estimate), as presented in the graph (below).

FY2012 $0.23 EPS (estimate) multiplied by LRAD’s current P/E ratio of 8.55 would imply a $1.97 price per share. Further, as can be deduced by studying LRAD’s trading patterns, investors are willing to value the company at a higher multiple (in line with industry and sector) when, and if, LRAD becomes a more liquid issue (as had been the case in the first half of last year). In sum, today’s price implies a forward P/E of less than 7 (based on our estimate). In line with this analysis we would expect to see bullish movement in the near future.

5) Positive market and analyst sentiment

Short interest stands at 0.4% (as of 2012-02-15) indicating optimism on the part of investors and the broader market. LRAD’s level of short-interest has been on the decline since mid-November 2011. As well, a majority of financial analysts rate LRAD as either a “Buy” or “Strong Buy”.

6) Possible sources of future income and competitive edge

LRAD continues to find new markets and applications for its products. They have gained footholds in markets spanning from security, to disaster control, to wildlife/asset preservation, to anti-piracy measures, and beyond. This track-record of emerging markets and applications justifies a premium associated with potential untapped markets. A terrific example of new revenue sources would be a $12.1 million order from an undisclosed foreign government in FY 2011 that bolstered LRAD’s international business 254%. LRAD has capitalized on this international recognition by investing in a worldwide distribution channel consisting of partners and resellers that have significant expertise and experience selling integrated communications solutions to various target markets. LRAD has increased investment in its research and development budget every year for the past three fiscal years.

For the purposes of full disclosure the author of this report is long LRAD Corporation (LRAD).

Tagged LRAD Corporation