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HEB: Will The Current Improvements Cause A Turnaround For Hemispherx?

11/14/2017


Hemispherx Biopharma, Inc. (NYSE:HEB) is an advanced specialty pharmaceutical company headquartered in Philadelphia, PA with an FDA-licensed cGMP manufacturing facility in New Brunswick, NJ.  Hemispherx engages in the clinical development of drug therapies that utilize the body’s own immune system for the treatment of viral and chronic disorders.  HEB’s flagship products include Alferon N injection and Ampligen that are protected by close to 50 issued patents. 

Currently, commercialization efforts for both drugs have been hampered for different reasons.  The company faced some manufacturing hurdles related to Alferon.  However, the company has already taken steps towards increasing efficiency for production of Alferon.  The FDA rejected the NDA for Ampligen.  However, the company is working towards addressing the concerns raised by the FDA.  The company is also open to collaborative opportunities including out-licensing, co-research, co-development, co-promotion as well as co-marketing their product candidates.  Overall, we do see some significant headwinds for Hemispherix in the near term, however we believe there is a large market potential for the drugs and see significant value if they are able to overcome current roadblocks.


Natural Alpha Interferon  

Alferon N injection is the only FDA-approved injectable formulation of natural alpha interferon to treat refractory or recurrent external genital warts in patients 18 years of age or older in the U.S. and Argentina.  The approval in Argentina includes the use of Alferon N Injection for use in any patients who fail or become intolerant to recombinant interferon, including patients with chronic active hepatitis C infection.  Alferon holds an orphan drug designation for Middle East Respiratory Syndrome (MERS) in EU. 

Genital warts are caused by certain strains of the human papillomavirus (HPV).  Current treatments include cryotherapy, conization and surgical procedures such as Loop Electrosurgical Excision Procedure (LEEP).  These procedures remove the abnormal cells that harbor the active virus but do not target those with the latent virus thereby offering only a temporary relief. 

Interferon’s potential efficacy relies on its antiviral, antiproliferative and immunomodulatory capabilities.  Unlike recombinant or ‘synthetic’ alpha interferons, Alferon is not neutralized by the human body and does not produce side effects.  Interferon therapy is an extremely costly procedure and is typically considered the most expensive genital wart treatment.  Alferon N Injection is covered by major commercial payors including BCBS California, Cigna, Health Net, United Healthcare and Medicare Part B  in the US.  Other insurance providers such as Aetna, Anthem BCBS and Humana provide coverage but impose certain limitations on Alferon’s use.  These insurance providers restrict coverage of Alferon to those who have not responded satisfactorily to other treatment modalities such as surgery, laser or cryotherapy.

Alferon LDO, a low-dose oral liquid formulation of natural alpha interferon, is being developed for the treatment of seasonal flu and other viruses.  

Alferon production on hold…

In 2008, the company identified deficiencies in the production process.  The manufacturing process was labor intensive and the company was only able to produce 12 vials per operating cycle.  The company halted manufacturing and marketing of Alferon N Injection due to these production issues.  They upgraded their bioreactor to provide for a higher capacity and cost effective manufacturing process for the production of Alferon N Injection.  The upgraded facility (roughly worth $8 million) has a new 600 liter bioreactor and integrated continuous flow manufacturing technology.  The automated bioreactor is expected to eliminate close to 80% of the labor previously required.  This enhancement is expected to provide the following advantages: 

➢ cost efficiency 
➢ enhance yield 
➢ real-time process monitoring
➢ flexibility to tailor batch size and 
➢ operational safety.

Hemispherx is awaiting the FDA nod on its upgraded production process.  The newly installed 600 liter bioreactor has the capability to produce roughly 50,000 vials annually (1,200 vials/week x 40 workweeks) operating in a single shift per week.  
Ampligen

Myalgic Encephalomyelitis/Chronic Fatigue Syndrome (ME/CFS) is a debilitating disease characterized by overwhelming fatigue that fails to improve with rest.  Although the underlying biological mechanisms have not been well understood, it is of the belief that CFS could be a result of immune system dysfunction or neurological impairment.  ME/CFS is officially recognized as a neurological disorder by WHO. 

More than one million Americans have ME/CFS  and only 15% are diagnosed with the illness.  It is extremely challenging to identify the illness.  Physicians often rule out other possible causes in order to identify CFS.  The only two drugs that have shown promise for the treatment of CFS are Ampligen and Rituximab. Both are not yet FDA-approved for ME/CFS and are still under clinical development.  Ampligen’s competitive advantage is its novel mechanism of action: it works by triggering the body’s own immune response by enhancing natural killer cell function against pathogens .  Ampligen has patent protection until 2028. 

FDA’s Call on Ampligen…

Ampligen is the only late-stage drug in the pipeline for ME/CFS.  Hemispherx had completed a pivotal Phase 3 clinical trial involving Ampligen.  The drug demonstrated a well-tolerated safety profile in approximately 100,000 IV doses in humans.  The FDA awarded the drug candidate with an orphan drug designation, expanded access with cost recovery authorization and “promising” clinical outcome recognition during its development.  Despite this, the FDA rejected the NDA for Ampligen based on failure to provide satisfactory evidence demonstrating the efficacy of Ampligen for the treatment of CFS.  Anadvisory panel stated that the data did not provide sufficient information to determine whether the product is safe for use in CFS because of the multiple discrepancies and gaps in the data as well as due to the limited sample size.  The regulatory authority has requested the company to generate additional clinical data by conducting at least one confirmatory clinical trial (evaluating six months of treatment with multiple dose regimens) in a narrowly defined patient population.  

In addition to the FDA, the company also submitted the same study results to the Argentenian regulatory agency (ANMAT).  ANMAT approved Ampligen in Argentina for treatment of patients with severe CFS (Karnovsky score between 40 and 60).  

This experimental drug has also shown promise in immune-oncology as a 
1. viral-vaccine enhancer, 
2. broad-spectrum prophylactic and 
3. early-onset viral therapy.  

The company is also developing Ampligen for the treatment of Hepatitis B, HIV, renal cell carcinoma, and malignant melanoma.  Ampligen is also authorized for pancreatic cancer Early Access Program (EAP) in the Netherlands.

Bringing Ampligen to market has been management’s top priority.  They are continuing discussions with FDA to identify a feasible path toward approval for Ampligen for ME/CFS.  Management is trying to accelerate the process of commencing the Phase 3 confirmatory trial in the U.S. for which they are actively pursuing co-development partnerships that will help fund this process.  Approval could be expected in about three years after the clinical study commences.

What does the market look like for Hemispherx?


Based on a systematic review, the reported incidence of recurrent genital warts was 195 cases per 100,000 persons (both sexes combined) .  As per CDC, around 400,000 patients affected by genital warts visited the physician’s office in 2012 .  Having a competitive advantage over other products currently in use for genital warts, Alferon could build a significant market share in the therapeutic battlefield if priced appropriately.  Intron, a purified sterile recombinant interferon product from Merck is priced around $1,500 per vial.  Management has noted that they expect to price their product at approximately $1,300/vial.  On average, two vials are required per patient over the course of treatment.  

Management estimates producing 48,000 vials in the third year of initiating production with a single bioreactor running one shift.  This translates to approximately $94 million in revenue in the fourth year with a 13% market penetration.  As per CDC, in 2012 more than 400,000 visits were made to the physician’s office to treat genital warts caused by HPV in the U.S.  Assuming 75% of patients had recurrence or remain refractory to other treatments, we calculate the addressable market size to be close to $800 million.  Assuming a 12% market penetration rate, the company could achieve roughly $94 million peak sales in the U.S. Assuming only one indication and commercializing in one global region HEB has barely scratched the surface of the potential market for Alferon.  The revenue potential from Argentina could be another $350 million (peak sales) for an estimated patient population of 1.4 million.   
  
In the U.S., Hemispherx has a marketing & distribution alliance with Asembia, a leading specialty pharmaceutical channel management organization.  Under this agreement, Hemispherx will manufacture and supply Alferon N Injection through Asembia’s national network of specialty pharmacies.  Asembia will provide ongoing education, sales and marketing to support Alferon’s re-launch.  We estimate gross margin to be around 70% with the potential to expand as HEB improves economies of scale. 

Currently, Ampligen is the only drug approved for CFS in Argentina.  Hemispherx’s commercial partner in Latin America, GP Pharm, will market the product in Argentina.  GP Pharm may try to expand the approval to other Latin American countries.  The company estimates the cost of Ampligen to be $575 per vial (200mg dose).  The typical course of treatment lasts for 24 weeks with patient receiving four vials per week.  Ampligen holds the potential to enjoy monopoly in other parts of the world if and when approved and assuming there are no competitors.  In the long term, the revenue potential for HEB could only be higher if the company could expand their drug candidates across multiple indications.  

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