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HEB: Recent Advancements…What Do They Imply?

01/24/2018


NYSE:HEB

With the stock up 50% over the past 3 months, we believe HEB (NYSE:HEB) is starting to look like an attractive investment.  Since our prior report (November 14, 2017), Hemispherx has made some progress in their Ampligen product development cycle that could potentially prove positive for their stock.

Key progress in Ampligen’s development:

➢ Hemispherx obtained ANMAT approval in Argentina, one of South America's largest markets, in August 2017.  Ampligen is available in Europe through an Early Access Program (EAP).  In the U.S., Ampligen has undergone two randomized, placebo-controlled pivotal trials.  The firm is currently focused on preparing an NDA and confirmatory trial for Ampligen.  Meanwhile, Ampligen is available for patients under a cost recovery program (compassionate care) – which means that Hemispherx cannot make a profit on Ampligen sales but can recover its costs.  Hemispherx received an approval from the FDA to increase the price of one vial from $75 to $200.

➢ The firm is collaborating with Millions Missing Canada (an advocacy group for ME/CFS patients) to seek a pharmaceutical partner who will support a regulatory submission for Ampligen in ME/CFS.

➢ The firm had completed an intranasal human safety study using Ampligen and FluMist and is currently analyzing the data.  The human intranasal safety study demonstrated that the antibodies against the specific viral strains were not present in the immunizing vaccine.  The experimental data suggested that intranasal immunization with Ampligen may provide a rapid and well tolerated means of protection in at-risk humans.  Hemispherx is exploring co-development partnerships with vaccine producers. 

➢ Data from preclinical studies on the immune-modulatory activity of Ampligen on the tumor microenvironment will be presented at the Immuno-Oncology Frontiers Conference in late January.  

Tumors that are unresponsive to immunotherapy could be potentially converted to those that will respond to immunotherapeutic drugs such as checkpoint inhibitors.  

The interaction of protein PD-L1 on the tumor cells with PD-1 on a T-cell compromises the immune system by diminishing the T-cell functionality.  An inhibitor that blocks the interaction of PD-L1 with the PD-1 receptor could prevent the cancer from eluding the immune system.  Checkpoint inhibitors which are anti-PD-1/PD-L1 agents, restore T-cell functionality thereby making T-cells more effective against cancer cells.  Currently, the effectiveness of these drugs is still being investigated.  Further, the patient’s response to checkpoint inhibitors varies by tumor type.  Therefore, combination therapies are often required.  Nevertheless, checkpoint inhibitors have shown promise in immuno-oncology.  Currently, work is underway at two leading U.S. cancer centers to demonstrate Ampligen's potential role in enhancing the effectiveness of T-cells.

➢ It has been a challenge to prepare the enzyme required in the manufacturing of Ampligen.  In early January 2018, Hemispherx announced that they had cloned the gene coding for this enzyme.  Production of the enzyme is currently being scaled up to assure availability.  This could help in the uninterrupted production of Ampligen.  

➢ The firm completed a commercial scale demonstration/engineering manufacturing run to verify the manufacturing process prior to large scale GMP manufacturing.  In order to accommodate for anticipated large requirements of Ampligen for Argentina, U.S. based clinical studies as well as EAP sales in Europe, the firm will be enhancing production.  Commercial lots of Ampligen are expected to be available by the end of the second quarter of 2018.

Other Developments

More recently, the firm inked a sale and leaseback agreement for its development and production facility in New Jersey.  Under the terms of the agreement, Hemispherx sold the property for $4 million and entered into a 10-year lease agreement (with the option to extend it by another ten years).  The company has retained the rights to repurchase the property at any time during the initial lease period.  

What’s the story on Alferon?

Last year the main water line supplying the sprinkler system broke resulting in flooding key sections of the New Brunswick, NJ manufacturing facility.  This prompted immediate shut down of the plant.  Despite insurance bearing the cost of physical damage, the company is in need of additional capital to bring the facility into full operation.  Further, FDA GMP recertification of this facility is mandatory in order for the firm to restart production.  

Management anticipates expenses associated with restarting the Alferon manufacturing line, to be in the ballpark of $10 million.  The sale and leaseback agreement represents a timely advantage for HEB as the increase in working capital could help satisfy at least a portion of the upcoming operational expenses.  The company is exploring several avenues for funding the costs related to production. Hemispherx is also open to co-development opportunities. 
 
Alferon N is approved for refractory or recurring external genital warts in the U.S. and Argentina.  It is also approved in Argentina for any patient refractory to recombinant interferon.  As a reminder, Hemispherx already has an agreement with Asembia to market and distribute the product in the U.S. when manufacturing resumes.

Our thoughts on Hemispherx…

HEB’s team headed by Mr. Equels have accomplished all of the above in the past 18 months while slashing cash burn rate by 50%.  While we acknowledge some risks associated in the development process, we also think that Hemispherx is well-positioned with a strong balance sheet to efficiently continue its planned operations.  Even though it seems like 2018 would be operationally intensive requiring substantial working capital, its recent developments since the beginning of this year reinforces our confidence in management’s ability to execute on their goals. 

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