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Wednesday, November 25, 2015

Update From InVivo Should Help Investors Return To The Story

InVivo Therapeutics (NVIV) has been stuck in a narrow  trading range between $7 and $8 per share since September, putting a much-needed floor in the stock that traded as high as $17 over the summer. Despite what remains encouraging news from the company over the past few months, investors have fled the story based on a new disclosure policy with respect to the ongoing pilot study and poor visibility on just what will be necessary to gain approval for the Neuro-Spinal Scaffold (NSS) device. Next week, on December 3, 2015, the company will host a "Company Update" in New York City at the Palace Hotel. An update from the pilot study and improved visibility provided by management on the pivotal registration program may be just what investors need to return to the story.

New Policy On Updates & Poor Visibility

On September 30, 2015, InVivo filed a Form 8K with the U.S. SEC telling investors it would only provide updates on patients enrolled in the active pilot study if the results were dramatically positive or negative.


I spoke briefly with management after the policy change. Examples of dramatically positive results would include a patient regaining sensory or motor function below the level of injury or an improvement in classification on the American Spinal Injury Association Impairment Scale (AIS). Recall, all subjects enrolled in the pilot study must have a non-penetrating complete spinal cord injury in the thoracic section of the spine, classified as "A" on the AIS. As such, an improvement on the AIS scale to "B" or "C" would be considered dramatic given that NSCISC data from 2014 shows only 6% of patients ever improve once classified as AIS-A at the time of injury. For InVivo, two of the first three patients improved post-treatment with the NSS, one to AIS-C and the other to AIS-B. An example of dramatically negative results would a patient death or worsening paralysis post-treatment. To date, this has not happened in the pilot study.

The policy change irked some investors, many of who had grown accustomed to InVivo putting out updates on each patient at the 1, 3, 6, and 12-month timeframe. The news flow following enrollment of the first two patients came fast and furious, with both patients showing meaningful improvement, releasing their identity, falling in love, and even going on the Today Show.

Things changed when the third patient elected to keep his anonymity, despite improving to AIS-B after only one month post-treatment with NSS. When the fourth and fifth patients were enrolled, investors were expecting similar results and publicity; but, given the policy change, we've heard no news in over two months. The lack of news flow has hurt the shares.

The other wildcard to the story at this time is the path to approval for the NSS device. As previously noted, InVivo's NSS has received a Humanitarian Use Device (HUD) designation and the pilot study is being conducted under a Humanitarian Device Exemption (HDE). This allows for an accelerated pathway to approval as long as the company can demonstrate a "probable benefit" to the device with no significant safety or tolerability issues. This does not mean, however, that the company gets to skip a pivotal study and commercialize the device immediately after the pilot study. A pivotal study must be conducted, and to date InVivo has provided very little information on just what exactly that study will entail.

Investors are concerned that the pivotal study will take too long or cost too much money. For reference, InVivo took over a year to enroll the current five patients in the pilot study and cash as of September 30, 2015, stood at a healthy $22.1 million. But I think these fears are misguided. The reason the pilot study took so long to enroll was because the vast majority of clinical sites did not come online until after the first and second patients enrolled, and now that a meaningful improvement in paralysis has been demonstrated by the first three patients, encouragement to enroll from investigators and easier consent from patients will surely improve the pace. As for the cash position, it will still likely be over $20 million at year-end 2015, plenty of money to keep the ball moving forward in 2016.

Expansion Of Pilot Study

In October 2015, InVivo announced an expansion of the pilot study from five to ten patients. The market largely ignored the news, but I think this was a very positive development. The expansion came after communication with the U.S. FDA; and while the pilot study is still that, a pilot study, the news sets the stage for a potential rollover of the pilot study right into the pivotal program in 2016. I don't think investor understand this. The pilot study expanding is speeding up the process because management is hoping to continue the pilot study as the pivotal one in 2016. There is a misconception that the expansion of the pilot study delays the start of the pivotal program. This is not the case. Others still have questions on how many patients are needed in the pivotal program, how long it will take to enroll these patients, how much it will cost, and what is the exact endpoint necessary for approval.

Professional investors, the kind that pile into and move stocks higher, tend not to invest in stories until they have answers to these important questions. With institutional investors on the sidelines and retail investors frustrated at the lack of updates on patients three, four, and five, it is not hard to now understand why InVivo shares are down 50% from the summer highs.

All This Could Change Next Week

On December 3, 2015, InVivo will host an "Analyst & Investor Day" in New York City at the Palace Hotel. The agenda for the event has not been made public, but I'm assuming the company is going to cover many of the issues noted above, specifically by providing an update on all patients enrolled in the pilot study so far and giving the investment community a good sense of what the pivotal study will look like, and if the pilot study can be rolled over.

This will no doubt give retail investors an opportunity to argue the finer points of each patients AIS classification or the number of patients required in the pivotal study to gain approval, be it 10, 15, 20, or 50, but I believe the improved visibility is more important than the nitty-gritty details. As noted above, professional money managers and hedge funds like visibility, and InVivo should provide much-needed visibility next week. They are less concerned with the need for cash then how much cash the company will need. Similarly, they are less concerned with the exact number of patients InVivo plans to enroll; but instead want to know that once that number is enrolled there is a clear pathway to approval.

Conclusion

Right now the vast majority (81% according to NASDAQ) of investors in InVivo are individual "retail" investors. Many are frustrated by a lack of update on the pilot study and are confused as to the pathway forward to approval in 2016. Visibility is important to all investors, but what is really going to turn InVivo's stock around and drive the price higher is if professional money managers and hedge funds start piling in. The lack of visibility has kept big money on the sideline. I believe InVivo is hosting this Analyst & Investor day next week to provide the necessary visibility to the market to make this happen. It will be interesting to see what the company says on December 3rd.

Disclosure: I am long NVIV
Please see my disclaimer statement.

6 comments:

  1. Thanks Jason. I think many of of on the 'MB' considered the 5-10 Pilot Expansion positive and saw it as a way Invivo could make sure patient enrollment could continue between September 5th (Patient 5) and March 5th 2016 (6 Mos Patient 5) in the hopes that the Pilot count could officially be added to the Pivotal (not just 'considered as final data') and/or Patients 5-10 at least would be allowed to be considered 'Pivotal' giving Invivo a head-start on the Pivotal. We are also hoping the FDA allows Invivo to commence with the Pivotal immediately and not make them wait until March or April if the 3 Mos P4/P5 Data is good.

    Lastly I want to point out that institutional holdings have INCREASED in the last 1/4, with most of the institutions with large positions increasing and 21 new institutions aboard. Only a few decreased or sold-out their positions and these were smaller positions to start with. I am happy btw to share that data as I analyzed it pretty extensively to try to get an idea of what has been going on 'tute wise' in the last 1/4 when the price dropped and stabilized. Clearly it was not institutions fleeing Invivo, just the opposite. I believe if the news on 12/3 is positive and especially if it contains concrete FDA Pivotal news, the floodgates might very well open.

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  2. I've long been impressed with SIS and other bioscaffolds, so this pivotal rollover shouldn't surprise anyone and the market is usually pretty receptive of resorbable biomatrix technologies.

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  3. I also believe that the wording in their updated Corporate Presentation was meant to communicate (besides possibly reducing their press release 'policy) that unchanged AIS is NOT materially BAD news since so many investors were all of a sudden expecting AIS B+ for each patient and at 30 days at that. So making changed AIS material served two purposes; it reduced their PR 'obligations' unless that 'dramatic' improvement occurred and communicated that it NOT occurring was not materially BAD information that needed to be PR'd as it was not an EXPECTED outcome just a DRAMATIC one.

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    1. I agree. The pilot study was set up to be a safety analysis and when Jordan went from A to C after only a few months everyone expected this to be the new normal. I also think companies should not be commenting on the status patients, even if open-label, until all patients have been enrolled and the data analysis has been completed. InVivo's policy put them in-line with industry standards.

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