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Friday, April 29, 2016

How I Get To $21 Per Share For InVivo Therapeutics

Earlier this week, InVivo Therapeutics (NASDAQ: NVIV) announced that the sixth-implanted patient in the INSPIRE clinical study improved from complete AIS-A spinal cord injury to an incomplete AIS-B spinal cord injury. This is the fourth patient to show improvement from the INSPIRE trial, equating to two-thirds of the first six patients enrolled in the study. It is clearly fantastic news for InVivo, especially following news last week that the eight-implanted patient died just two days after the procedure.

On Patient #8: InVivo's press release on April 19th noted that the implantation of the eight Neuro-Spinal Scaffolding (NSS) took place on April 12, 2016, approximately 71 hours after a severe motor vehicle accident. The patient died approximately two days later, apparently succumbing to injuries from the accident. Dr. Travis Dumont, M.D., Director of the Neurovascular Program and Principal Investigator at Banner University Medical Center in Tucson, Arizona, believes the death to be unrelated to the implantation of the NSS device. Nevertheless, the Data Safety Monitoring Board (DSMD) and U.S. FDA will review the incident.

Enrollment in INSPIRE remains open at this time. I'm not terribly concerned with the death of patient #8. While tragic, it sounds like InVivo's device did not have anything to do with the death of the patient. At one point, Dr. Dumont believed the patient healthy and stable enough for the device implantation, so what transpired between implantation and the death will likely come out at a later date. In the meantime, at least enrollment is moving forward - slowly, but moving forward.

On Patient #6: On February 23, 2016, InVivo announced the sixth device implantation took place at Barnes-Jewish Hospital at Washington University Medical Center in St. Louis, Missouri. The implantation took place only 10 hours post injury. Earlier this week, InVivo announced this patient has converted to AIS B, almost exactly two months later.

This is obviously fantastic news for InVivo. Patient improvement has now been documented in four of the first six patients (67%), far exceeding the 25% hurdle rate set by the U.S. FDA as the objective performance criteria (OPC) to define success of the INSPIRE trial. Quite simply, they're absolutely crushing it. We do not know yet the status of the seventh patient. The NSS implantation was announced just over a month ago on March 24, 2016. To date, there seems no discernable pattern in patient recovery vs. time to NSS implantation or location of the injury (see below).


Perhaps as the number of patients enrolled in the INSPIRE trial increases, management and investigators will get a better sense of the ideal patient and how to best select patients for future studies. Nevertheless, with a conversation rate of 67%, it's hard to argue that they are not already doing a fantastic job. And on a side note, I dare you to go tell Jesi she isn't making progress! There is far more to patient improvement than simply a rating on the ASIA Impairment Scale. Jesi's scores on other secondary measures have shown improvement.

Based on historical benchmarks for AIS conversion rates (see below), InVivo needs only one of the remaining 13 patients still left to enroll in INSPIRE to meet the FDA's OPC. Should the current pace continue, it is likely that INSPIRE becomes a foregone conclusion before the trial even hits 50% enrollment. And keep in mind, the OPC is looking at the percent of patients that convert at six months post-implantation, so there is still plenty of time for the seventh patient to convert.

 

The current 67% conversion rate is based on reported patients per protocol. Even on an intent-to-treat basis, which includes the now deceased eighth patient, InVivo is still far ahead of the hurdle rate. My guess is that if the conversion rate for InVivo's NSS in INSPIRE remains above 50% after the tenth patient passes six-month post-implantation, InVivo may approach the U.S. FDA about filing the Humanitarian Device Exemption (HDE) early.

The agency has already agreed to a modular submission and review process for the NSS. This is essentially "Fast Track" and "Priority Review" for drugs and biologics. InVivo could file for approval of the HDE early and gain accelerated approval under the agreement that enrollment in INSPIRE will continue until at least 20 patients have been enrolled.

Enrollment remains a key issue for investors. Management guidance is to, "Approach full enrollment by the end of this year." I think far too much focus from investors has been placed on the pace of enrollment and not enough on the outstanding results demonstrated to date. Focusing on the pace is losing sight of the fact that InVivo's NSS has the potential to become the new standard of care for AIS-A spinal cord injury.

Full enrollment will happen; whether it is in six months or twelve months is irrelevant. The market is there. I believe enrollment is slowed by the stringent entry criteria for the study and a management team that is being diligent and conscientious on site selection. Implantation of the NSS is cutting edge neurosurgery. There is far more involved than simply popping a pill. Plus, InVivo has plenty of cash thanks to a recent $32 million public offering. There's no reason to rush.

I think investors need to stop worrying about when full enrollment will take place and start focusing on how big NSS will be once approved. In this regard, I have built a discounted cash flow model that predicts peak sales of the NSS device alone (no stem cells or bioengineered version 2.0) at roughly $1.2 billion in 2026. Concomitant use of neural stem cells, something we all know InVivo is working on, has the potential to vastly increase the size of the market, potentially opening up an opportunity in non-acute injuries, a market that is roughly 100x the size of the population eligible for the INSPIRE trial. Keep that figure in mind when worrying about the pace of enrollment.

My model is below for investors to see. It is fairly straightforward, so I'll save the verbiage and simply just present the model for peer-review. I see fair value today at $21 per share.

 

I'm happy to take questions in the comments below!

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This article was written by Jason Napodano, CFA of BioNap, Inc. 
I am long shares of NVIV.
Please see additional information in my Disclaimer.

52 comments:

  1. Agree 100% with your analysis; however, the shares have reacted somewhat negatively to the news. Where are the possible blind spots and why haven't the shares strengthened given the likelihood of the NSS meeting the OPC.

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    1. I think perhaps the death of patient #8 is spooking some people? I really don't know. I'm obviously not happy that they just raised $32 at $7.50 per share. I think that was incredibly low and they did a disservice to shareholders by taking such poor terms, including 50% warrant coverage at $10. I think InVivo needs to stop thinking like a small-cap biotech and more like a legitimate medical device company. That being said, the stock is currently $5.91 per share, so I'm obviously missing something.

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    2. and how is that bad financing ? it's trading 20% below that price right now...

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    3. I was wondering if the low raise might have been due to some urgency or opportunity in moving the stem cell/NSS program forward. Market cap of STEM is only 40M right now!

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    4. They don't need to buy STEM or CUR, a simple licensing or JV would suffice. STEM (or CUR) would benefit from the deal, so I don't see why NVIV would have to come to the table with a huge pile of money.

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    5. Maybe they will partner with UC San Diego, who was recently in the news re: stem cells and paralysis.

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    6. That's where both STEM and CUR are doing their trials!

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    7. haven't the Chinese been "plunking" stem cells into spinal cord injured medical "tourists" for years with little or no benefit?? Isn't this essentially what CUR is doing again?? weren't they recently told they will be delisted from the NASDAQ if their share price (currently ~$0.70) doesn't rally? I invested in NVIV primarily because of the scaffold which seems obviously the way to go to allow stem cells the chance to "anchor" to a protective environment to sprout new neuron connections??

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    8. @ david graham, the chinese ? lol

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  2. Earnings $5 a share in 2020, $80 share price target ?

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    1. it was a question, since you see earnings of $5 a share in 2020, do you see a $80 share price target as reasonable in 2020 ?

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    2. I guess it's possible, but I don't think they will be around in 2020! I think they will get bought-out before then.

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  3. Thanks for your report, Jason. With a trial that by all indications thus far appears to be headed for final INSPIRE FDA approval(?), have you heard any whispers/talk of any type of possible pharma partnerships for the near future? Who could be some of the pharma candidates for a possible partnership with InVivo? What might the partnership terms look like? How much money up front? Thanks, again Jason!

    John Redaelli - twenty2

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    1. I think it's a little early to partner the NSS at this point. I think the value soars after the gain approval under HUD. As for the potential partners, I would think it is anyone interested in spine, with Styker and J&J at the top. Other players may be Abbott or Medtronic.

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    2. For a potential a $1.2 billion drug, I think the upfront payment could easily be $100-200 million.

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    3. Do you see a buyout as possible ? I do

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    4. Perhaps eventually, but I do not want to see them sell today for 12 per share! It's worth far more than that post HDE approval.

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  4. If Jesi's regained ability to use her legs is disregarded because it is controlled by nerves above the injury, WHY DID SHE LOSE IT?

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    1. Use of her legs is controlled far below the sight of the injury, that's why she lost it. Her injury was T7 and highly traumatic. Use of her hips and bowel and bladder function are also controlled below the sight of the injury. However, use of her legs is controlled by areas of the cord above the level that controls bowel and bladder function. And bowel and bladder function is the primary hurdle for moving from AIS-A to AIS-B. I've said this several times. You can move your toes and still be AIS-A. So while Jesi has recovered enough below the injury to be able to do things like roll her hips or even move her upper legs, she has not regained enough bowel and bladder function to get off the A level of injury according to ASIA-IS.

      This article may be helpful in explaining that further:
      http://www.bionapcfa.com/2015/05/explaining-invivos-neuro-spinal.html

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  5. Thank you for writing this. Do you have any comment on NVIV's proposal to increase the number of shares from 50 million to 100 million?

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    1. It's not as bad as it sounds. The current fully diluted number is 37 million. That leaves only 13 million left of M&A, stock options, future financings, etc... Some companies have unlimited authorized shares. NVIV has plenty of cash and I don't think you will see them do anything massively dilutive for the rest of 2016. Increasing the share count is like increasing the limit on your credit card. It's there if you need it. Hopefully they don't use it!

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  6. I think this technology is ground-breaking and have always thought, and I believe I read this from something you published previously, that the device can additionally be used like an internal delivery system of necessary medication but my question is who can afford $100K for a procedure and what insurance company is going to actually agree to that price?

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    1. $100K is cheap! Take a look at this chart >> http://4.bp.blogspot.com/-jagz4BNGuRo/VoqLwJI_QTI/AAAAAAAAEiM/WFR-Tnadikc/s1600/2.JPG

      It shows the "first year" and "lifetime" cost for a complete spinal cord injury. We are talking in the millions of dollars. Go ask a 25 year old kid (like Jordan or Jesi) how much money they are willing to pay to not have to wear a diaper for the rest of their life. Think of the reduction in healthcare costs associated with having full bowel and bladder control vs. having zero control. We are taking catheters, urinary tract infections, hospitalizations, full-time nursing care, etc... Believe me, $100k is very realistic. I think they can even charge $150k. Plus, the insurance company will pay, not the individual. InVivo has not made available any pharmacoeconomic studies, but I suspect that sort of thing is coming.

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  7. My .02: By having the procedure, the patient would improve enough to reduce the lifetime cost of care by a lot more than $100K.

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    1. not to mention the improved quality of life for the rest of your life...

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  8. This stock has been nothing but a miserable investment over the last 4 or 5 years. By just about any metric or entry point if you've been a holder you are down significantly on your investment. The $100k may be way off base for the procedure. Business models would be changed significantly in that number drops to $25k or $12.5k. Another concern is what's taking so long to enroll patients. At the current enrollment rate, the company will not get 20 patients enrolled until mid-2017. The Company needs to dramatically speed up enrollments to gain credibility that the device can find a big enough market out there once it is approved. And lastly, the CEO is setting a pathetic example by taking a pay raise, now making $2M, while literally all of his shareholders are losing their ass. CEO's with comparable biotechs make 50% to 75% less than Mark Perrin has decided to pay himself - a total disconnect with shareholders!!

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    1. I agree on this. Mark Perrin should be ashamed of himself and really ought to cut his pay in hald until this gets approved. I've lost all respect for him over this.

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  9. Some people think I'm a misanthrope, but I've made a lot of money shorting this stock. My thesis is that the NSS is entirely useless. Care to comment?

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    1. "My thesis is that the NSS is entirely useless."

      That's not a thesis, that's a comment backed up with zero support. The results from INSPIRE speak for themselves.

      But congrats on allegedly making "a lot of money".

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  10. Great write up. NVIV has a lot of potential as a long term stock. In the short term, with the time it takes to enroll patients and see results, yes, the PPS will drop. Those who trade biotechs want to make a quick buck so they buy, sell, and move on. This stock moves very similar to other biotechs stocks; up on a catalysts and down shortly after. The PPS fluctuation, in my opinion, doesn't reflect investor sentiment in the product, but maybe in short term returns, dilution, and the CEO's pay. What's crazy is that the market cap isn't higher considering how well the NSS has performed. I'm long NVIV, but I also got in at a reasonable price so I'm not upside down. Unfortunately the latter cannot be said for others who bought in the $10-19 range. Unfortunately that's how biotechs move.

    In regards to the shorting NVIV comment: good job. The pullback from $19-$4 has nothing to do with NSS not working and your effort to scare others with that claim was weak.

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  11. As always, your analysis is great. It seems that the end game for NVIV will be a buyout from a company like Styker or other similar companies. Do you agree with that and what price would make sense to you?

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    1. I agree, but it's too early to speculate on what price because the stock is far too cheap right now for them to even entertain offers. FDA approval is very achievable based on INSPIRE and that will be a tremendous value inflection for the company. If I'm right that the stock is worth $21, and let's say that management did want to sell post approval, I think they can easily get a hefty premium over my number. I think people are very interested in seeing what the company does when they start testing the NSS + stem cells.

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  12. Simply can't understand the current pps--back in August 2013 the former CEO (Frank Reynolds) had been promising the "moon"--start of the clinical trial with marketing of the scaffold by 2014, NASDAQ uplisting etc and the pps was ~$24 (post split $6) but now we have outstanding results, NASDAQ listing etc-yet this pps doesn't come anywhere near what has been done since then

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    1. David, I TOTALLY agree with you. And look at a year ago. Last summer we rose to the high $17 range on far far far less than what has been achieved to date. The most peculiar thing was that when patient 3 converted after only 30 days we never got any appreciable or lasting rise from that and then we just plummetted along with biotechs but more exaggerated. I think our host analyst here was changing employment or on vacation because he was conspicuously absent. I was surprised he didn't augment the news and was more than a month late after damage was already done. We already sank. MM's had already naked shorted and set another paradigm in motion that just kepr going. This stock is totally under-valued now. And it's really stupid because the stock has always had really hot retail appeal. If we were at $12 and got a 5th conversion we would easily go to $17 again. But the recent mindset is skewed. This benefits nobody. It doesn't benefit the company because they raised money ridiculously cheap. It doesn't benefit shorts because it would be a short's dream to open a position near $20. Long term investors are frustrated because they don't get the mental satisfaction that their investment is appreciating. It's just plain senseless in this price range. I even think that Jason's analysis is overly conservative and that this should have a PT in the $30's. Consider the ROW opportunities and that the Neural Trails will probably be fast-tracked. Anything under $12 is a complete travesty and there would be MUCH more active trading if this was above $12. MM's ought to know this! The float is low and they could easily walk this up.

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  13. Hi Jason,

    If NVIV hit 5 AISA conversions in the first 10 patients with no known safety issues, what do you think/know about the likelihood or possibility that NVIV could expand the enrollment to allow ASIA - B Patients?

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  14. Hi Jason,

    If NVIV achieves 5 conversions with the first 10 patients, what do you know/think about the likelihood or possibility that NVIV could increase their enrollment criteria to include acute AISA - B injuries?

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    1. I do not think that is the strategy David. After INSPIRE, the next step is to run a nearly identical trial in patients with AIS-A injuries in the cervical cord region.

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  15. Thanks Jason. Would it be necessary to wait until after inspire to include cervical? Or could they possibly amend inspire and include cervical if NVIV reaches a target with thoracic, for example, say 5 out of 10?

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    1. INSPIRE is being run on the HDE, so it cannot be changed to include any other population, AIS-B or AIS-A Cervical. The INSPIRE population is set in stone, so to speak. When NVIV goes to run another trial with NSS it will likely be AIS-A Cervical. I do not expect that the U.S. FDA will approval this trial until after NVIV submits the data for INSPIRE. Surgery of the cervical region is more complicated and riskier than the thoracic region simply because the vertebrae are smaller and closer together, and each dermatome controls regions of higher body function. The FDA wants to know that implantation of NSS is safe, so they are testing it in a region where "if harm is done" the damage would be things like the loss of hip or torso movement. Damage at the cervical region could be the difference between breathing and not breathing, or swallowing or not swallowing. That being said, if the NSS works, the potential improvement is vice versa. This could be huge! I think the FDA will want to see full data from INSPIRE before they approve the cervical trial, but that's just my guess. I will reach out to management and confirm.

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  16. If he NSS does gain approval, what hospitals/doctors would have access to it? What kind of training would they need prior to being able to perform this kind of surgery? Would NVIV just put out a report or would there be training seminars, or personal training, etc? Any insight would be much appreciated. thank you!

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    1. Hi - I'm not 100% sure of the answers to these questions, but I'm going to take a guess. So keep in mind, this is my guess (as I do not speak for the company and have not spoken to them in several months).

      I would think any/all Level-1 trauma centers would have access to the NSS under the HDE approval.
      The surgery procedure is pretty straightforward for a skilled neurosurgeon, although cutting open the cord is not part of the standard of care, so I would assume a brief training session makes sense. Keep in mind, InVivo has enrolled roughly 20 centers in INSPIRE to date. These Doc's are getting experience and training right now. As soon as the NSS launches, one would assume any center that participated in INSPIRE would be "ready to go" after a bit of paperwork.

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  17. Jason - I think NVIV will likely get HDE approval, but under HDE aren't profits limited? The trial is for 16 years and over, so no children, which places further constraints on how much they can charge. How do you see the path to profitability? Is this not like VCEL's Epicel product in a sense, except that they got approval for treating children too and that allows sales at significant profit?

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    1. There's no restriction on profit anymore, only "number of devices necessary to treat 4,000 patients". You can see in my model above, the HDE population (INSPIRE) never even gets to 4,000 patients by 2026.

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  18. The trading action today continues to frustrate & infuriate me, and I am absolutely at a loss as to what I am missing. It smells of illegal manipulation; but counting on the SEC is like waiting for pigs to fly. Any comments / feedback is appreciated as I am going absolutely insane trying to figure out why such a promising situation is trading like a fraud. TY VM

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    1. I'm frustrated as well. I'm long the stock and do not understand why after seemingly great news with respect to patient #6 converting the stock has dropped 20%. I've encouraged management to hold a conference call to provide an update on the status of INSPIRE, financing, future plans, etc... I hope they do something because their investor relations and outreach efforts to date have been non-existent.

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    2. Enrollment is extremely slow and that the reason why this stock is not progressing in right direction.

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    3. Old news...Does not justify the way the stock is trading

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    4. As I noted above, enrollment will take as long as it takes. The timing is irrelevant. If the NSS works, who cares if INSPIRE reports results in May or August 2017. Edit the model above by pushing everything back 1 year. It changes the valuation from $21 to $19 per share. Does it really matter when the stock is $5.75 per share if it is going to $19 or $21? Worrying about the pace of enrollment is losing sight of the forest among the trees. Commercial use will be far greater than the pace of INSPIRE once the product is approved. There are 18 active sites and new sites are being added each month. Soon we will see the first sites in Canada and Europe. My model above has zero sales for the NSS outside the U.S.

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  19. IMPORTANT UPDATE:

    I'll be doing a "CEO Interview" with Mark Perrin, hopefully to post one day next week. Submit your questions to me via email or Twitter DM (my twitter is open to all DMs). Thanks!!

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    1. As always...Great job & much appreciated.. TY VM for getting in to interview him.. Hope it stops the bleeding once & for all

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    2. Did you interview CEO? I don't find any link to it

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