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Thursday, January 5, 2017

Five Names To Meet With During JPM Week

Next week, I'm headed out to San Francisco with the rest of the biopharma world for the annual JP Morgan Healthcare Conference. It's the largest healthcare event of the year, the Superbowl of biopharma investing; or better yet, the Daytona 500 because it comes at the start of the season! I'm a small-cap biopharma analyst and investor, so all the names at JPM are too large for my tastes. The ancillary Biotech Showcase is a good conference for small-cap investors, but I've never understood the attraction or the benefit to sitting in a conference room watching a 20-minute Powerpoint presentation.

In fact, I've been going to San Francisco for JPM Week for almost a decade. I think 2017 marks the ninth year in a row I'll make the trip across the country. I cannot recall the last time I sat in on a presentation at either JPM or BTS. Instead, I make the trip to do one-on-one meetings. Almost all the management teams in town next week will meet with investors for one-on-one meetings. This is where you can really get to know the company, ask questions, and learn valuable information. Take my advice, if you really want to get the most out of your trip to San Fran next week, skip the Powerpoint presentations and schedule one-on-one meetings!

My schedule is pretty full. I'm meeting with over a dozen management teams. Below is a primer for ten names I plan to see, with a look at what I'm looking to ask and get updates on while I'm in town.

Matinas Biopharma (MTNB): Matinas is one of my best ideas for 2017. Matinas focuses on the treatment of chronic and acute infection. The company's two lead products are MAT2203, an oral formulation of the antifungal agent amphotericin B for invasive fungal infections (IFI), and MAT2501, an oral formulation of the antibiotic, amikacin. Central to the Matinas story is the company's proprietary cochleate technology. Cochleates are stable, crystalline phospholipid-cation delivery vehicles that are composed of soybean phosphatidylserine (PS) and calcium. 

Calcium is used to create a calcium-phospholipid anhydrous crystal structure that traps the active pharmaceutical ingredient (API) inside the nano-crystalline structure. Cochleate drugs can be taken orally because the high calcium concentration inside the digestive tract keeps the cochleate structure in crystalline form. This protects the API even though the outer layers of a cochleate crystal may be exposed to harsh environmental conditions or enzymes found in the digestive tract. Once ingested, macrophages readily engulf cochleate through phagocytosis. The vesicles form endosomes, which merge into lysosomes inside the macrophage (see cartoon graphic).

Once inside the macrophage, the nano-cochleate structure unrolls due to the low calcium concentration of the cytoplasm. This releases the active pharmaceutical drug inside the macrophage. The macrophage then travels to the site of the infection, slowly releasing the active anti-infectant where it is needed most.

MAT2203 is an oral formulation of the broad-spectrum antifungal agent amphotericin B. In November 2016, Matinas initiated a Phase 2 study examining MAT2203 in patients with vulvovaginal candidiasis (VVC). It's a randomized, multicenter, evaluator-blinded study of oral MAT2203 compared to oral fluconazole in adult female patients. The Phase 2 VVC study is designed to assess the efficacy, safety, and tolerability of MAT2203 in this otherwise healthy population. The results will provide Matinas with excellent balance / juxtaposition to a second (going) Phase 2 study being conducted by the NIH for the treatment of mucocutaneous candidiasis in immunocompromised patients who are refractory or intolerant to standard non-intravenous therapies. These are patients with advanced cancer, organ transplant, or viral infection that no longer respond to oral azole treatment.

A third Phase 2 study is expected to begin shortly. In this study, Matinas will analyze the multiple dose safety, tolerability, and PK study in patients with mucocutaneous candidiasis undergoing treatment for hematologic malignancies such as leukemia. This study will include patients being treated with the chemotherapy regimen that typically induces neutropenia, causing suppression of the immune system and subsequently puts patients at risk for developing an IFI. My review of MAT2203 is a helpful starting place for investors interested in learning more about MAT2203. I think this is a potential blockbuster product.

MAT2501, an oral formulation of amikacin, is equally as exciting. Amikacin is a powerful antibiotic with limited resistance. Unfortunately, tolerability is poor and adverse events, including severe nephrotoxicity, is common. This greatly limits uptake of the drug and relegates use to last-resort indications. Additionally, Amikacin must be delivered via intramuscular or intravenous injection. MAT2501 has a novel approach and solves a big problem for infectious disease doctors in the U.S.

The reasons why I'm bullish on Matinas are numerous. It checks all of the boxes on my "Five C's" rule for biopharma investing. The first half of 2017 is loaded with catalysts, including data readouts on all three MAT2203 trials and the recently initiated Phase 1 MAT2501 program. That's four meaningful catalysts over the next 6-9 months. Plus, the company just announced a warrant tender that should bring in over $15 million in cash and dramatically clean up the capital structure. With cash, catalysts, and a clean capital structure, I'm expecting an uplist to a national exchange in 2017 as well. I plan to meet with Matinas next week to get an update on all four clinical trials as well as the status of the warrant tender.

VistaGen Therapeutics (VTGN): VistaGen is another name I'm very excited about for 2017. The company is developing AV-101, a novel glycine B (GlyB) receptor antagonist that negatively modulates the NMDA receptor. AV-101 is an oral prodrug candidate that has demonstrated impressive antidepressant effects and safety in preclinical and Phase 1 studies and is currently in a Phase 2a study under the principal investigation of Dr. Carlos A. Zarate, MD, one of the nation's foremost experts in the field of depression, for the treatment of major depressive disorder.

This Phase 2a study is taking place at the U.S. National Institute of Mental Health Clinical Center in Bethesda, MD. Data are expected in the second quarter of 2017. Although designed as a small monotherapy study with emphasis on biomarkers and other exploratory endpoints, I believe positive signals will trigger a major valuation inflection in the shares of VistaGen, even before results from the much larger, potentially pivotal AV-101 Phase 2b adjunctive treatment study, as the release of similar, early-stage positive Phase 2 depression data from Minerva Neurosciences in May 2016 and Sage Therapeutics in July 2016 added several hundred million in market value to those companies. I've stated in the past that VistaGen's orally available AV-101 looks like a superior candidate to Allergan's Phase 3 IV-administered rapastinel, an asset that Allergan acquired along with a backup candidate for $571 million upfront in 2015, with over $1 billion in potential backend economics.

My primary focus for meeting with VistaGen is to get an update on the two Phase 2 programs with AV-101. As noted above, the results of the Phase 2a NIMH study has the potential to spark a major valuation inflection in the shares, so I want to try to nail down when and how VistaGen plans to make that data available. The trial is being conducted at the NIMH and academic-types like Dr. Zarate tend to like to present and publish these important findings. That takes time and make us investor-types wait longer than we like! I also want to try to get a sense of when the company plans to initiate the Phase 2b program. Management believes this trial could count as a pivotal program.

I've written in the past that AV-101 has tremendous potential for the treatment of major depressive disorder (MDD), so I want to try to understand the size and scope of this all-important Phase 2b study. I'm also very interested in the recent sublicense of the company's proprietary human pluripotent stem cell (hPSC) technology platform to BlueRock Therapeutics, a newly formed joint venture between Bayer AG and Versant Ventures seeded with $225 million in new capital. The sublicensed technologies relate to the production of cardiac stem cells for the treatment of heart disease. VistaGen received $1.25 million upfront and is eligible for significant development and commercialization milestones. I want to try to better understand both the upside opportunity from BlueRock and the potential for VistaGen to enter into additional sublicense agreements for this platform.

CanFite Biopharma (CANF): CanFite is planning a big year ahead. The company has two clinical-stage candidates in piclidenoson (CF101) and namodenoson (CF102). With piclidenoson, two separate Phase 3 programs should begin this year. The first will study piclidenoson as a first-line agent for the treatment of rheumatoid arthritis (RA) in patients that are naive to methotrexate (MTX). MTX is the standard first-line disease modifying antirheumatic drug (DMARD) for treating newly diagnosed patients with RA. 

My research finds that 80% of patients will start on MTX, but only two-thirds will still be on the drug after the first year and less than one-third are still on the drug two years after that. Tolerability to MTX is decent, but the efficacy simply does not compare to the anti-TNF biologic drugs or JAK inhibitors. CanFite is hoping that for newly diagnosed RA patients with high expression of a specific biomarker, A3AR, initiating therapy with piclidenoson will result in remission rates similar to the vastly more expensive and dangerous biologic drugs. A Phase 3 program is expected to initiate in Europe around the middle of the year.

Piclidenson also works for psoriasis. CanFite is planning a second Phase 3 program to begin in 2017 that will pit the drug head-to-head against Celgene's incredibly successful Otezla®. Piclidenoson has a slower onset of action than Otezla, but Phase 2 data suggests patients can achieve a higher clearance of plaque psoriasis if they stay on the drug for a longer period of time. For investors in CanFite, the initiation of the two Phase 3 programs is certainly encouraging from a development standpoint, but I think the real event to watch for with respect to piclidenoson in 2017 is a potential partnership. Piclidenoson is a drug that should be of high interest to specialty pharma companies in the U.S. and Europe, and the initiation of the two Phase 3 programs should be the final gating factor to striking a deal.

CanFite's second clinical candidate is namodenoson (CF102). Namodenoson is currently in a Phase 2 program for the treatment of refractory hepatocellular carcinoma (HCC) and about to start a second Phase 2 program for NAFLD/NASH. The Phase 2 HCC trial is an important catalyst for the company. Previous data with namodenoson in patients with Child-Pugh B cirrhosis showed an improvement in overall survival compared to what was previously demonstrated with Nevavar®. Data from this trial is expected around the middle of the year.

However, the initiation of the Phase 2 program in NAFLD/NASH is perhaps the most exciting program for CanFite investors. NASH is a hot area for biopharma investing and the company has been generating some very encouraging preclinical data with namodenoson in NASH models. Several large-cap names like Allergan, Gilead, and Sanofi are investing heavily in this space and with Phase 2 proof-of-concept data in hand for namodenoson, CanFite immediately becomes a take-out candidate.

I'm excited to meet with the company to get an update on all these programs, as well as discuss the company's business development strategy, which seems to present an opportunity for multiple deals with piclidenoson and/or namodenoson in 2017. 

Valeritas Holdings (VLRX): Valeritas Holdings, Inc. is a commercial-stage medical technology company focused on developing innovative technologies to improve the health and quality of life of people with Type-2 diabetes. The company's first FDA-approved product is V-Go Disposable Insulin Delivery Device ("V-Go"). V-Go is designed for patients with Type-2 diabetes who require daily insulin to achieve and maintain their target blood glucose goals. It is the first and only FDA-approved single-use, fully-disposable insulin delivery device with basal (background) and bolus (mealtime) capabilities on the market in the U.S.

V-Go solves many of the challenges with conventional insulin therapy. V-Go is small and discreet. The tiny device can be worn on the upper arm or along the waist underneath a shirt. Type-2 diabetics can dose insulin prior to a meal without having to carry around needles, pens, injectors, sterilizing wipes, or bottles of insulin. Users of the product report they can dose in public without anyone knowing. V-Go is also easy to use. Once applied to the skin, each device delivers a steady flow of insulin over a 24 hour period. Additionally, V-Go is convenient. The product is available at pharmacies across the U.S., similar to other prescription medications, including insulin pens and injectors. And finally, V-Go is cost effective. The device costs roughly the same as traditional insulin pens and applicators to both patients and payors. My summary of the benefits of V-Go is outlined in my previous work.

In November 2016, Valeritas reported financial results for the third quarter. Revenue growth was only 3% in the quarter, but investors need to understand that this growth came despite an over 50% cut to the size of the sales force from last year. Valeritas is working on improving operating efficiencies and profitability. My analysis of the financials and business prospects can be found in my update from November. I believe the company is making progress on all fronts and the improvement in the gross margin along with the decrease in operating expenses is clearly encouraging.

I'm looking forward to meeting with the company to discuss update business metrics, including gross margin and units sold for the fourth quarter. V-Go targets a tremendous market opportunity and the product is a lifesaver, literally, for many insulin-dependent diabetics. It's rare to see a company with an approved medical device like V-Go selling for such a low valuation compared to peers. I'm thinking that 2017 will be a pivotal year for Valeritas.

Vitality Biopharma (VBIO): If you wanted to invest in a theme for 2017, you can surely play CRISPR, gene therapy, or maybe CAR-T will come back in vogue after a rough 2016; however, my call for the best biopharma sub-sector place to stick your money for 2017 is in cannabis stocks. Yep, cannabis, an industry I told investors to avoid like the plague many years ago has finally come full circle. From boom to bust, to now potentially back to boom, I think cannabis biotech is here to stay. The recently passed 21st Century Cures Act is a major win for the industry and I think you will start to see serious institutional investors start making cannabis bets in 2017.

There are already several established players, like GW Pharmaceuticals Plc (GWPH) and Insys Therapeutics Inc. (INSY), but one under-the-radar name I like is Vitality Biopharma. The reason I like Vitality is because the company has real R&D operations and a real pipeline of cannabinoid prodrugs to treat unmet medical needs. I've stated in the past, I'm not a huge fan of the growers or the cannabis med-tech names. I think the future of cannabis is in pharmaceutical applications of cannabinoids, not medical marijuana. As such, I do not think you will see acres upon acres of marijuana being grown for pharmaceutical use. Instead, pharmaceutical-grade cannabinoid products will be manufactured, and Vitality's prodrug technology creates patent-protected, new chemical entities.

Vitality Bio is currently conducting preclinical studies in anticipation of filing IND applications in 2017 for glycosylated cannabinoid products called cannabosides. The most advanced candidate is VB100, a cannaboside prodrug under development for the acute management of inflammatory bowel disease. A second candidate, VB210, is under development for chronic conditions that affect both the GI and CNS. I'm particularly intrigued by the use of VB100 for the treatment of narcotic bowel syndrome (NBS), a severe form of opiate-induced abdominal pain. NBS is a rapidly growing problem in the U.S. due to the nation's serious opioid epidemic and there is a wealth of independent data supporting the use of CBD for the treatment of both severe opioid-refractory pain and inflammatory bowel disease (IBD). VB100 is an astutely designed molecule that has the potential to help upwards of 200,000 people in the U.S. with NBS.

Vitality's stock was on fire in December, tripling in value at one point. To learn more about the story, investors can read my introductory article. The stock looks very inexpensive given the potentially large market and proprietary technology. Management received some good news in late December from the U.S. Drug Enforcement Agency (DEA) and the State of California Research Advisory Panel granting the company approval to scale-up activities at its facilities used for the development of novel cannabinoid pharmaceutical prodrugs (read the company's press release). I'm excited to meet with management next week to get a better handle on the timelines for initiating clinical trials with both VB100 and VB210, as well as learn more about how the recent DEA approval opens the door to forming research collaborations and potential partnerships in 2017.

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Two see another five names, read Part-2 >> HERE

Please see important information about BioNap, Inc. and our relationship with company's mentioned in this article in our Disclaimer.
BioNap is long shares of MTNB and VTGN and owns stock options in shares of CANF.
We hold no position in shares of VBIO or VLRX as of this article, but reserve the right to establish a position in either name in the future.

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