Miami, FL – March 4, 2018 (EmergingGrowth.com NewsWire) — EmergingGrowth.com, a leading independent small cap media portal with an extensive history of providing unparalleled content for the Emerging Growth markets and companies, reports on Ampio Pharmaceuticals, Inc. (NASDAQ: AMPE)
- Potential Avoidance of Total Knee Replacement Surgery
- Trial Results – Doubled Endpoint with Most Advanced Disease
- Cartilage Regrowth Shown
- JP Morgan Conference Galvanizes Suitors for License and Acquisition
- $4.0 Billion Acquisition Valuation Possible
Ampio Pharmaceuticals (AMPE) has one of the most promising drugs of the decade. When you think about aging diseases Osteoarthritis, it is in the top 3. None of the existing drugs work, and the Journal of the American Medical Association (JAMA) and the American Academy of Orthopedic Surgeons (AAOS) which determine the recommended use of the osteoarthritis drugs, have categorically came out and declared that all these drugs do not work and should be avoided. AMPE has 2 successful pivotal phase 2 trials underneath their belt and waiting for regulatory approval. They have met their endpoint in 4 out of 7 clinical trials. The drug is a biologic and simply a concentrated form of another FDA approved biologic in use for decades. It’s extremely safe and in over 2007 patients dosed there hasn’t been even one SAE. The drug has proven in human clinical trials that it can regrow cartilage and possibly avoid total knee replacement surgery. Furthermore the last clinical trial which reported results in December crushed the endpoint over 2 fold. If you are a new investor to the stock, you would think this is worth billions given the aging of the population and size of the market. Think again. The shorts have attacked with a misinformation campaign and it’s currently sitting at a $200 mil valuation instead of a billion dollar valuation. It’s time for a reset because over 30 interested parties were at the JP Morgan conference and a published short position equivalent to 17% of the float as of February 22, 2018 is just waiting to get unraveled.
Phenomenal Trial Results
When looking at a biotech, investors need to know the science is solid so it’s helpful to go over the latest clinical trial results. Right now all existing drugs for OAK treat for pain and only pain. They don’t address an improvement in mobility or overall quality of life. So the first part in understanding these clinical trial results is understanding how high the bar was for this drug to meet its endpoints. OMERACT-OARSI is a composite analysis that measures pain, function, and quality of life. This measurement criteria recognized by the FDA, came from OMERACT which is the standing committee for Clinical Trials Response Criteria Initiative Outcome Measures in Rheumatology and OARSI the Osteoarthritis Research Society International. Bottom line – meeting this endpoint means the drug has more value than TKA (total knee replacement surgery)!
The chart below depicts that results of the trial were above the red line by over double. While the 30% threshold is not an FDA published threshold, it is a benchmark used by Osteoarthritis physicians as “significant” when referring to the unmet need of KL4 (bone on bone OAK). If it just hit the red line of 30% it’s good, but as you can see, they crushed it in all categories. The primary reason for this is the mechanism of action which is very complicated to discuss in just one article. In short it relieves the pain and helps the body repair the damage by being a beacon for stem cells to rebuild the cartilage. In the STRUT study, which we won’t go into detail on here, the drug replaced up to .2 mm of cartilage. Most people don’t realize that there is only 2 mm of cartilage on our knees so .2 mm of cartilage growth on one injection is a big deal. What if they did more than one injection? Well, they did in previous trials and there is currently a study going on for multiple injections which is an extended study. All of those patients in the last study we’re invited to the extended study and all of them had MRI’s prior to the original study. There is a high probability Ampion proves to be beneficial to those patients from a cartilage regeneration perspective as well as pain, function and quality of life.
Likelihood of Approval – Extremely High – Pathway to approval
Starting with the basics this drug is simply a filtered form of another FDA approved biologic called Human Serum Albumin known as HSA which has been around for decades. HSA is derived from pooled blood plasma that has been cleansed. The most basic argument for approval is that AMPE is using a filtered form of an already FDA approved biologic. The FDA didn’t require AMPE to do any animal testing. The FDA primarily cares about two things for approval; SAFETY & EFFICACY. The FDA required 2 successful pivotal trials before they would accept their Biologics License Application (BLA). They completed them and simply have to file their 80,000 page report with the FDA.
Since Ampion is a biologic manufactured from an already FDA approved feedstock known as HSA it contains no addictive properties. The opioid epidemic in the United States is very real. This epidemic is a national priority supported by President Trump. Ampion when approved could single handedly strike a devastating blow in the war against opioid abuse. From this chart, 2.1 million people who took opioids for the first time misused them. Substituting Ampion in place of opiates which do in fact work for pain would be a major step in curbing the exposure to the American population. Opioid use is as high as 30% in the OAK indication. Approximately 21 million people in the US are currently diagnosed with OAK, so reducing the exposure of opiates to 6.3 million people is a big first step. There is tremendous political clout looking for solutions, and if this drugs use is expanded to other forms of arthritis it has the potential to impact 54 million people who are currently diagnosed with arthritis today. This drug is a game changer in the war against opioid use.
Turn Key Drug with Manufacturing Facility
Not only is Ampion an approvable drug, but it also has world class manufacturing in place. It’s about as turn- key of an operation as you will find anywhere in the world. The Ampion process is so unique that it was asked to present to the Society for Pharmaceutical Engineers. The facility has been visited by the FDA and they have done small and large batch runs and are in compliance with Current Good Manufacturing Practice (CGMP) regulations. The company has indicated that if they run dual shifts they could produce about 7-8 million vials a year. This equates to $1.6 billion of drug annually assuming a $200 wholesale cost.
Value of the Labeling
The more claims that you can add to a label the more valuable it becomes. Reimbursement issue have been plaguing this market after JAMA and AAOS made derogatory comments last year regarding the use of the current OAK drugs. AMPE’s label would provide for insurance reimbursements on many levels while the competing drugs in this space are seeing erosion of their reimbursements as states discontinue coverage of these ineffective drugs and arguably dangerous drugs.
The cleanest labels have no warnings for safety. When a drug is advertised on TV at the end of the commercial viewer are peppered with the side effects and warnings like the drug can cause risk of heart attack, stroke, nausea, itching, cancer development, etc. When this drug comes to market the message will be simple because it will state it’s for use in OAK and can reduce pain by over 50%, reduce inflammation, improve function and can be taken up to 5 times a year as needed. No warning labels at the end the commercial! In some cases half the commercials are the side effects. For the drug company that ultimately buys this company, the less money they have to spend on advertising the more profitable the drug. Investors should not underestimate the value of such a clean label.
Pricing of the Drug
Right now, each shot in the knee of the drugs that don’t work well or have potential side effects, according to JAMA and AAOS cost between $600 – $800 per shot. Reverse engineering the price and assuming the most conservative pricing put the wholesale cost per shot to the doctor at $300. If this assumption is too rich arbitrarily take off $80 per shot and assume the sale to the doctor occurs at $220. It costs the company $20 per shot to manufacture the drug leaving $200 profit per injection.
AMPE believes there are 1.1 million patients in their market per the corporate presentation. Using the most conservative estimates available, BJM estimated there are 640,000 knee replacements done annually. Assuming only a 40% penetration rate of this patient population that has no alternative but a $49,500 very painful knee replacement surgery the numbers work out to $256 million in profit alone in the first year. The primary assumption in this model is that people like pain and would rather have surgery than have 5 pin pricks of their knee over the course of a year. Other assumptions are that a disruptive new technology enters the market in the coming year and the company can only get one year of life out of the product. The final set of assumptions investors have to make in order to maintain the current market value are that people will not use this on other joints or other diseases. See what happens to today’s valuations of next year’s earnings if investors assume that people in general hate pain. Only one conclusion that should follow is that the stock should be 3 times its current valuation right now using these ridiculously conservative assumptions.
Bright Future for Ampio
Ampio is in a unique position with world-wide patent coverage and a potential unmet need designation as the FDA has suggested. That means it could be licensed in major markets or even minor ones by Country or by region. The biggest payout to investors would be license deals with upfront cash and royalties in multiple markets. It’s more difficult to piece together this type of organization, but the payout is greater. Licensing deals in China, North America, Europe, Japan, or all of Asia Pacific are all possibilities.
Big pharmaceuticals are known for devouring companies just like AMPE especially when they are in the stage of introducing a drug to the market. All the risk is out of the acquisition at this stage. At this point the only thing left for big pharma to do is their due diligence on the patents, review the data, and verify the FDA correspondence. With all the money sitting on the sidelines acquisitions are a hot commodity and this one could go for a premium because it turn-key. All big pharm has to do after the acquisition is file the BLA and get their marketing team positioned. The big names in the in the OAK or pain space are players such as Sanofi-Adventis (SNY), Merck (MRK), Johnson & Johnson (JNJ), and Pfizer (PFE) to name a few. They have either failed OAK or pain drugs and sales forces twiddling their thumbs. Perhaps a device player like Stryker decides to own the OAK severe market along with thumb, shoulder, hip, foot, neck etc. The possibilities are endless and big pharma has so much money sloshing around they need to put it to work and AMPE is clearly on their radar.
This article needs a follow up, because the topic of AMPION stem cells or regeneration hasn’t been addressed. These discussions could open a whole new set of players like Regeneron Pharmaceuticals (NASDAQ: REGN) or Biogen Inc. (NASDAQ: BIIB). The possibilities are endless when you’re dealing with a safe and effective biological compound that reduces inflammation, protects and promotes stem cells.
The company has commissioned a valuation report but has not released any information to the public. Most drug companies in a position to sell their assets do this so they have some leverage in their negotiations with big pharma. Rumors from some large investors have indicated a new one has been completed and is floating around in a tight circle of big pharma’s in the final rounds of negotiations. No valuation numbers have been leaked but rumors are that its orders of magnitudes higher than a prior ones done years back. Based on previous statements by the company prior valuation were in excess of multiple of billions of dollars. The new data was expanded to include pain function and global assessment. Since this label would be significantly expanded over their prior trial results which was covered in the initial valuation it’s not hard to draw the conclusion that this valuation might be pushing $4.0 billion plus. Add to that the other indications AMPION could address and investors will realize it’s platform drug that could stand alone or be combined with a host of other drugs. The valuation could be massive, there is no real good way to box it in.
Since the JP Morgan conference AMPE is having discussions with drug companies. They have openly stated that there is widespread interest and that they are pursuing all leads. Furthermore, they have confirmed that many standstill agreements have been rejected indicating fervent interest in the drug. They are looking for either a license deal or a buyout. A license deal would make the most sense because it’s cash that comes into the company immediately giving them plenty of runway while they continue discussions with big pharma. A license deal is close at hand and the market is asleep at the wheel and hasn’t factored this into the price. A license deal would also galvanize big pharma into action as they realize that AMPE could continue licensing this technology all over the world and then have enough money to build their own sales force and compete head to head against them. Big pharma cannot take the chance that their competitors get this technology. The winner of this technology would control the pain market, the inflammation market, and possibly the future stem cell market. A bidding war is likely to ensue once a licensing deal has been completed. Let’s assume they value it at or near the $4.0 billion valuation ($40/share) the market is currently saying there is a 6.25% likelihood of that event happening at a price of $2.50. There is no rational basis for a 6.25% probability of a buyout when the company is so intently focused on inking a licensing deal or buyout in the coming months.
Due to the lack of press releases from the company since the JP Morgan conference, investors could anticipate many conversations are happening with drug companies regarding licensing and an outright buyout. This dead silence from the company seems to be an ominous sign to the shorts that it’s time to close their position or they are in for a very rude awakening. The biggest fear of both the shorts and longs is a news flag in the premarket. The longs will be thinking I wish I bought more and the shorts will be thinking why on earth didn’t I cover down here. This misinformation campaign needs to end now. This stock could be considered an immediate buy with a short term price target of $10/share which represents a 75% discount to the expected acquisition price.
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