This $20 Billion Stalking Horse Bidder Could Make This 10 Cent Stock Win The Sweepstakes

Next Tuesday, October 15th, will be an interesting day for shareholders of ICO Therapeutics (ICO – TSXV).

On that day, the development license for one of their primary assets is set to be auctioned off through bankruptcy proceedings.

That asset has already shown that it works really well – that’s called “clinical efficacy in a highly deleterious condition.” (There’s too many PhDs in the world writing stuff!) 

It has passed Phase II of the FDA approval process.

It has been awarded orphan drug designation by both the FDA and the European Medicines Agency.

Bids are due on October 11th that’s this Friday! The judge is expected to award the winning bid on the 15th – next week!

And there is some last minute intrigue – a stalking horse bid has already been made – by a $20 billion biotech player.

That got my attention! A major is interested in a tiny off-the-radar play…

hhhmmmm….

Depending on the outcome, this could be a catalyst for the stock. It could put some deep pockets behind development. (I am not long, but I am watching.)

ICO retains a high-single digit royalty interest and potential milestone payments for the asset. The auction will put the license into new and potentially deep-pocketed hands.

ICO has market capitalization is under $20 million. A move through to FDA approval for the drug could make ICO’s stock worth a lot more than it is now.

Bertilimumab Is A Drug, not an Egyptian King

The asset in question is called Bertilimumab. It has shown promise in treating a dermatological condition called bullous pemphigoid (BP). 

BP is a rare autoimmune blistering disease – it causes painful and itchy blisters in patients, usually the elderly. 

ICO’s history with Bertilimumab has been a slow road, mainly because they hitched themselves to the wrong wagon.

In June 2011, ICO granted a license for the development and commercialization of Bertilimumab to Immune Pharmaceuticals. The license gave Immune the right to move Bertilimumab through the FDA approval process. 

ICO would retain a royalty upon commercialization (8.5%), and milestone payments (totalling $32 million) along the way. That’s a lot of money for a penny stock that has had to dilute a lot in the last year to stay alive.

But Immune struggled – they lacked both resources and cash.  They also showed a lack of focus. In addition to Bertilimumab, Immune was developing drugs for indications in immune-oncology, neuropathic pain and atopic dermatitis.

It was too many irons in the fire that lead to an unsustainable cash burn. After a failed corporate restructuring in April 2017 (in which they finally narrowed their focus to bertilimumab) Immune finally succumbed to bankruptcy in February of 2019.

In the prior 6 years before filing for bankruptcy Immune did achieve progress on Bertilimumab – albeit at a glacial pace

First, Immune targeted ulcerative colitis with a Phase II study in 2013.   Shortly after that they initiated a Phase II study in BP.

I suspect that the outcomes from the ulcerative colitis study weren’t great. It took two years for the first patient to be dosed. Results have never been disclosed and the company’s commentary about the results are vague.

The BP study had more success. According to the 2018 Immune Pharmaceuticals 10-K:

The interim analysis showed that the six subjects in the study experienced a decline in the Bullous Pemphigoid Disease Area Index (BPDAI) Total Activity Score of 85% (p=0.0096). All six subjects in the study achieved a greater than 50% reduction in their BPDAI Total Activity Score by the final assessment, and four of the six patients had a greater than 90% reduction. Bertilimumab was well tolerated in all six subjects and no serious adverse events were reported.

Moreover, these six subjects received approximately 30 mg per day less prednisone over the course of the study than they would have been expected to receive in a standard BP treatment regimen.

Akari Therapeutics also has a candidate for BP called nomacopan. Early results of their on-going Phase II study showed 3 patients with an average BPDAI drop of 31% after 7 days and 52% after 42 days.

Bertilimumab would seem to compare well, with these results indicating a reason to move the drug into a more comprehensive Phase III study.

Orphan Drug Designation

But before Immune would be willing to push Bertilimumab forward, they needed to lock down the economic opportunity. 

Here’s the rub – BP is not a very common disease. 

It impacts between 2-20 people per million. This makes an economically feasible development difficult without some assistance.

Fortunately, governments have defined a category for diseases like BP. They designate them as an “orphan disease”.

An orphan disease affects a small percentage of the population. The designation gives a company the ability to create smaller size trials and eventually sell the drug for a much higher price if it is approved.

Unfortunately, getting the designation proved to be challenging for Immune.

They tried in 2014 and failed. They tried again in 2017 and failed again.

Without orphan disease designation, Bertilimumab for BP would have been all but dead.

A Change of Mind too Late

There was nearly a last minute save for Immune when Bertilimumab was given orphan designation in July 2018 by the European Medicines Agency. 

In August 2018, the FDA had a change of heart and also gave orphan designation. In September 2018 the FDA gave fast track designation to the drug as well.

Unfortunately, the timing was too late for Immune. Their September 2018 financials showed a dismal picture. No cash on hand, over $8 million of debt and burning cash at the rate of nearly $1 million per month.

In February Immune was forced to declare bankruptcy. 

Curious Court Filings

Bankruptcies are always going to be messy. 

Competing interests. Contracts. Management teams with beefy severances that they want to see paid out. 

A judge would rather see it swept off his plate.

That seems to be the path here. In July, a third party stepped in to make the process a lot cleaner.

About 6 months after Immune entered bankruptcy proceedings in walks a company called Alexion Pharmaceuticals (ALXN – NASQ). Alexion said that they would be interested in buying out the Bertilimumab assets from the Immune stakeholders.

The judge said sure. Court filings show that Alexion is now the stalking horse bidder in a soon to be held auction for the Bertilimumab assets.

The obvious question is – why would Alexion be so interested in tiny little Bertilimumab? Alexion is a $22 billion company. 

Well, here is an interesting thing about Alexion. Every one of Alexion’s marketed products have Orphan drug designations. 

What’s more, Alexion already has some knowledge of BP. One of their drug candidates, SNYT001 lists BP as a potential target.

Source: Alexion October 2018 Investor Presentation

Fire Sale Prices – Everything Must Go

The auction of the Bertilimumab assets that will take place on October 15th.

Source: United States Bankruptcy Court State of New Jersey: Case 19-13273-VFP Doc 320

Now before you get too excited – the initial bid by Alexion is only for $6 million.

Source: United States Bankruptcy Court State of New Jersey: Case 19-13273-VFP Doc 247

There are a couple of ways to look at this. Either Alexion doesn’t think Bertilimumab is worth much, or they think they can steal the asset out of bankruptcy. 

$6 million is not far off what the Immune debtors are owed. Maybe Alexion thinks they’ll take their money and run.

The other question is what the real intention of Alexion is.

It could be that they are already familiar with the BP market and see an opportunity with Bertilimumab.

That would be a big positive for ICO. It would mean that Alexion is about to put their financial and research depth behind the drug. 

If Alexion is interested in Bertilimumab to drive the development forward, the royalty and milestone payments could be worth multiples of ICO’s current stock price. 

To give some indication of orphan drug potential, Alexion’s top selling drug Soliris, which has orphan designation for three indications, had revenue of over $3.5 billion in 2018.

There is a more cynical possibility. It could be that Alexion finds it more beneficial to buy a potential competitor to their own SYN001 than try to compete against it.  They may be buying Bertilimumab to bury it.

To be fair, BP does not appear to be a primary target SYNT001 and the only mention of BP is the presentation slide above. Nevertheless, $6 million is not a lot of money for Alexion. It could be a worthwhile investment to take Bertilimumab off the table. The politics of a large biotech do not always mean the best candidates win out.

I’m Watching It Closely

It is very interesting to me that Alexion is taking an interest. 

If Alexion does acquire the rights and put its corporate clout behind Bertilimumab’s development, well ICO might find itself onto something.

But there are a lot of questions here.  What are Alexion’s true intentions? Are there other bidders and what will happen to Bertilimumab at the auction? 

I don’t have answers for these. But I will be watching closely to see what happens on October 15th

Too many questions for me to buy this one just yet. But certainly, a lot to keep my eye on in the next couple weeks.

Keith

 


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