Article dated August 20th from Hedge Fund House
The Hedge Fund House
This blog features opinions on hot stocks in the biotech sector, trading/investing topics, macroeconomic news, and a variety of other topics.
Saturday, August 20, 2016
$SPHS Bull Case Summary [/paste:font]
Hello Hedgies,
When long on a stock and knowing that you're simply in a waiting game for news, I think it's important to constantly remind oneself why you're in that stock. Many investors or potential investors/employees of Pernix may find this article on Sophris Pharma ($SPHS) very interesting.
SPHS is a true buyout waiting to happen in our Hedge Fund House opinion. At worst, I expect the next PR to feature a big pharma name, upfront cash, and milestone payments to acquire or partner with Sophiris. Here are the main reasons why I have been so bullish on Sophiris since the beginning of my coverage:
1.) Topsalysin: In my honest opinion, this will be called a "miracle drug" once big pharma acquires it and runs a couple more trials in BPH and PC. With meeting its phase 3 BPH primary endpoint, proven ablation of PC tumors in a phase 2a, and - just as importantly - NO SERIOUS SAFETY ISSUES, this drug will be a star in an otherwise safety issue ridden, only life prolonging world of most modern drug candidates. The ability to completely ablate tumors in men with PC, while avoiding chemo/radiation, endless daily pill intake, countless side effects, or sitting around and wondering if your tumor is developing, is priceless.
2.) Woods/Hulme History: CEO Randall Woods and COO and Head of Research and Development Allison Hulme have distinguished career accomplishments. -Woods: Sold 2 companies, last for 350M (said this drug is the most exciting he has worked on which leads me to believe that SPHS will sell for much more than 350M) -Hulme: With an impressive background herself including a well-respected role at GSK, Allison Hulme brings credibility and knowledge to the negotiation table.
3.) Oppenheimer: About 100 days have gone by with this Investment Bank engaged and working alongside CEO Woods to get a deal done. -approximately 10 days to get situated with one another -approx 20-30 days for potential bidders to allow their CSO's and other scientists to dig into SPHS' clinical trial results -approx 40-50 days to go through the multiple rounds of bids, each time thinning out the herd in search for the best and final bid -10-20 days to work out the details and have lawyers do their thing (By this timeline, we're close to the end.)
4.) Hints in recent PR's and interviews by CEO Woods: In the most recent company PR, Woods stated, "2016 is proving to be a transformational year for Sophiris." Link to company news: http://investor.sophirisbio.com/releases.cfm The wording here is key. "Proving" to be a "transformational" year sounds to me like negotiations are going very well. Also, in a recent interview, CEO Woods mentioned possibly being "acquired" which he has steered clear of until this point.
5.) Recent "competitor" failures and recent "competitor" valuations: I say "competitors" because I do not think that much can compete with a drug with little side effects, no serious safety issues, and proven ability to TREAT BPH, and POSSIBLY CURE prostate cancer! Multiple companies trying to develop a BPH or PC drug recently either had complete clinical failures and are suspending further development or had lasting-damaging press. Tokai Pharmaceuticals (TKAI) announced the phase 3 failure and clinical suspension of its drug, and Nymox (NYMX) a sketchy, Bahama-based company with little transparency trying to compete with Sophiris had a Seeking Alpha article written about it explaining why it's such a horrible company. It seems like "competitors" are dropping like flies recently. The timing could not be better for Sophiris' strength in negotiations. Also in recent biotech history, multiple companies have received billion dollar + deals for their possible and sometimes early-stage BPH or PC drugs. For more on recent competitor valuations that will only raise the asking price of SPHS, refer to my earlier article in this blog, titled "Sophiris Bio, Inc. Potential Buyout Valuation Prediction." In this article, links and details on several deals are provided which I do not want to repeat for the sake of length and duplicity on this blog. Just know that drugs in much earlier stages than Topsalysin, less clinical data validation, and smaller markets have received OVER 1 BILLION DOLLARS in either partnerships or buyouts by big pharmaceutical companies. With big pharma companies' drugs ever increasing in patent expirations, they are constantly looking for drugs to reinforce their pipelines in order to boost bottom lines. With Topsalysin being a two-for-one drug, treating two huge markets, I believe that Sophiris would be a tremendous buy out target for many big pharma names.
6.) Market Cap. and Outstanding Shares: The current market cap of approx. 130M and outstanding shares of approximately 20,800,000 reflect a great opportunity here. The market cap is still significantly undervalued for a company with a drug like Topsalysin. Also, the OS count is extremely small compared to other small cap bios out there. With a public float of approx. 6M shares at this point, this stock can run VERY quickly on news of a partnership. News of a BO will send this to the stratosphere regardless of OS.
7.) Workforce Reduction and Stock Severance: Earlier this year, Sophiris let go half of their workforce and left only key managerial personnel. Why would a company let go of their personnel responsible for the clinical trial design and operation, when there are other trials that need to take effect before FDA approval? My thoughts are that they did this to a.) reduce cash burn while negotiating a deal and b.) they know that they do not need all personnel anymore, because they are likely going to be acquired or partner with a big pharma company that will take over operations for them. They were let go with favorable severance packages that include large stock options. (I wonder why employees would be so gracious to accept stock as severance AND why a company would reward their employees that got them to this point with stock? Everyone knows that the only reason that this is a reward and a happy farewell for both sides if the stock is worth much more in the future... DING! DING! DING!)
I'm sure that I omitted some smaller bullish points. I'm also sure that I have not come across one fact or valid opinion from the bears as to why I should not hold this stock until I at least hear what Woods and Oppenheimer have been busy working on. I think I'll be rewarded handsomely in the end. Best of luck to all! Thanks as always for stopping by THFH Blog.
The Hedge Fund House
This blog features opinions on hot stocks in the biotech sector, trading/investing topics, macroeconomic news, and a variety of other topics.
Saturday, August 20, 2016
$SPHS Bull Case Summary [/paste:font]
Hello Hedgies,
When long on a stock and knowing that you're simply in a waiting game for news, I think it's important to constantly remind oneself why you're in that stock. Many investors or potential investors/employees of Pernix may find this article on Sophris Pharma ($SPHS) very interesting.
SPHS is a true buyout waiting to happen in our Hedge Fund House opinion. At worst, I expect the next PR to feature a big pharma name, upfront cash, and milestone payments to acquire or partner with Sophiris. Here are the main reasons why I have been so bullish on Sophiris since the beginning of my coverage:
1.) Topsalysin: In my honest opinion, this will be called a "miracle drug" once big pharma acquires it and runs a couple more trials in BPH and PC. With meeting its phase 3 BPH primary endpoint, proven ablation of PC tumors in a phase 2a, and - just as importantly - NO SERIOUS SAFETY ISSUES, this drug will be a star in an otherwise safety issue ridden, only life prolonging world of most modern drug candidates. The ability to completely ablate tumors in men with PC, while avoiding chemo/radiation, endless daily pill intake, countless side effects, or sitting around and wondering if your tumor is developing, is priceless.
2.) Woods/Hulme History: CEO Randall Woods and COO and Head of Research and Development Allison Hulme have distinguished career accomplishments. -Woods: Sold 2 companies, last for 350M (said this drug is the most exciting he has worked on which leads me to believe that SPHS will sell for much more than 350M) -Hulme: With an impressive background herself including a well-respected role at GSK, Allison Hulme brings credibility and knowledge to the negotiation table.
3.) Oppenheimer: About 100 days have gone by with this Investment Bank engaged and working alongside CEO Woods to get a deal done. -approximately 10 days to get situated with one another -approx 20-30 days for potential bidders to allow their CSO's and other scientists to dig into SPHS' clinical trial results -approx 40-50 days to go through the multiple rounds of bids, each time thinning out the herd in search for the best and final bid -10-20 days to work out the details and have lawyers do their thing (By this timeline, we're close to the end.)
4.) Hints in recent PR's and interviews by CEO Woods: In the most recent company PR, Woods stated, "2016 is proving to be a transformational year for Sophiris." Link to company news: http://investor.sophirisbio.com/releases.cfm The wording here is key. "Proving" to be a "transformational" year sounds to me like negotiations are going very well. Also, in a recent interview, CEO Woods mentioned possibly being "acquired" which he has steered clear of until this point.
5.) Recent "competitor" failures and recent "competitor" valuations: I say "competitors" because I do not think that much can compete with a drug with little side effects, no serious safety issues, and proven ability to TREAT BPH, and POSSIBLY CURE prostate cancer! Multiple companies trying to develop a BPH or PC drug recently either had complete clinical failures and are suspending further development or had lasting-damaging press. Tokai Pharmaceuticals (TKAI) announced the phase 3 failure and clinical suspension of its drug, and Nymox (NYMX) a sketchy, Bahama-based company with little transparency trying to compete with Sophiris had a Seeking Alpha article written about it explaining why it's such a horrible company. It seems like "competitors" are dropping like flies recently. The timing could not be better for Sophiris' strength in negotiations. Also in recent biotech history, multiple companies have received billion dollar + deals for their possible and sometimes early-stage BPH or PC drugs. For more on recent competitor valuations that will only raise the asking price of SPHS, refer to my earlier article in this blog, titled "Sophiris Bio, Inc. Potential Buyout Valuation Prediction." In this article, links and details on several deals are provided which I do not want to repeat for the sake of length and duplicity on this blog. Just know that drugs in much earlier stages than Topsalysin, less clinical data validation, and smaller markets have received OVER 1 BILLION DOLLARS in either partnerships or buyouts by big pharmaceutical companies. With big pharma companies' drugs ever increasing in patent expirations, they are constantly looking for drugs to reinforce their pipelines in order to boost bottom lines. With Topsalysin being a two-for-one drug, treating two huge markets, I believe that Sophiris would be a tremendous buy out target for many big pharma names.
6.) Market Cap. and Outstanding Shares: The current market cap of approx. 130M and outstanding shares of approximately 20,800,000 reflect a great opportunity here. The market cap is still significantly undervalued for a company with a drug like Topsalysin. Also, the OS count is extremely small compared to other small cap bios out there. With a public float of approx. 6M shares at this point, this stock can run VERY quickly on news of a partnership. News of a BO will send this to the stratosphere regardless of OS.
7.) Workforce Reduction and Stock Severance: Earlier this year, Sophiris let go half of their workforce and left only key managerial personnel. Why would a company let go of their personnel responsible for the clinical trial design and operation, when there are other trials that need to take effect before FDA approval? My thoughts are that they did this to a.) reduce cash burn while negotiating a deal and b.) they know that they do not need all personnel anymore, because they are likely going to be acquired or partner with a big pharma company that will take over operations for them. They were let go with favorable severance packages that include large stock options. (I wonder why employees would be so gracious to accept stock as severance AND why a company would reward their employees that got them to this point with stock? Everyone knows that the only reason that this is a reward and a happy farewell for both sides if the stock is worth much more in the future... DING! DING! DING!)
I'm sure that I omitted some smaller bullish points. I'm also sure that I have not come across one fact or valid opinion from the bears as to why I should not hold this stock until I at least hear what Woods and Oppenheimer have been busy working on. I think I'll be rewarded handsomely in the end. Best of luck to all! Thanks as always for stopping by THFH Blog.
FE) just bought out Medivation Inc (NASDAQ:MDVN) so as it could pick up Xtandi. These sorts of assets don’t stay free agents for long, and we believe topsalysin would be very attractive if it had some supportive phase II data, a clean safety profile and an established MTD. The funds Sophiris is raising will allow it to tick all three of these boxes (assuming the drug continues to work, of course) and so the dilution shareholders are having to bear is well worth the hit in our opinion.