Monday, May 27, 2024

Optimistic Information, Warrant Overhang, Biotech Hypothesis

Cellectar Biosciences (CLRB) is a late-stage medical biotech firm (not a “damaged biotech”) that just lately reported constructive information for his or her lead therapeutic, Iopofosine I 131, for the remedy of Waldenstrom’s macroglobulinemia (“WM”), which is an unusual gradual rising sort of non-Hodgkin lymphoma.  WM usually inflicts these over the age of 60 and people with WM succumb to the most cancers inside 5-10 years.  Whereas I attempt to keep away from science performs round right here, the outcomes have been fairly outstanding and supply hope for these with WM who’ve unsuccessfully tried two prior traces of remedy.  The FDA has granted Iopofosine each orphan drug and quick observe designations, Cellectar plans to file a brand new drug software (NDA) within the second half of this yr with an accelerated 6 month approval timeline.

One of many advantages of therapies for uncommon illnesses is the affected person inhabitants tends to be tightly concentrated inside specialised well being care communities and because of the R&D growth prices, extraordinarily excessive pricing is norm in orphan medicine to recoup that funding over a small affected person inhabitants.  Cellectar is within the strategy of transitioning from a medical stage biotech to a industrial one (assuming FDA approval), they’re outsourcing a lot of the manufacturing and solely spending $25MM to face up a gross sales and industrial help crew.  Absolutely the variety of sufferers is comparatively small, however once more, this will likely be a excessive priced remedy (a fast google search, the median orphan drug prices $200k+ yearly).

Doing a bit of again of the envelope math (full warning, this could possibly be wildly off), if 1500 new sufferers are recognized with WM yearly and 80% ultimately obtain a third line remedy, then CLBR’s annual affected person market phase is about 1200 folks.  If 2/3rds of these find yourself taking Iopofosine at $250k (made up quantity, barely above the median orphan drug, I have never seen administration point out pricing anyplace, please appropriate me if they’ve) a bit, that is $200MM in annual income.  Moreover, Cellectar is working a Part 2 research for Iopofosine in sufferers with a number of myeloma (“MM”) and central nervous system lymphoma, plus a Part 1b research is simply kicking off for pediatric sufferers with mind tumors.  In the event that they’re capable of repeat the success in WM, this might develop into a a lot bigger income alternative.

Cellectar has a messy and complicated capital construction.  In September, they raised capital by way of a personal placement for $24.5MM by promoting Collection E-1 convertible most well-liked inventory that converts to inventory at a strike worth of $1.82/share (CLRB at present trades for ~$3.40/share), stapled to the Collection E-1 prefs have been two tranches of warrants, designed to behave as milestone funds to supply funding for Cellectar publish constructive WM research outcomes and the second tranche publish FDA approval.  The tranche A (train deadline 10 days publish constructive information, or 1/19) has a strike worth of $3.185/share and if totally exercised, will usher in $44.1MM to Cellectar.  The second tranche, tranche B, has an train worth of $4.7775/share and would usher in $34.3MM if CLRB receives FDA approval and the warrants are utterly exercised.  This personal placement was designed to be large enough to get the corporate to its industrial part the place it may probably be self funding.  CLRB does have further warrants, one tranche, the “2022 frequent” is within the cash with a $1.96 strike and expires in 2027, the others are all effectively out of the cash and might typically be ignored.

Above is my try on the share depend math and proforma money assuming the tranche A & B warrants are totally exercised (to be extra conservative, you would take extra burn into consideration for the reason that FDA approval trigging the tranche B warrants will not come till someday within the first half of 2025).  However I get a present proforma enterprise worth within the mid-$80MMs for a remedy that would do $200+MM in annual gross sales, that appears low cost to me.

Hopefully somebody who really is aware of the scenario reads this publish and feedback, all suggestions welcome.  That is clearly dangerous, it is a speculative place, exterior my typical circle of competence (however at all times making an attempt to increase) and sized it as such.  One factor that does hassle me a bit, administration owns little or no inventory right here, however their choices could possibly be a big payday in a sale state of affairs. 

Disclosure: I personal shares CLRB

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