June 20, 2016
By Mark Terry, BioSpace.com Breaking News Staff
A brief increase in GlobeImmune has investors wondering if the Louisville, Colorado company was a takeover target.
In May, after its first quarter financial results, GlobeImmune was in a pretty challenging position. In the same month it had announced disappointing results from its Phase II clinical trial of GS-4774 for hepatitis B. Although found to be safe and well-tolerated, the drug did not meet its primary endpoint.
As or March 31, it had cash and cash equivalents of $8.7 million, which is believed was enough to continue operations through the middle of 2017. It reported a first-quarter loss of $900,000. In a statement, the company said, “If a strategic alternative is not found in the near future, we could decide to wind down the operations of the Company which will consume cash faster than currently planned as a going concern.”
In August 2015, it first floated the idea of a sale. It had laid off most of its employees, going from 22 staffers to only six full-time workers, which included four scientists, a facility manager, and one general and administrative employee.
As of April 29, 2016, it was two full-time staffers, one scientist, the principal financial and accounting officer, a half-time employee and the chief executive officer.
The stock pop appears to be related to a June 15 article in Seeking Alpha by Abu Bakr Hussain that focused on the company’s collaborations with Gilead and Celgene . Hussain wrote, “For a company valued at ~$12 million as of mid-June 2016, the potential value and scale of these partnerships is simply staggering.”
The Celgene collaboration has been ongoing since mid-2009. They are investigating Tarmogen, and Hussain notes that if the drug hits various regulatory milestones, it would rake in quite a lot in milestone payments. If the GI-6100 program, which is currently in pre-clinical testing, Celgene could pay GlobeImmune up to $85 million. For the GI-6200 program, now in Phase II trials, GlobeImmune could receive up to $60 million. And for GI-6300, if successful, could receive $85 million. These are a total of $230 million, and if commercialization were to occur, could acquire another $60 million for each program and tiered royalties in the mid-teens.
With Gilead, the focus is on hepatitis C. GlobeImmune could receive up to $130 million in regulatory and developmental milestones from Gilead for GS-4774, and another possible $40 million in sales milestone payments. However, Phase II trial results were disappointing.
Hussain wrote, “Up to $580 million in milestones for a micro-biotech should be intriguing for any investor seeking undervalued companies.”
But Hussain’s interest is also more technical. After the company received a notice of failure to satisfy a continued listing rule on NASDAQ on May 18, the company had several options, which it chose not to follow, and makes Hussain think something else is going on.
“Hopefully, by now, we’ve established that GlobeImmune is a highly undervalued stock which merits a fundamental re-evaluation,” Hussain wrote.
He goes on to say that it is very simple and easy to issue a rights offering, but the company didn’t. “Reading between the lines of the company’s publicly available 10-Qs, I do indeed believe offers have already been made but were rejected or are currently under negotiation,” he wrote. “I believe now, with July 1 just two weeks away as of today, these negotiations are highly likely to draw to a successful resolution.”
Maybe, maybe not.
Hussain points out that one of the oddities of GlobeImmune’s current position has to do with its debts and its tax rate. “Due to the peculiarities of the American taxation system, these losses can count against future profits up to 20 years in the future for tax write-off purposes. What this means it that, as of today, on GlobeImmune’s next $226 million in profits, the company will have a corporate tax rate of 0% rather than 35%. This alone is worth $79 million.”
