Under Appreciated Tekmira Starting to Bounce May Head Higher as Sector Heats Up
LOS ANGELES, CA -- (Marketwire) -- 01/31/13 -- Immediately after
Tekmira (NASDAQ: TKMR) (TSX: TKM) announced that it had settled
litigation between it and Alnylam Pharmaceuticals, Byron Capital
analyst Douglas Loe maintained his SPECULATIVE BUY rating on the
company, but raised his price target on shares a full $5 to $12.50.
That was only a couple of months ago, but shares are still trading
under $5. This despite the fact that Tekmira announced it would
receive $65-million (within ten days) as part of that settlement and
is eligible to receive $10-million in near-term milestone payments in
2013, biotech traders seem to have either lost sight or interest in
the stock. Meanwhile, even some of the well trained eyes we spoke to
recently said at first glance: "It looks like they are going to need
to do a raise, doesn't it? They must be running out of money."
In fact, thanks to the hefty lawsuit settlement, Tekmira's cash
runway now extends into 2015 and management at the firm is excited
about plans to aggressively advance multiple products into human
"TKM (is) Trading at Levels Ascribing Virtually No Value to
Well-Advanced siRNA Pipeline," wrote Loe in a note to clients. "The
capital markets are ascribing little value to Tekmira's siRNA
pipeline, which has advanced well beyond the proof-of-concept stage
and has already performed well in several human or non-human primate
studies, greatly reducing development risk not only to siRNA and to
LNP, but to the drug candidates to which clinical data apply."
The entire RNAi drug development space is now at critical inflection
point and the fact that Alnylam Pharmaceuticals is using the this
particular platform as a key component adds validation to Tekmira's
lipid nanoparticle (LNP) delivery technology -- which acts as a
delivery mechanism for RNAi therapies. Dirk Haussecker, who arguably
runs the most credible and up to date RNAi information sites on the
planet, recently opined that "2012 was the most exciting year in the
~12-year history of RNAi Therapeutics -- both from a scientific and
financial perspective... With the start of 2013, the industry is
looking to build on these successes with additional clinical trial
results, interesting new therapeutic candidates and product specific
and platform-related deals, particularly in the area of delivery.
With appetite for innovation increasing in a low interest rate
economy and with the orphan drug tsunami, 2013 could be a quite
rewarding year for the discerning investor."
A bullish nod comes from the JP Morgan Healthcare conference which
wrapped up a couple of weeks ago. This is the largest conference for
the industry featuring endless companies getting news out and doing
whatever they can to get attention. It's apparent that ALNY caught
attention unlike the others. After their presentation at break-out
meetings, where information flow borders on offside, they must have
spoken about upcoming partnering deals of great magnitude and/or that
they expect strong data. Using that momentum, Alnylam announced a
public offering of 8 million shares at $20.13 a share on Jan. 14.
After an overallotment of another $1.2 million a week later, the
company raised a total of $173 million.
Smart investors should understand that Tekmira benefits here too.
With its Alnylam's lead core drug candidate poised to enter pivotal
trials before the end of the year, and a goal to bring four more to
advanced clinical trials by the end of 2015, the company says it will
ultimately need all of the $400 million in cash in its coffers for
advancing its own pipeline.
When ALNY advances, TKMR does too. You see, Alnylam's drugs use RNA
interference, or RNAi, technology which works by turning off or
silencing disease-causing genes. ALN-TTR02 is one of the company's
most advanced experimental products. It is designed to treat
transthyretin familial amyloid polyneuropathy, a rare condition that
is normally treated with a liver transplant. Tekmira would become a
$1B company on ALNY's TTR02 approval alone. That simple extrapolation
comes from documented research. Remember, also Alnylam has other
clinical products that Tekmira has a financial stake in (ALN-PCS and
ALN-VSP) but TTR02 is the most advanced. Investors and analysts are
placing the majority of Alnylam's value on this drug.
There are a wide range of estimates on what peak annual sales could
be for TTR02 if it is approved. Certainly we have seen figures
ranging from $800M to upwards of $2B. Tekmira is entitled to a
single-digit royalty on sales of this product. So Tekmira could, at
peak, be receiving an annual royalty of approximately somewhere
between $40 to $80M.
Since there are no COG/COS associated with a royalty, this would flow
straight to the bottom line. Looking at mid-point of the royalty
range, Tekmira with a $60M bottom is earning $3.50 per share (using
their fully diluted share count). Using a P/E ratio of 25 you arrive
at a share price of $87.50 and a valuation of $1B+.
Again, this is a simplistic calculation that takes no account for R&D
spending and any future dilution, but we think it demonstrates how
lucrative the TTR02 royalty could be by itself. Some argue that a $1B
valuation for Tekmira after a TTR02 approvable could be conservative.
From a qualitative standpoint, TTR02 has the potential to be the
first RNAi drug approved by the FDA. Regardless of the sales figures,
the approval will be a huge win for RNAi as a new class of medicine.
All companies developing drugs in this space will stand to benefit
but none more than Tekmira.
Add that to statements that Dr. Mark J. Murray, Tekmira's President
and CEO, made in November: "We recognize that the primary value
driver for Tekmira will be the clear demonstration of the clinical
value of our own pipeline of RNAi products in a range of
therapeutically important, commercially attractive markets. We expect
that our lead oncology product, TKM-PLK1, will enter a Phase 2 trial
in 2013; we continue to advance our TKM-Ebola product in
collaboration with the U.S. Department of Defense's TMT program; and,
we continue to generate data to support near-term decisions around
further development of other product candidates within our pipeline.
In addition, we are entitled to future royalty payments based on
sales of Marqibo, which was recently approved by the FDA."
Analyst Loe agrees: "Moreover, the capital markets are ascribing
virtually no value to future royalties that we project Tekmira will
receive for long-standing liposomal vincristine formulation Marqibo
(originally called ONCO-TCS when tested in advanced non-Hodgkin's
lymphoma by Inex years ago). Partner Talon Therapeutics received FDA
approval in a niche cancer market (Philadelphia chromosome-negative
acute lymphoblastic leukemia, or ALL) for this drug in Aug/12, for
which we project peak annual royalty revenue (and EBITDA) to Tekmira
of $3.5 million - $4 million. Timelines to achieving peak annual
royalties clearly await completion of Talon's now-public intention to
identify strategic partners or acquirers for the firm, but we believe
interested parties once identified will regard Marqibo as a core
commercial asset within Talon's drug portfolio."
Yesterday, Roberto Pedone of TheStreet.Com also noticed that shares
Tekmira company appear to have begun hammering out new lows. He
noted: "From a technical perspective, TKMR is bouncing strongly here
right off its 50-day moving average of $4.95 wit
volume. This stock is quickly moving within range of triggering a
near-term breakout trade. That trade will hit once TKMR takes out
some near-term overhead resistance levels at $5.35 to $5.78 with high
volume. At last check, TKMR have hit an intraday high of $5.45 and
volume is just starting to surpass its three-month average action of
The RNAI sector is definitely starting to heat up again. Tekmira
doesn't need to raise money, so for us it is just a question of when,
not if, institutions start piling into the market to take a position.
Author M.E. Garza is Long TKMR. The full version of his report,
including charts and informational graphics, can be found here:
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