Ampio Pharmaceuticals, Inc. Rating: Buy

Transcription

Biotechnology
Raghuram Selvaraju, Ph.D.
(646) 502-2464
[email protected]
Yi Chen, Ph.D.
(646) 502-2463
[email protected]
Initiating Coverage
September 25, 2012
Key Metrics
$3.99
AMPE - NASDAQ
Sep 24 2012
Pricing Date
$11.00
Price Target
$8.50 - $2.54
52-Week Range
37.0
Shares Outstanding (mm)
Market Capitalization ($mm)
$147.6
3-Mo Average Daily Volume
712,934
Ampio Pharmaceuticals, Inc.
Rating: Buy
Reinventing The Rules of Drug Development
Investment Highlights:
■
A Unique Opportunity With Multiple Shots On Goal. We are
initiating coverage of Ampio Pharmaceuticals with a Buy rating
and an 18-month price target of $11.00 per share. In our view,
Ampio represents one of the most underrated companies in the
healthcare sector because of its disciplined, capital-efficient approach
to drug development. For a minimal investment of under $40mm
since inception, the company has built a pipeline that comprises
three clinical-stage agents (including one high-value biologic drug),
all of which have demonstrated efficacy proof-of-concept in clinical
trials, a diagnostic platform, and a rich preclinical portfolio of >300
compounds. In our opinion, this firm is fundamentally undervalued
at an enterprise value of ~$130mm vs. various peers that spend
far more on R&D and, we believe, are spectacularly unproductive
by comparison. Therefore, we are recommending the accumulation
of Ampio shares based on our view that its drug candidates are
risk-mitigated opportunities being developed in a very cost-effective
manner.
■
Ampion™ - A Pipeline In A Single Product. Ampio's lead biologic
drug, Ampion™, is being developed for the treatment of knee
osteoarthritis. In this indication alone, we believe that it could have
blockbuster potential (>$1b in peak annual sales). However, this drug
could also have applicability in allergic rhinitis, multiple sclerosis
(MS), rheumatoid arthritis and various other autoimmune disease
applications. Ampio has already demonstrated proof-of-concept in a
Phase 2 trial with this drug, and is slated to move into a larger Phase
2 / 3 trial in knee OA within the coming months.
■
Optina™ - An Ocular Opportunity. We are enthusiastic about the
prospects of Optina™, a low-dose formulation of a well-known antiendometriosis drug called danazol, based on the positive Phase 2b
results released thus far that have shown significant improvements
in visual acuity among patients with diabetic macular edema (DME).
Furthermore, Optina™ is being developed in a sector - ophthalmology
- which has become of great interest to larger-cap pharmaceutical
firms. M&A activity has been rife in this sub-sector, and an effective
treatment for DME could generate >$500mm in sales at peak. DME
afflicts ~10% of all diabetics.
■
Zertane™: Preventing Premature Ejaculation. Ampio's last
clinical candidate, Zertane™, is being aimed at prevention of
premature ejaculation, which is estimated to affect up to 3% of all men.
This agent has also shown positive, statistically significant efficacy in
a 604-patient European trial, and could move into Phase 3 in the U.S.
in early 2013.
9%
Institutional Ownership
NM
Debt/Total Capital
(86.7) %
ROE
$0.43
Book Value/Share
Price/Book
9.3x
Dividend Yield
NM
LTM EBITDA Margin
NM
EPS ($) FY: December
2011A
Prior
2012E
Curr.
2012E
Prior
2013E
Curr.
2013E
1Q-Mar
(0.49)
--
(0.09)A
--
(0.09)E
2Q-Jun
(0.10)
--
(0.08)A
--
(0.12)E
3Q-Sep
(0.09)
--
(0.07)E
--
(0.10)E
4Q-Dec
(0.16)
--
(0.08)E
--
(0.07)E
FY
(0.71)
--
(0.31)E
--
(0.37)E
P/E
NM
NM
NM
Company Description:
Ampio Pharmaceuticals Inc. (http://www.ampiopharma.com/) develops
drugs for inflammation, eye diseases, and sexual dysfunction.
The Disclosure section may be found on pages 47 - 48 of this report.
September 25, 2012
Investment Thesis
Ampio Pharmaceuticals is an emerging biopharmaceutical firm focusing on the
repurposing of existing drugs in new therapeutic indications. The company has a
broad clinical-stage pipeline comprising three advanced assets: the biologic agent
Ampion™, which is currently in late-stage development for the treatment of knee
osteoarthritis (OA); the small molecule drug Optina™ (low-dose danazol), which has
completed proof-of-concept clinical development for the treatment of diabetic macular
edema (DME) and which is on the verge of testing in a Phase 2b trial; and the small
molecule agent Zertane™ (low-dose tramadol), which Ampio is developing as a
treatment for premature ejaculation, within which context it could be combined with
various erectile dysfunction drugs. Zertane™ has already completed one randomized,
placebo-controlled, double-blinded Phase 3 study that enrolled over 600 patients, with
positive and statistically significant efficacy results. This agent could begin pivotal
clinical development in the U.S. in two concomitantly-run Phase 3 trials in early 2013.
Both Optina™ and Zertane™ would be eligible for filing in the U.S. under the 505(b)(2)
abbreviated pathway, significantly reducing the expenditure required for clinical
development and regulatory approval. Ampio also has a massive preclinical pipeline of
over 300 compounds, which have been characterized extensively by the firm’s Chief
Scientific Officer, Dr. David Bar-Or, in various in vitro and in vivo assays. We also note
that the company is developing a diagnostic platform that is aimed at identifying
predictors of oxidative damage in trauma patients. Given the substantial diversification
of the firm’s development-stage portfolio and the low burn rate, we consider Ampio to be
an intriguing investment in the life sciences sector with multiple value drivers ahead.
We are initiating coverage on AMPE with a Buy rating and an 18-month price
target of $11.00 per share, implying a total firm value of $500mm, assuming 49mm
shares outstanding as of the end of 2013. An investment in AMPE may involve
above-average risk and volatility, since the firm is still a development-stage entity.
Investment Positives
Proven Drug Development Expertise. Ampio’s recent track record demonstrates to us
that the firm knows how to interact with the U.S. FDA in an optimized and efficient
manner. The firm has managed to delineate a 505(b)(2) approval path for its lead
candidates Optina™ and Zertane™, including the ratification of a Phase 2b trial protocol
for Optina in DME. Also, Ampio has managed to move Ampion™, a biologic product,
through proof-of-concept clinical development. We believe that the company possesses
significant regulatory knowledge and, thus, should have the ability to move its candidates
through late-stage development and regulatory approval if clinical results are positive.
Multiple Near-Term Value Drivers. Among the catalysts that Ampio should announce
over the course of only the next six months, in our view, are the initiation of Phase 2b
development with Optina™ in DME; the initiation of two Phase 3 trials with Zertane™
in premature ejaculation; the initiation of additional proof-of-concept clinical studies with
Ampion™ in other inflammatory diseases beyond knee OA, such as asthma and
conjunctivitis; and the release of results from the firm’s diagnostics program.
Capital-Efficient Business Model. As of June 30th, 2012, Ampio had recorded an
accumulated deficit of $35.5 million. The firm had net operating loss carry-forwards of
only $11.2 million at the end of 2011. In our view, the fact that the firm has burned so
little money since its inception under the name of its predecessor, DMI BioSciences, Inc.,
in May 1990, is encouraging. Other firms with clinical pipelines comparable to (or even
inferior to) that of Ampio (e.g. Array BioPharma, Exelixis, Infinity Pharmaceuticals, and
Lexicon Pharmaceuticals) have burned significantly more cash and yet still remain years
from securing their first product approval in the U.S.
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AEGIS CAPITAL CORP.
September 25, 2012
Investment Risks
Financial Outlook and History of Unprofitable Operations. Ampio Pharmaceuticals
has incurred operating losses since its inception and, in our view, may not achieve
sustainable profitability for several years. Although the firm has been able to obtain
capital in order to fund its operations, it is not known whether the company will be able
to continue this practice, or be able to obtain other types of financing to meet operating
needs. While the company recently managed to successfully raise $16.9 million through
a follow-on equity financing transaction to support the advancement of its pipeline drug
candidates in the U.S., which in our view removes any financing overhang for at least 18
months, we believe that any additional broadening of the clinical-stage pipeline could
require additional capital. Given these factors, shares of Ampio Pharmaceuticals may
constitute above-average risk and volatility, in our opinion.
FDA Unpredictability. Drug development is a multi-year process that requires human
clinical trials prior to market entry. The agency may require additional clinical data from
Ampio prior to granting approval for its pipeline candidates, necessitating further clinical
trials above and beyond simple safety and bioequivalence studies. Also, review times at
the FDA may prove longer than originally expected. In addition, the agency could elect
not to accept Ampio’s regulatory filings petitioning for approval of the firm’s pipeline
agents. If clinical data and/or other supporting evidence are not accepted by the FDA or
considered insufficient grounds for approval, marketing authorization for Ampio’s
pipeline candidates could be delayed or might not occur at all, preventing the firm from
realizing the commercial potential of its technology platforms.
Ex-U.S. Regulatory Risk. Ampio may conduct clinical trials in countries outside the
U.S. and seek approval for its product candidates in ex-U.S. markets. For example, the
clinical trial for Ampion™ is being conducted in Australia, the clinical trial for Optina™
is being conducted in Canada, and the Zertane™ clinical trials were conducted in Europe.
Depending on the results of clinical trials and the process to obtain regulatory approvals
in other countries, Ampio may decide to first seek regulatory approvals of a product
candidate in countries other than the U.S., or simultaneously seek regulatory approvals in
the U.S. and other countries. Outside the U.S., Ampio will be subject to the regulatory
requirements of health authorities in each country in which the firm submits regulatory
filings for approval of its product candidates. The approval procedure varies among
regions and countries and can involve additional testing, and the time required to obtain
approvals may differ from that required to obtain FDA approval. Obtaining regulatory
approvals from health authorities in countries outside the U.S. is likely to subject the firm
to all of the risks associated with dealing with the FDA, in addition to various regionspecific risks, such as – for example – the well-known backlog at the State Food and
Drug Administration (SFDA) in China. In addition, marketing approval by the FDA does
not ensure approval by the health authorities of any other country, and approval by
foreign health authorities does not ensure marketing approval by the FDA.
Partnership Risk. Ampio has embarked upon a development path that involves
focusing on clinical advancement of its pipeline candidates, while eschewing an emphasis
on building commercial infrastructure and becoming a fully-integrated biopharmaceutical
company. The firm aims to optimize the commercialization of its drug candidates by
partnering these at potentially lucrative junctures with established firms in the healthcare
sector. This introduces several elements of risk from a partnering perspective – the
possibility that the company’s partnerships may not involve terms that are lucrative
enough to justify the investment that Ampio has made in the development of its
candidates; the possibility that Ampio’s partners do not invest sufficiently in the
commercialization of Ampio’s products; and the risk that the firm’s partners may not be
the best-positioned competitively to ensure maximal penetration of Ampio’s drugs into
their target markets. Currently, Ampio has one commercialization agreement in place
3
AEGIS CAPITAL CORP.
September 25, 2012
with the South Korean firm Daewoong; however, this arrangement involves a maximum
of only $3.7 million in upfront and milestone payments to Ampio. If the company is to
fully reap the rewards of its business development strategy, it will need to successfully
consummate far more lucrative partnerships in other geographies.
Competitive Landscape. Ampio currently competes with other companies within the
drug industry, many of which have more capital, more extensive research and
development capabilities, and greater human resources. Some of these competitors
include Eli Lilly & Co., Johnson & Johnson, Merck & Co., Novartis, Pfizer and Sanofi
S.A. These competitors may develop new or enhanced products or processes that may be
more effective, less expensive, safer or more readily available than any products or
processes that Ampio may be capable of developing.
Intellectual Property Risk. The company relies on patents and trade secrets to protect
its products from competition. A court might not uphold Ampio’s intellectual property
rights, or it could find that Ampio infringed upon another party’s property rights. In
addition, generics firms could potentially find loopholes in Ampio’s intellectual property
estate, which may enable them to launch generic versions of Optina™, Zertane™ and/or
other pipeline candidates prior to the expiration of patent protection on these products.
Reimbursement Risk. Following the institution of broad-based healthcare reform
policy, reimbursement agencies have grown more wary of systematically reimbursing for
drugs that are either unnecessary or provide marginal benefit at excessive cost. If
Medicare spending growth continues to outpace GDP growth, and the government’s
ability to fund healthcare becomes impaired, changes could be made to reimbursement
policy that would negatively affect Ampio, despite what we believe to be the compelling
value proposition inherent in Ampion™, Optina™ and Zertane™.
Key Man Risk. We believe Ampio’s success is dependent, in large part, upon the
continued services of the firm’s Chief Scientific Officer, Dr. David Bar-Or. The company
has an employment agreement in place with Dr. Bar-Or and a research agreement in
effect with Trauma Research, LLC, an entity owned by Dr. Bar-Or that conducts research
and development activities on its behalf. These agreements are terminable on short
notice for cause by Ampio or Dr. Bar-Or and may also be terminated without cause under
certain circumstances. The company currently does not maintain key-man life insurance
on Dr. Bar-Or, although it may elect to obtain such coverage in the future. If Ampio lost
the services of Dr. Bar-Or for any reason, its clinical testing and other product
development activities could experience significant delays, and its ability to develop and
commercialize new product candidates may be diminished.
Additional Risks. As of June 30th, 2012, Ampio had about $6.8 million in cash and
equivalents. Following the recent consummation of the financing transaction in July
2012, we project that the firm currently has approximately $22 million in cash (pro
forma). While the firm is not projected to burn a significant amount of cash near-term,
these estimates could change if the firm began developing additional pipeline candidates
beyond the current pipeline or if the firm were to be required to perform additional
clinical studies beyond the envisaged safety and bioequivalence trials. Other sources of
cash could include: licensing fees from partnerships, warrant and option exercises, or the
issuance of more shares. If Ampion™, Optina™ and Zertane™ fail to demonstrate
efficacy and safety in clinical development, Ampio may not be able to raise cash at all.
Industry Risks. Emerging biotechnology and pharmaceuticals stocks are inherently
volatile and increasingly subject to development and regulatory risk. Meeting or missing
commercialization milestones may result in a significant change in the perception of the
company and the stock price. We do not anticipate volatility subsiding in the near term.
For additional risk considerations, please refer to the company's SEC filings.
4
AEGIS CAPITAL CORP.
September 25, 2012
Valuation
Comparables Analysis: Given that Ampio Pharmaceuticals is currently unprofitable
and considering our belief that sustainable profitability is a few years away, we use a
discounted cash flow-based approach to value the shares. Based on a comparables
analysis, it appears the stock is worth $11.00 per share, utilizing our estimate of a roughly
$500 million risk-adjusted net present value (rNPV) for the firm’s products. This
assumes that the shares trade in-line with the comps’ present average enterprise value of
roughly $490 million and that the firm has 49 million shares outstanding (fully-diluted) at
the end of 2013.
Table 1: Comparable Company Analysis
(Millions, Except Per-Share Data)
Development
Phase 2 / 3
Phase 2
Marketed
Phase 2
Phase 2
Phase 2
Phase 2 / 3
Phase 2
Phase 2b
Pre-approval
Phase 3
Therapeutic Area
Infectious Diseases
Oncology / Inflammation / Pain / Infectious Disease
CNS Disorders / Metabolic Disorders
Oncology
Infectious Diseases / Diabetes / Sexual Dysfunction
Oncology
Oncology / Metabolic Disorders
Oncology
Autoimmune Disease / Inflammation
CNS Disorders
Infectious Diseases
Company
Achillion Pharmaceuticals
Array BioPharma
DepoMed
Enzon
Furiex Pharmaceuticals
Infinity Pharmaceuticals
Lexicon Pharmaceuticals
Merrimack Pharmaceuticals
Rigel Pharmaceuticals
Supernus Pharmaceuticals
Trius Therapeutics
Ticker
ACHN
ARRY
DEPO
ENZN
FURX
INFI
LXRX
MACK
RIGL
SUPN
TSRX
Rating
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Closing
price
9/24/2012
$9.51
$5.41
$5.79
$6.97
$19.55
$23.35
$2.60
$10.94
$10.27
$11.06
$5.94
Shares
(MM)
73
92
56
47
10
27
494
94
72
24
39
AMPE
Buy
$3.99
37
Average
Market
cap
($MM)
690
498
324
326
196
637
1283
1025
736
270
230
Cash
($MM)
60
89
72
129
27
104
231
107
203
37
84
Debt
($MM)
1
93
0
116
10
39
24
0
0
29
0
565
Enterprise
value ($MM)
631
502
252
313
179
572
1076
919
533
261
146
489
Discrepancy
Current valuation
Inflammation / Ophthalmology / Sexual Dysfunction
Ampio Pharmaceuticals
148
20
0
128
530
40
0
Projected
489
Derived 18-month comparable value
Target valuation
(18-month)
Inflammation / Ophthalmology / Sexual Dysfunction
Ampio Pharmaceuticals
AMPE
Buy
$11.00
49
Source: First Call and Aegis Capital Corp. estimates
Free Cash Flow: We estimate that Ampio Pharmaceuticals could be free cash flow
negative for the foreseeable future. We define free cash flow as operating cash flow
minus capital expenditures and dividend payments. We utilize a discounted cash flow
analysis supporting a risk-adjusted Net Present Value (rNPV) framework to derive our
$11.00 price target. This approach is described further in the next section of the report.
Our detailed analysis is split into five principal components – our discounted cash flow
model including the rNPV assessment of Ampion™, Optina™ and Zertane™ (presented
overleaf); our assessment of the market for each of these agents and the associated sales
model for each drug; the residual value of the company’s drug development technology
platforms and the potential of its diagnostics platform; and the near-term financial
outlook for the company. Our historical income statement and financial projections are
presented at the back of this report.
5
AEGIS CAPITAL CORP.
September 25, 2012
Risk-Adjusted Net Present Value Analysis
We have projected the total firm value for Ampio Pharmaceuticals based on a sum-ofthe-parts valuation of the firm’s candidates, its technology platform, and the projected
cash position as of end-2013. Peak annual global sales for the firm’s most advanced
agents are projected to be ~$3.4 billion in aggregate. These yield a total risk-adjusted
NPV of $415 million (see Table 2 below). These estimates factor in a 40% effective tax
rate and 20% discount rate on future cash flows. In addition, we expect that Ampio
would license out these candidates once they have been filed with the FDA or have
secured regulatory approval, since the firm is likely to remain development-focused.
While we do not factor in the milestone payments that would likely be part of such outlicensing deals, we provide net sales-based royalty assumptions for each candidate.
We project that the other assets (~300 pipeline candidates) could provide a $20 million
rNPV contribution to the total firm value for Ampio Pharmaceuticals. However, we are
not providing specific success probabilities or market models for any of the firm’s
preclinical candidates – even if they are based on existing approved drugs – given their
early stage of development. Further, we assume that the diagnostics platform developed
by Ampio would contribute a combined $30 million to the total enterprise value.
Table 2: Composite Risk-Adjusted Net Present Value Analysis
Ampio
Product
Launch Patent
Year
Expiry
Peak Sales Royalty Rate
Estimate
Probability
To Launch
NPV
Amount Per
Share
Knee Osteoarthritis Ampion™
2015
NA
$2.2B
15% - 28%
60%
$300MM
$6.11
Premature Ejaculation Zertane™
Diabetic Macular Edema Optina™
2014
2022
$680MM
10-20%
70%
$65MM
$1.30
2015
2030
$530MM
12% - 20%
70%
$50MM
$1.00
$415MM
$8.51
Clinical-Stage
Total
Diagnostic Platform
Preclinical Pipeline
ORP Diagnostic
2015
2030
NA
NA
NA
$30MM
$0.60
Methylphenidate derivatives / undisclosed
NA
2030
NA
NA
NA
$20MM
$0.40
Cash at end-2013
$40MM
$0.85
Firm Value
$505MM
$11.00
Source: Company reports; Aegis Capital Corp. estimates
We note that the segment of the pharmaceutical industry in which Ampio aims to operate
is highly competitive. Ampio faces significant competition from several other
pharmaceutical firms, specialty pharmaceuticals companies, and specialized generics
firms that are researching and developing drugs through the 505(b)(2) pathway. Several
well-established pharmaceutical companies – such as Abbott Laboratories, Dainippon
Sumitomo Pharma, Forest Laboratories, GlaxoSmithKline, Hospira, Novartis, Otsuka,
and Valeant Pharmaceuticals International – have marketed products that may directly
compete with the candidates that Ampio is in the process of developing.
Such companies may have longer operating histories, larger customer bases, greater
brand recognition and greater financial or marketing resources than Ampio. Many of
these current or potential competitors can devote substantially greater resources to the
development and promotion of their products. Additionally, larger, well-established and
well-financed entities may be able to gain access to technology platforms competitive
with Ampio’s own. Any of these trends would increase the competition that Ampio
could face, which could adversely affect the firm’s business and operating results.
6
AEGIS CAPITAL CORP.
September 25, 2012
Company Overview
Ampio Pharmaceuticals is a development-stage biopharmaceutical firm engaged in
discovering and developing innovative, proprietary drugs and diagnostic products. The
firm’s pipeline is aimed at the identification, treatment, and prevention of a broad range
of human diseases, including metabolic disorders, eye disease, kidney disease, acute and
chronic inflammation, and male sexual dysfunction. In our view, this is an example of a
highly capital-efficient drug developer focusing on significant unmet medical needs using
risk-mitigated approaches exemplified by the repurposing of existing approved drugs.
Two of the firm’s clinical-stage candidates are eligible for regulatory filing under the
505(b)(2) pathway, which exists in order to facilitate the approval of drugs that have
already been approved in other indications. The company’s third clinical-stage candidate
is based on human serum albumin (HSA), a substance that has been widely utilized in a
broad array of clinical settings. Finally, we note that Ampio is both a drug developer as
well as a diagnostics company – something that is rarely seen in the healthcare sector.
We consider Ampio to be particularly attractive because of its many shots on goal.
Figure 1: Ampio Pharmaceuticals Product Pipeline
Source: Ampio Pharmaceuticals
Note that since Vasaloc™ is not currently in active clinical development, we do not
ascribe any value to it, which may be conservative. Since the firm is focusing on existing
agents, it is possible to know the efficacy and safety profiles of its candidates beforehand,
thereby substantially reducing clinical development risk. Regulatory risk is also
significantly attenuated, since the company is only reformulating existing drugs and is
not aiming to alter their underlying chemical composition in any way. Accordingly,
therefore, as shown above, the majority of Ampio’s drug candidates would be capable of
being filed through the 505(b)(2) regulatory pathway.
Company Strategy
Ampio’s intellectual property is focused on new indications for previously approved
drugs, New Molecular Entities (“NMEs”), and rapid point-of-care tests for diagnosis,
monitoring and screening. The firm preferentially selects candidates with the potential
for a rapid path to commercialization, which could be through identifying new
applications, indications, dosing, or chemical combinations for compounds previously
approved as safe and effective by the FDA or other established governmental regulatory
agencies. Known as drug repositioning, the company believes that this strategy is faster,
more capital-efficient, and that it substantially reduces product failure risk. Ampio’s
basic business strategy involves a focus on drug development and regulatory approval,
with the aim being to build commercial value through collaboration agreements with
strategic partners that would then take on the responsibility of marketing Ampio’s drugs.
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AEGIS CAPITAL CORP.
September 25, 2012
Clinical-Stage Pipeline
Ampio is currently engaged in ongoing clinical development on three product candidates
that were discovered by Dr. David Bar-Or, the firm’s Chief Scientific Officer, and chosen
from the company’s extensive preclinical pipeline based upon ultimate market potential
and the firm’s belief that these candidates had a relatively shorter pathway to
commercialization. Two of these product candidates, Zertane™, in development for
premature ejaculation (“PE”) and Optina™, in development for diabetic macular edema
(DME), are repositioned drugs for which the firm has secured, or is in the process of
securing, U.S. and international patent protection covering their unique formulation,
application, or newly discovered formulas. The company’s third clinical-stage product,
Ampion™, is in development for treatment of osteoarthritis of the knee and is covered by
a pharmaceutical composition of matter patent. However, Ampion™ is derived from
human serum albumin (HSA), an already-approved human blood product. As such, we
believe Ampion™ would probably be regulated by the Center for Biologics Evaluation
and Research (“CBER”) division of the FDA. Biologics are controlled by separate
legislation from drugs and may have relatively fewer safety concerns in some instances
as they are derived from the human body.
Preclinical Pipeline
Since Ampio has a substantial preclinical library of candidates, we believe that the firm
may choose to out-license or sell discoveries that it chooses not to develop internally.
While the firm’s product candidates that are furthest along in clinical development are
primarily repositioned drugs, the firm also has several new molecular entities in its preclinical pipeline. One of these programs, as shown in the figure below, involves a
derivative of a well-known class of compounds that have historically been used to treat
attention deficit disorder (ADD) and attention deficit/hyperactivity disorder (ADHD).
However, Ampio’s novel compound appears to have activity in animal models of various
cancers, notably brain cancer (glioblastoma) and kidney cancer (renal cell carcinoma).
Figure 2: Product Candidate Positioning
8
AEGIS CAPITAL CORP.
September 25, 2012
In November 2011, Ampio received notification from the U.S. Patent and Trademark
Office (USPTO) of the allowance of two U.S. patents on new chemical entities that have
been developed internally. The first patent is directed to a unique class of compounds
that combine elements of diketopiperazines (same class as Ampion™) and
methylphenidate derivatives. The second patent is directed to novel derivatives of
methylphenidate, a drug that has been marketed for several decades primarily as a
treatment for attention deficit/hyperactivity disorder (ADHD) under the brand name
Ritalin. Both patents owned by Ampio contain not only use claims for these novel
compounds, but also composition-of-matter (COM) claims. The company believes that
these compounds, as described above, could have specific application to brain tumors as
well as other malignancies. The firm may choose either to pursue the development of
these candidates independently or out-license them to a strategic partner.
Figure 3: Product Candidate Development Timeline
Firm History
Ampio is a relatively new company and, unlike many of its peers in the
biopharmaceutical arena, has deployed relatively little capital in its drug development
efforts. The firm’s predecessor, DMI Life Sciences, Inc., was formed by Michael
Macaluso, who currently serves as Ampio’s Chief Executive Officer and Chairman of the
firm’s Board of Directors. DMI Life Sciences was incorporated in Delaware in
December 2008. Life Sciences did not conduct any business activity until April 16,
2009, at which time Life Sciences purchased certain assigned intellectual property
(including 107 patents and pending patent applications, business products and tangible
property) from DMI BioSciences, Inc., a scientific discovery, privately-held Colorado
corporation that was formed in May 1990 by Dr. David Bar-Or. DMI Life Sciences
issued 3.5 million shares of its common stock to DMI BioSciences, and assumed certain
liabilities as consideration for the assets purchased from BioSciences.
In March 2010, Life Sciences merged with a subsidiary of Chay Enterprises, Inc., a
publicly-traded company incorporated in Colorado. Simultaneous with the reverse
merger, the firm changed its name to Ampio Pharmaceuticals, Inc. (“Ampio”), and
reincorporated in Delaware. As a result of the Chay merger, Ampio became a publiclytraded company and the outstanding Series A preferred stock of DMI Life Sciences was
converted into DMI Life Sciences common stock. In April 2010, Ampio announced the
execution of a letter of intent to acquire DMI BioSciences. The final consent agreement
was approved by both parties on January 5, 2011; the merger closed on March 23, 2011.
DMI BioSciences owned the rights to one product, Zertane™, and held 32 issued patents
and 31 pending patent applications related to the product. Zertane™ is a new use for
tramadol hydrochloride, and was approved for marketing as a non-controlled analgesic in
1995. The aggregate consideration paid by Ampio to BioSciences shareholders in the
merger was 8,473,789 shares of Ampio common stock, which is net of shares exchanged
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for options in settlement of a dispute with three option holders of DMI BioSciences. This
consideration includes the shares payable to holders of in-the-money DMI BioSciences
stock options and warrants, and two DMI BioSciences promissory notes, outstanding
prior to the effective time of the merger. In addition, 435,717 out-of-the-money options
to purchase Ampio shares at an average price of $1.54 were also issued as consideration.
Zertane™ Oral Disintegrating Tablet Technology License
In December 2011, Ampio acquired all rights, title and interest in and to the
manufacturing rights and technical expertise relating to an oral disintegrating tablet
(“ODT”) for Zertane™ for $2 million in upfront money, plus potential future
consideration based on net sales of the product. The ODT technology was in-licensed
from Valeant Pharmaceuticals International, a large publicly-traded specialty
pharmaceuticals-focused firm headquartered in Canada. Valeant was formerly known as
ICN Pharmaceuticals, and recently consummated a merger with Biovail.
In our view, this is an advantageous arrangement for Ampio because there are no
additional milestone payments beyond the initial $2 million in upfront money that has
already been paid. Once there are commercial sales, a royalty will be paid quarterly on
net sales. A redacted agreement describing the partnership with Valeant was filed in
2011. While the royalty rate to be paid to Valeant has never been disclosed, we expect it
to be a nominal amount in the low-to-mid single digits. Furthermore, we note that
Valeant does not hold any rights to combination products that might be developed using
Zertane™ as a foundation – for example, these might include dual-formulated products
comprising Zertane™ and various erectile dysfunction drugs with varying windows of
activity. Shorter-acting agents, such as Viagra® (sildenafil), might address a specific
component of the market, while longer-acting agents such as Cialis® (tadalafil) would
fulfill a different purpose. Since the pharmacokinetics of tramadol can be altered using
different formulation techniques1, the effects of Zertane™ could be modified to match the
efficacy windows of the specific erectile dysfunction drugs with which it is paired.
Daewoong Partnership Agreement
In September 2011, Ampio announced a license and development agreement with
Daewoong Pharmaceuticals Co. Ltd., providing Daewoong Co. Ltd. with the exclusive
rights to market Zertane™ in South Korea for the treatment of premature ejaculation (PE)
and for a combination drug, utilizing Zertane™ and another erectile dysfunction drug
(PDE5 inhibitors and others), to simultaneously treat premature ejaculation and erectile
dysfunction (ED). Daewoong is a leading pharmaceutical company in South Korea,
ranking #1 in prescription drugs sold and #2 in manufacturing with >$600 million in
annual revenues, and it has grown at an impressive rate over the last four years.
Daewoong was founded in 1945, trades on the South Korean stock exchange, and
employs over 1,400 people. The firm also possesses a fully-integrated infrastructure, with
a commercial organization deploying over 800 sales and marketing professionals.
The agreement for the South Korean territory provided Ampio with a $500,000 upfront
payment ($417,500 after tax deductions, deferred and recognized over 10 years),
milestone payments totaling $3.2 million in aggregate, and a royalty stream equal to 25%
of net sales, minus Ampio’s transfer price. In addition, Daewoong has made substantial
financial commitments to mount an aggressive sales and marketing campaign for
Zertane™ and will also fund a full Phase 3 clinical trial for Ampio’s follow-on
combination PE/ED drug. The data from this study is slated to be utilizable by Ampio to
support regulatory filings for the combination product outside South Korea.
1
Raffa et al., Expert Opinion on Pharmacotherapy 13: 1437-1449 (2012)
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Regulatory Pathway Background
In our view, one of the principal strategic advantages that Ampio Pharmaceuticals
possesses is its focus on the improvement of existing drugs, which function via known
and generally well-characterized mechanisms of action and that typically have lengthy
usage histories in patients. Therefore, Ampio is able to operate within a much more
favorable regulatory environment than competitors developing entirely de novo drug
candidates. Herein, we briefly discuss the nature of the 505(b)(2) pathway and how this
pertains to Ampio’s proposed canonical drug development approach.
The 505(b)(2) application is one of three established types of New Drug Application
(NDA), and it is a pathway to approval that can potentially save pharmaceutical sponsors
both time and money. In addition to the 505(b)(2) pathway, there is the typical de novo
NDA, which is used for novel drugs, and the Abbreviated New Drug Application
(ANDA), which is used by generic filers to obtain approval for generic versions of
existing drugs. The 505(b)(2) pathways can be considered a hybrid of the de novo NDA
and the ANDA, containing aspects of both pathways, and is defined in the Federal Food,
Drug and Cosmetics Act as an NDA containing investigations of safety and effectiveness
that are being relied upon for approval and were not conducted by or for the applicant,
and for which the applicant has not obtained a right of reference. These applications
differ from the typical NDA (described under Section 505(b)(1) of the Act), in that they
allow a sponsor to rely, at least in part, on the FDA’s findings of safety and/or
effectiveness for a previously approved drug (the “reference drug”).
Section 505(b)(2) was added to the Act in 1984 with the goal of avoiding unnecessary
duplication of preclinical and certain human studies. However, the sponsor must still
provide any additional preclinical or clinical data necessary to ensure that differences
from the reference drug do not compromise safety and effectiveness. The 505(b)(2)
NDA also differs from an abbreviated NDA (ANDA; described under Section 505(j) of
the Act), which is an application containing information to demonstrate that the proposed
product is identical to a previously approved product. Identity is proven in an ANDA
simply through chemistry and bioequivalence data, without the need for preclinical and
clinical trials assessing safety and efficacy. In a sense, a 505(b)(2) application can
therefore be conceptualized as a hybrid containing more data than an ANDA, but less
data than an NDA. The 505(b)(2) approval route can be utilized for a wide range of
products, especially for those that represent a limited change from a previously approved
drug. The following are examples of changes to approved drugs that would be
appropriate to submit as 505(b)(2) applications:








Changes in dosage form, strength, route of administration, formulation, dosing
regimen, or indication
A combination product wherein the active ingredients have already been approved
Change to an active ingredient (e.g., different salt, ester complex, chelate, etc)
New molecular entity when studies have been conducted by other sponsors and
published information is pertinent to the application (e.g., a pro-drug or active
metabolite of an approved drug)
Change from an Rx indication to an OTC indication
Change to OTC monograph drug (e.g., non-monograph indication, new dosage form)
Drugs with naturally derived or recombinant (i.e, biological) active ingredients
where additional limited clinical data is necessary to show the ingredient is the same
as the ingredient in the reference drug
Biological non-equivalence for drug products where the rate and or extent of
absorption exceed or are otherwise different from the standards for bioequivalence
compared to a listed drug. Additional studies might be required to document the
safety and efficacy at the different or extended rate of delivery.
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The 505(b)(2) applications are not appropriate for products that are covered under
Section 505(j); products for which the only difference is a lower extent of absorption than
that observed with the reference drug; products for which the only difference is an
unintended lower rate of absorption than that seen with the reference drug.
There are important potential commercial benefits to employing a 505(b)(2) regulatory
strategy. As previously stated, this approval route was designed to encourage innovation
and to eliminate costly and time-consuming duplicative clinical studies. For some
products, the reference drug can be relied upon for essentially all safety and efficacy
information (nonclinical and clinical), with only a small amount of new work required to
establish comparability to the reference drug. The 505(b)(2) applicant may qualify for
three or five years of market exclusivity, depending on the extent of the change to the
previously approved drug and the type of clinical data included in the NDA. This
distinguishes a 505(b)(2) filing-based drug from a drug filed using an ANDA, where
exclusivity can be held for only 180 days.
An application for new clinical indications for approved products automatically receives
three years of exclusivity. This exclusivity prohibits FDA approval (but not submission)
of an ANDA for three years after NDA/sNDA approval. Therefore, ANDA approval can
come exactly three years later, if there is no patent infringement by the Paragraph IV
filer. The period of time of exclusive marketing rights is granted by the FDA at the time
of approval and cannot be challenged or voided. The time runs from the date of approval,
except for pediatric exclusivity, which attaches to an existing exclusivity or patent period.
A 505(b)(2) application may also be eligible for orphan drug or pediatric exclusivity. A
product approved via the 505(b)(2) pathway may receive an “AB” substitutability rating
in the Orange Book. Thus, from a therapeutic substitution perspective and under state
formulary laws, the 505(b)(2) applicant is not disadvantaged relative to a generic
(ANDA) drug. There are, however, some regulatory challenges that are unique to
505(b)(2) applications. Unlike a 505(b)(1) NDA, wherein the sponsor owns all of the
data necessary for approval (or has obtained the right to reference), the filing or approval
of a 505(b)(2) application may be delayed due to patent or exclusivity protection on the
reference drug. If the application is supported by a bioequivalency study, sponsors filing
505(b)(2) applications must include patent certifications in their applications and must
also provide notice of certain certifications to the NDA and patent holders of the
reference drug. Essentially, this means “tipping one’s hand” to the makers of a branded
drug before the sponsor of a 505(b)(2)-based drug candidate can even commercialize
such a product. However, in our view, the advantages still outweigh these risks.
A major challenge with 505(b)(2) applications involves determining what additional
information is needed to support the proposed change of the previously approved drug.
As noted in 21 CFR 314.54, the “application need contain only that information needed
to support the proposed modification(s) of the listed drug.” This will usually be a caseby-case determination. FDA guidance document and discussions with regulatory
professionals experienced in the 505(b)(2) approval route, as well as the involved FDA
review division, are helpful in understanding what data are necessary and adequate.
During the 505(b)(2) drug development process, the formulation, components, or active
pharmaceutical ingredient (API) is often altered. The impact of any of these changes
must be evaluated for changes on the safety and efficacy of the proposed drug product. A
review of the evolution of the formulation and the data supporting the comparability of
the different formulations form the basis for the Pharmaceutical Development section of
the eCTD (electronic common technical document), which is the basis for any regulatory
filing petitioning the FDA for approval of a drug. A chemistry, manufacturing, and
controls (CMC) bridging study can accomplish these goals.
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Table 3: United States Food & Drug Administration (U.S. FDA) Drug Regulatory Pathways
Regulatory Process
505(b)(1) - de novo New Drug
Application (NDA)
505(b)(2)
505(j) - Abbreviated New Drug
Application (ANDA)
Agency Meetings
User Fees
Review Classification / Timeline
Yes
Yes
6 months (Priority Review) / 10
months (Standard Review)
Yes
Yes
6 months
No
No
6 - 12 months
Yes
NA
NA
NA
NA
NA
Yes
Possibly
Yes
Yes
Possibly
Possibly
Yes
Possibly
No
Yes
Yes
NA
No
Yes
Limited
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
NA
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Possibly
No
No
No
No
No
No
No
Possibly
No
No
Yes
Yes / 5 years (NCE) / 7 years
(Orphan Drug)
Yes
Yes / 3 years (standard) / 7 years
(Orphan Drug)
Possibly
No / 180 days
7 - 10 years
$100 million - >$1 billion
1 - 3 years
$1 million - $5 million
1 - 3 years
$1 million - $3 million
Approval Requirements
Full reports of efficacy / safety studies
PK / bioavailability / bioequivalence studies with reference listed drug (RLD)
CMC bridging studies with RLD
Toxicology bridging studies with RLD
Supportive publications on RLD
FDA findings of safety and effectiveness on RLD
Extensive stability data (at least 12 months of stability testing required)
Examples of Allowed Changes (e.g., from RLD)
New Molecular (Chemical) Entity
New Active Moiety
New therapeutic indication
New route of administration
New formulation
New ester, salt or other non-covalent derivative
New dosage form or strength
Combination Product
Rx / Over-The-Counter (OTC) Switch
Labeling
Marketing / Patent Issues
Patented
Market Exclusivity Period
Cost / Timing
Development timeline
Average cost per application
Source: U.S. FDA
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FDA Approval Statistical Trends
We direct investors’ attention to an important fact regarding 505(b)(2) regulatory
applications: They are more in vogue than ever before, and they carry a significantly
higher likelihood of success than de novo regulatory filings (standard NDAs on New
Chemical Entities, or NCEs). The statistics presented in the figure below tell the tale –
between 1984 and 1996, only five 505(b)(2) applications were approved. In 1997 and
1998, an additional five were approved. As time has gone on, however, the pace at which
505(b)(2) applications are being submitted has risen at an ever-faster pace, and the rate at
which these are being approved has risen even faster. In 2006, the number of 505(b)(2)
applications approved in a single year outstripped the number of de novo NDAs approved
for the first time. Since 2006, there has never been a year in which the number of
505(b)(2) approvals did not exceed the number of de novo NDA approvals. Furthermore,
looking at the percentages here tells its own story – over the past 10 years, the average
rate at which 505(b)(2) applications have been approved has been nearly 70%, whereas
the rate at which de novo NDAs are approved on a first pass has been below 20%. In
recent years, this has even dipped to below 15%. We also note that, in 2006,
approximately 20% of new drugs were approved through the 505(b)(2) process. In 2007,
the number was about 43%. In 2008, more than half of the non-generic drug applications
approved in the U.S. were based on the 505(b)(2) process. Looking at the number of
Investigational New Drug Applications (INDs) being filed, we expect that, by 2015, the
percentage of 505(b)(2) approvals will be greater than 90%.
Figure 4: FDA Approval Statistics 1996 – 2011
Source: U.S. FDA, Camargo Pharmaceutical Services, Investigational Drug Database
While, in the past, the 505(b)(2) pathway was largely ignored by pharmaceutical firms,
we believe that the statistical trends over the past decade now make this approach
impossible for drug developers to ignore. Ampio’s focus on this pathway is likely to
make the firm much more appealing to its potential future strategic partners, in our view.
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Overview of Ampion™
Ampion™ is a non-steroidal biologic, aspartyl-alanyl diketopiperazine, referred to as
DA-DKP. This compound is derived from two amino acids from human serum albumin
(HSA), and is designed to treat chronic inflammatory and autoimmune diseases. Since it
is a naturally occurring human molecule, DA-DKP is present in the body and can be
detected in plasma. Early in Ampio’s discovery and characterization of DA-DKP, it
became apparent that it is the natural by-product of commercially available HSA.
In the manufacturing of HSA, an FDA-approved human biologic agent, DA-DKP is the
result of cleavage and cyclization from the end (N-terminus aspartate and alanine) of
albumin just as we believe occurs inside the human body. Many referenced publications
now mention the pharmacological, including anti-inflammatory, properties of HSA. The
product has been used topically in the eye to decrease irritation and is currently the
subject of a large clinical trial in order to decrease inflammation in the lung after trauma.
Ampio believes that one of the active anti-inflammatory ingredients in HSA is the DADKP compound. Ampion™ was shown in vitro to have significant effects on
inflammation and other physiological and metabolic parameters. Dr. David Bar-Or,
Ampio’s Chief Scientific Officer, has published a number of studies and articles on the
anti-inflammatory immune response of DA-DKP. There are numerous clinical areas in
need of improved anti-inflammatory medications. The figure below shows a group of
disease states that Ampio believes could be addressable using Ampion™.
Figure 5: Ampion™ Target Indications
Early in vitro and in vivo studies using Ampion™ showed indications of efficacy in
treating autoimmune diseases such as multiple sclerosis (MS). However, because clinical
trials in MS would require substantial financial resources and typically must be
conducted over an extended period, deployment of Ampion™ in MS was deemed not
viable at this time. Instead, Ampio has elected to pursue clinical development of its lead
candidate in other indications, such as osteoarthritis, which have the advantage of high
prevalence within the population and well-defined outcome measures that can be
assessed over relatively short periods of time. Assuming a successful outcome of these
initial clinical trials and proof of concept studies, Ampio intends to actively pursue other
indications such as inflammatory conditions of the eye, peri-operative inflammation, and
autoimmune diseases such as Crohn’s disease, rheumatoid arthritis, Sjogren’s syndrome,
and MS. The firm plans to assess the feasibility of conducting clinical development of
Ampion™ independently and will pursue other indications with a partner, if necessary.
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Currently, Ampio controls a patent covering pharmaceutical compositions that include
DA-DKP, as well as a patent for a method for the production of DA-DKP as a synthetic
agent (small molecule component). However, if the firm were to produce the molecule
synthetically, it is our view that most regulatory authorities would consider it an NME
and, as such, would require detailed animal toxicology studies as well as extensive Phase
1 – 3 human studies to demonstrate safety. Such studies would likely take five to seven
years and cost several hundred million dollars to complete. Alternatively, the presence of
the Ampion™ molecule in the already-approved HSA presents a unique opportunity to
expedite the drug development process for the drug. As such, Ampio has moved forward
with a filtrate of HSA as an injectable agent in its knee osteoarthritis (OA) trials. The
firm commenced human efficacy trials in 2011. Initial efficacy data are presented below.
Figure 6: Ampion™ Pain Efficacy Data – Phase 2 Knee OA Trial
As shown above, the data from this initial Phase 2 study in patients with knee OA
demonstrated a trend towards a difference in pain scores in patients treated with Ampion
after 30 days vs. placebo. This was a 43-patient, randomized, double-blinded trial in
which patients were injected with either Ampion or saline directly into the knee. The
primary endpoint was a pain numeric rating scale (NRS) outcome measure, which was
measured at baseline, six hours, 24 hours, 72 hours, eight days, and 30 days postinjection. While validated WOMAC™ pain and function scale measurements were also
taken, these turned out not to yield utilizable data. We note that the analysis presented
above represents data from a total of only 32 patients; the p-value was 0.16 but analysis
of a subset of individuals who did not receive rescue medication after 30 days yielded a
statistically significant p-value of 0.002. Accordingly, therefore, we believe that this data
demonstrate that there was an efficacy signal with Ampion™ in the knee OA setting.
Several mechanistic explanations for the activity of Ampion™ in knee OA and other
inflammatory conditions exist. Data from a paper published in 2008 indicated that
exposure of human T lymphocytes to the diketopiperazine dipeptide molecule that is the
principal constituent of Ampion™ decreased activation factors relevant to the T-cell
receptor signal transduction pathway and, subsequently, downmodulated T lymphocyte
activation. Accordingly, this paper concluded that this peptide fragment can modulate
the inflammatory immune response through a pathway implicated in T- lymphocyte
anergy (a situation in which the immune system does not react to stimulatory agents).
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A different analysis methodology utilized to assess the Phase 2 data demonstrated that
more patients demonstrated improvement in pain after 30 days on Ampion™ than on
placebo. As shown in the table below, nearly 65% of patients who received Ampion
reported a clinically meaningful reduction in pain, equivalent to a >2-point decline in the
30-day NRS outcome measure vs. baseline. In the placebo group, 40% of patients
exhibited such a decline in pain scores. Similarly, fewer patients demonstrated no
improvement on Ampion™ than on placebo. Accordingly, therefore, we believe that
there is sufficient data on this agent to warrant further testing in knee OA.
Table 4: Ampion™ Pain Efficacy Data – Phase 2 Knee OA Trial
In another assessment of the data from this Phase 2 trial involving long-term follow-up, it
was observed that at 84 days post-injection, Ampion™ demonstrated a statistically
significant difference in pain relief vs. the saline placebo control. This would appear to
indicate that in a longer-term study, the drug effect might be better elucidated. We note
that there were no serious adverse events in this Phase 2 study and that any and all side
effects reported were mild in nature and did not appear to differ markedly from side
effects that occurred in subjects receiving placebo. Accordingly, therefore, we believe
that Ampion™ could enjoy a significant safety margin over injectable corticosteroids and
even certain non-steroidal anti-inflammatory drugs (NSAIDs) in the knee OA market.
We would anticipate that the next step for Ampio would involve moving Ampion™ into
pivotal development in knee OA. The design for each individual study at this stage of the
drug’s development is likely to involve approximately 300 – 400 patients, in our
estimation, and would likely utilize a pain-based primary endpoint again. The FDA has
indicated to Ampio that it wants to see a confirmatory study conducted before evincing a
willingness to accept a regulatory filing on the drug. Therefore, we would expect Ampio
to potentially initiate two separate knee OA-focused clinical trials with Ampion™ in the
late 2012 / early 2013 time frame. These trials might be run concomitantly.
Ampion™ pricing potential benefits from two considerations – firstly, the fact that the
drug is classified as a biologic agent; and secondly, the fact that several competitor
products – primarily those agents used in viscosupplementation for knee OA patients –
are priced at roughly $800 – $900 per treatment. For example, quoted average wholesale
prices (AWPs) for Sanofi’s Hyalgan and Synvisc products are $812.50 and $880 per
treatment, respectively. The suggested injection frequency for these products is once
every six weeks. This would imply an annual cost for Ampion™ of roughly $7,000 per
patient. Thus, we consider Ampion™ to be Ampio’s highest-value opportunity.
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Ampion™ Market Model
We have modeled sales for Ampion™ in only a single indication, osteoarthritis of the
knee, colloquially known as knee OA. While we believe the drug has applicability in a
broad array of autoimmune and inflammatory disorders, we have chosen to take a
conservative approach and have, therefore, modeled future sales only in knee OA because
this is the only indication in which clinical efficacy data has thus far been presented.
In the U.S., almost 21 million adults are living with osteoarthritis. One of the body's
critical joints, the knee, is the most frequently affected. More than 30% of people over
50 have knee osteoarthritis, in addition to 80% of those over 65 years of age. The growth
of osteoarthritis of the knee among the U.S. population is expected to accelerate as the
increasingly active population ages and obesity rates increase. As a result of this
substantial clinical need, the market for orthopedic knee procedures in the U.S. has
experienced tremendous growth over the past decade.
The knee joint consists of the medial, patellofemoral and lateral compartments.
Osteoarthritis of the knee usually begins with the deterioration of the soft tissue and
cartilage in the medial compartment and progresses to either or both the patellofemoral
and lateral compartments. The progression of osteoarthritis of the knee can take many
years, and even in the early stages, it can result in substantial pain for the patient and a
reduction in the quality of life. According to data compiled by Orthopedic Network
News, the U.S. knee implant market exceeded $3.6 billion in 2011, which represents
growth of 9% from 2006 to 2011. In addition to the substantial costs of the procedure
itself, total knee replacement and resurfacing procedures represent major incremental
costs to the healthcare system. These include the costs of rehabilitation, medication,
hospitalization and, over the long-term, costs incurred as a result of replacements or
revisions that may be required due to wear and tear or improper placement.
Surgical treatment of knee OA is effective but it is not appropriate for all stages of the
disease or for all patients. It is also costly and not without risks. With increased
understanding of the pathogenesis of OA, new therapies are being developed, one of
which is viscosupplementation with hyaluronic acid. A new approach in the management
of OA of the knee is to inject hyluronan or derivatives of this molecule (hylans) into the
joint. In recent years, the concept of viscosupplementation has gained widespread
acceptance as a new treatment for the management of OA of the knee. From our
perspective, the viscosupplement agents are likely to be one source of competition for
Ampion™ in the knee OA market. However, their presence means that the mode of
administration for Ampion™ is likely to be something physicians and patients alike are
broadly familiar with and therefore willing to utilize. Furthermore, Ampion™ addresses
the pain component of knee OA directly, unlike the viscosupplements, which do not
contain any analgesic products.
We have priced Ampion™ in accordance with our view that the drug is likely to be
administered anywhere from every six weeks (nine times per year) to every three months.
The drug could be priced at a premium to Synvisc-ONE®, which has been available
generically for some time but which is still advertised as costing $300 – $350 per
injection. At a starting price of roughly $800 per injection, we believe that Ampion
therapy could cost $7,000 per patient annually. Ampio has intellectual property covering
the composition-of-matter of the drug that expires in 2021, along with a patent on the
human serum albumin (HSA) filtrate composition that only expires in 2024. Various
other use patents expire in 2021 and beyond. However, since this is a biologic agent, we
project that it would benefit from 12 years of market exclusivity in the U.S. We would
also point out to investors that because this drug is derived from a filtrate of a complex
biological mixture, it may be a very long time before generics firms can figure out how to
make an equivalent product. Thus, our assumptions may prove to be conservative.
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Table 5: Ampion™ Estimated U.S. Sales – Knee Osteoarthritis Market Size Model
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
US
Knee osteoarthritis patients (mainly >60 years of age)
Population Growth rate
Symptomatic patients (~35% of total)
Ampion™ penetration rate
21,000,000 21,262,500 21,528,281 21,797,385 22,069,852 22,345,725 22,625,047 22,907,860 23,194,208 23,484,136 23,777,687 24,074,909 24,375,845 24,680,543 24,989,050 25,301,413 25,617,681 25,937,902 26,262,125
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
7,350,000
7,441,875
7,534,898
7,629,085
7,724,448
7,821,004
7,918,766
8,017,751
8,117,973
8,219,448
8,322,191
8,426,218
8,531,546
8,638,190
8,746,167
8,855,494
8,966,188
9,078,266
0%
0%
0.0%
0.5%
1.1%
1.4%
1.9%
2.1%
2.3%
2.4%
2.5%
2.2%
2.1%
2%
1.9%
1.8%
1.7%
1.6%
1.5%
38,145
84,969
109,494
150,457
168,373
186,713
197,267
208,055
185,377
179,162
172,764
166,177
159,399
152,425
145,252
137,876
$7,000
$7,210
$7,426
$7,649
$7,879
$8,115
$8,358
$8,609
$8,867
$9,133
$9,407
$9,690
$9,980
$10,280
$10,588
$10,906
$267
$613
$813
$1,151
$1,327
$1,515
$1,649
$1,791
$1,644
$1,636
$1,625
$1,610
$1,591
$1,567
$1,538
$1,504
Number of patients receiving Ampion™
Cost of therapy (per year)
Ampion™ sales ($ MM)
$0
$0
$0
9,191,744
ROW (primarily industrialized countries)
Knee osteoarthritis patients (mainly >60 years of age)
Symptomatic patients (~20% of total)
18,000,000 18,225,000 18,452,813 18,683,473 18,917,016 19,153,479 19,392,897 19,635,308 19,880,750 20,129,259 20,380,875 20,635,636 20,893,581 21,154,751 21,419,185 21,686,925 21,958,012 22,232,487 22,510,393
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
3,600,000
3,645,000
3,690,563
3,736,695
3,783,403
3,830,696
3,878,579
3,927,062
3,976,150
4,025,852
4,076,175
4,127,127
4,178,716
4,230,950
4,283,837
4,337,385
4,391,602
4,446,497
0%
0%
0%
0.2%
0.4%
0.8%
1.1%
1.2%
1.3%
1.5%
1.6%
1.6%
2%
1.4%
1.3%
1.2%
1.1%
0.9%
0.5%
0
0
0
7,473
15,134
30,646
42,664
47,125
51,690
60,388
63,181
67,272
62,681
59,233
55,690
52,049
48,308
40,018
22,510
$0
$0
$0
$5,250
$5,408
$5,570
$5,737
$5,909
$6,086
$6,269
$6,457
$6,651
$6,850
$7,056
$7,267
$7,485
$7,710
$7,941
$8,179
Ampion™ sales ($ MM)
$0
$0
$0
$39
$82
$171
$245
$278
$315
$379
$408
$447
$429
$418
$405
$390
$372
$318
$184
Worldwide Ampion™ sales ($ MM)
Royalty rate
Royalty to Ampio on net sales ($ MM)
$0
$0
$0
15%
$306
16%
$694
18%
$984
20%
$1,396
21%
$1,605
25%
$1,830
28%
$2,027
28%
$2,199
28%
$2,091
28%
$2,066
28%
$2,043
28%
$2,015
28%
$1,980
28%
$1,939
28%
$1,856
28%
$1,688
28%
$0
$49
$125
$197
$293
$401
$512
$568
$616
$586
$578
$572
$564
$555
$543
$520
$473
Ampion™ penetration rate
Number of patients receiving Ampion™
Source: Company Reports and Aegis Capital Corp. estimates
19
AEGIS CAPITAL CORP.
4,502,079
September 25, 2012
Optina™ Product Overview
In our view, one of the most intriguing product opportunities in Ampio’s portfolio is the
small molecule drug candidate Optina™. This agent is a low-dose formulation of the
steroid derivative known as danazol, which is based on the synthetic steroid ethisterone, a
modified testosterone molecule. Danazol was originally marketed as Danocrine in the
U.S., where it was the first approved endometriosis drug. The product initially entered
the market in the early 1970s and has been generically available for over two decades.
Although an effective therapy for endometriosis, danazol’s utility has been hampered
long-term by its masculinizing side-effects – due to the fact that it is based on a synthetic
testosterone analog – and the fact that newer, safer agents have become available.
Figure 7: Danazol Chemical Structure
Source: ADIS R&D Insight
Ampio Pharmaceuticals, however, has taken a very different approach to developing
danazol. The endometriosis indication was rejected by the company as too complicated
and difficult; however, the firm was intrigued by the ability of danazol to control vascular
permeability or leakage at very low doses (0.05μM – 0.5μM). Accordingly, the company
has decided to pursue the development of danazol in several ophthalmic indications.
Ampio’s strategy of concentrating on eye diseases as the initial target for its proprietary
low-dose danazol formulation is based on the fact that eye disorders represent: a)
significant unmet medical needs, with large patient populations who require chronic
therapy; b) diseases afflicting readily-accessible organs that can be monitored using
highly objective and easily administered outcome measures (eye charts for assessment of
visual acuity, for example); and c) are of clear interest to strategic buyers such as
established pharmaceutical firms, as has been demonstrated by the recent acquisitions of
entities such as Alcon, Inspire Pharmaceuticals and ISTA Pharmaceuticals. The
indications Ampio is focusing on with Optina™ are delineated in the organogram below.
Figure 8: Optina™ Target Indications
20
AEGIS CAPITAL CORP.
September 25, 2012
Diabetic Macular Edema Indication Overview
Diabetic macular edema (DME) is a form of retinopathy that occurs in certain diabetic
individuals. The condition involves increased vascular permeability that results in the
leakage of plasma constituents. This induces macular edema – the collection of fluid and
protein deposits (known as drusen) on or beneath the macula of the eye, which is the
yellow central area of the retina, causing the macula to swell. This swelling may distort
the patient’s central field of vision, because the macula is located near the center of the
retina at the back of the eyeball. The macular component of the visual field is packed
tightly with cone-type photoreceptors that provide the sharp, clear central vision enabling
a person to see the detail, form and color that is directly in the direction of gaze.
Accordingly, therefore, the central visual field disruption caused by macular edema can
be extremely debilitating and may result in a patient being unable to see anything by
looking at it straight on. Peripheral vision may remain perfectly accurate, however.
DME is classified as the most common cause of vision loss in both proliferative and nonproliferative diabetic retinopathy. It affects up to 80% of diabetic patients who have
suffered from diabetes for more than 10 years. The longer a person has diabetes, the
greater the likelihood of developing diabetic retinopathy. Although research has
indicated that up to 90% of these cases of diabetic retinopathy could be mitigated by
vigilant monitoring and treatment of the eyes, many individuals with diabetes often
neglect the condition because they typically suffer from much more life-threatening
comorbidities of diabetes that often take priority from a treatment standpoint. Such
comorbidities include hypertension, diabetic foot ulcers and other such chronic
conditions. While several types of therapy, including laser surgery, treatment with intravitreal corticosteroid injections and anti-angiogenic drugs, and vitrectomy, have proven
extremely effective in addressing DME, none of them cure the disorder and, over time,
the symptoms return. The expense of these procedures also means that many
disadvantaged patients suffering from diabetes typically never receive or benefit from
them. Ampio believes that low-dose danazol may represent a way to address the majority
of untreated or insufficiently treated DME patients, as well as those refractory to current
widely-used therapy.
Figure 9: Retinal Physiology
Source: National Eye Institute
In the above diagram, the basic physiology of the retina and its underlying structure is
depicted. The retina represents the light-sensitive region of the back of the eyeball. The
inner surface of the back of the eyeball in the human eye is coated with photoreceptor
21
AEGIS CAPITAL CORP.
September 25, 2012
cells. These cells, which are generally classified as either rods (used for seeing in low
light) or cones (used to detect color), transmit the image signals received by the eye to the
brain through the optic nerve. Once they reach the brain, these signals are translated into
image perception by cells in the visual cortex. The figure below illustrates the difference
between a healthy retinal surface and a retina affected by diabetic retinopathy. The
yellow spot in the center of the retina is the macula, a concentration of photoreceptor
cells that is responsible for the majority of central vision. In the diabetic macular edemaafflicted retina, the growth of various microvessels is readily apparent, as is the presence
of various protein deposits (known as drusen) on the retinal surface. These deposits show
up as tiny yellowish spots on the retina.
Figure 10: Diabetic Retinopathy Pathophysiology
Source: Ines Serrano, University of Pittsburgh School of Medicine, Pittsburgh, PA
DME is a major contributor to functional blindness worldwide. The chart below depicts
the worldwide prevalence of diabetic retinopathy. We note that, 20 years after diagnosis,
99% of patients with type I diabetes and 60% of those with type II diabetes have some
level of diabetic retinopathy2. As a whole, a third of all diabetics have retinopathy.
Diabetics are >25 times as likely to become blind as members of the general population.
Figure 11: Diabetic Retinopathy Global Prevalence
Source: Ines Serrano, University of Pittsburgh School of Public Health, Pittsburgh, PA
2
Ding and Wong. Current Diabetes Reports 12: 346-354 (2012)
22
AEGIS CAPITAL CORP.
September 25, 2012
Current Diabetic Macular Edema (DME) Therapy
Several therapeutic approaches – as mentioned previously – are currently employed to
treat DME. The most successful are generally acknowledged to be laser surgery, therapy
with intra-vitreally injected corticosteroids and/or anti-angiogenic agents, and vitrectomy.
In addition, a number of drugs are currently being deployed to treat DME as well,
although these approaches are considered less effective.
Laser Surgery
The principal FDA-sanctioned approach to treating DME is laser surgery, which is
employed in this context to “burn” or “cauterize” those areas around the macula that are
leaking. The specific type of surgery used is referred to as focal or grid photocoagulation
of clinically significant macular edema (CSME). Generally, results obtained with this
type of procedure are encouraging, as this approach is usually effective at arresting fluid
leakage if applied early in the course of the disease. The procedure is relatively painless
because there are no nerve endings beneath the macula, and the treatment can take as
little as 10 – 15 minutes to perform. Since this form of surgery is much less invasive than
other kinds of ophthalmological surgical procedures such as laser-assisted in situ
keratomileusis (LASIK), typically no healing period is needed and the patient can resume
normal activities later that same day. These procedures can cost $1,500 to $3,500 on
average, although the cost is declining as equipment becomes cheaper.
Vitrectomy
A procedure where the clear gelatinous fluid of the eye (the so-called vitreous humor) is
removed, vitrectomy is typically recommended for individuals who have lost a
substantial amount of vision. The vitreous humor is the clear aqueous solution that fills
the space between the lens and the retina of the vertebrate eyeball. The solution is 99%
water, but has a gelatinous viscosity two to four times that of water. The remaining
solutes include salts, sugars, phagocytes, and a network of collagen fibers. The
phagocytic cells are present to remove unwanted debris in the visual field. The primary
purpose of the vitreous humor is to provide a cushioned support for the rest of the eye, as
well as a clear unobstructed path for light to travel to the retina.
Figure 12: Vitreous Humor Physiology
Source: European Medical Tourist
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AEGIS CAPITAL CORP.
September 25, 2012
The collagen fibers of the vitreous humor are held apart by electrical charges. With
aging, these charges tend to reduce, and the fibers may clump together. Similarly, the gel
may liquefy, a condition known as syneresis, leading to cells and other organic clusters to
float freely within the vitreous. These commonly lead to floaters, or muscae volitantes
(flying flies), which are perceived in the visual field as spots or fibrous strands. Floaters
are generally harmless, but the sudden onset of reoccurring floaters may signify a
posterior vitreous detachment (PVD) or other diseases of the eye 3. The cost of
vitrectomy varies widely by country, but in the U.S. it ranges between $8,000 and
$15,000 per procedure, while in the U.K. it is typically listed at ₤3,000 – ₤5,0004. In
France, eye surgeons have been known to list the procedure at €1,500 – €3,000.
Diabetic Macular Edema Drugs
Many medications are employed at present to treat DME. Among the most widely-used
treatments are various corticosteroids, which are anti-inflammatory drugs derived from
steroid hormones. The corticosteroids – which are typically administered via intra-vitreal
injections or implants because topical administration, such as with eye drops, does not
achieve the necessary therapeutic concentrations inside the eye – are utilized in DME
because of their anti-inflammatory and anti-angiogenic properties5. However, they have
the dangerous side effect of increasing intra-ocular pressure (IOP) – pressure inside the
eye – because they cause fluid retention as well. IOP can cause blurred vision and also
structural damage if left unattended for too long. As such, therefore, a drug like low-dose
danazol that regulates vascular endothelial cell permeability would potentially have
similar efficacy to corticosteroids but would not increase IOP.
The most commonly-used corticosteroids have been triamcinolone acetonide,
dexamethasone, and – most recently – fluocinolone acetonide. Systemic administration
of steroids may be useful, but high doses are required and are associated with severe
systemic side effects. Intra-vitreal injection of steroids provides a powerful therapeutic
effect, though it is associated with frequent secondary cataracts and increased IOP.
Furthermore, the need for repeated injections may increase the risks associated with the
injection procedure such as endophthalmitis and retinal breaks 6.
Another important category of agents comprises the anti-angiogenic products7. As
mentioned in an earlier section, these drugs are considered the standard of care for wet
AMD. They are expensive, currently priced at $1,850 per injection for Eylea ®
(aflibercept), marketed by Regeneron, and $2,000 per injection for Lucentis ®
(ranibizumab), marketed by Roche. The annual cost of Eylea® is $16,000, while that of
Lucentis® is $24,000. Avastin® (bevacizumab), technically the same agent as Lucentis®
in a slightly different form, is priced at $50 per intra-vitreal injection but is used only offlabel in treatment of wet AMD. Its annual cost can thus be as little as $600 per patient.
Although these anti-angiogenic agents were historically not formally approved by the
FDA for DME, they are employed to address patients who are not suitable candidates for
laser surgery or vitrectomy. Lucentis® recently won approval in DME, so the overall
market opportunity for this group of drugs is increasing. The principal arena in which
Lucentis®, Eylea® and intra-vitreal Avastin® are employed is the domain of retinal edema
caused by retinal vein occlusions or wet AMD, where aberrant blood vessel growth is a
clear cause of the pathology.
3
National Eye Institute
http://www.pricevisiongroup.com/
5
Montero and Ruiz-Moreno. Current Diabetes Reviews 5: 26-32 (2009)
6
Kumar et al., Journal of Post-graduate Medicine 58: 132-139 (2012)
7
Bandello et al., Ophthalmic Research 48 Suppl 1: 16-20 (2012)
4
24
AEGIS CAPITAL CORP.
September 25, 2012
Optina™ Market Model
We have modeled sales of Ampio’s drug Optina™ in the U.S. and ex-U.S. industrialized
market. The positioning of danazol as a systemically-administered, orally-bioavailable
drug is likely to have significant commercial value, in our view. Typically, diseases like
DME and wet age-related macular degeneration (AMD) have been considered treatable
mainly with drugs that could only be administered via injection directly into the eye.
This is decidedly inconvenient for the patient and can often mean lack of patient
compliance with recommended dosing regimens. Accordingly, an oral pill might prove
capable of achieving rapid market penetration and commercial uptake even when going
up against deeply entrenched competition.
We also believe that danazol – in the formulation being developed by Ampio – could
represent an attractive treatment option because of its comparatively low cost. Drugs
considered the standard of care for wet AMD, for example, are currently priced at $1,850
per injection for Eylea® (aflibercept), marketed by Regeneron Pharmaceuticals, and
$2,000 per injection for Lucentis (ranibizumab), marketed by Roche. Lucentis® won
approval for treatment of DME in August 2012. The annualized cost of Eylea ® is
estimated at roughly $16,000, while the annual cost of Lucentis ® is $24,000. Avastin®
(bevacizumab), which is technically the same agent as Lucentis® in a slightly different
form, is priced at $50 per intra-vitreal injection but is used only off-label in treatment of
wet AMD. Its annual cost can be as little as $600 per patient. We note that Iluvien ®
(fluocinolone acetonide intra-vitreal implant), marketed in several European countries by
Alimera Sciences, is expected to be priced in a €3,500 – €5,500 net range. U.S. pricing is
undetermined at this point.
In comparison, the annual cost of low-dose danazol could be as low as $400 – $500 per
patient. A six-month course of danazol for treatment of endometriosis – admittedly at
significantly higher dosages than those envisaged for treatment of DME – is currently
estimated to cost roughly $225 per patient. Accordingly, therefore, we project annualized
Optina™ pricing at $450 per patient in the U.S. and $340 per patient in Europe.
Ampio Pharmaceuticals holds the rights to various patents issued or allowed in the U.S.,
European Union, Canada, and other territories that cover danazol method-of-use claims
in DME. These patents expire in 2030. Conservatively, we are modeling market
exclusivity for Optina™ based on the five-year exclusivity period given in the U.S. and
the seven-year exclusivity period given in the E.U., without factoring in the additional
protection afforded by these patents. In our view, this is an extremely conservative
approach because no prior art of which we are aware teaches the uses of danazol in DME
and there are no approved uses for the drug at the low dose being utilized by Ampio in
this indication. The regulatory pathway being invoked for this product is the 505(b)(2)
pathway in the U.S. and the so-called “hybrid abridged” pathway at the European
Medicines Agency (EMA). Ampio has already received the 505(b)(2) classification from
the FDA for Optina™. We anticipate a second efficacy trial for Optina™ in DME to
begin enrollment in late 2012. This study would be aimed at clarifying and establishing
the efficacy profile for Optina™ in DME and paving the way for the final pivotal trial,
which we anticipate being conducted in the second half of 2013.
In our view, Ampio could complete all clinical development in late 2013 or early 2014,
and submit the drug for approval by mid-2014. Since the approval process for a
505(b)(2) application takes six months by definition, we believe that it is realistic to
assume that Optina™ could be launched in the U.S. in early 2015. The firm could easily
launch the drug in Europe during 2015 as well, in our view, since the same clinical data
package that would be used to secure U.S. approval could be submitted to the European
regulatory authorities. We expect that the drug could achieve peak market penetration
rates of 25% – 30% in the U.S. and close to 20% in Europe.
25
AEGIS CAPITAL CORP.
September 25, 2012
Table 6: Optina™ Estimated U.S. Sales – Diabetic Macular Edema (DME) Market Size Model
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
22,000,000
1.25%
22,275,000
1.25%
22,553,438
1.25%
22,835,355
1.25%
23,120,797
1.25%
23,409,807
1.25%
23,702,430
1.25%
23,998,710
1.25%
24,298,694
1.25%
24,602,428
1.25%
24,909,958
1.25%
25,221,333
1.25%
25,536,599
1.25%
25,855,807
1.25%
26,179,004
1.25%
26,506,242
1.25%
26,837,570
1.25%
27,173,040
1.25%
27,512,703
1.25%
2,200,000
2,227,500
2,255,344
2,283,536
2,312,080
2,340,981
2,370,243
2,399,871
2,429,869
2,460,243
2,490,996
2,522,133
2,553,660
2,585,581
2,617,900
2,650,624
2,683,757
2,717,304
2,751,270
0%
0%
0%
2%
5%
9%
12%
18%
27%
25%
22%
19%
18%
17%
15%
13%
11%
9%
8%
0
0
0
45,671
115,604
210,688
284,429
431,977
656,065
615,061
548,019
479,205
459,659
439,549
392,685
344,581
295,213
244,557
220,102
$0
$0
$0
$450
$464
$477
$492
$506
$522
$537
$553
$570
$587
$605
$623
$642
$661
$681
$701
Optina™ sales ($ MM)
$0
$0
$0
$21
$54
$101
$140
$219
$342
$330
$303
$273
$270
$266
$245
$221
$195
$166
$154
24,500,000
1.25%
24,806,250
1.25%
25,116,328
1.25%
25,430,282
1.25%
25,748,161
1.25%
26,070,013
1.25%
26,395,888
1.25%
26,725,837
1.25%
27,059,909
1.25%
27,398,158
1.25%
27,740,635
1.25%
28,087,393
1.25%
28,438,486
1.25%
28,793,967
1.25%
29,153,891
1.25%
29,518,315
1.25%
29,887,294
1.25%
30,260,885
1.25%
30,639,146
1.25%
1,960,000
1,984,500
2,009,306
2,034,423
2,059,853
2,085,601
2,111,671
2,138,067
2,164,793
2,191,853
2,219,251
2,246,991
2,275,079
2,303,517
2,332,311
2,361,465
2,390,984
2,420,871
2,451,132
0%
0%
0%
0%
1%
4%
7%
11%
15%
18%
15%
12%
9%
6%
3%
2%
1.2%
0.9%
0.5%
0
0
0
4,069
20,599
83,424
147,817
235,187
324,719
394,533
332,888
269,639
204,757
138,211
69,969
47,229
28,692
21,788
12,256
$0
$0
$0
$0
$340
$350
$361
$372
$383
$394
$406
$418
$431
$444
$457
$471
$485
$499
$514
Optina™ sales ($ MM)
$0
$0
$0
$0
$7
$29
$53
$87
$124
$156
$135
$113
$88
$61
$32
$22
$14
$11
$6
Worldwide Optina™ sales ($ MM)
Royalty rate
$0
$0
$0
$21
12%
$61
14%
$130
16%
$193
16%
$306
18%
$467
19%
$486
20%
$438
20%
$386
20%
$358
20%
$327
20%
$277
20%
$243
20%
$209
20%
$177
20%
$161
20%
$2
$8
$21
$31
$55
$89
$97
$88
$77
$72
$65
$55
$49
$42
$35
$32
US
Diabetes patients
Diabetic macular edema patients (~10% of total)
Optina™ penetration rate
Number of patients receiving Optina™
Diabetes patients
Diabetic macular edema patients (~8% of total)
Optina™ penetration rate
Number of patients receiving Optina™
26
AEGIS CAPITAL CORP.
September 25, 2012
Zertane™ (Tramadol) Program Overview
Ampio is developing an agent it calls Zertane for the treatment of premature ejaculation
(PE), a condition in which male individuals experience shorter-than-normal ejaculation
latency times. PE, while highly variable in severity, clearly has substantial potential for
impact on the level of sexual satisfaction that a male individual can achieve. While
average intra-vaginal ejaculation latency time (IELT) – often defined as the time between
penetration and ejaculation – is typically 4 – 7 minutes for the average man, individuals
with PE often experience ejaculation in only 1 – 2 minutes. Many medications have been
deployed in an attempt to deal with PE, including short-acting analgesic creams and
sprays. Several well-known painkillers, among them the oxycodone-based agents
Percocet and OxyContin, are known to prolong IELT as well. Thus, the concept of using
analgesic drugs to treat PE appears to be a validated one.
Tramadol hydrochloride (trademarked as Conzip™, Ryzolt™, Ultracet™, and Ultram™
in the U.S., and as Ralivia™ and Zytram™ XL in Canada) is a centrally-acting synthetic
analgesic used to treat moderate to moderately-severe pain. The drug has a wide range of
applications, including treatment of rheumatoid arthritis, restless legs syndrome, and
fibromyalgia. It was originally launched and marketed as Tramal® by the German
pharmaceutical company Grünenthal GmbH in 1977, and today is available generically in
various forms. The figure below depicts the chemical structure of tramadol.
Figure 13: Tramadol Chemical Structure
27
AEGIS CAPITAL CORP.
September 25, 2012
Tramadol is a very weak μ-opioid receptor agonist, induces serotonin release, and inhibits
the reuptake of norepinephrine8. The drug is converted to O-desmethyltramadol, a
significantly more potent μ-opioid agonist. The opioid agonistic effect of tramadol and
its major metabolite(s) is almost exclusively mediated by such μ-opioid receptors. This
further distinguishes tramadol from opioids in general (including morphine), which do
not possess tramadol's degree of receptor subtype selectivity and which are much
stronger opiate-receptor agonists. Similarly, the habituating properties of tramadol (such
as they are) are arguably mainly due to μ-opioid agonism with contributions from
serotonergic and noradrenergic effects. As such, therefore, an agent like tramadol would
be more suitable for broad use among males with PE who are otherwise healthy, because
the addiction potential is much lower than that of more potent opioid painkillers.
As an agent with an exemplary safety record – spanning over 30 years with no serious
adverse events reported at the 400mg oral dose or the 600mg parenteral dose – tramadol
clearly represents a solid, low-risk basis for drug development. Ampio has developed a
proprietary formulation of the drug using an orally disintegrating tablet (ODT) platform
in-licensed from Valeant Pharmaceuticals International. The dosages being utilized to
treat PE are 62mg and 89mg per day; both doses have been shown to be free of toxic side
effects. An alcohol interaction study also demonstrated that tramadol at these lower
doses is still safe for use; this clearly has significant market relevance as well, since many
individuals who might use a PE drug might likely be consuming alcohol at the same time.
There does not appear to be any dependency or abuse potential of tramadol at the 62mg
and 89mg per day doses. Clinical data obtained with Zertane™ demonstrated statistical
significance achieved on both the objective intra-vaginal ejaculation latency time (IELT)
outcome measure as well as the patient-reported premature ejaculation profile (PEP)
questionnaire, which is more subjective. The trial performed in Europe encompassed 62
sites in 11 countries and enrolled 604 patients (intent-to-treat population).
Figure 14: Zertane™ Clinical Results
As shown in the above graphs, a statistically significant increase in IELT was observed in
patients treated with Zertane™. Median IELT increased from 2.75 minutes to over 4
minutes (p=0.03). In addition, endpoints on the PEP questionnaire such as satisfaction
with sexual intercourse, control over ejaculation during intercourse, ejaculation-related
distress and ejaculation-related interpersonal difficulty all improved in patients treated
with Zertane™. The statistical significance reached on the PEP questionnaire was
substantially greater than that observed in terms of the difference in IELT. In our view,
this demonstrates that a prolongation of less than two minutes in ejaculation latency has a
clear and demonstrably meaningful impact on patients. Accordingly, we believe that
future pivotal trials of Zertane™ in the U.S. – which are likely to utilize similar endpoints
to those of the European trial – have a reasonably high likelihood of success.
8
Reeves and Burke. Drugs Today (Barcelona) 44: 827-836 (2008)
28
AEGIS CAPITAL CORP.
September 25, 2012
Figure 15: Zertane™ IELT and PEP Clinical Data
The above figure illustrates specific clinical results from the European trial of Zertane™.
The left-hand panel depicts the difference in IELT between placebo and the 62mg/day
dose, represented in minutes. On the right-hand side, the table illustrates some of the
sub-components of the PEP questionnaire and how these improved quite uniformly in
patients treated with Zertane™. In our view, this data set constitutes compelling evidence
of drug activity in treatment of PE and should enable the design and implementation of
pivotal trials of Zertane™ in the U.S. with the aim of facilitating a U.S. regulatory filing.
One particularly intriguing future marketing initiative for Ampio and/or any potential
partners the firm might enlist in the development and commercialization of Zertane is the
fact that Ampio has already filed for protection of the concept of using Zertane in
combination with various erectile dysfunction (ED) drugs. One might imagine that the
amalgamation of prolonged ejaculation latency with increased erection stamina could be
an extremely desirable combination for a “lifestyle” drug. Furthermore, it could
potentially serve as a valuable life cycle management tool for companies facing imminent
patent expiration on their ED drugs. We remind investors that the most popular ED
drugs, the so-called phosphodiesterase 5 (PDE5) inhibitors, are all facing near-term
patent expiration – Viagra® (sildenafil), marketed by Pfizer, was supposed to face generic
competition in March 2012, but has recently been the subject of a favorable district court
decision that may prolong market protection until 2019; Levitra ® (vardenafil), marketed
by Bayer Schering AG, is slated to go generic in 2018; and Cialis ® (tadalafil), from Eli
Lilly & Co., is covered by patents expiring in the 2017 – 2020 time frame.
The market served by these ED drugs is massive in size – Viagra® alone generated over
$2 billion in sales in 2011 as reported by Pfizer, while clandestine sales of counterfeit and
illegally manufactured sildenafil probably also amounts to over $1 billion annually. In
2011, Cialis® overtook Viagra® in total sales for the first time; it was originally launched
in 2003, five years behind Viagra®, which initially accounted for 92% of all ED therapy,
but currently the Viagra® share of the global ED market is estimated at no more than
40%. Levitra® is a niche player in the market, with total 2011 sales of €332 million.
Ampio’s filed intellectual property covers claims that could facilitate the development of
combination products featuring the co-formulation of ED drugs with varying durations of
action, such as Viagra®, which is a shorter-acting drug, or Cialis®, a longer-acting agent,
with Zertane™ in different forms with varying pharmacokinetic properties. Such product
lines could enable users to tailor their sexual experiences to their own personal
preferences with products that provide flexibility across either long or short periods, and
which both enhance male stamina and prolong enjoyment prior to orgasm.
29
AEGIS CAPITAL CORP.
September 25, 2012
Priligy™ – On Some Levels, An Apt Comparison, But On Others, Not
We would draw investors’ attention at this juncture to the case of another drug developed
to treat PE, Priligy™ (dapoxetine), which was originally being advanced by Johnson &
Johnson. Priligy™ is a selective serotonin reuptake inhibitor (SSRI), and as such is a
very different compound to Zertane™. SSRIs are typically deployed as antidepressants.
Some of the better-known products are Prozac® (fluoxetine), Paxil® (paroxetine), Celexa®
(citalopram), Lexapro® (escitalopram), and Zoloft® (sertraline). Many SSRIs have
attained blockbuster status in the depression market. However, they all carry a black box
warning for suicide ideation, a somewhat paradoxical side effect of this entire class.
Priligy™ was initially developed by Eli Lilly & Co., which also developed Prozac.
Originally known as LY210448, it was being developed as an antidepressant before Lilly
sold the rights to the drug to Johnson & Johnson in December 2003 for $65 million
upfront and royalties on future net sales. In 2004, Priligy™ was initially submitted to the
FDA for approval as a therapy for premature ejaculation by ALZA Corp., a Johnson &
Johnson company. However, the FDA issued a non-approvable letter and requested
additional clinical study. The drug remains unapproved in the U.S., despite the
completion of two more clinical studies in 2006. Development in the U.S. is now being
performed by Furiex Pharmaceuticals under a licensing agreement with Johnson &
Johnson. Outside the U.S., Priligy™ has had more success. It is currently the only drug
approved as a PE treatment, and is approved in several European countries, including
Finland, Sweden, Spain, Portugal, Germany, Italy, the Czech Republic and Austria. It is
also available by prescription in New Zealand and South Korea. Filings have been
submitted in Canada, Australia, Mexico, Turkey, and six other countries.
In a report on the first Phase 3 trial of Priligy™, authors concluded that dapoxetine was
well-tolerated and improved measures associated with premature ejaculation9. While we
note that the efficacy profile of Priligy™ is very similar to that of Zertane™, what is
crucial is the fact that Zertane™ has a clean safety profile while Priligy™ would always
be considered a risk from a suicide ideation perspective. In our view, Zertane™ – since it
is patently not an SSRI drug – will not have this difficulty. We believe that the case of
Priligy™ makes it even easier for investors to attribute value to Zertane™, because the
efficacy of Priligy™ was deemed approvable by various regulatory agencies. Therefore,
in our view, Zertane™ should also be capable of achieving approval if the efficacy
profile continues to show similarity to that of Priligy™. We also note – as discussed in
greater detail in a subsequent section of this report – that Priligy™ has not been very
successful commercially in ex-U.S. markets, but this may be because it is very expensive,
especially when compared to drugs used to treat erectile dysfunction. A three-tablet
supply of Priligy™ has been listed in the U.K. at ₤76 ($128).
Table 7: Zertane™ vs. Priligy™ Clinical Data
9
Kaufman et al., British Journal of Urology 103: 651-658 (2009)
30
AEGIS CAPITAL CORP.
September 25, 2012
Zertane™ (Tramadol) Market Model
We note that, since tramadol hydrochloride is not a new chemical entity (NCE), it would
not be possible for Zertane™ as a product to benefit from either the five-year exclusivity
period stipulated for NCEs under Hatch-Waxman legislation in the U.S. or the 10-year
exclusivity period typically given to NCE products in Europe. However, Zertane™ is
currently covered by at least 32 issued patents and 34 pending patent applications related
to the product, three of which have been allowed. Zertane™ represents a new use for
tramadol hydrochloride, which was oiginally approved in the U.S. for marketing as a
non-controlled analgesic in 1995 as described in a previous section of this report. We
believe that the current patent estate on Zertane™ is likely to provide protection for this
product in premature ejaculation (PE) until at least March 2022.
The market for Zertane™ is considerable, in our view. Among adult males in the U.S.
and Europe alone – not counting emerging markets like Asia and Latin America, where
erectile dysfunction drug usage is highly prevalent – PE is estimated to afflict at least 3%
of this population, which comprises a total of nearly 330 million individuals.
Accordingly, therefore, nearly nine million people in just the U.S. and Europe alone
could potentially be candidates for therapy with this agent. Some estimates place the
incidence of PE much higher – at 30% among U.K. men. We do not factor in the
potential usage of the drug in combination with erectile dysfunction (ED) agents by men
who simply want to explore the possibilities of recreational use. However, it is obviously
reasonable to hypothesize that such use – similar to the way in which ED drugs are
currently used by even individuals who do not suffer from ED per se – would occur in a
real-world setting. Therefore, we consider our assumptions defensible and conservative.
Various sources cite pricing for ED drugs around the world as being in a $4 – $5 per use
range. Although Priligy™ (dapoxetine), which is the only drug that has recently received
formal approval outside the U.S. to treat PE, is priced much higher, we believe that a
more conservative approach to the pricing of Zertane would be appropriate. Priligy™
has been quoted at prices as high as €28 per day, or up to $126 (₤76) for a package of
three 30mg tablets. We believe Ampio would likely elect to price Zertane™ at a much
lower level in order to aggressively drive usage among adult men suffering from PE.
Zertane™ would likely require testing in two placebo-controlled, randomized, doubleblinded trials in patients with PE to permit U.S. submission. The firm’s only Phase 3 trial
performed to date was carried out in Europe. In our view, the two trials to facilitate a
filing with the FDA could potentially comprise 800 – 1,200 patients in total, and could be
conducted concomitantly. Assuming that these U.S. studies start in the first half of 2013,
Zertane™ could be ready for filing in early 2014. Given the assumption that the
Zertane™ application would be a 505(b)(2) submission, a decision could be rendered
within six months. Therefore, we anticipate that the drug could be launched in the U.S.
in late 2014 and in Europe 12 months later. Annual pricing would be driven by the
assumption of six – eight uses per month on average at a price of $4 per use – an average
annual cost of $300 per year in the U.S. We assume a cost of $225 per year in Europe.
At peak penetration rates of 25% in the U.S. and 15% – 17% in Europe, we believe peak
sales could approach $700 million in 2021, the final year before patent expiry.
Ampio would likely partner Zertane™ with an established pharmaceutical firm – most
likely one of the companies with an existing ED drug franchise – and, in our view, could
get a 10% – 18% royalty on net sales, which is conservative considering the fact that the
firm’s agreement with Daewoong in South Korea (from which we conservatively do not
project a revenue contribution currently) calls for a 25% royalty on net sales levels
calculated based on any pricing of the product above a pre-specified transfer price.
31
AEGIS CAPITAL CORP.
September 25, 2012
Table 8: Zertane™ Estimated U.S. Sales – Premature Ejaculation (PE) Market Size Model
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
US
Adult males
Premature ejaculation patients (~3% of total)
152,000,000 153,900,000 155,823,750 157,771,547 159,743,691 161,740,487 163,762,243 165,809,271 167,881,887 169,980,411 172,105,166 174,256,481 176,434,687 178,640,120 180,873,122 183,134,036 185,423,211 187,741,001 190,087,764
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
4,560,000
4,617,000
4,674,713
4,733,146
4,792,311
4,852,215
4,912,867
4,974,278
5,036,457
5,099,412
5,163,155
5,227,694
5,293,041
5,359,204
5,426,194
5,494,021
5,562,696
5,632,230
0%
0%
0.5%
2%
8%
12%
15%
18%
21%
25%
22%
18%
12%
7%
5%
3%
1%
0.5%
0.2%
0
0
23,374
94,663
383,385
582,266
736,930
895,370
1,057,656
1,274,853
1,135,894
940,985
635,165
375,144
271,310
164,821
55,627
28,161
11,405
$0
$0
$300
$309
$318
$328
$338
$348
$358
$369
$380
$391
$403
$415
$428
$441
$454
$467
$481
Zertane™ sales ($ MM)
$0
$0
$7
$29
$122
$191
$249
$311
$379
$470
$432
$368
$256
$156
$116
$73
$25
$13
$5
Zertane™ penetration rate
Number of patients receiving Zertane™
5,702,633
Adult males
Premature ejaculation patients (~3% of total)
175,000,000 177,187,500 179,402,344 181,644,873 183,915,434 186,214,377 188,542,057 190,898,832 193,285,068 195,701,131 198,147,395 200,624,238 203,132,041 205,671,191 208,242,081 210,845,107 213,480,671 216,149,179 218,851,044
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
1.25%
4,375,000
4,429,688
4,485,059
4,541,122
4,597,886
4,655,359
4,713,551
4,772,471
4,832,127
4,892,528
4,953,685
5,015,606
5,078,301
5,141,780
5,206,052
5,271,128
5,337,017
5,403,729
0%
0%
0%
1%
3%
7%
12%
15%
17%
16%
12%
9%
7%
5%
3%
2%
1.2%
0.5%
0.2%
0
0
0
45,411
137,937
325,875
565,626
715,871
821,462
782,805
594,442
451,405
355,481
257,089
156,182
105,423
64,044
27,019
10,943
$0
$0
$0
$225
$232
$239
$246
$253
$261
$269
$277
$285
$294
$302
$311
$321
$330
$340
$351
Zertane™ sales ($ MM)
$0
$0
$0
$10
$32
$78
$139
$181
$214
$210
$164
$129
$104
$78
$49
$34
$21
$9
$4
Worldwide Zertane™ sales ($ MM)
Royalty rate
$0
$0
$7
10%
$39
10%
$154
12%
$269
13%
$388
15%
$493
15%
$593
18%
$681
18%
$596
18%
$497
18%
$360
18%
$234
18%
$165
18%
$106
18%
$46
18%
$22
18%
$9
18%
$4
$18
$35
$58
$74
$107
$123
$107
$89
$65
$42
$30
$19
$8
$4
$2
Zertane™ penetration rate
Number of patients receiving Zertane™
32
AEGIS CAPITAL CORP.
5,471,276
September 25, 2012
Other Pipeline Programs
The breadth of the Ampio product candidate pipeline (>300 drugs) means that describing
all of the company’s candidates individually would be virtually impossible. Although the
firm makes use of the rapidity with which clinical development and regulatory filings can
be accomplished through the 505(b)(2) pathway, many of these other candidates remain
at a very early stage and, therefore, would be classified as highly speculative at this
juncture. Nevertheless, we have highlighted a few of the more intriguing projects:
Oncology
The first class of NMEs that the firm is engaged in testing consists of nine compounds
that are derivatives of methylphenidate, a drug approved for treatment of attention-deficit
hyperactivity disorder, Postural Orthostatic Tachycardia Syndrome, and narcolepsy, most
commonly known under the trade name Ritalin. Dr. Bar-Or has synthesized and applied
for patents covering these nine compounds, which have demonstrated anti-angiogenic
and anti-metastatic properties. The methylphenidate derivatives are being considered for
the treatment of glioblastoma multiforme (a fatal brain cancer), inflammatory breast
cancer and for autoimmune/inflammatory conditions, including ophthalmic disorders.
Figure 16: Methylphenidate Chemical Structure
In November 2011, Ampio received notices of allowance from the USPTO on two
patents claiming ownership of various methylphenidate derivatives and their usage in
different disease contexts, including certain oncology indications. The patent estate is
slated to extend into the 2026 / 2027 time frame. In our view, this provides a relatively
lengthy time window (without factoring in Hatch-Waxman patent term extensions) within
which Ampio or a putative strategic partner could explore the utility of these compounds.
Cardiovascular Disease
Ampio has also conducted early research into how copper-chelating peptides, which
would also be entirely novel drugs, can be used to treat acute coronary syndrome (ACS)
and stroke. Given the nature and extent of clinical trials needed to obtain regulatory
approval for NMEs, we think Ampio is likely to out-license these compounds to
collaborators at an early stage in development. Copper chelators are agents that bind
copper with significant affinity in the body. Since copper itself is involved in the
regulation of various vital functions, we believe it is likely to be essential that the
chelating effects of these agents Ampio is developing do not abrogate the required
functions of copper in patients.
33
AEGIS CAPITAL CORP.
September 25, 2012
Oxidative Reduction Potential Diagnostic
In addition to its extensive efforts in the pharmaceutical development arena, Ampio has
also been working to develop a novel diagnostic platform focusing on the diagnosis and
monitoring of oxidative damage in trauma patients. Typically, when patients presenting
in the emergency room (ER) are first examined, they are usually checked for standard
vital signs of blood pressure, heart rate and rhythm, oxygen blood level, body
temperature, and respiratory rate, and are asked a series of questions in the hopes of
identifying the problem. Most of them are sent home after the first round of testing but
about 16 million are admitted for further diagnostics such as blood tests, EKG's, CT
scans, PET CT scans, MRI's, etc., and for observation. A PET/CT scan just by itself
costs $5,000 – $10,000 and the typical total cost for this short stay is $10,000 – $20,000.
This translates into an annual cost to the U.S. healthcare system of over $160 million.
The majority of the emergency patients who are suffering from chest pain and
undergoing additional and extensive testing usually wind up being diagnosed with
common heartburn or anxiety and are released and sent home. Conversely, but far worse,
thousands of patients every year are misdiagnosed and sent home prematurely with an
undetected heart problem only to soon suffer a massive stroke or heart attack and death.
Diagnostic Platform
After specializing in emergency medicine for over 30 years, Ampio's Chief Scientific
Officer, Dr. David Bar-Or, has decided to evaluate the possibility of developing a novel
diagnostic platform aimed at accurately assessing oxidative damage in trauma patients
when they first arrive in the ER. Ampio has completed the enrollment of over 3,500
patients for its upcoming clinical trials aimed at defining the prognostic value of the
firm’s diagnostic platform. The clinical trials include patients presenting to the
emergency department with chest pain and undergoing clinical evaluation including the
performance of PET imaging coupled to Computerized Axial Tomography (PET/CT) to
detect the presence or absence of myocardial ischemia (523 patients enrolled), patients
presenting with stroke symptoms (850 patients enrolled), and in trauma patients including
traumatic brain injury wherein favorable results were previously announced. The
analysis of the results of these trials will determine the clinical utility of this technology
and, if positive, are expected to pave the way for Ampio to begin preparing a 510(k)
submission in late 2012 or early 2013.
Overview of Oxidation Reduction Potential (ORP)
ORP measures the balance of pro-oxidants and anti-oxidants in the patients' blood. In
healthy individuals, there is an abundance of antioxidants over oxidants such that the
balance is in favor of anti-oxidants. In various disease conditions, when free radicals and
other oxidative species are formed, the anti-oxidants are consumed and the balance shifts
in favor of oxidants that further damage important structures such as proteins, lipids and
other cellular and extracellular components. Thus, an ORP measurement has the
potential to indicate if a patient is ill enough to warrant further costly and extensive
testing or to be sent home due to healthy readings. An ORP measurement can also be a
valuable indication of a patient's overall state of health.
Ampio ORP Diagnostic Platform
The platform technology developed at Ampio allows for the rapid measurement of ORP
utilizing a point-of-care, handheld, portable, battery-operated instrument (analogous to a
glucometer) and disposable electrodes (analogous to the glucose strips) from a single
drop of blood. The instrument, the electrode and numerous methods of use are protected
34
AEGIS CAPITAL CORP.
September 25, 2012
by multiple patent filings. An example of a working prototype model system is shown
below. The system possesses certain convenience advantages since it is likely to be
relatively inexpensive to produce, saves space, utilizes a very small sample volume, and
renders a result within seconds of point at which the sample is fed into the reader.
Figure 17: Diagnostic Platform Reader
In one of many informal early tests, Dr. Bar-Or sampled five random nurses who all
appeared healthy and who wanted to try the ORP test. Four of them had normal readings.
The fifth had an abnormal reading and when quizzed about her health issues, she stated
that she had a heart attack a year ago and was on multiple medications. She was also
having chest pains. While we do not ascribe significant value to the diagnostic platform
as of yet and would advise investors to regard it principally as a free call option, we
would note that positive clinical trial results from the studies being conducted with this
platform could turn it into a significant value driver for Ampio, in our opinion.
In our view, if shown to have prognostic value, the ORP diagnostic could be viewed as a
potentially valuable fit for several established companies, such as Laboratory Corp of
America, Quest Diagnostics, Hologic, Novartis, Abbott Laboratories, Johnson &
Johnson, Roche Molecular Diagnostics, Siemens and many others. Eventually, given its
low cost vs. PET/CT scanning, the ORP diagnostic could become standard equipment in
doctors' offices, hospitals, emergency vehicles, laboratories, and healthcare facilities.
Rather than setting up a centralized laboratory within which to process samples, Ampio
aims to place instruments directly in the hospitals themselves. As such, therefore, the
company aims to secure formal FDA licensure of the product. Ampio intends to ensure
that the diagnostic test would be considered acceptable by hospitals and other healthcare
facilities. In our view, Ampio’s preferred path forward would be to submit the diagnostic
for FDA approval, and then sell the rights to the product to a diagnostics company or an
established pharmaceutical firm with a significant presence in the diagnostics market.
35
AEGIS CAPITAL CORP.
September 25, 2012
The ORP diagnostic platform developed by Ampio involves a “razor / razor blade”
model, in which the readers required to perform the assessments of patient samples are
likely to be provided at a heavily subsidized cost to hospitals and clinics, while a majority
of the revenue is likely to come from sales of the strips needed to provide an assessable
input to the machine readers. A photographic depiction of the strips is shown below.
Figure 18: Diagnostic Strips
Diagnostic Regulatory Pathway
Unlike the case of therapeutics, diagnostics are regulated in several different ways by the
FDA in the U.S. One category of diagnostic tests involves direct FDA regulation and a
formal approval process. The other – the category referred to as Laboratory Developed
Tests (LDTs) – does not require formal FDA approval. There are several “grades” of
formal diagnostic regulatory approvals possible, as described below:



Investigational Device Exemption (IDE) – this is the standard authorization provided
by the FDA for diagnostics or devices undergoing clinical testing. A diagnostic test
that has received an IDE certification from the FDA is not formally considered to be
approved for a specific indication; however, it may be tested in clinical studies to
ascertain its prognostic value.
510(k) pre-market notification – this implies that the diagnostic in question does
something analogous to an existing diagnostic platform that is established as a
standard in the healthcare sector. The Ampio diagnostic is aimed at this category of
regulatory oversight, since it is designed to perform functions that would otherwise
require the use of PET/CT scanning.
Pre-Market Authorization (PMA) – this is the highest category of certification by the
FDA for a diagnostic product. It is typically reserved for highly innovative
diagnostic modalities that require the submission of prospectively-defined,
controlled, randomized clinical trial data to validate such approaches and confirm
their predictive value.
36
AEGIS CAPITAL CORP.
September 25, 2012
Intellectual Property Portfolio
Ampio Pharmaceuticals owns the rights to several issued patents and a wide array of
pending patent applications. The table below lists the issued patent portfolio for the
company in the U.S., including the product-specific patents that cover Ampion™,
Optina™ and Zertane™. We draw investors’ attention to the fact that these drugs would
all be eligible for standard Hatch-Waxman exclusivity upon approval (at least three
years); Ampion™ would be eligible, as a biologic, for 12 years of exclusivity.
Table 9: Ampio Pharmaceuticals Issued Intellectual Property
Patent Number
Title
Expiration Date
Country
8129392
Therapeutic Methods and Compounds
23-Apr-30
United States
5,470,750
Assay for diagnosing appendicitis; unrelated to current product candidates
28-Nov-12
United States
6,555,543
Ampion
2-Aug-21
United States
6,615,162
Signal processing method and apparatus for reducing noise and enhancing resolution of
signal data; unrelated to current product candidates
18-Jan-22
United States
6,967,202
Method of synthesizing diketopiperazines
21-Jul-22
United States
6,974,839
Zertane (method of use)
15-Mar-22
United States
7,575,929
Diagnostic for multiple sclerosis (method claims)
5-Jul-25
United States
7,592,304
Metal-binding peptides that bind CuI/II metal ions (method of use)
25-May-22
United States
7,632,803
Metal-binding peptides that bind CuI/II metal ions (composition of matter)
29-Sep-20
United States
7,732,403
Treatment of T-cell mediated diseases with diketopiperazines (methods of use)
14-May-24
United States
7,973,008
29-Sep-20
United States
7,982,008
Treatment of diseases and conditions mediated by increased phosphorylation
(composition of matter)
31-Jul-24
United States
8,017,728
29-Sep-20
United States
8,076,485
Methylphenidate derivatives (composition of matter)
4-Mar-27
United States
Source: Company reports
The table below lists Ampio’s issued international patents in major territories.
Table 10: Ampio Pharmaceuticals International Issued Patents
Patent No.
Description
Expiration Date
Country or Region
ZL200910145682.4
Ampion
2-Aug-21
China
1311269
Ampion
2-Aug-21
Europe
2440920
Zertane
15-Mar-22
Canada
ZL200380109316.4
Treatment of disease and conditions mediated by increased phosphorylation
24-Nov-23
China
233807
Treatment of T cell-mediated diseases with diketopiperazines
14-May-24
India
2001279313
Ampion
2-Aug-21
Australia
1815837.4
Ampion
2-Aug-21
China
2,382,346
Method of synthesizing diketopiperazines
2-Aug-21
United Kingdom
2004241101
Treatment of T-cell mediated diseases with diketopiperazines
14-May-24
Australia
20022252361
Zertane
15-Mar-22
Australia
2809928.1
Zertane
15-Mar-22
China
1397126
Zertane
15-Mar-22
Europe
4377585
Zertane
15-Mar-22
Japan
1845780
Methylphenidate derivatives
20-Jan-26
Europe
770999
Metal binding peptides
29-Sep-20
Australia
233058
29-Sep-20
India
148797
September 29, 2014 (can be
renewed for six more years)
Israel
10-1062041
29-Sep-20
South Korea
2003299568
25-Nov-23
Australia
241239
25-Nov-23
India
2003279761
Diagnosis of diseases using diketopiperazines and truncated proteins
2-Oct-23
Australia
1571970
2-Oct-23
Europe
4674317
2-Oct-23
Japan
Source: Company reports
Some of the company’s most valuable intellectual property is still pending, including a
patent application claiming the usage of a premature ejaculation drug (such as Zertane™)
in combination with erectile dysfunction drugs such as the widely-used
phosphodiesterase V (PDE5) inhibitors (e.g. Viagra®, Levitra®, and Cialis®).
37
AEGIS CAPITAL CORP.
September 25, 2012
Financial Review and Outlook
Revenue: We forecast $50,000 in license-based revenue for 2012 and 2013,
respectively. Management does not provide guidance.
Gross Margins: As a development-stage company, there are historically no costs of
goods sold. We project that the gross margins on Ampion™, Optina™ and Zertane™ are
likely to approach 85% upon launch, which should enable healthy cash flow generation.
Operating Expenses: For 2012, we estimate approximately $10.7 million in operating
expenses. We estimate R&D of $6.5 million in 2012, as the company advances its
clinical-stage pipeline and prepares to begin several pivotal clinical studies in early 2013.
Taxes: We assume a 35% corporate tax rate after all net operating loss carry-forwards
are exhausted. As of December 31st, 2011, Ampio had $11.2 million in net operating loss
carry-forwards remaining, which are slated to expire between 2016 and 2030. However,
$4.6 million in deferred tax assets associated with the net operating loss carry-forwards
may potentially not be utilizable to defer tax payments because of significant ownership
changes that occurred when Ampio Pharmaceuticals acquired DMI BioSciences, Inc.
Share Count: The outstanding fully-diluted share count stands at roughly 42.3 million.
The fully-diluted shares account for the conversion of 5.3 million shares in the form of
options and warrants. Given the company’s cash position, strategic goals, and capital
structure, a share repurchase program is unlikely, in our view.
EPS: We forecast EPS of ($0.31) and ($0.37) for 2012 and 2013, respectively.
Currently, we cannot estimate when the company is likely to achieve cash flow breakeven or attain sustainable profitability.
Balance Sheet: The firm held $21.5 million in cash (pro forma) after consummating a
$16.9 million financing round in July 2012.
Cash Flow: We estimate that the firm will consume roughly $9.3 million in operating
cash flows during 2012 and an additional $12.5 million during 2013. We think additional
funding may be required within the next 18 months to support operational activities.
Guidance: The firm does not provide financial guidance.
38
AEGIS CAPITAL CORP.
September 25, 2012
Financing History / Capital Structure
Over the course of its history as a publicly-traded entity, Ampio Pharmaceuticals has
raised roughly $52 million to support its research activities (see overleaf). In our view,
the firm has demonstrated a capital-efficient operating history. DMI Life Sciences, Inc.,
the firm’s direct predecessor, was incorporated in Delaware in December 2008. In 2009,
the firm purchased certain assigned intellectual property (including 107 patents and
pending patent applications), business products and tangible property from DMI
BioSciences and in exchange issued 3.5 million shares of its common stock to DMI
BioSciences, along with assuming certain liabilities.
In March 2010, DMI Life Sciences was merged with a subsidiary of Chay Enterprises,
Inc., a publicly-traded company then traded on the OTC Bulletin Board. The firm was
reincorporated in Delaware at that time and commenced trading on the OTC Bulletin
Board as Ampio Pharmaceuticals, Inc. in late March 2010. On May 19, 2011, the firm’s
common stock commenced trading on the NASDAQ Capital Market under the symbol
“AMPE”. On March 23, 2011, Ampio acquired all of the outstanding stock of
BioSciences for 8,667,905 shares of Ampio common stock. DMI BioSciences donated
back to Ampio’s capital the original 3.5 million shares of Ampio common stock formerly
owned by DMI BioSciences. These shares have been cancelled.
In September 2011, Ampio filed a Form S-3 shelf registration statement, registering an
aggregate amount of Ampio common stock and warrants totaling $80 million for offering
from time to time in the future. On March 31, April 8 and April 18, 2011, Ampio closed
private placements of its common stock. A total of 5,092,880 shares of common stock
were issued resulting in gross proceeds of $12,732,200, of which the firm received net
proceeds of $10,916,538. On December 27, 2011, Ampio completed a registered direct
offering of its common stock, in which 2,220,255 shares were issued at $4.25 per share
for gross proceeds of $9,436,084, of which Ampio received net proceeds of $8,454,001.
On July 18, 2012, Ampio announced the closing of an underwritten public offering for
the sale of 5,203,860 shares of common stock at a price of $3.25 per share. Gross
proceeds to the firm totaled $16,912,545 with net proceeds estimated to be approximately
$15.2 million after underwriter fees and cash offering expenses. Ampio also issued
warrants to purchase 138,462 shares of common stock to the underwriters. These
warrants have an exercise price of $4.0625 with a five-year term but are not exercisable
until July 18, 2013. As a result, the firm currently is estimated to have roughly $21.5
million in cash on a pro forma basis. Ampio has thus far raised roughly $26.3 million
from its existing shelf registration, leaving approximately $53.7 million remaining.
The most recent capital structure indicates that Ampio had about 37 million shares
outstanding and issued following its most recent financing round. The fully-diluted share
count stands at 42.3 million, factoring in all outstanding options and warrants.
Table 11: Capital Structure
Number of Shares
Exercise Price
Expiration Date
Cash, cash equivalents and marketable securities
Common Stock
Options
Total Cash
$21,555,225
36,987,654
4,577,074
$2.12
8/24/2013
Warrants - debentures
167,720
$1.75
12/31/2013
Warrants - placement agents
455,230
$3.125
3/31/2016
$1,422,594
Warrants - placement agents
138,462
$4.063
7/12/2017
$562,571
Fully Diluted Shares
39
AEGIS CAPITAL CORP.
42,326,140
$9,703,397
$293,510
$33,537,297
September 25, 2012
Table 12: Ampio Pharmaceuticals (AMPE) – Financing History
Series A
Preferred
Stock
Common Stock
Shares
Amount
Balance - December 18, 2008 (date of inception)
Issuance of common stock to founder December, 2008
-
Balance - December 31, 2008
Issuance of common stock and assumption of liabilities in
asset acquisition
Issuance of restricted common stock in exchange for cash in
April 2009
Net loss
Balance - December 3 1, 2009
Conversion of equity in reverse merger acquisition
Common stock subscribed in March 2010
Issuance of common stock in exchange for cash in March and
June 2010, net of offering costs of $350,000
Issuance of common stock for services
Stock-based compensation
Loans to shareholders
Net loss
$
Common
Stock
Shares
Additional Paid
in Capital
Additional
Issuances
Receivable from
stockholders
$
1,080
(Deficit)
1,080,000
-
-
1,080,000
3,500,000
1,080
3,500
-
-
-
-
-
$
-
$
-
$
-
$
-
-
-
-
7,350,000
7,350
-
-
1,077,864
1,078
11,930,000
11,930
170,003
1,313,942
-
-
(1,077,864)
-
(1,078)
-
3,068,958
1,078,078
(10,430)
108
7,000
(177,003)
11,691
1,536,522
-
-
-
1,030,000
17,107,036
103
1,711
$
$
$
-
$
1,802,397
1,297,083
5,961,635
$
(3,281)
(3,281)
Stock-based compensation
Conversion of debentures
Shares issued for cash
Options exercised, net
Issuance of common stock for acquisition of DMI BioSciences,
Inc., net of 3,500,000 shares of Ampio common stock
exchanged
-
-
13,635
1,281,852
1,714
301,604
5,167,905
1
128
30
517
-
1,983,784
9,423,947
3,000
109,015
7,852,220
Issuance of common stock in exchange for cash in March and
April, net of offering costs of $2,704,328
-
-
5,092,880
509
-
10,916,029
-
Warrants exercised
Shares received in exchange for options issued
Repayment of advance
Issuance of common stock in exchange for cash in December,
net of offering costs of $982,083
Net loss
-
-
88,669
(98,416)
2,220,255
8
(9)
222
-
784,356
574,009
8,453,779
-
$
-
46,061,783
Options exercised, net (unaudited)
Warrants exercised, net (unaudited)
Net loss
Balance - June 30, 2012 (unaudited)
-
$
-
39,999
617,933
47,251,576
Options exercised, net (unaudited)
Warrants exercised, net (unaudited)
Issuance of common stock in July 2012
Balance - June 30, 2012 (unaudited)
-
$
-
(1)
(1)
15,199,479
62,451,053
-
$
-
31,081,434
3,108
$
-
9,072
666,525
4,138
31,761,169
1
67
3,176
$
-
14,284
8,341
5,203,860
36,987,654
1
1
521
3,699
Source: Company Reports
40
Total
Stockholders'
Equity
Amount
-
-
Deficit Accumulated
During the
Development Stage
AEGIS CAPITAL CORP.
$
3,281
-
$
-
$
-
$
-
(150,183)
(150,183)
$
-
$
(252,015)
1,080
(248,515)
-
7,350
(1,512,908)
(1,764,923)
(1,512,908)
(267,970)
-
$
(8,053,395)
(9,818,318)
1,080
183
7,000
1,359,627
$
1,799,219
1,297,083
(150,183)
(8,053,395)
(4,008,436)
-
-
1,983,785
3,281
9,424,075
3,000
109,045
7,852,737
-
-
10,916,538
-
784,364
574,000
22,660
8,454,001
22,660
-
$
(127,523)
$
(90,640)
$
(90,640)
$
(18,359,234)
(28,177,552)
$
(18,359,234)
17,759,816
$
40,000
618,000
(5,331,761)
33,435,985
$
37,208,211
-
$
(5,331,761)
(33,509,313)
-
$
(33,509,313)
September 25, 2012
Management Team
The firm’s management team comprises individuals with substantial track records in the
biotechnology and healthcare industries. In particular, the firm’s Chief Scientific Officer,
Dr. David Bar-Or, has a prolific track record in the domain of patenting scientific
discoveries with utility in the medical arena.
Michael Macaluso
Chief Executive Officer
Mr. Macaluso is the CEO, founder and Director of Ampio Pharmaceuticals, Inc. and DMI
Life Sciences, Inc., and has been an entrepreneur for over two decades. He was the
founder and principal of International Printing and Publishing, managing all phases of its
domestic and international commercial printing operations from 1989 until 1997. Mr.
Macaluso was also the owner of Page International Communications, a manufacturing
business, from 1998 until 2001. In 2001, he formed Isolagen, Inc, serving as President
and CEO. Mr. Macaluso is a graduate of Canisius College.
David Bar-Or, M.D.
Chief Medical Officer
Dr. Bar-Or is Chief Scientific Officer of Ampio Pharmaceuticals, Inc. and held the same
positions for DMI Life Sciences, Inc. He founded DMI BioSciences, Inc. in 1990,
serving as Chief Scientific Officer and Director. Dr. Bar-Or has over three decades of
experience in biochemical/molecular biology research, is a Fellow of the American
College of Emergency Physicians, and was in clinical practice for 23 years, including
five years as director of emergency medicine at an accredited trauma center. He is
presently Director of Trauma Research for two Level 1 trauma centers in the U.S.:
Swedish Medical Center and St. Anthony Central Hospital. Dr. Bar-Or received his M.D.
from Hebrew University Medical School, Jerusalem, Israel, completed his residency in
Emergency Medicine at Denver Health Medical Center and was the first to complete a
fellowship in Emergency Medicine research at Denver Health Medical Center, a program
recognized nationally as a leader in emergency medicine. Dr. Bar-Or has received
numerous awards for outstanding clinical and scientific research, published over 85
scientific articles, holds over 52 issued U.S. and international patents, and has filed over
119 additional US and international patent applications.
Vaughan Clift, M.D.
Chief Regulatory Affairs Officer
Dr. Clift is the Chief Regulatory Affairs Officer for Ampio Pharmaceuticals, Inc., having
also held that position for DMI Life Sciences, Inc. Trained in Endocrinology at the
Royal Children's Hospital in Melbourne, Australia, Dr. Clift developed numerous
medical technologies and was Chief Scientist for Lockheed Martin's astronautics support
program at the National Aeronautics and Space Administration (NASA) Johnsons Space
Center. During his time at NASA, he was a co-investigator on multiple space shuttle and
space station experiments and was nominated as one of NASA's Top Ten inventors. Dr.
Clift subsequently went on to successfully develop the first FDA-approved autologous
cell therapy. He has recently worked with Maj. Gen. Charles F. Bolden, Jr., NASA
Administrator, on the development of technology for the detection of explosives.
Mark McGregor, CPA
Chief Financial Officer
Mr. McGregor is a certified public accountant with over 30 years' financial experience in
a variety of industries. He served in various financial capacities with Louisville,
Colorado-based Storage Technology Corporation, or StorageTek, from February 1985
until October 2005. After leaving StorageTek, Mr. McGregor served as the chief
financial officer of Integrated Management Information, Inc., Castle Rock, Colorado,
from February 2006 to November 2007. IMI is a publicly-traded provider of
41
AEGIS CAPITAL CORP.
September 25, 2012
identification, verification and communications solutions for the agriculture, livestock,
and food industries. Since retiring as chief financial officer of IMI in November 2007,
Mr. McGregor has been engaged part-time in the real estate business as an agent with
Keller Williams Realty in Castle Rock, Colorado. He began his career with Price
Waterhouse, now PricewaterhouseCoopers LLP, where he spent 13 years with the Audit
Department. Mr. McGregor holds a BBA degree in accounting from Texas A&M
University and served in the U.S. Army from 1964 to 1966, where he attained the rank of
First Lieutenant.
Board of Directors
The firm’s Board of Directors includes several senior-level individuals with substantial
expertise in the biopharmaceutical industry.
Michael Macaluso
Director
See management bios in previous section.
David Bar-Or, M.D.
Director
See management bios in previous section.
Philip Coelho
Director
Mr. Coelho is currently CEO and President of Synergenesis, Inc., a firm inventing and
commercializing products that harness stem and progenitor cells derived from the
patient’s own body to treat human disease. He has been a member of senior management
at various high-technology consumer electronic or medical device companies for over 30
years. Prior to founding Synergenesis, Mr. Coelho has served as President and CEO of
PHC Medical, Inc., Chairman and Chief Executive Officer of ThermoGenesis Corp.,
President of Castleton Inc. and President of ESS Inc. He currently serves as a member of
the Board of Directors of Catalyst Pharmaceuticals Partners, Inc. and Mediware
Information Systems, Inc. Mr. Coelho received a B.S. degree in thermodynamic and
mechanical engineering from the University of California, Davis, and has been awarded
more than 30 U.S. patents in the areas of cell cryopreservation, cryogenic robotics, cell
selection, blood protein harvesting, and surgical hemostasis.
Richard B. Giles, CPA
Director
Richard B. Giles joined the Ampio Board of Directors in August 2010. He is the Chair of
the Audit committee, and a Member of the Compensation Committee and the Nominating
and Governance Committee. He currently serves as the CFO of Ludvik Electric Co., an
electrical contractor headquartered in Lakewood, Colorado, a position he has held since
1985. Ludvik Electric is a private electrical contractor with 2009 revenues of over $100
million that has completed electrical contracting projects throughout the Western United
States, Hawaii, and South Africa. Prior to joining Ludvik Electric, Mr. Giles was an
audit partner with Higgins Merritt & Company, then a Denver, Colorado, CPA firm, and
during the preceding nine years, he was an audit manager and a member of the audit staff
of Price Waterhouse, one of the legacy firms which now comprises
PricewaterhouseCoopers. While with Price Waterhouse, Mr. Giles participated in a
number of public company audits, including one for a leading computer manufacturer.
Mr. Giles received a B.S. degree in accounting from the University of Northern Colorado
and is a Certified Public Accountant. He is also a member of the American Institute of
Certified Public Accountants and the Construction Financial Management Association.
42
AEGIS CAPITAL CORP.
September 25, 2012
David R. Stevens, D.V.M., Ph.D.
Director
Dr. Stevens is currently Executive Chairman of Cedus, Inc., a private development stage
biopharmaceutical company, and also a board member of Poniard Pharmaceuticals, Inc.,
and Aqua Bounty Technologies, Inc., both public life science development stage
companies, as well as Micro-Imaging Solutions, LLC, a private medical device company.
He was an advisor to Bay City Capital from 1999-2006. Dr. Stevens was previously
President and CEO of Deprenyl Animal Health, Inc., a public veterinary pharmaceutical
company, from 1990 to 1998, and Vice President, Research and Development, of Agrion
Corp., a private biotechnology company, from 1986 to 1988. He began his career in
pharmaceutical research and development at the former Upjohn Company (now part of
Pfizer), where he contributed to the preclinical evaluation of Xanax and Halcion. Dr.
Stevens received B.S. and DVM degrees from Washington State University, and a Ph.D.
in Comparative Pathology from the University of California, Davis. He is a Diplomate of
the American College of Veterinary Pathologists.
43
AEGIS CAPITAL CORP.
September 25, 2012
Public Companies Mentioned in this Report:
Achillion Pharmaceuticals (ACHN/NASDAQ)
AstraZeneca (AZN/NYSE)
DepoMed (DEPO/NASDAQ)
Eli Lilly & Co. (LLY/NYSE)
Enzon (ENZN/NASDAQ)
Furiex Pharmaceuticals (FURX/NASDAQ)
GlaxoSmithKline (GSK/NYSE)
Infinity Pharmaceuticals (INFI/NASDAQ)
Lexicon Pharmaceuticals (LXRX/NASDAQ)
Merrimack Pharmaceuticals (MACK/NASDAQ)
Pfizer (PFE/NYSE)
Rigel Pharmaceuticals (RIGL/NASDAQ)
Sanofi S.A. (SNY/NYSE)
Supernus Pharmaceuticals (SUPN/NASDAQ)
44
AEGIS CAPITAL CORP.
September 25, 2012
Table 13: Ampio Pharmaceuticals (AMPE) – Historical Income Statements, Financial Projections
FY end December 31
$ in thousands, except per share data
2010A
Revenue
Product revenue
Service revenue
License revenue
Total revenue
2011A
1QA
-
19
13
-
19
2012E
2QA
3QE
4QE
2012E
1QE
13
13
13
50
13
13
13
13
13
50
2013E
2QE
3QE
4QE
2013E
13
13
13
50
13
13
13
13
50
Expenses
Cost of product and service revenue
Research & development
Selling and marketing
General and administrative
1,972
4,732
6,648
4,504
1,473
1,536
1,552
727
1,600
900
1,900
1,000
6,524
4,163
2,100
1,200
2,800
1,600
2,500
1,300
2,100
900
9,500
5,000
Total expenses
6,704
11,153
3,009
2,279
2,500
2,900
10,688
3,300
4,400
3,800
3,000
14,500
(6,704)
(11,134)
(2,996)
(2,266)
(2,488)
(2,888)
(10,638)
(3,288)
(4,388)
(3,788)
(2,988)
(14,450)
0.815
(19.545)
38
(1,368)
7
(8)
(5,585)
(1,555)
4
157
4
(233)
Total investment income and other
Foreign tax expense
(1,349)
-
(7,143)
(83)
161
(230)
Net Income (Loss)
(8,053)
(18,359)
(2,836)
(2,496)
(2,480)
(2,882)
(10,693)
(3,284)
(4,385)
(3,785)
(2,985)
(14,438)
(0.49)
(0.49)
(0.71)
(0.71)
(0.09)
(0.09)
(0.08)
(0.08)
(0.07)
(0.07)
(0.08)
(0.08)
(0.31)
(0.31)
(0.09)
(0.09)
(0.12)
(0.12)
(0.10)
(0.10)
(0.07)
(0.07)
(0.37)
(0.37)
Gain (loss) from operations
Other income/expense
Interest income
Interest expense
Other income/expense
Derivative expense
Net loss per share (basic)
Net loss per share (diluted)
Weighted average number of shares outstanding (basic)
Weighted average number of shares outstanding (diluted)
16,288
16,288
26,014
26,014
31,127
31,127
31,260
31,260
8
6
-
-
8
37,113
37,113
6
37,363
37,363
45
AEGIS CAPITAL CORP.
21
(76)
(55)
-
34,216
34,216
4
-
3
-
4
37,613
37,613
3
-
3
37,863
37,863
3
12
-
3
12
-
-
3
38,113
38,113
40,863
40,863
38,613
38,613
September 25, 2012
Table 14: Ampio Pharmaceuticals (AMPE) – Historical Balance Sheets, Financial Projections
FY end December 31
$ in thousands, except per share data
12/31/10A
12/31/11A
3/31A
2012E
6/30A
9/30
12/31
12/31/12E
3/31
2013E
6/30
9/30
12/31
12/31/13E
Assets
Current assets:
Cash and cash equivalents
Marketable securities
Restricted cash
Accounts receivable
Related party receivable
Other assets and prepaid expenses
671
6
61
11,362
43
8,292
177
6,804
306
22,305
306
19,823
306
19,823
306
17,442
306
9,831
306
14,558
306
43,246
306
43,246
306
Total current assets
738
11,405
8,469
7,110
22,611
20,130
20,130
17,748
10,137
14,865
43,552
43,552
Property and equipment
Deposits
Intangible assets
In-process research and development
-
76
35
466
7,500
72
35
455
7,500
68
35
443
7,500
68
7,500
68
7,500
68
7,500
68
68
68
68
68
7,500
7,500
7,500
7,500
7,500
Total Assets
738
19,483
16,530
15,156
30,179
27,697
27,697
25,316
17,705
22,432
51,120
51,120
Current liabilities
Accounts payable
Accrued salaries
Accrued interest
Senior unsecured mandatorily convertible debentures
Warrant derivative liability
Other current liabilities
Related party notes payable
464
527
20
2,134
400
399
803
631
50
611
406
454
50
-
358
687
50
-
358
-
358
-
358
-
358
-
358
-
358
-
358
-
358
-
50
-
50
-
50
-
50
-
50
-
50
-
50
-
50
-
Total current liabilities
4,746
1,292
910
1,095
408
408
408
408
408
408
408
408
431
-
419
-
406
-
406
-
406
-
406
-
406
-
406
-
406
-
406
-
406
-
4,746
1,723
1,329
1,502
814
814
814
814
814
814
814
814
2
5,962
(153)
(9,818)
3
46,062
(128)
(28,178)
3
46,302
(91)
(31,013)
3
47,252
(91)
(33,509)
3
65,091
(91)
(35,639)
3
65,091
(91)
(38,120)
3
65,091
(91)
(38,120)
3
65,090
(91)
(40,502)
4
65,090
(91)
(48,113)
4
65,090
(91)
(43,385)
9
102,585
(91)
(52,198)
9
102,585
(91)
(52,198)
(4,008)
17,760
15,201
13,655
29,364
26,883
26,883
24,501
16,890
21,618
50,306
50,306
19,483
16,530
15,156
30,179
27,697
27,697
25,316
17,705
22,432
51,120
51,120
Liabilities and shareholder equity
Deferred revenue
Other long-term liabilities
Long-term accrued acquisition costs
Long-term deferred tax liability
Total Liabilities
-
Shareholder's equity
Common stock
Additional paid-in capital
Issuances for promotion and shareholder advances
Deficit accumulated
Total shareholder's equity
Total liability and shareholder's equity
738
46
AEGIS CAPITAL CORP.
September 25, 2012
Required Disclosures
Price Target
Our 18-month price target for AMPE is $11.00.
Valuation Methodology
We utilize a risk-adjusted Net Present Value (rNPV) analysis to determine our price target objective. Using a discounted cash flow
analysis, we derive an rNPV-based total firm value of $500 million, which translates into a price per share of $11.00, assuming 49 million
fully-diluted shares outstanding and $40 million in cash as of end-2013.
Risk Factors
Issues that could prevent the achievement of our price objective include, but are not limited to, clinical, regulatory, competitive,
reimbursement and financial risks. Drugs in clinical development may not advance due to inadequate safety, efficacy, or tolerability.
Regulatory agencies may decline to approve regulatory submissions in a timely manner, or may not approve a drug candidate at all. The
firm may require substantial funding to advance the clinical progress of its candidates, which could be dilutive to current shareholders.
We expect competition for the company's drugs from several public and private companies developing pharmaceuticals. Sales of the
firm's drugs could depend upon reimbursement from private, as well as public, reimbursement agencies.
For important disclosures go to www.aegiscap.com.
We, Raghuram Selvaraju and Yi Chen, the authors of this research report, certify that the views expressed in this report accurately reflect
our personal views about the subject securities and issuers, and no part of our compensation was, is, or will be directly or indirectly tied
to the specific recommendations or views contained in this research report.
Research analyst compensation is dependent, in part, upon investment banking revenues received by Aegis Capital Corp.
Aegis Capital Corp. intends to seek or expects to receive compensation for investment banking services from the subject company within
the next three months.
Aegis Capital Corp. has performed investment banking services for and received fees from Ampio Pharmaceuticals, Inc. within the past
12 months.
Aegis Capital Corp. makes a market in Ampio Pharmaceuticals, Inc..
Investment Banking
Services/Past 12 Mos.
Rating
BUY [BUY]
HOLD [HOLD]
SELL [SELL]
Percent
94.44
5.56
0.00
Percent
29.41
0.00
0.00
Meaning of Ratings
A) A Buy rating is assigned when we do not believe the stock price adequately reflects a company's prospects over 12-18 months.
B) A Hold rating is assigned when we believe the stock price adequately reflects a company's prospects over 12-18 months.
C) A Sell rating is assigned when we believe the stock price more than adequately reflects a company's prospects over 12-18 months.
Other Disclosures
The information contained herein is based upon sources believed to be reliable but is not guaranteed by us and is not considered to be all
inclusive. It is not to be construed as an offer or the solicitation of an offer to sell or buy the securities mentioned herein. Aegis Capital
Corp., its affiliates, shareholders, officers, staff, and/or members of their families, may have a position in the securities mentioned herein,
and, before or after your receipt of this report, may make or recommend purchases and/or sales for their own accounts or for the accounts
47
AEGIS CAPITAL CORP.
September 25, 2012
of other customers of the Firm from time to time in the open market or otherwise. Opinions expressed are our present opinions only and
are subject to change without notice. Aegis Capital is under no obligation to provide updates to the opinions or information provided
herein. Additional information is available upon request.
© Copyright 2012 by Aegis Capital
Aegis Capital Corp.
(212) 813-1010
810 Seventh Avenue, 18th Floor
New York, New York 10019
48
AEGIS CAPITAL CORP.

Ampio Pharmaceuticals, Inc. Rating: Buy

Transcription

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