Catalyst Biosciences Inc (NASDAQ: CBIO)
Catalyst Biosciences is an emerging micro cap company that is positioning itself to be a leader in the field of hemostasis, with a focus on developing novel medicines to address various hematology indications. Propelling the prospects of CBIO forward is Roche’s recent announcement of troubling safety data related to its ACE910 drug candidate, which has demonstrated potentially severe safety concerns in patients. Roche’s setback can provide CBIO the catalyst needed to take advantage of ACE910’s weakness and allow CBIO to become a viable candidate to deliver a meaningful treatment for hemophilia.
And, with CBIO showing tremendous signs of progress, were they truly deserving of a Bully Beatdown?
CBIO In The Clinic
CBIO’s most advanced programs are intended to build a next generation platform of coagulating compounds, advancing a Factor VIIa variant, which has recently completed a successful phase I trial in individuals with severe hemophilia A and B. CBIO is conducting additional pre-clinical studies in additional variants specific to a Factor IX variant.
In CBIO’s most recent SEC filing, the company highlighted several of the milestones that occurred in the third quarter and laid the framework for the fourth quarter of 2016. From a pps standpoint, CBIO has not performed well in the past few quarters, but the loss in share value might have less to do with clinical performance than it does with lack of exposure to the markets.
Consistent to other a micro-cap’s with a somewhat tight budget, CBIO’s lack of promotion is not an uncommon problem amongst the set. Many small and emerging companies, even the most promising of them, often do not have the financial muscle to gain the market attention deserved, even when their product is demonstrating superior efficacy data compared against competitive pharmaceutical companies. This is apparent in the case of CBIO, where Roche’s failure provides a huge opportunity to CBIO, however, the market knows very little about the competitive advantage that CBIO may now enjoy.
Part of the slide in CBIO’s stock has to do with the fact that CBIO decided to refocus its resources toward the treatment of hemophilia, selling non-core assets to help facilitate that transition. As investors know, the market is quite unkind to companies that take the opportunity to shift focus from one discipline to another, regardless of the long term benefit that the decision will provide. It often results to a short term waste of valuable assets. Not necessarily for CBIO, though.
During the quarter, CBIO entered into a definitive sales agreement to sell non-core assets, in this case an additional neuronal nicotinic receptor, which was a portion of the NNR assets that were already in development by Targacept, the company that CBIO merged with in 2015. The terms of the deal provide an upfront payment of $750,000 dollars to CBIO and also provides for additional milestone and royalty payments being made to CBIO for that NNR asset. Estimates run as high as an additional $33 million dollars of potential revenue through the life of the deal.
CBIO’s Focus On Hematology
During the first half of the year, CBIO remained diligent in their focus to advance the development of their highly potent, next generation Factor VIIa and IX programs using subcutaneous dosing, a dosing that is facilitated under the skin, between the layers of skin and muscle.
CBIO is collaborating with ISU Abxis of South Korea and the company reiterated that they are on track to initiate a phase I/II clinical trial for Factor IX variants in the first quarter of 2017.
The differentiating factor in CBIO’s approach is the subcutaneous administration of the drug, which is looking to replace the current intravenous method of treatment. The basis for the innovation is that CBIO has been demonstrating that through subcutaneous treatment, the drug can provide consistent and high factor levels that can lead to a simpler dosing method and improved long term clinical outcomes for patients.
CBIO has already demonstrated feasibility of subcutaneous dosing of Factor IX in multiple hemophilia animal models.
Further, CBIO has created a portfolio of improved Factor IX proteases, leading to the potential of additional compounds to treat hemophiliaB, which is a life long disease caused by a genetic deficiency in coagulation Factor IX.
The intent is to demonstrate a prophylactic treatment for both hemophilia A and B, replacing current methods in treating acute bleeding episodes and offer an alternative from the existing treatment that has short half-life efficacy measures and is not ideal for prophylactic treatment.
CBIO’s, CB 2679d, has demonstrated statistically significant and higher potency levels in pre-clinical animal studies in comparison to current Factor IX products that are on the market. In these well documented animal studies, CBIO’s subcutaneous treatment has proved itself to be a viable and superior method of treatment.
CBIO For 2016 and 2017
CBIO, in its collaboration with ISU Abxis, will advance the development of CB 2679d through a phase I/II proof of concept study for patients with hemophiliaB. After the completion of the phase I trial, ISU will retain exclusive rights to the product in Korea, while CBIO retains all commercial sites world wide, exclusive of Korea.
In the first quarter of 2017, CBIO expects to enter a second phase I/II proof of concept study for its combination treatment utilizing CB 2679d and ISU304, also a subcutaneous treatment.
CBIO’s next generation coagulation compound, Marzeptacog alfa is expected to enter a subcutaneous efficacy study to test its prophylactic ability in 2017.
Marzeptacog has already demonstrated positive results in a 2015 trial which treated patients intravenously. From the efficacy data received during that trial, CBIO designed marzeptacog alfa, which combined higher clot-generating activity at the site of bleeding and showed improved efficacy. CBIO anticipates that this product candidate could be used for subcutaneous treatment and an effective prophylactic option for patients.
CBIO Is Promising, No Beatdown Required
Like most emerging biotech companies, share prices have been dragged lower in a market gripped with fear and uncertainty. Part of CBIO’s dilemma is that investors can easily speculate that CBIO will eventually need to raise additional funds to advance the clinical trials. And, with the company in either pre-clinical or phase I trials, the length of time and money potentially required by CBIO allows impatient investors to move elsewhere for quicker returns.
Hemophilia is a serious problem and the market can be extremely lucrative. However, as cash is king in the biotech world, if you can’t demonstrate a clear path to approval without significant cash raises, short sellers and lack of interest can cause havoc to a stock.
For CBIO, even with $19 million dollars of cash in the bank, which is approximately a dollar more in cash per share than the current pps, investors have been stubborn in efficiently pricing the stock..
At this moment, CBIO is potentially worth $1 63 per share and that excludes all of the promising clinical data. That is a price that includes cash on hand only. I know, the company will burn through a portion of those funds during the next twelve months, but CBIO did indicate that they do not expect to need additional cash for the next twelve month period. So, much of the cash value is being entirely ignored.
Certainly, the broader market is far weaker than what the indexes lead the average retail investor to believe. Although the S&P and NASDAQ are reaching close to record highs, the underlying securities are not faring anywhere near as well. For biotech’s, in general, a bear market of sorts has been playing out for the past year, with the IBB trading down over 15% in the last month alone. Wednesday’s post election IBB rally helps the cause, but the biotech sector is still down significantly on the year.
CBIO Will Stand Up To The Bully
CBIO is simply one of those emerging small caps’ that get caught between the trading lines. I have found no reliable data to detract from the advances being made at CBIO. And, with CBIO dedicated to creating a subcutaneous treatment for hemophilia, the company may quickly benefit from the novel and efficient approach to treating hemophilia, with partnership opportunities probable once CBIO enters a phase II trial.
At .63 cents a share and with a low outstanding share count, CBIO can advance along with an anticipated recovery in the biotech index. Trading at a level below cash value represents a great opportunity for investors to get in at low levels and take advantage of the milestones anticipated during the remainder of 2016 and for the first part of 2017.
With strong management and a refocused strategy, CBIO should do well in the coming months and once data is released on its current trials, the stock should react favorably. Animal models are not always relevant in translating to human trials, however, in hemophilia the models can predict with strong accuracy.
With two milestone announcements pending in the next six months, CBIO is a stock to consider for your micro-cap portfolio. Regardless of the fact that CBIO was a recipient of a massive Bully Beatdown, investors need to look past the share price as their leading indicator of strength and rely on the positive clinical data that CBIO has published to date. With phase II trials designed to confirm the previous trial data, CBIO is well on its way to demonstrating that its subcutaneous method of treating hemophilia is worthy of becoming a first line choice of treatment.
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