CNA-C Suite Q&A

Gevo, Inc. GEVO Stock News

Gevo, Inc. (NASDAQ: GEVO)

Before we get into this interview, I’d like to extend a special thanks to my friend Joey who both set up the interview with Pat, wrote the questions, and got this information for all of you to see! Thank you Joey! I’m sure I speak for the entire GEVO investing community!

Pat Gruber:

Joey, I appreciate the opportunity to do this interview with you today.

Before we kick things off with the Q&A, I would like to address many of the questions and comments we’ve been receiving of late, related to equity offerings, debt restructuring and reverse splits, and to provide a brief view on Gevo’s future prospects.

I would like to remind folks that over the last 3-4 years, we have consistently had liquidity challenges, and only nine months ago, we had approximately $50 million of debt on the books that was potentially coming due in 2017 and we were very low on cash. It is important to note that management and our Board of Directors have fiduciary duties that require us to protect stockholders and avoid bankruptcy because we believe that if Gevo was forced to seek the protection of the courts, stockholders would have had their equity positions wiped out by such proceedings.

As a result, we have been focused on trying to improve our cash position by raising funds through equity offerings, and we have pursued strategies to shrink our debt, including exchanging over $21 million of our unsecured notes for equity over the past 6 months. This issuance of stock has put our stock price under pressure, which ultimately required us to pursue a reverse stock split. We would have preferred not to effect a reverse stock split, however the repercussions of not doing so would have been a delisting from NASDAQ Capital Market, which:
would have constituted a fundamental change under the indentures governing both of our convertible notes, which would allow the note holders to immediately demand repayment of their debt (for which we didn’t have sufficient cash to pay off), and would have significantly decreased the marketability and liquidity of our common stock, which generally only decreases the value of a company’s shares

So we believe that the delisting of Gevo’s stock from Nasdaq would not have been in the best interests of stockholders because it may have put us at risk of bankruptcy and would have negatively impacted the value of our shares.

It is important to highlight that following the most recent equity raise we closed on February 17, we now have more cash on our balance sheet than debt than we have had in the last several years. While we still need to finalize a longer-term solution for our senior debt, we believe we have good visibility to making this happen. Our senior lender has been a good partner and has already showed flexibility in providing us a short-term extension on their debt. Of course we will announce the deal once it is complete.

We believe that a strengthened balance sheet is the key piece of the puzzle to providing a solid platform for growth here at Gevo. In 2015, we finally settled the lawsuit with Butamax which had significantly drained our resources and caused significant confusion for customers and partners. In 2016, we were finally able to demonstrate that our technology works at scale in a repeatable fashion. And in 2017, we expect to finalize the restructuring of our debt.

Each of these issues has been an impediment to signing up strategic partnerships and customer contracts. With these issues behind us, we expect to be able to finally get our partners to commit to Gevo and our growth. In particular, we would anticipate these types of deals to provide the support necessary to underpin our next phase of growth, namely the expansion of our isobutanol and hydrocarbon production levels, likely at Luverne, which we believe should make us profitable as a company. Until we are able to complete such an expansion, we won’t be profitable– the bulk of our current production capacity is geared towards ethanol, and unfortunately, it is difficult to see how ethanol margins will be able to carry the company.  In the near term, our capacities of isobutanol and hydrocarbons, I mean ATJ and isooctane, are not at a scale large enough to generate enough margin to make us profitable. So we are focused on selling products to develop the markets. This initial phase of market development is meant to build the commercial market demand necessary for when we producing our products at much larger volumes. Now this production expansion will require additional capital to build out, however we would hope that with the support of our partners and customers, this capital could be raised at a lower cost than via straight equity offerings.

So I do believe we are at an inflection point in Gevo’s history, and I believe that there are some good things on the horizon for our story. I would also like to thank our stockholders for their support and patience.

Lastly, I need to point out that we are currently in a quiet period in advance of filing our Form 10-K for 2016 and doing our Q4’16 earnings call. So please recognize that in answering your questions we need to comply with SEC regulations. This will limit my ability to provide specific updates on partners, customers, etc., and I will need to keep to what is already in the public domain. We do anticipate releasing our Q4’16 earnings sometime in mid-to-late March.

Company Operations

Question: With Gevo Being one of the only certified fuels it seems odd they are one of the least talked about. Why is it in your opinion that companies with less achieved have A) better shareholder relationships, and B) also are landing and releasing deals?

Pat Gruber:

I don’t know specifically to which companies you are referring, however given the reference to certification, I assume you are talking about other renewable jet fuel providers.

We believe that the “deals” or transactions that some of the other biofuel companies have “landed” recently are not true transactions in the sense that most of the biofuel companies in question have not fully developed their technologies, have not proven that their technologies can be scaled up to work at commercial scale, have not produced commercial quantities of their product or have not obtained the required certifications and approvals necessary to sell their products. As such, we believe that it is likely that many of those “deals” or transactions will never actually result in the production of those biofuels or the sale of those biofuels. We have been told directly from some of the airlines we are speaking to that some of the companies who have announced jet contracts promising to deliver bio-jet at the same price of petro-jet, yet they haven’t even scaled up or completed development of the technology.

In the case of Gevo, our standard approach to signing contracts is to agree upon key terms first, especially pricing and volumes. We do this because we don’t want to spend a lot of money on legal fees for definitive agreements until we have high confidence the important stuff has been agreed upon. Our deals are near term, with a better line of sight, and we (and our customers) believe have a high probability of happening—so the stakes are higher.

Many of the companies pursuing jet fuel have not developed their technology. Their technologies have never been proven to work at commercial scale, or they do not operate commercial scale productions facilities as Gevo does. In order for those companies to grow and deliver they will need to raise significant capital, just to prove out their technology.

Lastly most of the new generation of biofuel companies are private, so it isn’t clear what the relationships with shareholders actually are.

Question: It seems as if Gevo is in a chicken and the egg situation. With debt, no deals, with no deals, no further movement towards being profitable. The books seem like they are at the best they have been, how does Gevo look to get past this hump?

Pat Gruber:

This is great question. We believe that our debt has been an issue for striking deals with partners and customers. We do believe that we will have a longer-term solution to our 2017 Notes before June 23, 2017, which is the new maturity date for the 2017 Notes that we recently obtained.. We hope that with a much cleaner balance sheet, that this will remove a key barrier to getting deals done.

(Grouped questions)
Question: Is there any reason for Gevo being so off on their timeframes? I understand many people invest here that should not, but in the end Gevo’s Luft talk was way off. Shareholders were told Lufthansa would be a few months, and now many, many months later there is nothing.
Question: How Much Longer until Lufthansa Deal in complete now that debt is looking much better?

Pat Gruber: At the time we entered into and announced the Heads of Agreement (HOA) with Lufthansa, we did believe that a definitive contract was only a few months away. Unfortunately, it has taken longer and we do not have the ability to make Lufthansa move as quickly as we would like to enter into the definitive agreement contemplated by the HOA. Recently, we disclosed many of, what we believe are, the reasons for the delay in reaching a binding, definitive agreement with Lufthansa, specifically that Lufthansa’s is looking to gain better clarity around:
(i) our expected timing for commencing the expansion of our production facility in Luverne, Minnesota to produce the ATJ contemplated by the HOA;
(ii) the ultimate production mix to be produced at the expanded Agri-Energy Facility, as well as the other customers who will offtake such production;
(iii) completion of the repayment or restructuring of our debt obligations; and
(iv) the supply chain specifics to enable the delivery of ATJ from the Agri-Energy Facility to the wing of an airplane at an airport.

We are still working with Lufthansa to come to a definitive agreement, and we hope we will be able to satisfy Lufthansa concerns in the near future so that we move our partnership to the next level.

(Grouped questions)
Question: What is the timing of luverne buildout? how is that to be financed? Is it by 3rd party financing with down payment by installment from Lufthansa? by PO? what?
Question: Does Gevo have an estimated date on buildout? or a Cost on the buildout?

Pat Gruber: I can’t give specific clarity on this right now. We hope to provide more color on all of these things when we file our 10-K and in future filings and announcements

Question: Does Gevo intend to proceed with Redfield once Luverne reaches specified quantities?

Pat Gruber: The joint venture with Redfield is still in place. We may choose to proceed with the transaction contemplated by the joint venture agreement with Redfield in the future if we believe it is in the best interest of stockholders and the development of the business. That said, we believe that there are likely other projects to build out isobutanol and hydrocarbon capacity beyond Luverne which may provide better returns to Gevo. We want to move forward with projects that ultimately yield the highest returns for the company and our shareholders.

Question: Why isn’t GEVO talking to other airlines and talking to European entities about the product and its economical benefits and qty of scale over other methods.

Pat Gruber: We are having discussions with many airlines around the world regarding our ATJ, including potential offtake agreements and other business development transactions. We have given many presentations regarding our ATJ which includes comparisons with other routes for alternative jet fuel. We believe that the scalability and fundamental economics will make Gevo’s route to jet fuel advantaged over the long run. That said, many of the meaningful discussions we are having with other airlines are subject to confidentiality agreements, and we can’t disclose details of those discussions until both parties agree to make these public. We hope to be in a position to be able to make announcements about such other partners in the near future.

Question: CEO stated in Interview (juan Costello 27-JAN) (~5:28 in) ” our fermenters are doing it [1 Million liters] in 5 days. Was this statement true?

Pat Gruber: The size of our fermenters are 265K gallons (>1M L) and we have been completing our fermentation cycle from start through fermentation, through cleaning, and ready to start again in 5 days. We discussed this progress in a press release in January where we discussed the progress of the plant.

Question: Can we speak about an update on Praj/Porta?

Pat Gruber: Praj has our technology working in India in their laboratories using molasses as a feedstock, as we planned. The next step will be to figure out the commercialization plan with them. Their focus is many small plants making isobutanol. I wouldn’t be surprised if jet is important too, we’ll see.

Porta has been making progress as well. Their focus has been to miniaturize the isobutanol technology using corn as a feedstock. They are running fermentations with our GIFT system. We’ll get together with them sometime this year to discuss the commercialization plan.

Question: WHEN do you foresee nailing all the details down about supply of fuel to SEATAC.

Pat Gruber:

I’m not sure to what you are referring. While our ATJ has powered commercial flights with Alaska Airlines out of SEATAC. We have not disclosed anything else regarding supply of fuel to SEATAC.

Question: WHEN is HCS expected to be in a situation to give a purchase order contract for phase 1 of the ISOOCTANE deal to be fulfilled by Silsbee.

Pat Gruber: We can’t provide any more details about our deal with HCS Holdings at this stage. We issued a press release earlier in February which disclosed the key elements of our letter of intent with them. We would expect to provide more details regarding both phase 1 and phase 2 in the near future.

Question: When is the MIL-SPEC to be ready to go, what’s left to do in order to get certified? why hasn’t it been done by now. It’s very important to the company bottom line.

Pat Gruber: From what we understand the last engine to be tested is for the F135. Once that testing is done, then we would be in a position to get the MIL-SPEC. I can’t provide any more details about timing at this time. But I would like to point out that the government has apparently had to allocate significant funds to pay for this testing. In this fund-constrained environment, this suggests that getting a potentially new source of renewable jet fuel is strategically important to them.

Question: Supply-side facility-to-wing logistics. Strategy? Provisions established and yet to be established? COGS impact?

Pat Gruber: We are currently working through these details. It’s a unique supply chain to get fuel to a wing of a commercial airplane. So we are working with players across the entire value chain to determine the most cost-efficient way to get our ATJ to our future customers. As already mentioned, this is one of the things that Lufthansa s looking to get more clarity on before signing a definitive agreement with us.

Question: What’s the cost to produce 1 gallon of isooctane and what is the going rate for GEVO?

Pat Gruber: We have not disclosed the economics of producing our isooctane. Currently our isooctane is selling at a very hefty premium from our demo facility in Silsbee, TX. The reason we can command this premium pricing is that we appear to be one of the only companies producing renewable isooctane in meaningful quantities. Over time, we would expect pricing to come down, but we believe that this will be in line with us bringing our cost of production down. We think that this will be a meaningfully profitable product line for Gevo.

GEVO Finances

Question: Does an extension seem likely to the left over 2017 notes?

Pat Gruber: I addressed this question in my introductory statement. We do expect to be able to announce a longer-term solution before the new June 23rd maturity date.

Question: Has Gevo put an application for the one spot on the DOE military grant?

Pat Gruber: We are very aware of the DPA Title III grant and it is an interesting program. We don’t disclose Gevo’s applications for such grants until they are made public. However, we do believe that this particular program may be a good fit for Gevo.

Question: Please ask how management can justify the repeated reverse split on their company. when doing so completely wipes out previous investors investments. I as a shareholder cannot just simply invest and wait when management does this. I don’t have a problem with waiting. it’s waiting and having my hard earned capital pissed away by this company thinking that they can just do it with no recourse. This is CRIMINAL. The Lufthansa deal has misled a lot of people on its timing. A few months has turned into a year or even more or even not at all. They would have certainly not received investment had true time estimates been relayed.

Pat Gruber: I believe that I addressed much of this question in my preamble, in terms of the rationale for our equity raises and the reverse split. I also already addressed Lufthansa and the delays in getting to a definitive agreement. We are still working to get Lufthansa to sign up to a definitive agreement.

Question: Pat Gruber’s salary is $1,000,000 a year? ask him to please justify that figure when the company is bleeding out like it is.

Pat Gruber: As disclosed in last year’s Proxy Statement for Gevo’s Annual Meeting, my salary is $500,000 per year. I have not received a raise since 2010. My target annual cash bonus is $250,000. My bonus is paid out based on performance judged by Gevo’s independent Board of Directors. While I have an annual target of receiving $850k of stock and options in my contract, in 2015 because of our reduced pool I received a small allocation, and in 2016, again because our pool is small, I was not granted any equity. My stock holdings have been diluted like other shareholders, and I don’t like the impact of the reverse split either, but the reverse splits are better than being delisted, as discussed above. The payment of the annual cash bonuses and the annual awards of equity are subject to review, adjustment and approval of Gevo’s Board of Directors. The Board believes that my compensation is appropriate when compared to amounts paid to CEO’s using peer group and market and survey data.

Question: Why isn’t management cutting salaries and expenses to become profitable instead of further dilution?

Pat Gruber: We are continuously looking for ways to minimize costs and maximize balance sheet dollars to advance our business. Specifically, we have reduced expenses dramatically over the past few years. We have reduced expenses across the board, including reducing salaries of some employees and eliminating certain positions. Since 2013, we have cut our operating burn by approximately 2/3rds. That said, the amount that could reasonably be saved from further reductions will not be enough to make Gevo profitable. As I said earlier, until we are able to expand our production of isobutanol and hydrocarbons and sell the products, we won’t be profitable as a company.  We believe that further reducing salaries of current employees or their positions would not be in the best interest of stockholders since if we lose key personnel it would likely have a material adverse effect on Gevo’s business.

Our business is complex and we are targeting a variety of markets. Therefore, it is critical that our management team and employee workforce are knowledgeable in the areas in which we operate. The loss of any key members of our management, including our named executive officers could prevent us from developing and commercializing our products for our target markets and entering into partnerships or licensing arrangements to execute our business strategy.

Question: Can you please ask him to explain further on bankruptcy warning that he put out

Pat Gruber: I’m not sure what bankruptcy warning you are referring to. Earlier, I described that our liquidity position has not been strong for the last 3-4 years. As a result, as fiduciaries to the company and our stakeholders we have consistently provided disclosures in our public filings about the state of our financial position and the risks related to our financial position. That said, it is nice to be able to say for the first time in a few years that we have more cash on our balance sheet than debt.

(Grouped questions)
Question: How much with the current burn rate will GEVO have to produce before they operate in the black? What’s the plan to get there
Question: Is there a realistic plan to bring GEVO into the black and enhance shareholder value?

Pat Gruber: To become profitable, we believe that we need to expand our production of isobutanol and hydrocarbons. On the last quarterly call, I discussed, at a high level, what we are thinking about doing at Luverne in terms of such an expansion, as well as how definitive supply agreements with airlines and other fuel or chemical companies will help support such an expansion. We expect to provide further color on our plans in this regard in our 10-K, as well as future announcements and public filings.

Question: Wouldn’t it be more advantageous to file for bankruptcy so GEVO could restructure, cut expenses and become profitable soon?

Pat Gruber: It’s important to reiterate that it is Gevo’s management’s and Board of Directors’ fiduciary duty to take actions that are in the best interests of the corporation and its stockholders. We strongly believe that filing for bankruptcy would not be in the best interest of stockholders because it is very likely that a bankruptcy court would eliminate current stockholders equity positions and give 100% of the equity or a restructured Gevo to Gevo’s current debt holders. In other words at this point, we have a duty to do our best to avoid filing for bankruptcy protection.

Question: What is the estimated value of the patents commercially? How about the value of the facilities if sold? Scrap value?

Pat Gruber: I assume that this question is about the potential “liquidation value” of Gevo. We do not have an estimate for the value of our assets that we can share. Generally, the value of these types of assets are dependent on who would be looking to purchase such assets. That said, we believe that Gevo has greater value as an operating entity rather than in a liquidation scenario. I believe that our senior lenders think likewise.

Question: When is management going to help out in starting to fund their own company while it’s in its infancy? The idea that investors have “big pockets” that will just accept a continuing bleeding prospect and share price is SO OUT OF REALITY IT IS NOT EVEN FUNNY.

Pat Gruber:

Management’s function is not to provide capital for Gevo to operate. Rather, my role and my senior executives are chiefly responsible for running the day-to-day operations of Gevo and keeping Gevo’s Board of Directors informed of the status of our operations. It’s our role to work though the many issues we have faced, in order to make the business successful

Gevo Agreements

(Grouped questions)

Question: Gevo is in a spot where money is the main Issue. Is there possible thoughts or talks with companies that have deeper pockets. Someone Like a BP or Exxon to maybe merge with or strike a deal.
Question: Why hasn’t GEVO sought a partnership with a firm(s) that has the required capital and board contacts to get this flying?

Pat Gruber: 

We continue to seek investments and partnerships from financial and strategic investors that have “deeper pockets”. We believe that there is interest in partnering up with Gevo, but to date, these types of players have stayed on the sidelines. We have been told that a bunch of the overhangs to the business – litigation, technology, balance sheet – have been barriers to folks pursuing partnerships with us. So hopefully once we achieve a longer-term solution for our 2017 Notes, this will make Gevo more interesting to companies and funds with “deeper pockets”. We shall see.

Question: A $55Million dollar govt. grant award for fuel is supposedly going to be awarded 3/1, does GEVO have a shot at getting that award.

Pat Gruber:

I believe that you may be referring to the DPA Title III program, and as already mentioned, this grant potentially is a good fit for Gevo. That said, the timeframe for this program is applications are due in May, and the award would be made in August, if you are referring to the same program.


Question: How is Gevo Management Aligned with Shareholders?

Pat Gruber:

Fundamentally the key answer is that I truly believe in what we are doing at Gevo. The idea of producing and selling renewable isobutanol, as well as using it as a building block molecule to produce products like jet fuel and isooctane, is something I was looking to do as far back as the 1990’s  when I was at Cargill. Yes, it has taken us longer than expected to get to where we are. But we had to fight through several obstacles that we could never have predicted, such as the litigation with Butamax. We are one of the few companies to have worked through the scale up issues and have met our production cost goals that gives us confidence that we can ultimately make money serving the fuels markets. Once we have developed a longer-term answer in respect to the 2017 Notes, I believe that Gevo is very well positioned to execute its business plan. We think that there’s a lot of money to be made over the long term producing and selling isobutanol and hydrocarbons. If we are able to achieve this goal, I would expect that our stockholders and management will be rewarded.

In addition, we believe that our compensation programs, including the mix of short-term and long-term, cash and equity, and fixed and contingent payments have been developed to provide the proper incentives to maximize stockholder value over time. Without our programs in place, we don’t believe that we will be able to competitively attractive the right people to make Gevo successful.

(Grouped questions)
Question: What is his plan as the CEO to restore investors’ confidence?
Question: What is his message to the ones who have held long positions in this company and seen their investment wiped out?
Question: What does Pat feel is their biggest obstacle?

Pat Gruber:

As I said earlier, we have been through a lot over the past several years: litigation with Butamax, technology scale-up challenges, debt overhang. Once we get a longer-term solution for the 2017 Notes, each of these will be behind us. So now our job is to focus on executing our business plan. This is obviously not without its risks, including financing the business and the expansion of the Luverne facility. Gevo, however, is in the best position to meet its challenges than it has been in a long time. So I’m excited by Gevo’s future prospects.

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Premier Holdings Corp PHRL Stock News

Premier Holdings Corp (OTCMKTS: PRHL)

CNA Finance is no stranger when it comes to seeking out emerging opportunities in the markets. While the CNA research team generally covers stocks that have valuations in excess of $100 million in market cap, we do entertain investor queries about stocks that are showing signs of having the ability to become a leader in a given sector.

Premier Holdings Corporation (PRHL) is a company that has attracted CNA Finance investor attention, with the CNA Finance team being challenged with covering PRHL to address that investor interest. While the team does not generally cover stocks that are priced at $0.08 cents per share, that does not mean that we ignore investor interest, nor do we avoid stocks that may be on the verge of delivering significant shareholder gains in the relative near term. We believe that PRHL holds potential.

With that said, the CNA Finance team reached out to PRHL, and allowed the management team an opportunity to re-introduce the company, one that has been in business since 1971. In doing so, PRHL addressed the past, present, and future strategies of the company, and explained how some of the past strategies, and most recent strides forward, have helped to shape the direction of the company for 2017 and beyond.

Following, is a transcript of our exclusive interview:

CNA: First, let me start by saying that investor interest in PRHL is emerging, and while the sentiment is unequivocally positive, investors still have questions about legacy issues from the past few years. In 2014, PRHL entered into a proposed acquisition for 85% of Lexington Power & Light. Did that deal close and can you explain the history of that deal?

A: Yes, the deal indeed closed and we were well on our way selling their product. But soon after completion we learned that certain representations were not accurate. Their debt service (cost of capital) was much higher than represented and made their business impractical for us and as you would expect, there was a resulting lack of confidence in the management of LP&L. So, we unwound the deal.

CNA: Did this unwind actually provide some ultimate benefit?

A: Absolutely. In the short time we were operating we proved that the concept was sound. We sold a product, the “reset,” at a higher price than the market and we were successful in doing so. And our topline revenues showed this. But LP&L management and cost of cash we not suitable for us. For full transparency: when the credit facility for buying power is put in place it is typically for 3 years. LP&L’s $2,000,000 line cost them over $600,000 in interest and fees. We believed we could re-negotiate the line and did have a new term sheet in hand. However, LP&L had an administrative issue and they were unable to get an updated credit facility. This, we believed, would prohibit profitability. Necessitating our decision to unwind the deal.

But our initial success in sales indeed indicated that, with a more competitive, industry-standard cost of cash and a professional management team, we should achieve the projected 8 -10 % EBITDA on our AIC business. And let me just add that with a better-than-average credit facility and more expert management we could achieve 12% EBITDA… which we believe we are the path to achieving.

CNA: And, as to the second concern, the current outstanding share count: Do you think that having in excess of 300 million shares outstanding should be of concern to investors?

A: It is the market value of those shares which is the issue. With our 200,000 accounts alone, valued at $300 each, our portfolio value would be at $60 million (as we move existing customers, former customers and new sales to the supplier), which is more than double our current market Cap. So once we place the majority of these accounts and future accounts, into the Supplier, the stock price should reflect this. We anticipate it will take about 2 years to accomplish this. This does not take into consideration the real enterprise value of the company which can generate thousands of sales per month.

CNA: Over the past few years, PRHL has entered into some potentially lucrative deals. Back in 2012 and 2013, PRHL entered into a purchase agreement with The Power Company (TPC) to purchase 80% of the that company. How has that deal benefited PRHL?

A: TPC has been the catalyst for the growth of our company and PRHL was the catalyst for their growth. As we provided capital, TPC grew from 11,000 sales to over 200,000 and should produce an additional 80,000 this year (not accounting for expansion). These are not only customers for deregulated power, but become candidates for our other businesses, E3 (efficiency products and services) and of course AIC. This pure marketing machine is critical and fundamental to our business and has been successful beyond our projections.

CNA: So, with that deal allowing PRHL to benefit from a deregulated energy space, is PRHL now fully prepared to capitalize on an estimated $300 billion US market and what synergies has PRHL already realized from that deal?

A: PRHL has benefited tremendously from acquiring the majority of TPC. TPC has proven to be one of the TOP resellers in the nation. In Illinois, one of the most competitive markets in the nation, we have about 2% of the market already. As a comparison, there is another well-respected company that took 12 years to achieve 200,000 contracts, we did it in 3 years. They do over $100 million a year as a supplier and we expect to exceed their performance by our second year. Although our projections show slower growth, we have no way of knowing the impact of the portal but we expect it will be a game changer. This is very similar to what happened to Telecom. Do you remember years ago when everyone had to use Ma Bell for their long-distance telephone service? That changed when the telecom industry deregulated, which gave customers a choice and created a huge opportunity for the “baby bells.” Which created industry giants like Sprint and Verizon and made their thousands of investors rich. Not only those companies, but as the entire industry was rolled up, hundreds of companies benefitted. What were they buying? Customers. The same is now true in many states with the deregulation of electricity.

CNA: Can you explain deregulation in simple terms? Is PRHL already benefiting from the program?

A: Simply put, deregulation is a government program to protect consumers by assuring competitive pricing. Think how the telecom deregulation changed telephone charges – now understand, energy deregulation is estimated to be 11x bigger! Are we benefitting? Yes. We believe we are among the top 5% of resellers in the nation if not higher. We expect to maintain and grow our piece of this massively expanding market. We have proven this by our ability to capture about 2% of the Illinois market, again, one of the most competitive in the nation. We should only do better in other markets. As we obtain our licenses in other states and then launch our door-to-door and call center strategies we expect similar results. When we add our Energy Services Portal (ESP) and it’s affiliate marketing functions, we should see increased traction.

CNA: So, where exactly is the opportunity for PRHL?

A: We have a running start over our competitors. Opening “Deregulation” has been the only marketing strategy for many suppliers. They wait for the utility customer to come to them. We have been aggressively marketing to customers. We do not rely on others to control our fate. As each state opens, we have the ability to go in with our systems and rapidly deploy out strategies. We have only scratched the surface.

CNA: You mentioned and described The Power Company, but, there are two other subsidiaries within the Premier Holding Corporation portfolio, E3 and American Illuminating Company. Each of these subsidiaries offer distinct value propositions. Can you explain the role of each in delivering and building scale for PRHL?

A: AIC is the linchpin for financial success. While TPC has been garnering these 200,000+ contracts, they receive only a commission on those sales. As we migrate those contracts to the power supplier (AIC) we should see a 20x increase in topline revenue and a doubling of profitability on the same effort we are expending to gain only that commission. It is with the supplier where the portfolio value of the contracts is realized. This is where the $60 million in contract value would be shown.

E3, with its relationship with Sustainability Partners is a natural fit. After we have sold our existing clients their deregulated power, they become a trusted client for additional efficiency sales. SP will be offering products and services to our thousands of commercial clients. E3 will be offering Smart Home and other efficiencies to our residential clients.

CNA: E3 has a strategic partnership already in place with Sustainable Partners LLC., a Blackrock portfolio company. This sounds like a significant opportunity to imbed a large footprint in the space. How can PRHL leverage off this partnership?

A: Yes, this requires further discussion. Sustainability Partners has a model we believe will be just as disruptive to this market as Uber has been to taxi’s and Airbnb has been to hotels. We are proud to be among the select few to be able to offer their product to our commercial clients. They value our marketing expertise and we have inundated them with leads. We have over 5,000 commercial clients we are vetting for them and we expect this number to grow to between 30,000 and 50,000 in the ensuing years, especially with the roll out of ESP.

CNA: American Illuminating Company also deserves more attention, especially in that the relationship can position PRHL to benefit enormously from a revenue standpoint. What are you expecting AIC to deliver?

A: Right now TPC distributes its contracts among 30-40 different suppliers and those suppliers are reaping the benefits of TPC’s efforts for topline revenue and additional profitability. We plan to have 80% or more of residential and commercial customers to move over to AIC where we will then garner the entire utility bill as revenue and experience additional profits for the work TPC performs.

CNA: In examples that we went over, you described how the leverage from the AIC subsidiary may deliver exponential amounts of increased revenue. How can that happen?

A: Remember that TPC does a herculean effort to earn a commission on a sale. Let’s keep it simple and say that one residence consumes $100 of power each month. Our commission might be $2 – $5 per month. Not much, but it adds up. If we supplied that power we would record the entire utility bill as revenue… $100 as opposed to $2 – $5. In addition, if AIC makes 10 – 12% profit that’s an additional $10- $12 PROFIT, again compared with the $2 -$5 we were getting from one residential sale. Can you think of another industry where just by adding an entity in front of what you are already doing you can change the value proposition so dramatically? We have been making our current suppliers very rich. Our plan has always been to do that for ourselves and our shareholders.

CNA: Perhaps one of the most interesting aspects of PRHL is the Energy Sales Portal, which is truly a remarkable asset. Before we get into the benefits of the portal, can you provide an introduction of this technology?

A: Of course. The industry right now depends mostly on paper to perform these transactions. Each supplier has its own version of a contract and there is a time-consuming and laborious process of contacting a prospective customer, going back to a supplier and getting a quote based in their profile, awaiting the client to say yes, hand sign contracts and get third party verification. This method is fraught with inefficiencies and potential for errors. ESP automates this process, streamlining it, and providing rapid turn-around of quotes and compliance. This is a web-based tool that the sales person uses, either at their desk when they are on the phone with a prospect, or on a hand held device when they visit them at home, and it takes a process that might take 30 minutes and a few days for approval, to mere minutes and immediate approval.

CNA: I’ve heard investors say that the Energy Sales Portal can do for energy what Lending Tree did for the mortgage industry. How so?

A: Just as Lending Tree automated the loan processing function and disrupted how all loans are processed today, so should ESP impact the deregulated power sales industry. There is no universal sales tool for the industry. There are bits and pieces out there but no-one has put it all together, especially the “last mile” which is automating the communications between the sales person and the client. ESP could be the first universal (covering all suppliers and also the entire sales process from prospect identification to close and compliance verification), tool to accomplish this.

CNA: So, the portal can deliver web-based automated sales, as well as delivering enormously competitive efficiencies. From a competitor standpoint, does the Energy Sales Portal provide a significant competitive advantage for PRHL, maybe even keeping competitive threats to a minimum in the markets you serve?

A: There is a need for such a product and we have been testing and refining ours for years with the original intent of making it robust and available to all resellers, not just a narrow internal tool. We plan to offer the technology to ALL resellers. Now this may sound crazy to give our competitors our proprietary technology, but think it through. Instead of trying to acquire all these businesses, they, in essence, work for us. Not only will we get a piece of every transaction regardless of what supplier they use, but we will own the database. Protecting their client for deregulation is a given, but that database can be used for other non-power sales. Such as selling E3 products and services, or selling the information to solar companies or others who value knowing the energy profile of a prospect. And finally, since our supplier is among the offerings they present to their client, AIC can have “last look” and decide if they want to price to win. In that sense, it is like Progressive Insurance. We will show you our competitors’ prices and our own, creating a higher likelihood of winning the contract.

CNA: Of course, management is the key to driving all of the company’s strategic initiatives. PRHL has built quite a respectable and diversified team of talent. Can you highlight the members of your team, and explain how the diverse nature of this team is equipped to deliver near and long term success?

A: We have an impressive Board that is very involved in the strategic direction of the company. Dr. Woodrow W. Clark, II, MA3, Ph.D. was a contributing scientist to the U.N. IPCC that won the 2007 Nobel Peace Prize. He served as Manager of Strategic Planning for Energy at the Lawrence Livermore National Laboratory and was Senior Policy Advisor for Energy Reliability to then California Governor Gray Davis with a focus on renewable generation, advanced technologies and finance.

Board member Mr. Lane Harrison advised large multi- national corporations such as Bicoastal Corporation, (Formerly Singer Corp.) where he served as Director, and Bicoastal Financial Corporation, serving as President/Director. Mr. Harrison has over 30 years of business consulting and sale/marketing experience. He has lectured extensively to the professional advisor community.

Mr. Robert Baron is a director and committee member of various public companies, including PRHL. Prior public boards include, Hemobiotech and Suburban Bancorp. Mr. Baron was also owner and president of various companies including a subsidiary of Tultex Corp with over $200 million in revenues, and a privately held company with $80 million sales country wide.

Our Management team has decades of experience, and just to mention one. Mr. Patrick Farah who most recently co-founded U.S. First Energy (USFE). As CFO and CMO of USFE, Mr. Farah was instrumental in establishing the company’s exclusive partnership with Suez Energy – one of the 100 largest companies in the world. Mr. Farah’s company was the exclusive retail sales vendor for Suez Energy in the United States, where he oversaw the development of a total contract value with Suez of over $400 Million – more than 15 times the volume of Suez’s previous vendor. While procuring a residential base of 50,000 customers, USFE achieved the prestige title of top First Choice Power’s sales broker. USFE has subsequently enhanced its business model, and is now branded as The Power Company.

CNA: Let’s change course and discuss investment considerations and opportunity. How would you answer an investor if asked why he should buy PRHL stock?

A: If we are able to convert our portfolio value we should double our market cap within 3 year and this is not considering our enterprise value. Again, 200,000 contracts valued at $300 each is $60,000,000… and that is not counting the revenue that these contracts generate during their term. And that is using todays performance. We plan to continue to grow this number of contracts. If only at the current pace, that is 80,000 contracts a year. If we scale by expansion and the use of the portal, we should see even greater performance. We are poised to continue to build revenue and profits on a scale that is rarely seen in most industries.

CNA: If that same investor, after liking the considerations provided, asked about cash on hand and access to future capital, how would you answer that question?

A: We have over $2 million cash on hand. We have a PPM issued though WestPark Capital and we have investors standing by offering us up to $10 million should we need it when we execute our planned up-listing to Nasdaq. Cash is not an issue for the time being and foreseeable future.

CNA: Along those same lines, financial projections are a vital consideration for investors. Can you provide some financial projections, and in turn offer a projected asset valuation based on those projections?

A: By the end of Year 2 we expect AIC to do over $67 million topline, TPC will add $9 million and E3 $8.5 million. That totals around $85million in topline revenue, resulting in $3.5 million to the bottom line. Mind you this is still a ramp up year for AIC and shows only a 3% EBITDA for that unit. In the future, we will experience over 8 – 10, to maybe 12% on that business line. But even with only a $3.5 million EBITDA at 18x multiple, that’s a $64 million valuation. I hesitate to go beyond year 2 because it grows so rapidly it seems unbelievable, but the math is there.

CNA: Finally, many investors work hard to search out potential breakout stocks. Based on the known variables already in the PRHL arsenal, can you provide a best-case snapshot of PRHL five years from now?

A: Just adding the suppler will change our business dramatically on the same level of work we have been performing for 3 years. With our plans to expand into additional states, launch our sales portal, and partner with Sustainability Partners on additional large scale sales, our 5 year projections seem too good to be true. Just for AIC we go from $7 million in sales in Year 1 to $67 million in year 2. You can see the potential is tremendous for growth in the subsequent years.

End Interview

Stock price does not always reflect what a company is doing, and in the case of PRHL, this statement may prove true. Based on what management has told us, PRHL is positioning themselves to take advantage of a potential boon in the energy space. Once the company begins to gain momentum, taking advantage of its strategic and proprietary advantages, PRHL may very well emerge as a powerful player in the deregulated energy space. PRHL already has strategic partners in place, and has the trust from regulatory commissions across the United States. All that is left now is for PRHL to synchronize all of its initiatives together to produce a reliable and recurring revenue model. Once they do that, the share price and valuation will find its proper place, offering shareholders significant potential upside from current levels.

Like all investments in the micro and nano-cap world, investors should keep a focused eye on breaking news and company filings. Based on management’s remarks, PRHL is worthy of investment consideration for investors with a high risk, high reward trading strategy.

Disclosure: This article was written by Kenny Soulstring, and it reflects my own opinions and unique articulation. This article is not intended to offer investing advice, guarantee 100% accurate predictions or to be interpreted as providing a personal recommendation.

Additional Disclosure: I have no position in any stock mentioned, but may initiate a long position in PRHL within the next 72 hours.

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AzurRx BioPharma Inc. AZRX Stock News

AzurRx BioPharma Inc. (NASDAQ: AZRX)

Since first covering AzurRx in December of 2016, many investors have asked me to further expand on the technology and methods that the company is developing to treat both chronic pancreatitis and cystic fibrosis. Because the company’s pipeline is actually far deeper than just developing treatments for those two indications, I reached out to AZRX management to allow them to provide a specific overview of the progress and technological differences being developed at the company.

In the first of a three part, C-Suite exclusive, AZRX’s management and medical team responded, in specific detail, to investor interest and questions.

Q. First off, thank you for taking the time to both respond to and explain the AZRX pipeline and technology.

As a primary clinical focus, AzurRx has said that the company is aiming to reduce the daily pill burden for patients that have either chronic pancreatitis or cystic fibrosis. What exactly do you mean?

Thank you for reaching out. Yes, AzurRx, with its MS1819 compound, aims to improve adherence to therapy and potentially treatment outcomes in patients with chronic pancreatitis and cystic fibrosis. The plan is to materially decrease the pancreatic enzyme replacement pill burden to 5 to 8 capsules per day with MS1819, down from over 25 capsules daily with existing porcine agents.

Q. What is the significance of pill burden reduction? Will the decrease have a material benefit other than just convenience and patient dosing compliance?

Pill burden has historically been an issue for patients and clinicians. Experience and data show that large pill requirements generally lead to poor compliance and are associated with poor treatment outcomes. Notable examples of where pill burden has been reduced, resulting in improved outcomes include HIV, hypertension, chronic kidney disease and diabetes.

In the early days of the HIV epidemic, patients took upwards of 40-50 pills a day with generally poor outcomes, compliance and polypharmacy related adverse events. Due to drug development advances, including novel co-formulations, the current standard of care broadly consists of treatment with a single pill once daily.

While the convenience benefit of once daily administration appears obvious, it is also clinically important. In one study, published in the Journal of Pharmacotherapy, patients with single tablet regimens (STR) had better outcomes than patients with multiple tablet regimens (MTR).

Q. So, single tablet measurements, or even a significantly reduced bill burden, may actually have more therapeutic affect?

In studies, STR patients were more adherent, had a lower risk of hospitalization and higher proportion of patients with viral suppression. Similarly, in another HIV study published in the journal Clinical Infectious Disease, the authors concluded “higher pill burden was associated with both lower adherence and worse virologic suppression.”Subsequently, in a meta-analysis of 19 studies of 6,312 people, higher pill burden was associated with lower rates of adherence (p=0.0004).There was also a significant association between higher pill burden and reduced chances of achieving virologic suppression (p<0.0001).Notable HIV products that offer reduced pill burden include Gilead’s set of once daily products; Atripla, Complera, Genvoya, Odefsey and Stribild. Also,ViiV’s (a partnership between GlaxoSmithKline and Pfizer) Triumeq is a once daily product.

Q. Some studies show that higher pill burdens may contribute to even worse clinical outcomes. Are the reports accurate?

In the treatment of hypertension, higher pill burden has also been linked with worse outcomes. Notably, a study of 17,000 adults, published at ASH 2014, showed that adherence among patients treated with single-pill therapy was 55.3%, compared with rates of 40.4% for patents with double-pill therapy and 32.6% for those on triple-pill therapy. The clear conclusion from these data is lower pill burden in the antihypertensive setting leads to improved adherence.

Q. There was a study of pill burden, in relation to kidney disease. Is AZRX tracking that study?

Absolutely. In chronic kidney disease, lower pill burden has been shown to be beneficial. In a study of 5,262 hemodialysis patients participating in the Dialysis Outcomes and Practice Patterns Study (DOPPS), it was demonstrated that patients prescribed a higher number of phosphate binder pills were more likely to have worse serum phosphorus levels. This supported the concept that non-adherence to large pill burdens can result in poor patient outcomes. Additionally, this study showed a clear pattern of rising non-adherence with increased pill burden in hemodialysis patients. Marketed phosphate binders that allow reduced pill burden include Fresenius’ Velphoro and Sanofi’s Renvela.

Q. Have there been any supporting studies to support the beneifts from a lower bill burden?

Yes, there is supporting research. From the Journal of General Internal Medicine, a study evaluated 9,170 people with diabetes treated with a fixed-dose combination product or two medications. Adherence to the treatment regimen was 12.8% higher the single-component arm versus the two medication arm. Combination Type II diabetes products include Merck’s Janumet, GlaxoSmithKline’s Avandamet, Takeda’s ACTOplus met and AztraZeneca’s Xigduo XR, which all provide reduced pill burden.

Q. Several investors were interested in getting more information about the lipase market and the potential for MS1819 to have a material impact in treating targeted indications. Can you elaborate on the market and benefits?

With the US pancreatic enzyme replacement market currently generating about $900 million in sales, MS1819 stands to have a sizable commercial presence. The reduction in pill burden associated with MS1819 is likely to confer a material adherence advantage to patients. This in turn should result in robust market uptake.

Q. Since we mentioned MS1819, AZRX’s lead candidate, can you provide some insight into that compound?

MS1819-SD is our lead therapeutic candidate. It’s a yeast based recombinant lipase intended to treat diseases in the pancreas, specifically exocrine pancreatic insufficiency (EPI) that is related to chronic pancreatitis (CP) and cystic fibrosis. We currently have an on-going phase II trial of MS1819-SD and are currently recruiting and treating patients in Australia and New Zealand, and we expect to publish initial efficacy results in the first half of 2017.

The phase I trial, like most, was geared to demonstrate positive safety and tolerability data, which we did. In addition to just showing safety, though, MS1819-SD also demonstrated the potential to provide a materially improved efficacy profile and dramatically reduced pill burden. In current treatment applications, it is not uncommon for patients to be prescribed up to 25- 40 pills per day to treat EPI, an issue that AZRX is intently focused upon changing. Current data suggests that an approved AZRX therapy may potentially offer patients the ability to ingest just 1-2 capsules per meal, and at the same time may benefit from an equal, or potentially greater therapeutic affect.

Q. Suggesting that the overall data from the on-going trial’s for MS1819-SD remains positive, how significant is the market potential for AZRX?

First, we expect that the trials will continue to demonstrate positive patient results. Assuming approval, AZRX will advance the product into a market that has the potential to treat over 100,000 patients in the U.S., and an additional 30,000 patients with EPI caused by cystic fibrosis. As we noted in prior releases, we are targeting the replacement of standard care, which is treatment with porcine replacement pills. In 2015, data estimated the market at $820 million in the U.S. alone, and roughly $1.5 billion dollars globally, this is according to market data provided by the National Pancreas Foundation.

Q. Finally, investors asked for detail about AZRX’s pipeline, specifically near term initiatives. Can you provide some color on that front?

Beyond MS1819-SD, AZRX’s next leading developmental stage agent is AZX1101, which also has broad market potential. AZX1101 is a complex biologic being developed to target and prevent hospital acquired bacterial infections. It’s mechanism works by inhibiting the activity of a broad range of antibiotics from acting within the GI tract. Data is showing that AZX1101 may prevent toxicity of intravenous antibiotics to gut bacteria, which may deliver a commercial market that holds enormous potential. Data published by the CDC estimates that over 1.7 million hospital associated infections are reported each year, and the results of these infections contribute to the death of almost 100,000 patients a year, and has an estimated annual cost burden to the health care system of roughly $11 billion per year.

It’s our goal to file an Investigational New Drug (IND) application for AZX1101 prior to the end of 2017, with a primary indication toward treating or preventing clostridium difficile infection. Beyond that indication, though, we expect that AZX1101 may also demonstrate broad and potentially lucrative applications for AZX1101 to treat a substantially higher number of bacterial infections.

End Interview

As previously noted, AZRX is well positioned to advance clinical initiatives on multiple fronts, taking advantage of potential drug approvals outside of the United States, which may offer a more streamlined process toward drug approval. With AZRX having a clinical presence, with on-going trials in countries such as Australia and New Zealand, the potential for expedited approval is in place, a decision that can allow AZRX to become a revenue generating company much sooner than expected.

Special thanks to the AZRX medical and management team for providing responses to investor questions, and ask investors to stay posted to CNA Finance for the second installment of this three part series.

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RegeneRx Biopharmaceuticals Inc RGRX Stock News

RegeneRx Biopharmaceuticals Inc (OTCMKTS: RGRX)

Recently, the CNA Finance team had an opportunity to speak with J.J Finkelstein, CEO of RegeneRx. Mr. Finkelstein has worked as an executive officer and consultant in the bioscience industry for the past 34 years, including serving from 1989 to 1996 as chief executive officer of Cryomedical Sciences, Inc., a publicly-traded medical device company. Prior to Cryomedical, he served as the CEO of RegeneRx from 1984-1989.

RGRX has been advancing upon an aggressive and potentially lucrative strategy lead by RGN-259 for dry eye syndrome. CNA Finance wanted to see just what was behind the action, so we went straight to the source. The following is a transcript of our interview:

Q: Describe the lead product at RGRX and where you are in the approval/commercialization process.

Our lead product is RGN-259, a sterile, preservative-free, eye drop developed for dry eye syndrome and other diseases and disorders of the cornea. RGN-259 represents a new approach to corneal healing and repair as it promotes cell migration, increases cell-to-cell contact and reduces apoptosis (cell death) and inflammation. We are conducting two phase 3 clinical trials through our U.S. joint venture, ReGenTree, LLC, one for the treatment of dry eye syndrome and the other for an “orphan” indication, neurotrophic keratitis (NK). Our goal is to complete both trials by the end of 2017. Our results will determine how we proceed with the regulatory process. It is likely that upon success, ReGenTree will either sell or license the asset to a major pharmaceutical company for commercialization in the U.S. in conjunction with the rights in Europe, which are still 100% owned by RegeneRx.

Q: How extensive is the patent protection around Tb4?

Patent protection is strong and we continue to submit patents around the world on our products. We have more than 75 total patents and patent applications within 14 patent families worldwide for Tb4, with expiries through 2031. Moreover, as an orphan drug, RGN-259 would benefit from 7 years of market exclusivity in the U.S. and 10 years in the EU.

Q: Your outsourced business model is an interesting approach, why did RGRX adopt this approach and what are the company’s cash needs under it?

An outsourced business model fits our technology, product candidates and needs very well. Since we are developing various product candidates around thymosin beta 4, a naturally occurring molecule, and have significant intellectual property, we felt very comfortable using vendors to perform and manage various aspects of our business. This includes preclinical studies, assay development, management of clinical trials, product formulation and other required services necessary to clinically develop a pharmaceutical product. Moreover, due to the significant world-wide interest in our product candidates, we have engaged in material transfer agreements (MTAs) with leading academic and medical institutions around the world that are interested in conducting research with our products.

These services and relationships allow us to not have to create a large and expensive infrastructure and, therefore, utilize less capital and be more flexible with our activities and budget. Currently we are spending approximately $110,000 per month to operate and have spent under $30 million in total to advance our products into phase 3. Our joint venture will probably spend another $30 million in getting RGN-259 through phase 3 and an NDA. This is much less than is typically the case for a pharmaceutical product that is based on a new chemical entity.

Q: Won’t this outsourced model constrain the company’s revenue growth potential when you reach commercialization?

It shouldn’t affect our revenue growth potential upon commercialization as our strategy has always been to sell or license our products to big pharma for commercialization. While we currently own 42% of ReGenTree, in addition to a royalty on commercial sales, we have no financial obligation through the clinical and regulatory process. We believe this is a great deal for RegeneRx. Also, as part of our strategy, we have engaged in other partnerships to develop our products in Asia, Europe and the U.S. Multiple partners allow us to create multiple paths toward commercialization. Currently we have three active partnerships, all of which are focused on clinical development of RGN-259 and RGN-137.

Q: What’s in the pipeline behind RGN – 259 eye drops?

We also have RGN-352, our injectable form of thymosin beta 4. It is being developed to treat systemic injuries, traumas, and disorders such as myocardial infarction, stroke, and peripheral neuropathy, helping repair or prevent tissue damage quickly after a damaging event. We are phase 2-ready with this product.

A third product is RGN-137, our dermal gel using thymosin beta 4 as the active ingredient. It is intended to be used to treat skin wounds, scarring and dermal disorders. We have conducted several early phase 2 clinical trials with promising results and our partner is moving forward with RGN-137 in the U.S. to treat a serious orphan disease, epidermolysis bullosa.

End Interview

CNA Finance works hard to uncover the next gems of investment opportunity. Mr. Finkelstein does offer a compelling case to consider the purchase of RegeneRx stock as part of an emerging growth portfolio.

With three real shots on goal and two Phase 3 studies in progress, RGRX is a stock that is well positioned with both near and long term catalysts. The outsourced model allows the company to conserve capital, allowing for maximization of the opportunities that are unique to RGRX’s shareholders.

Although all investments come with associated risk, RGRX appears to be in a comfortable position moving forward. As always, though, perform your own due diligence before making any aggressive investment decisions.

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Viking Investments Group, Inc. VKIN Stock News

Viking Investments Group, Inc. (“VKIN” or “Viking”) is taking an aggressive stance to reposition itself as a premier player within the oil and gas industry, undertaking an aggressive acquisition strategy planned for 2017 and beyond. Taking advantage of strong banking relationships and an already beefed up portfolio of producing assets, Viking may very well be on its way to accomplishing that goal.

While the oil and gas industry has met its share of frustrating times during the past few years, those hardships may have presented opportunities for VKIN to execute on its strategy to acquire revenue producing properties at attractive prices, and, in turn, increase both shareholder value and its capital base.

For investors that need an introduction, CNA Finance reached out to VKIN’s CEO, James A. Doris, LL.B, to get his insight into the current oil and gas market and to discuss his near term goals for VKIN. It is clear Mr. Doris is setting the course for a dramatically improved company, offering visibility and a well thought out plan intended to significantly increase the value of VKIN.

Q. Viking has been on the move of late, with changes in its corporate structure, management team and business strategy. For shareholders that might have been introduced to Viking a year ago, would it be fair to say that they need to get reacquainted?

JAD:Yes, absolutely. In the span of 12 months we have made 2 acquisitions, completed 3 financing transactions, formalized a relationship with a premier operating company in Kansas, and participated in negotiations and/or submitted bids for 5 other acquisitions (ranging from $12mm to $167.5mm), with support from various funding groups. From a compliance and professional services standpoint we also changed auditing firms, switching to a firm with considerable experience in providing services to public companies involved in oil & gas exploration.

Q. Getting reacquainted is important, but investors should acknowledge that companies like VKIN need to evolve to remain relevant, especially when opportunity is ripe. For both new and current investors, how is the Viking model going to be different in 2017 than it was in 2016?

JAD:Although we completed a couple of acquisitions in 2016, the past 12 months was more about putting key building blocks in place (e.g. contracting with a premier operating company; securing a credit facility with a commercial bank in the Energy Sector who wants to grow with us as we make more acquisitions in the Mid-Continent area; establishing relationships with investment banks and other funding groups who now want to assist us on future deals; achieving credibility in the marketplace amongst prospective vendors and brokers to generate deal flow). In 2017 our focus is going to be more narrow, i.e. simply assessing deals and buying assets that fit our investment model.

Q. Building on your focus to become a premier exploration and production company in the mid-Continent region, can you tell shareholders some of steps that Viking has already taken to establish the initial footprints in that region?

JAD:We have attracted attention to the “Viking” name in the area by purchasing a working interest in 6,000 acres of property in Kansas and Missouri, and by attempting to purchase other assets in Kansas, Oklahoma and Texas (we were not successful with those transactions, through no fault of Viking, but our participation in those negotiations have caused others to send us information on several other deals).Engaging S&B Operating, a subsidiary of KRDC, as our operator, has by itself generated a significant amount of deal flow.

Q. Many people don’t often think of Kansas and Missouri when the topic of exploration and production value arises. The truth is that each of these states may be extremely lucrative to your vision. Can you explain what prompted VKIN to potentially invest millions of dollars in that region?

JAD:Major oil companies proved decades ago that oil existed and could be produced from those States; however the volume was insufficient for the large companies to sustain a long-term presence (i.e. production volume was too low to pay exorbitant overhead of large organizations).So the market is fragmented, consisting for the most part of smaller operators, some of whom have no interest in deploying capital to develop acreage (i.e. drill) and others who may want to drill but don’t necessarily have the funds to do so, in particular given the drop in oil prices over the past two years. So, there is a tremendous opportunity to aggregate producing, long-life assets with significant development potential.

Q. So, if the Viking strategy is successful and the company begins to realize substantial revenue, would the focus turn toward leveraging that success and seeking growth through acquisition?

JAD: Yes, our growth strategy contemplates making several acquisitions over the next 18 to 24 months, adhering to our business model (i.e. target assets have to be generating positive cash-flow at today’s oil prices, and there has to be development potential).

Q. Acquisition requires strength in both capital resources and management. Is the expertise already in place at Viking or would you seek additional executive level experience to facilitate the growth?

JAD: We have a formidable group of professionals (e.g. operators, petroleum engineers and geophysicists) that have assisted the company over the past 12 months in assessing acquisition opportunities. We expect those relationships to continue. At the same time, to the extent we complete a transaction in a State outside of Kansas and Missouri, we will engage experts in those regions to operate and manage those assets on behalf of the company. Further, we are actively seeking professionals from various disciplines (e.g. investment banking, energy and compliance) to serve on our advisory board to assist with our long-term growth and governance initiatives.

Q. While growth may be part of the strategic plan. VKIN already has secured some sizable assets. Can you tell investors about existing assets and how those resources are able to be leveraged into near term acquisitions or partnerships?

JAD:We have a sizable acreage position (over 6,000 acres), and intend to implement a phase-1 drilling and maintenance program, subject to raising the necessary capital, to drill new wells to increase production and lower operating costs.

Q. The property and production assets are crucial, but so is the ability to raise capital. Does Viking have any agreements in place with commercial lenders or will the company look to raise capital in the equity markets?

JAD:We have a credit facility with CrossFirst Bank (the bank has offices in Kansas, Oklahoma and Texas), who wants to grow with us and increase the size of the existing facility to assist with acquisitions. We also have Placement Agent agreements with certain investment banks who have supported us on previous acquisition attempts and want to assist with future deals.

Q. So, you have let us know that VKIN has both the cash and production assets available for market. Importantly, though, does Viking have a channel in place to facilitate product sales?

JAD: All oil produced from our leases gets purchased, the price just varies from month to month depending on market rates.

With respect to acquisitions, we have extensive relationships throughout the United States and receive a steady flow of attractive opportunities, whether it be working interests, overrides or royalty interests.

Q. You have laid out a vision and strategy that can make Viking an established and valuable enterprise. As we know, though, the exploration and production field is competitive, and making prudent investments is essential. As the CEO, what assessments do you ensure are taken prior to consummating either a land purchase or interest agreement?

JAD:We assess a number of factors when evaluating an asset, including: geological formation, reservoir characteristics, historical production and operating costs, proximity to other producing leases, development potential, status of equipment, environmental issues, etc.

Q. Finally, there has been quite a bit of market volatility in regard to oil and mineral prices. Do you think that the current market is the sweet spot for new investment and would an invigorated economy boost your business outlook?

JAD:The volatility in oil prices in 2015 and 2016 has created a tremendous opportunity to purchase quality assets. Provided we remain disciplined and do not deviate from our investment model,i.e. buy assets generating positive cash flow at today’s prices with realistic development potential, and only engage in responsible drilling programs (i.e. no wild-catting or highly speculative ventures) we will have great long-term success.

End interview

With Viking concentrating on the mid-continent states to take advantage of opportunities in the oil and gas space, the company may very well find themselves able to take advantage of distressed properties that offer significant value in regard to oil and gas reserves. Unfortunately, “others pain” often becomes the “new investors” gain, and with VKIN having both the cash and management expertise to take advantage of current opportunities, the company may very well be in a position to return significant shareholder returns in the coming months.

Investors may be well served to keep an eye on VKIN throughout the first months of 2017, and if the company can generate some near term acquisitions, they may be able to leverage that growth into additional and long term value. With near term expectations high, the year may very well become quite interesting for Viking shareholders.

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Josh Disbrow head shot1 (1)

Aytu Bioscience Inc (OTCMKTS: AYTU)

Recently, the CNA Finance team had an opportunity to speak with Josh Disbrow, CEO of Aytu Bioscience. Josh Disbrow has been in the life sciences industry for over eighteen years across pharmaceuticals, diagnostics, and medical devices. Prior to forming Aytu BioScience, Josh was the Chief Operating Officer of Ampio Pharmaceuticals (NYSE MKT: AMPE) and led the Luoxis Diagnostics subsidiary. Luoxis was merged into Aytu in April 2015. Prior to joining Ampio in 2012, he served as Vice President of Commercial Operations at Arbor Pharmaceuticals.

Since 2015, Aytu has been advancing upon an aggressive and potentially lucrative strategy. CNA Finance wanted to see just what was behind the action, so we went straight to the source. The following is a transcript of our interview:

CNA: Aytu Bioscience is what many consider to be a hidden gem, especially for the treatment indications that the company is targeting within the urology space. Before we get deeper into the science, can you provide a brief synopsis of the relatively broad platform that Aytu is advancing?

JD: Absolutely, and I’m glad to spend this time with you to introduce Aytu to your readers.

In simplest terms, Aytu is a commercial stage, specialty pharmaceutical company focused on bringing innovative treatments and diagnostics to urologists around the world. The company has three commercialized, FDA-approved products that fill large needs within urology and have unique product profiles. These three products are commercialized in the U.S., and we have built a fully-integrated commercial infrastructure to support our sales efforts.

Natesto is our primary focus, as this represents the biggest opportunity to disrupt the market and improve patient care. Natesto is the only FDA-approved, nasally-administered testosterone, and it is indicated for the treatment of hypogonadism, or Low T. Natesto is entering the $2.4 billion testosterone replacement therapy (TRT) market, and it quite simply is a better product than any other therapy on the market.

Our second initiative is to advance ProstaScint. ProstaScint is an FDA-approved imaging agent that uniquely identifies prostate cancer cells in both newly diagnosed high-risk prostate cancer patients and patients suspected of recurrent disease. ProstaScint was acquired from Jazz Pharmaceuticals, and we believe ProstaScint will remain a mainstay of prostate cancer diagnostics.

Then we have Primsol, which is the company’s proprietary anti-infective indicated for the treatment of uncomplicated urinary tract infections. This is a product that we acquired global rights to from FSC Laboratories. Primsol is the only FDA-approved trimethoprim-only oral solution and offers a solution to patients who are either allergic to sulfa-containing antibiotics or have difficulty swallowing.

Finally, we are commercializing a diagnostic device called MiOXSYS® for male infertility, currently being marketed outside of the U.S. with its registered CE mark. MiOXSYS is a breakthrough medical device that assesses the health of semen through the detection of oxidative stress levels in men suspected of infertility. MiOXSYS does in three minutes what currently takes hours to perform – and it does it simply, conveniently, and more reliably than the current methods used around the world.

CNA: So, from a strategic and product standpoint, Aytu is not only well diversified, but also appears poised to be seizing upon opportunities within the urology space. Is there a reason for the intense focus in urology?

JD: Yes, and the question is very perceptive. Right now, the urology market remains largely untapped by “Big Pharma,” in that little attention is paid to many of the conditions urologists treat. At Aytu, we seek to build a strong presence in urology, as this represents a significant opportunity to bring attention to and serve the many significant conditions urologists treat. Also, from an execution standpoint, urology makes sense as a specialty that, if effectively deployed against, a company can command a leadership position with a relatively small commercial footprint. We don’t need thousands of sales people to be a substantial force within urology.

Additionally, urologists are forward-thinking innovators, and they remain open to collaborating with our industry. We believe we can efficiently deploy an impactful commercial infrastructure in urology given that urologists are concentrated in large metropolitan areas, often practice in large group practices, and treat significant conditions like Low T, prostate cancer, incontinence, UTIs, and male infertility. We believe urologists need a company dedicated to their needs, and Aytu seeks to build a broad partnership with urologists around the world.

CNA: Well, assuming that the urologists and others in the field do provide the support that Aytu expects, is there a certain strategy that the company has in place to take advantage of the attention?

JD: We do, and it’s relatively straight forward in design. Aytu’s core strategy is to focus on licensing and acquisition opportunities to build our pipeline. In a span of just 11 months, the company assembled our commercial-stage portfolio through efficient search and evaluation of unique products in urology. We don’t favor employing substantial in-house R&D. Rather, we seek opportunities that have largely been de-risked from both a clinical and regulatory perspective. Plenty of companies perform costly, time-intensive R&D, which presents significant enterprise risks that we seek to minimize. Instead, we take the commercial risk and seek to build products once they have achieved relevant clinical and regulatory milestones – most notably FDA approval.

Our strategy is to acquire or license undiscovered products that fill significant needs and can be efficiently commercialized through our urology-centric sales team, and in our short history we have been successful in building a critical mass of products and are now ready to scale.

CNA: Earlier, you mentioned four of the most promising opportunities for Aytu. Which products in that group do you think will provide the most near-term catalyst for Aytu?

JD: Well, I would definitely point to Natesto and MiOXSYS as two of our leading candidates. While all four of our products have unique, compelling attributes, Natesto and MiOXSYS are game changers in their respective categories.

Natesto is the only nasally-administered testosterone replacement therapy (TRT) in the world, and it is just now launching into the $2.4 billion U.S. TRT market through our U.S. sales force. Natesto is truly unique in that other TRT products are applied topically to the skin or via painful subcutaneous or intramuscular injections. Thus, a nasally-administered testosterone like Natesto represents a huge advance over the current state of the art. Topically applied testosterone products carry a substantial risk of skin transference, as they are applied directly to the man’s skin. In the event of casual contact with a female partner or child, there is a concern that the man could transfer this testosterone to his loved one. This is problematic. as testosterone can cause many unwanted male-trait-enhancing effects in women and children. For this reason, the FDA has assigned a black box warning to all topically applied TRTs. Natesto, as it is not applied to the skin by virtue of its nasal administration, does not have a black box warning. This alleviates a major safety concern while also dramatically improving the way testosterone is administered.

Another significant advantage for Natesto is that it is administered 2-3 times daily (1 pump in each nostril) and achieves maximum concentration within 40 minutes of the first administration. This is dramatically quicker than other methods, and because of the relatively short duration of action, patients have flexibility in achieving their optimal “T” levels throughout the day.

From an intellectual property perspective, Natesto is patented into the year 2024 with multiple strong patent families protecting it, and we have an exclusive license to the U.S. market for at least that long. Natesto stands to change the way urologists and Low T clinicians treat hypogonadism, and our prescription trends are already exceeding our expectations.

The second product that we are also excited about is MiOXSYS, which is now beginning to post revenues overseas. MiOXSYS is a CE Marked diagnostic device that will improve male infertility assessment. Quite literally, this small, portable system does in 3 minutes what takes a professional andrology laboratory 2-3 hours to do currently.

MiOXSYS puts male infertility assessment into the hands of the treating physician to get real-time results reporting a man’s oxidative status, which is the overall amount of oxidative stress in his semen – a leading cause of idiopathic male infertility.

Additionally, MiOXSYS has been shown to correlate with a man’s fertility status in peer-reviewed publications around the world, and we’re now building an ex-US distribution network and introducing the system to leading centers in andrology and urology. In parallel, we are pursuing regulatory clearance in the U.S. and are excited about the prospects for MiOXSYS to change the way semen analysis and infertility assessments are performed around the world.

CNA: Smart Investors want to be given a compelling reason to buy a stock, with many investors wanting to invest during the most opportune times. What would you tell potential investors that would cause them to consider an investment in Aytu stock?

JD: I can give quite a compelling argument to buy our shares. With three FDA-approved, commercialized products now launching through our U.S. sales force – along with a CE Marked medical device with sales ramping overseas, we believe we are tremendously undervalued and under the radar.

Very few companies that were just formed less than 18 months ago can boast a commercial portfolio of four products, a sales force that is now off and running, and patents that protect our lead assets for many years to come. We have all three, and we have a management team that has built and exited specialty pharmaceutical companies before. All of this said, we are just getting started with very early revenues just beginning to ramp. We believe Aytu is poised for substantial growth in the near term, with Natesto expected to drive the most revenue growth for the company.

CNA: Given that the company is expecting to ramp revenues, are there any near-term milestones that investors can look for in the coming months?

JD: Yes, on both fronts. We expect to report Natesto prescription sales in the coming two quarters as we get our sales force established and driving sales. The very early prescription trends are encouraging, and we expect to see sales ramping well beyond current levels. That would be the first potential catalyst.

Secondly, we also expect to expand our distribution for MiOXSYS outside the U.S. and expect to continue our dialogue with the FDA to enable a clinical study here in the U.S. and potential U.S. regulatory clearance. We would expect that the announcement on that front will drive additional shareholder value in the relative near term.

End Interview

CNA Finance works hard to uncover the next gems of investment opportunity. Although AYTU is a relative unknown stock flying well under the radar, the information provided by Mr. Disbrow does offer a compelling case to consider purchasing the stock as part of an emerging growth portfolio.

With four shots on goal for Aytu, and with two of them expected in the near-term time frame, the current share price may provide investors a nice opportunity to catch AYTU during its infancy, and may offer substantial upside. With the company already generating revenue, investors are provided some risk support as the company continues to push forward on expanding their markets and reach.

Although all investments come with associated risk, AYTU appears to be in a comfortable position moving forward. As always, though, perform your due diligence before making any aggressive investment decision.

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Athersys ATHX Stock News

Athersys, Inc. (NASDAQ: ATHX)

Athersys (ATHX) is an international biopharmaceutical company engaged in the discovery and development of therapies designed to extend and enhance the quality of human life. Athersys’ lead product development programs utilize MultiStem®, a proprietary “off the shelf” stem cell product that has shown promise for treating indications in the neurological, cardiovascular and inflammatory and immune disease areas, as well as certain other conditions.

The CNA Finance team went up close and personal with Dr. Gil Van Bokkelen to discuss the exciting and potentially transformational treatments that ATHX is currently developing.

Dr. Van Bokkelen has served as Chief Executive Officer and Chairman since August 2000. Dr. Van Bokkelen co-founded Athersys in 1995 and has served as Chief Executive Officer and Director since the Company’s founding. Prior to May 2006, he also served as the Company’s President. Dr. Van Bokkelen is also the Chairman of the Board of Governors for the National Center for Regenerative Medicine.

Q. Athersys may be one of the most misunderstood companies in the biotech sector, with institutional investors and others not fully grasping the data relevant to the company’s treatment for ischemic stroke, one of the biggest areas of unmet need in clinical medicine today. What have investors missed?

In general, investors tend to avoid focusing on things they don’t really understand. Regenerative medicine and cell therapy is still considered an emerging technology area, and a lot of people that heard all the early hype about the potential for stem cells became less enthusiastic when that didn’t immediately pan out. Consequently, over the past several years many investors haven’t really focused on the sector. As a result, many people have missed the substantial progress that we have made. Furthermore, stroke is regarded as a tricky area, because a lot of companies have tried to develop a novel therapy over the past 20 years, with little success. So a lot of people hear “stroke” or “cell therapy” and they just tune out. But that ignores how MultiStem, our off the shelf stem cell therapy, is fundamentally different from what people have tried to do in the past, and what we have accomplished.

In our view many investors have missed several important things. First, the data from our Phase 2 clinical trial evaluating the treatment of stroke victims with MultiStem demonstrates a favorable safety profile and promising evidence of effectiveness across a range of important clinical metrics – the things that patients, their families, regulators and clinicians care most about. Second, in contrast to the current treatments available to patients, such as the drug tPA or surgical interventions, which may only be used within several hours after the stroke has occurred, the treatment approach with MultiStem is very simple and much more practical than current standard of care. In fact, the results of the trial suggest stroke patients can be effectively treated up to 36 hours after a stroke has occurred, which would be very practical from a clinical perspective. Third, we have a technology that is uniquely scalable. This is essential to meeting the demands of a large unmet medical need for an area like stroke, which affects millions of patients every year. Fourth, we have a deep understanding of how the therapy works, and how it is fundamentally different from things that people have tried previously that didn’t work, which is critically important. Finally, we have established a clear and efficient regulatory path for obtaining approval.

Q. In April, 2015 investors were quick to react after ATHX missed its primary endpoint on its original phase 2 trial, which turned out to be a relatively simple issue to address. What did ATHX learn from the original phase 2 trial, specific perhaps to the optimum time to treat patients?

Essentially we learned that in order to achieve the desired therapeutic effect, we need to treat stroke patients with MultiStem within 36 hours of the stroke, which would represent a huge improvement over current treatments, which have to be used within several hours. However, the data also showed that when we treated patients beyond 36 hours, we missed the optimum treatment window, and patients didn’t benefit nearly as much as when they were treated earlier.

But it’s important to recognize that current treatments, tPA and surgical removal of the clot that caused the ischemic stroke, are used on less than 10% of all stroke victims based on the narrow treatment window and other limitations. In contrast, based on our clinical data, the treatment window with MultiStem, of up to 36 hours after the stroke has occurred, would be relevant to perhaps 90 – 95% of all stroke patients, because most stroke victims can get to the hospital in that time frame.

Q. So it sounds like establishing the appropriate time window for treatment is very important. Is this something that clinicians understand and agree with?

Absolutely. Physicians that treat stroke patients have recognized for a long time that “time is brain”, and early treatment is essential – that’s widely accepted and there really isn’t much debate about that. In fact, the early clinical trials with tPA actually failed because they needed to define the appropriate treatment window, which has now been established as within 4.5 hours after the stroke has occurred. Unfortunately, the vast majority of stroke patients don’t get to the hospital in that narrow time window, and so they can’t be treated with tPA. Surgical removal of the clot, or thrombectomy, must be done within 6 hours, so a bit further out, but this approach also has limitations in terms of the size and location of the stroke, so it’s not relevant to many patients. The combination of tPA and thrombectomy appears to be pretty effective, but once again, that will be limited to a small percentage of stroke patients – ultimately only a subset of those patients that get to the hospital fast enough after the stroke to be treated with tPA.

Q. So how was the time window for treatment with MultiStem established, and why is that important?

Our published preclinical data using animal models showed pretty clearly that we could treat with MultiStem 24 hours after the initial stroke event or even beyond that and see substantial recovery. The data also demonstrated earlier intervention is important to maximizing therapeutic benefit – reinforcing the longstanding clinical reality that time is an important factor. The multiple studies that were conducted also explained how the treatment was providing benefits, which occurs on several levels.

It’s important to recognize that we originally designed the MASTERS-1 trial to treat stroke patients within a window of 24 – 36 hours post stroke – well beyond the limits of the currently available treatments. The initial 24 hour window was used to identify patients that were exhibiting early substantial recovery, either because they experienced a Transient Ischemic Attack (or TIA), which is a temporary stroke, or because they had a small focal stroke and the body was able to compensate by upregulating blood flow in the surrounding blood vessels, or because the patient was successfully treated with tPA or surgical removal of the clot. The clinical team wanted to exclude those patients from participating in our study, to reduce the “background noise” in the placebo arm, which has been problematic in prior stroke studies. With other approaches people have tried, patients had to be enrolled immediately, and clinicians couldn’t tell which patients may have had a TIA, or were likely to recover without treatment. We didn’t want to have a lot of those patients in our study, because we really wanted to focus on the patients that aren’t recovering or being helped by current standard of care – in other words those patients with meaningful, durable neurological and motor skill deficits after the stroke. Those are the patients that are likely to have substantial long term disability, and the ones that really need help.

In the MASTERS-1 trial we had to rely on the bone marrow and cell transplant processing centers to prepare our product, because we didn’t have the “off the shelf” version ready to go quite yet. Unfortunately, most bone marrow and cell transplant processing centers only operate Monday through Friday, and are only open a few hours each day because the procedures are highly scheduled. But strokes can happen any day of the week, and at any time of day – they don’t happen on a convenient schedule. So unfortunately, we saw that we were missing a huge percentage of eligible patients for our trial, because many stroke victims had the stroke at the wrong time of day, or on wrong day of the week, when nobody was around to prepare the product in their treatment window. As a result, they couldn’t be enrolled in the trial.

So we either had to live with slow enrollment, or modify our treatment window. Ultimately, after discussing it with the clinical investigators at participating sites, we decided to extend the treatment window out to 48 hours in an effort to capture more of these patients. However, in the process, we learned an important lesson – we need to treat patients within 36 hours to achieve the desired therapeutic effect, and earlier treatment is better. In the upcoming studies where we have regulatory authorization and are now preparing for, we will be treating patients in a window of 18 – 36 hours after the stroke, which we and the independent clinical investigators feel is an optimal window for this trial, and also represents a very clinically practical time frame.

Q. So, in that sense, people looked primarily at an issue unrelated to the efficacy of MultiStem, not realizing that the data was caused by a logistical issue rather than efficacy of the MultiStem?

Exactly. A lot of people missed the main observations from the study, which included a good safety profile, and consistent evidence that treatment with MultiStem within 36 hours was associated with a substantial benefit. This was shown by the proportion of patients that achieved good or excellent recovery in each of the clinical evaluations conducted, lower rates of life threatening adverse events and mortality, and clear biomarker data that corroborates key aspects of the therapeutic hypothesis. Many people only heard “missed the endpoint”, and reacted to that.

But based on a lot of feedback we have received from clinicians, regulators and others that have reviewed the data, it’s clear that many people see it for what it is – a promising step forward that could ultimately redefine stroke care as we know it.

Q. Earlier this year the final results of the MASTERS-1 phase 2 trial were presented at the 2016 International Stroke Conference, which is the preeminent annual international clinical conference for the stroke field. That event seemed to have generated enthusiasm among clinicians and a more positive reaction among investors. Why is that?

The final one year data from the trial showed that patients treated with MultiStem were showing a much higher rate of “Excellent Outcome”, which in practical terms means that these patients were achieving essentially complete recovery in each of the three clinical assessments that were conducted for each patient. This includes the NIH Stroke Scale, modified Rankin Scale, and Barthel Index of activities of daily living. Among all subjects enrolled in the trial, clinicians saw that at one year after the stroke, nearly three times as many patients achieved an excellent score in each assessment, reflecting full and durable recovery after treatment with MultiStem, and this was statistically significant with a p = 0.02.

Furthermore, when stroke victims were treated with MultiStem in accordance with the original trial protocol, more than five times as many patients achieved an Excellent Outcome compared to those that received standard of care and placebo. That was statistically significant with a p = 0.001.

Importantly, clinicians participating in the study saw that 67.7% of patients treated within 36 hours of the stroke achieved an excellent score in the Barthel Index of activities of daily living at one year, which was substantially higher that the control group, and also statistically significant (p = 0.03). The Barthel Index focuses on the activities that most patients and their families care about, including being able to walk, eat, get dressed, go the bathroom, shower or bath, and conduct other activities independently without the need for assistance. Study investigators also saw that when patients were treated with MultiStem they experienced meaningful reductions in acute hospitalization, time in the Intensive Care Unit, and other things that really resonated with clinicians. This included a meaningful reduction in life threatening adverse events, fewer secondary infections and other events that delay or impede patient recovery, and lower mortality. Importantly, the biomarker data from the study was consistent with (and we believe corroborates) key aspects of the therapeutic hypothesis, and essentially this indicates the therapy is working the way we thought it would.

Q. So how does MultiStem achieve all that? What exactly is the therapeutic rationale for how the treatment works?

Great question. A key difference between MultiStem and traditional drugs is that the cells that make up our product are capable of promoting healing and tissue repair in multiple ways. Essentially we think of them like living drugs that dynamically react to the needs of the body. Traditional pharmaceuticals or biotechnology treatments are almost always designed to do only one, very specific thing. Unless it’s very quickly removing the clot that caused the stroke, we know that traditional single mode therapies are not really likely to help a stroke patient recover as much as they would like. A lot of prior studies provide evidence of that.

We have actually spent years working with outside independent experts in the field to develop a detailed understanding of how MultiStem behaves when it is administered in models of acute neurological injury, including stroke, traumatic brain injury, and other indications. The cells do multiple things in parallel, which we believe is critical to their effectiveness.

One of the key things that we and others independent labs have learned, is that our brain is essentially connected to another very important organ in our bodies, the spleen. We now understand that the spleen acts as an important immune reservoir, and contains cells that most of the time are not doing anything, other than quietly waiting for something bad to happen. However, following an injury to the brain, a powerful set of signals get sent to the spleen that causes hyperinflammation to occur – essentially because the immune system overreacts to the injury. Unfortunately, this results in a lot of additional damage to the brain, and that ultimately makes things much worse, and makes it much harder for the patient to recover.

Data from our published preclinical work has shown that if we administer MultiStem cell therapy in the appropriate time frame, which our clinical results demonstrate is within 36 hours, many of the cells actually home to the spleen, and they can neutralize that hyperinflammatory cascade before it creates a lot of permanent damage. Our research results also show that the cells stimulate important reparative pathways that we believe help patients get better over time.

Q. Based on these results, the FDA recently granted a Special Protocol Assessment, or SPA designation for a pivotal Phase 3 trial for the use of MultiStem to treat stroke patients. This puts an approval to treat Ischemic stroke right on the company’s doorstep. What did the FDA see that the market has not yet appeared to have factored into the share price?

We have always tried to be very systematic and meticulous regarding our development approach, including our interactions with the FDA and other regulators. Some companies treat the FDA as a hurdle or a problem they need to overcome, and we don’t see it that way. We believe the FDA and other regulators have a critically important role to help protect and ensure patient safety, and so our philosophy is to work with them in a collaborative and thoughtful manner. Anybody that has studied the history and origins of the agency should understand that a strong FDA is in the best interest of the public, because it helps to protect patient safety and well-being.

In contrast to what some people say, the FDA is also very supportive of the development of innovative medicines – but regulators want to make sure that those medicines are safe, well characterized, and meet appropriate standards. When the FDA sees something that they believe has the potential to address a serious area of unmet medical need, there are steps they can take to help expedite development. If you think about it, this makes perfect sense, because, just like everyone else, the people at the FDA want to see safer and more effective medicines developed to address areas of unmet medical need.

Following the completion of our Phase 2 trial, we presented our results to the FDA for their review and consideration. The FDA is very data centric – and we provided them with a lot of information regarding the safety and efficacy findings from the MASTERS-1 study. They then invited us to conduct a formal meeting, referred to as an “end of phase 2 meeting” to discuss the findings and the potential path forward. The review team was very thoughtful, supportive and encouraging. Ultimately from those discussions and the follow up activities, we were able to reach agreement with the FDA that was reflected in the SPA. The SPA is a written agreement that specifies that the study design, clinical endpoints, planned conduct and statistical analyses are acceptable to support a regulatory submission for approval of the MultiStem product for treating ischemic stroke patients if the study is successful. As defined in the SPA, we will run a 300 patient pivotal Phase 3 study that will evaluate administration of MultiStem to patients within 18 – 36 hours after a stroke has occurred, using well established clinical assessments. This study will be called the MASTERS-2 trial.

In essence, this lays out a clear path to achieving something that no company has ever been able to do – obtaining approval for a practical and scalable therapy for treating stroke that could provide benefit to a large proportion ischemic stroke victims. That would be a major achievement – for us, for patients and their families, and our shareholders.

Q. One of the concerns about cell therapy is that it is typically a complicated procedure that requires specialized facilities, or highly trained personnel to prepare the product. This can make the whole process challenging, especially for hospitals that don’t have those types of facilities. How is MultiStem different?

We believe that in addition to scalability and other factors, simplicity and ease of use are critical to product adoption. If it’s complicated, or requires a lot of specialized training or infrastructure, people will be less willing to use it.

In our case, we’ve created a very simple product format. We refer to MultiStem as an “off the shelf” therapy, and we have spent years refining and optimizing the product format, to make it very easy to use. The entire process essentially consists of four very straightforward steps. First, remove the product from the freezer where it is stored. Second, thaw the product. Third, transfer the product from the vial into an IV bag of saline. Four, administer the product to the patient.

As I said, the entire process for prepping the product is very simple, and can be done right in the hospital pharmacy, or in the hospital ward where patients are treated. It doesn’t require specialized infrastructure or a lot of training. When you combine that simplicity with being able to treat patients in a clinically practical time frame, and what we believe is a compelling safety and efficacy profile, we are confident we’ve created a strong foundation for success.

Q. You’ve mentioned scalability as being important. Why is that such a big issue?

Historically one of the big things that has prevented cell therapy from becoming a widespread clinical reality is the lack of scalability. In practical terms, it may be easiest to appreciate this in the context of what happens with a traditional bone marrow transplant procedure. For every patient that needs a transplant, you need to find an appropriately matched donor, which can be challenging. Furthermore, only enough cells are obtained from the matched donor to treat one patient. In most instances the patient also has to be immunosuppressed, to reduce the risk of complications. So the process is complicated, and really not scalable – one well matched donor for every patient that needs help. As a result, a lot of patients can’t get the treatments they need.

However in our case, because of the special and robust growth properties of the cells that make up MultiStem, we have demonstrated that we can produce the equivalent of millions of clinical doses using a modest amount of material from a single healthy, consenting donor. We’ve also demonstrated can also do this consistently across donors, so it’s reproducible.

Perhaps just as importantly, we have also shown in multiple clinical studies that we can administer MultiStem just like type-O blood. There is no need for tissue matching or immune suppression, and the product has shown very good safety, which is very important from a clinical and regulatory perspective.

Ultimately, scalability translates to the ability to provide a consistent, well characterized, well validated product, which we believe is critical. Furthermore, it allows us to treat a lot of patients, which in the case of stroke and other indications we are pursuing, is essential.

Q. Switching gears for a moment, Japan is experiencing a serious problem caused by a rapidly expanding aging population, and given that the risk of stroke increases with age, it has created a substantial public health issue there. Earlier this year you announced a partnership with a company in Japan, and recently you announced PMDA authorization to run a clinical trial there with your partner, Healios. What can you tell us about that?

Most of the world is experiencing a substantial increase in the elderly segment of the population. This is a predictable consequence of the aging baby-boom segment of the population, meaning people born in the post-World War II years. But what a lot of people haven’t really grasped is that this expansion of the elderly population has enormous consequences on healthcare systems around the world. That’s because the elderly are more susceptible to a whole host of aging related diseases and conditions, and stroke is among the most serious and common.

A rapidly expanding aging population poses serious financial and operational challenges to the national healthcare system in Japan, and also represents a huge social problem. In recognition of this, three years ago the Ministry of Health and the PMDA, which is the equivalent of the FDA in Japan, announced a new initiative designed to promote the accelerated development of innovative medicines that could help address the problems they face.

One of the main initiatives created a new, accelerated regulatory path specifically designed for regenerative medicine and cell therapies. Specifically, this new system makes it possible to run a single, well designed study and if the trial demonstrates robust and consistent safety, and evidence of therapeutic benefit, it makes it possible to obtain either conditional or full approval, as well as full reimbursement.

As we did with the FDA, we presented the results of the MASTERS-1 trial to the PMDA, and worked with Healios to define an appropriate clinical trial design. In September we announced that PMDA accepted the plan for the proposed confirmatory trial, and Healios intends to begin that study in early 2017. Like the MASTERS-2 trial, it will focus on treating ischemic stroke patients within 18 – 36 hours after the stroke has occurred. So essentially, if the study is consistent with our prior findings, our partner Healios could obtain approval in Japan. We have seen a lot of interest and excitement in the study in the stroke clinical community there, which is encouraging. Healios’ stock has appreciated pretty dramatically since we announced the partnership and the final results of the trial.

Q. So it sounds like the partnership and recent regulatory initiatives in Japan are pretty meaningful for both ATHX and Healios. Along those lines, does the recent announcement regarding the SPA impact your strategy outside of Japan? Are you looking to partner outside of Japan, and if so, do you think regulatory activities will help attract partnerships?

We are interested in partnering outside of Japan, and we are actively exploring opportunities. The regulatory environment does have an important impact on that, because a lot of potential partners fear the unknown, including what types of studies will have to be conducted in order to obtain approval. Historically, it’s usually the case that regulators require two, large pivotal studies, and that can be expensive and time consuming, especially if they are big trials. However, in our case, we have established a clear path to potential approval with the FDA, and we are now looking to obtain the same type of guidance from the European Medicines Agency, or EMA, and Health Canada. We’ve already had initial interactions with regulators in Europe and Canada, and we are very confident that everyone will be in alignment.

That’s important, because whether we do a broad international partnership, or a European only partnership, everyone needs to be clear on what the path to success looks like. Clearly establishing that we are one additional reasonably sized study away from being able to obtain approval is extremely valuable, and allows potential partners to map out what will be required from a development perspective. Obviously everyone recognizes that the market opportunity is enormous, and so the regulatory clarity helps define a very attractive risk benefit profile.

Q. To that effect, if ATHX simply kept North American rights, the market potential is enormous in and of itself. Again, talking price is premature, however, would it be appropriate to speculate that potential market could be worth billions of dollars per year?

I think that is very realistic, and perhaps even a bit conservative. We think of it this way – every year there are nearly 17 million people that suffer a stroke throughout the world, and roughly half of the survivors are left with substantial permanent disability. As I mentioned before, stroke is the leading cause of serious disability in the world. Some patients require full time institutional care, while others are dependent on family members to take care of them. In terms of quality of life and economic impact, it’s a huge burden, and very costly. A treatment that could alleviate a lot of that burden would clearly be very, very valuable.

Another way to think about is this – every year in North America, Europe and Japan, more than 2.2 million people suffer a stroke for the first time, and with the rapid growth in the elderly population as a result of the aging baby boomer segment that number is expected to go up in the years ahead. We know that the 36 hour time frame for MultiStem treatment is potentially relevant to the vast majority of stroke victims. However, if we only reached a million patients a year, which I think could be conservative, that could easily translate into an opportunity worth tens of billions of dollars a year, and obviously the value in North America would be a big piece of that. Even if people discount things because it’s stroke, or cell therapy, or for whatever reason, it’s a huge opportunity, and I don’t believe that value is reflected in our current stock price.

Q. From a financial standpoint, how much benefit is there in waiting for product approval instead of partnering prior to the study? Is there many millions in potential value lost by partnering too early?

Obviously, waiting to partner until after the pivotal study is successful would make the opportunity substantially more valuable, because it would essentially be completely de-risked at that point. However, we would then be responsible for covering the entire cost of the trial. In this case it’s not a huge trial, so that’s potentially doable, but there is a cost-benefit trade off. The concept of running a competitive partnering auction based on the successful phase 3 trial results is enticing, but we believe that partnering in advance of the trial could allow us to create a lot of value as well, so we are actively exploring that option, and although there are no guarantees, I’m optimistic.

Either way, partnering will create additional validation, and put us is a strong position. It’s also important to recognize the stroke program is not our only asset, and we have multiple ways to establish value enhancing partnerships.

Q. So how does ATHX intend to capitalize it’s way to success?

Good question. We have several ways to fund our core activities and key initiatives. First, as we have discussed, over the past couple of years in particular we have been successful at establishing partnerships that provide a meaningful amount of funding. As we announced on our recent earnings call, we have already generated more than $16 million in revenue from partnerships this year alone, and the vast majority of our programs are currently not partnered – so we have a lot of flexibility. Second, we have been very successful at obtaining grant funding to support our clinical and preclinical programs, including two of our ongoing clinical trials, and there are some interesting project financing initiatives that could be relevant as well. Third, we have an equity line in place with one of our institutional shareholders, which means that if we feel we need to obtain more modest amounts of capital, there is an easy and efficient way to do it. Finally, we have a shelf registration available, so we can always access the capital markets when we feel it’s appropriate.

Q. You mentioned other clinical programs, which is interesting. ATHX is clearly not a “one trick pony” as they say. In this discussion we’ve focused mainly on MultiStem for ischemic stroke, however, ATHX is also developing novel treatments for cardiovascular and inflammatory and immune conditions. Why is that important, and where are those programs currently?

Having spent a lot of time around hockey rinks, I think of it as a “multiple shots on goal” strategy. In my view we have a highly unusual, if not unprecedented opportunity, to develop MultiStem for several significant areas of unmet medical need. Success in any of those areas will have a big impact and create a lot of value for our shareholders. We know that in hockey not all the shots will go in, but if you get enough high quality shots, a few usually go in, and that’s how you win.

Currently we have two other active clinical programs, including an ongoing Phase 2 clinical trial for treating patients that have suffered a heart attack, and another study evaluating administration of MultiStem for patients suffering from Acute Respiratory Distress Syndrome, or ARDS. We expect data from both of those programs in 2017.

Previously we published our results from a Phase 1 trial evaluating MultiStem administration to heart attack patients, and those results were very promising in our view and a lot of other people have agreed with that. In fact, the NIH awarded us a $2.8 million grant to support the Phase 2 trial we are currently running, and that was a very competitive peer reviewed process. While substantial progress has been made in recent years, and thankfully people are more likely to survive a heart attack once it occurs, heart disease remains the leading cause of death. Many people that survive the initial heart attack are at risk of progressing to congestive heart failure, especially women. An increasingly obese and aging population isn’t exactly helping things. The economic and quality of life impact is huge – the American Heart Association has projected that within a few years, heart disease will have a cost of more than $1 trillion annually in the U.S.

In the pulmonary area, in the past couple of year we and our collaborators published results from a couple of very encouraging studies evaluating the administration of MultiStem in models of acute lung inflammation, which is the fundamental cause of ARDS. This is another challenging area where there is no effective treatment, and it affects hundreds of thousands of people a year. Our prior work led to our obtaining funding from both Innovate U.K. and the NIH to support the clinical trial we are now running. So AMI and ARDS are both examples of using grant funding or project financing to support important clinical trials, and we have numerous other examples of that.

Q. So it sounds like the company is positioned to achieve success in multiple areas. If you had one worry, what would it be?

I think we are pretty well positioned, but there are always challenges. Externalities and the “what if’s” can drive you nuts if you let them. My basic philosophy is that I try to keep the team focused on doing what we need to do to be successful, and not worry about things we can’t control. Paraphrasing Matt Damon in the movie “The Martian” – you solve the first challenge, then the next, and then the next until you’re home. There’s a lot of wisdom in that philosophy.

We have an incredible group at Athersys, and we aren’t afraid of big challenges. We are committed to establishing the company as an industry leader. I believe that success in any of the programs we are currently pursuing will enable us to achieve that.

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ENUM Stock

Wael Fayad, the Chairman, President and CEO of Enumeral Biomedical Holdings, is a veteran in the pharmaceutical industry with over two decades of experience.

Prior to joining Enumeral in September 2016, Wael has held senior positions at Novartis, Schering-Plough and most recently was Corporate Vice President, Global Business Development of Forest Laboratories. He holds a B.S. in biology from the American University of Beirut, and an M.B.A. from Concordia University.

Why did you decide to join Enumeral (ENUM)?

I joined Enumeral because I was attracted to the company’s science, powered by its proprietary platform, and the promise it holds to create significant value to shareholders and patients. Further, I joined Enumeral because I felt there was a very good fit with my skill set and background with what Enumeral needs to advance its business.

I have been in the industry for more than 23 years and I spent most of this time assessing risk and finding value in pharma and biotech so I know an underappreciated asset when I see one. Previously I spent 14 years at Forest Laboratories Inc. where I was most recently head of business development and alliance management. As you may know, Forest was acquired for $28 billion dollars in large part due to the pipeline we built through business development, so I have intimate knowledge of how to value assets and create value.

Based on my experience, I believe Enumeral has a platform that provides the opportunity for the company to unlock value across a host of applications. During my career, I have built an extensive network in the life science industry that I intend to leverage at Enumeral.

What have you focused on since you joined ENUM?

Enumeral is a promising company undergoing a transitional phase. During my diligence before I joined the company, it became clear to me that Enumeral has validated its platform as a discovery engine for new and potentially differentiated therapeutics but needed strong leadership to articulate a clear vision for the company and execute a strategy focused on creating value in the near and long term.

Working with colleagues at the company, we have put in place a plan that has four main components: 1) create near term value by advancing our pipeline to near term value inflection points, 2) prioritize partnering with pharma and biotech companies to support further funding of our business and validate our science, 3) secure funding to execute the plan, 4) put the company on strong footing for future capital raises or strategic options.

What assets or pipeline does Enumeral have?

Enumeral has a powerful platform for discovering potential best in class therapeutics and a promising pre-clinical pipeline in immuno oncology, one of the fastest growing markets in life sciences.

Visualize our platform as a precision tool focused on finding the proverbial needles in the haystack. These needles have the potential to represent breakthoughs or best in class therapeutics. The Enumeral platform has application in immuno oncology and other diseases mediated by the immune system. Crohn’s disease, psoriasis, rheumatoid arthritis and multiple sclerosis are among the auto-immune diseases that we could target going forward in addition to infectious diseases.

Enumeral has the potential to create value at the foundational level of the commercial life cycle. The building block for value creation in pharma and biotech is finding the right development candidate to justify the cost and time associated with the rigorous development process required for regulatory approval and commercialization. Enumeral has the potential to excel and distinguish itself at this foundational stage of drug development.

The core technology behind our platform is exclusively licensed to us from the Massachusetts Institute of Technology. Our immune profiling platform enables us to extensively interrogate the immune microenvironment, including from human disease tissue, to identify and validate potential drug candidates and understand disease processes to guide development. This puts us in a position to be at the center of the race in pharma and biotech to identify the next breakthroughs and this is a core element of our growth plan going forward.

Lead Program

Enumeral has 2 programs in the pre-clinical stage and several programs in discovery. Our lead program is ENUM244C8, which we refer to as C8, a monoclonal antibody against PD-1, a checkpoint inhibitor in the field of immuno oncology, which is one of the fastest growing markets in the industry.

C8 has distinct characteristics compared to other PD-1 inhibitors and therefore has the potential for differentiation in a very large and growing market. In contrast to other PD-1 inhibitors, C8 does not inhibit the binding of PDL-1 to PD-1, but renders the binding of PDL-1 ineffective in suppressing the immune response. While we don’t fully understand the implications of this, we are trying to further elucidate the profile of the drug in relevant pre-clinical models and we expect to have data before end of the year. We believe C8’s distinct binding profile provides a strong basis to investigate C8 in cancer patients.

We also have another program in preclinical research directed against TIM-3, another checkpoint inhibitor that has the potential for mono and combination therapy including with PD-1. We have identified a diverse series of antibodies and we are in the process of selecting a lead candidate for further development. Again, what we have been able to do here is identify a diverse library of TIM-3 antibodies that tells us that our platform is an excellent tool for discovering potential best in class therapeutics.

In addition, we have other programs in earlier stages of development.

What is Enumeral’s strategy to further develop its pipeline?

We want to develop our pipeline in a capital-efficient manner. The applications of Enumeral’s platform are too broad for us to exploit on our own. Therefore, partnerships and collaborations with other pharma and biotech companies are a core element of our growth strategy. This is an area that Enumeral can execute better in and this is why I am here.

We believe we will be successful in securing transformative deals for three main reasons: 1) new management has the right experience and a broad network of relationships among potential collaborators, 2) new R&D strategy is focused on value creation to make our pipeline more attractive to potential partners, and 3) prioritized partnering strategy that is broader in scope. In addition to partnering our development programs, we will also be seeking strategic research collaborations for discovering potential breakthrough or differentiated therapeutics through the utilization of our proprietary platform. Considering the broad applications of our platform, this significantly expands the potential universe of collaborations we can enter into in the near term.

Why should investors be interested in ENUM now?

I believe Enumeral is underappreciated and we are working very hard to change this picture. The company has advanced its pipeline and validated its platform but has not yet been successful in using this progress to enhance value for its shareholders by securing more corporate partnerships or further capitalizing the company. Investing in biotech is risky but the upside is enormous and all successful biotech companies became successful by pairing their science with a winning strategy and focused execution. We believe Enumeral has the ingredients for success and we are working on securing a financing plan to extend our runway and allow us to execute a turnaround plan to create value and position us for more strategic options in the future.

Some people ask me how you are going to create value without having products in the clinic. We don’t need to be in the clinic to create value. We know there is a big market for early stage biotech assets as evidenced by recent deals in several therapeutic areas including immuno oncology. Due to the race in pharma and biotech to find the next breakthrough or differentiated therapy, pre-clinical programs of interest are commanding significant upfront payments in many cases. We also see early stage biotech companies with market caps much larger than ours. So we see examples of how early stage companies can create value, and we believe that we have the platform, the pipeline and the right management team now in place to capitalize on this opportunity.

What are your three biggest hurdles as the CEO and how do you plan on addressing them to ensure return of value for ENUM investors?

Time is our best friend and our worst enemy. We are confident that with time we have the opportunity to move the business forward and create value for our stockholders, but we need to first inject cash into the company to enable us to execute our turnaround plan. As a new CEO, I needed to get up to speed quickly and put a plan in place that would help fund the company to create near term value and position us for further capitalization or other strategic options later. I feel good about the plan we have in place and believe we have the right team to execute it.

We also needed to improve awareness and credibility of the company with key stakeholders since the company has basically been flying under the radar screen. Having new, experienced, and well-networked management in place paired with a clear plan, makes us confident that we will succeed in this regard.

In addition, we believe that in order to realize our growth potential, we need to grow our institutional investor base. We feel confident that if we can execute our turnaround plan, we will be able to secure the institutional support we need for our longer term prospects.

What are the larger risks involved in investing in ENUM?

Like almost all emerging biotech companies, Enumeral is dependent on funding to execute its business plan. We have previously reported that we have cash to fund operations through November. Our number one priority is to secure funding to enable us to execute our turnaround plan. We are continuing to explore a range of potential transactions, which may include public or private equity offerings, debt financings, collaboration and licensing arrangements, and/or other strategic alternatives.

Also like other emerging biotech companies, we are dependent on generating positive data from our R&D pipeline to build value.

Our business risks are outlined in our SEC filings and investors should refer to these filings for full disclosure.

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Gevo Inc GEVO Stock News

Gevo, Inc. (NASDAQ: GEVO)

Earlier this morning, I had the pleasure of speaking with Dr. Pat Gruber again as part of our ongoing discussions with the company. Today, things went a bit differently. For this interview, I didn’t write a single question. Instead, I reached out to my friends on StockTwits to see what your questions were. At the end of the day, we ended up with tons of great questions. Many that I didn’t think GEVO would even answer at this point. Nonetheless, all questions were answered and I learned quite a bit about restructuring, Luverne, Lufthansa, and more! Keep in mind that if you would like your questions answered during the next interview, follow me on StockTwits and look for the messages surrounding the topic! I always give investors an opportunity to ask questions that are important to them.

Trade smarter and make more money with Tradespoon!

Gevo’s Pat Gruber Speaks On Recent Developments! Transcribed Below!

Keep in mind that I did not edit or change any questions in any way. I asked them as you sent them. Here’s what you asked about GEVO and what Pat had to offer in his answers:

Question – As a shareholder, with a sizeable % of my portfolio in GEVO and an average of 62 cents, should I be concerned with January 23rd?

Answer – This question’s come up before. We’re not doing our jobs if we get ourselves delisted. That’s being stupid on our part. And tell him happy birthday too!

Before we go on to the next question, I explained that the above question was asked by my buddy Brad on StockTwits and that it was his birthday. It’s awesome that Gruber didn’t mow over that fact and took some time to say happy birthday to Brad.

Question – Does Gevo currently have ASTM certification for their ATJ?

Answer – Yes, that’s the certification that was announced some time ago, earlier this year.

Question – Does GEVO currently have MIL-SPEC certification for their ATJ?

Answer No. That’s in process. There was one airplane that needed to be tested, and I just don’t remember which one it is – one of their advanced fighters – and they didn’t have time to test it until some time in the fall.  But I don’t know the schedule from there.

Question – Previously, there was a flight planned for Alaska Airlines using biofuel derived from woody biomass sometime in 2016. Is the flight still on schedule?

Answer – I do believe it’s going to happen… yes!

Question – If you had to rank the top 3 goals for GEVO over the next 12 months, what would they be?

Answer – Sign up customers on long-term off-take agreements so that we can build out the capacity of Luverne to supply isobutanol, iso-octane, and jet fuel. That would be the primary objective. We have to refinance our debt. That’s a must-do – we have to do it. And then get the capital needed to build out our plant at Luverne. Of course that’s why the off-take agreements and such would tie into that. The third one would be lining up the off-take for plants beyond Luverne. That’s our goals. I’m still working on them. I think those make pretty good sense. So, I wouldn’t write them in stone just yet, but they are kind of real pragmatic things we should be doing.

Question – American Airlines has hired Ocean Park to assist in evaluating alternative fuels. Has GEVO reached out?

Answer – Ocean Park knows us well.

I went on to ask if Pat thought that GEVO was part of that discussion at the moment.

Answer – There’s the stuff from vegetable oil that [company name] (I couldn’t hear it because I have the flu and happened to sniffle in this part of the recording) is doing and some of the others are doing. There’s that, and then we’re the only one with an economically viable solution that uses carbohydrates so far. One that has, basically, really super low technical risk. Isobutanol works and the jet fuel works. So, it would be inconceivable that we wouldn’t be considered.

Question – Pat tweeted on June 11th, “Isobutanol could qualify as an advanced biofuel under the Federal renewable fuel standard.” Has this been decided? Where does this stand?

Answer – I think it’s gonna be interesting to see. I can’t… I don’t have… The EPA has to come out with their ruling. So, one of the things that’s interesting about isobutanol is that other alcohols, even though they were made from corn, could be approved. That was written into the law way back when. So, they’ve just got to come out with the final ruling.

Question – Recently, your twitter page has been lighting up more. Especially over the past 2 months. I want to know if this is a new focus on using social media and can we expect more new efforts toward strong investor outreach using platforms like Facebook and Twitter?

Answer – We’re trying to learn, and that’s probably what Shawn said (I asked Shawn the question before Pat joined the conversation). Facebook, I don’t know that we’ll use Facebook. I don’t know… Shawn, do you have any thoughts on that?

Shawn – We won’t be on Facebook, but LinkedIn and Twitter will be the two primary social outlets.

Question – Do you feel that there are any airlines that are discouraged from pursuing contractual commitments with GEVO due to company uncertainty regarding financial stability and or Gevo’s inability to meet any current or near-term future demands for jet biofuel?

Answer – That’s a multi-part question. So, number one, does our balance sheet give cause to anyone? The answer is, not so far. And I don’t expect it to because our balance sheet keeps improving every month, pretty much. And I expect that as we refinance the company, that problem, that concern, will just be gone. I think Lufthansa is a great example, their idea to do a confirmed take or pay off take agreement, where if we make it, they buy it. The reason they do that is to give the investors that built our plant confidence that there’s someone out there who will take the product. So, I think that’s a good sign that people recognize that this is important.

In terms of meeting future demand… the industry… there aren’t that many ways to make a renewable based low carbon jet fuel. There just aren’t. They can do it from vegetable oil using HEFA, which a technology that [illegible company name] and ULP is commercializing. And there’s been a couple companies out there. SK recently did a big announcement with Jet Blue. They talked about it as the biggest thing ever. Well hell, the deal we did with Lufthansa is actually more gallons than what they announced. We did it and reported it as the 8 million gallons per year over a 5-year period. These guys did it on a blended basis and talked about it. And so, you know, it sounds like a giant number, but you know, OK fine, people are going to try to spin this stuff for their advantage.

So, the real issue is that there isn’t capacity today. And when they have these multi-carbons and you have to build them out, they are more expensive than conventional jet, especially when oil is at a really low barrel price. When you look a couple years out and say, “What will things be in the 24 to 36 month time frame?” where this stuff becomes relevant because that’s the soonest anyone can build real plants that are big, now it’s a different game. Even guys like us can have a cost-competitive jet fuel given the current biofuels policy. So, we are key on building out Luverne, and making sure that the upscale plant work comes along. I like isobutanol a lot. There’s a lot of demand for isobutanol, and with it, we’re going to do jet fuel. But, I don’t want to go from 75,000 gallons per year, like at our demo plant, to 50 million gallons per year at a giant plant, where it would be cost competitive with oil. I think we should do – it’s prudent to do – an intermediate step.  And the intermediate step is we build it out at Luverne and call it in the 5 to 10 million gallons per year kind of range, something like that.

The reason we would do that is to get really good at running these plants. We don’t have fundamental technology issues, but there’s always a learning curve when you build new things. We just want to make sure we understand it, especially like doing the recycles and who knows what pops up. But it’s also about how do you deliver the product in the supply chain? How do you do the blending? Where’s it go? What are exactly the steps along the way? That’s what we’re working on now is putting those together.

Question – Has GEVO found any opportunities to increase jet fuel production efficiency and output with existing capital?

Answer – It does depend. So, there’s potential options, but we’re going to have to raise capital to do it. So, if I interpret the question as can we get more out of the Silsbee plant? That doesn’t matter, its irrelevant. So, yes I could, but I’m more focused on iso-octane down there at the moment. Because jet fuel, it works, it’s proven, it’s ASTM approved, everyone looks at it and goes well yeah, OK, sure, you know, I get it. There’s no reason to buy it today per se. It already is proven. They want large quantities, that’s what people are focused on. Then, if I’m talking about where I get those larger quantities, now I have to build something to make that happen. In which case, whatever I build, that requires capital. And then it’s a question of what are the sources of capital. So, we’ll have to turn up the capital from somewhere, somehow, some way. That’s for sure. There’s multiple options.

Question – My thought is Pat can’t really tell pending info or give people an early heads up. So, if it were asked are there any buyout talks etc he will say “cannot speak on that.” But maybe it can be asked “what is not off of the table?” Would this be something that Pat is open to? I know he can’t say what exactly is on the table, but can he tell me what has not been taken off?

Answer – We’re open-minded to anything that is valuable to the shareholder base, broadly speaking, and the debt holders, and ourselves. You know… so, we’re open-minded to anything, and what’s interesting about this is we are at the point now where it’s unequivocal, our isobutanol technology works, it has potential, and all the rest. So, if it’s built out big scale, it’s going to work, technically and economically.  That’s what it looks like, and we can show that. And, there’s customers, there’s customer demand, and it’s growing, and we can prove that too.

On the jet fuel side, the jet fuel is one of the largest opportunities that is out there. And it’s a relatively simple product once you have approval. You know, of course that’s brutal. It takes several years. We’re one of the fortunate few that have approval. So, that’s something that creates opportunity and is surprising for people. Especially when the company sees that the airline industry is serious.

And then we have iso-octane as a product. And iso-octane is one of the ways where you can put lots of renewable carbon content into a gallon of gasoline. Because you have your normal gasoline and it’s got 10, 15 percent maybe something bigger, 30% ethanol. Well how about this. How about the other 70 to 90 percent being something like we make, and have it be economical. I like that. There’s a huge potential there.

So, we are on a sweet spot of technologies and products that have enormous market potential. These are not specialty products in the long run. That’s not lost on anybody. So we have a combination of technologies that work, large markets, and customers that are starting to sign up for off-take agreements. All that does is make us more attractive for all types of investors in all types of situations.

Now, we have to restructure our debt, though. That’s one thing that people to really pay duty to know that. It’s a current liability. Anyone that looks at our balance sheet knows it. We’re going to restructure it. We have to restructure it. And until we restructure it, there’s a lot of people watching going, “huh.”

I think we talked about this once before, but you know, there was a lot of times that we didn’t have so much cash in the balance sheet. Then you have guys looking at us going, “Gosh, I wonder if they go bankrupt, and if they do, I’m going to buy it really cheap.” You know, that’s how people think. So, screw them! How about this? How about… we’ll be successful, we’ll build the value of the company, and they can pay a real price if they’re interested. How about that?

Question – Someone is offloading millions of shares daily. Is this something that GEVO has investigated or for some reason, is part of?

Answer – I think you have a couple things. One of them is that the last PO we did, we sold warrants along with the stock, and so, at some point, we’ll have traded out the stock and they’ll have done warrants too. And one of the other deals was like that too. So it’s possible that that’s where they’re coming from. But in terms of specifics… so it doesn’t surprise me that there’s shares out there that are coming up. Whenever you have these warrant deals like we have, that happens and it’s just a question of when they come out.

Question – Congrats on the Lufthansa HOA. Can investors expect for the deal to be finalized in October?

Answer – You know, it’s going to take us a couple of months. So, we have… we’re working on getting the supply chains lined up and the details of it, and we’re making progress on it, but I don’t see it in October, no. It will take us a couple months, few months, to get done. One of the things that I’m keen on is that I would like to see more than one airline involved. It’s just a practical matter because I’m interested in selling beyond Luverne. I want large capacities of the jet fuel beyond Luverne. However, to get to large capacities, I’m telling everybody we’ve got to go through Luverne. And, Luverne’s got to become profitable too. That’s my criteria, that’s the discussion. So, we’re hanging tight to that.

Question – Any time positive news is released, it is followed by a public offering. Is this a trend that we can expect to continue and why?

Answer – We have to restructure our debt. So, I don’t know if it will continue or not. It depends on the situation, specifically, and what’s going on. And there’s different circumstances that would dictate one thing or the other. One of the things that people need to understand is that, by us having raised the money we did, we now have some leverage on our side in how we negotiate with debt holders. That’s a good thing versus our back being to the wall! So, this is all about restructuring our debt. Now remember, the last deal we took $11 million, a little over (it was $11.4 million), of debt off of the books in the last thing we did. So, we’re keen on getting rid of debt, restructuring it. So, it’s just we have to refinance the debt prior to the notes being due in March. We do. So that’s our focus, so that’s what drives us in doing these deals is figuring out how to get that done most effectively.

Question – There were reports last year that certain military tests hadn’t been completed yet which was halting possible military contracts. Have these tests been completed? If so, are there discussions taking place for any military contracts?

Answer – There was one more airplane platform to test – we covered that earlier. I don’t know that they’ve tested it. It was scheduled for the fall, and I don’t know if they’ve done it yet. And then, once that’s done, they would start to have the discussion to get on with military spec. There’s no impediment that’s fundamental, there’s no technical reason, no fundamental impediment that I’m aware of. And then, once that’s done, then to compete for a military contract, it is… you know, we’d have to bid on a project, and then the defense logistics agency has to inspect the plant at which it would be made.

Well, that is a chicken and egg problem. And we point out to them, well that’s really nice, but that’s stupid. Because, you know, what the hell, you want this, you say you want it, and you’re willing to pay the price for it. Oh, but you have to have the plant built in advance, and you wont certify the plant until you actually see it. So, you can’t guarantee anything. Are you crazy? Nobody does that! And so instead, we say yeah we can sell them some stuff, prove it, we have a plant at our Silsbee plant… sure. And that’s a start… [connection issues] … and we have the plant built out at Luverne so they can touch it and see it according to their government regulations.

So, it’s one of these things where it’s a … you know, it’s government man… it’s crazy!

Question – Hi Josh, thanks for the opportunity to submit questions. Not sure how you want to phrase this question, but my concern is that GEVO has done all the hard work to develop their products, but may be choosing the slow route to maximize the return on their investment. In order to beat the competition in this space, should they not focus on licensing their technology, vs. production, i.e. building a new plant which may only serve a small percentage of the growing demand for biofuel.

Answer – Our quest is to become a profitable company. So that’s number one and foremost. The route to do that is to make Luverne profitable. That is the route. That’s the fastest way we could do it because we already have a lot of the capital deployed, relatively incremental capital, to build it out for isobutanol and jet fuel. And so, that is the fastest route to profitability.

We are in discussions for licensing. And the licensing is interesting because this is the point of having people saying yes, I want tens of millions of gallons of jet fuel. One, that creates licensing demand. Or if Musket continues on the path, same thing! That creates demand and now we have more capacity demand than we could ever do at Luverne, and that creates licensing opportunity.

One of the things that we’ll be looking at is that when you license, suppose the margin is the $0.50 to $1 that we’ve always been talking about, and that is really what we’re still looking at. If we’re taking a licensing fee, [let’s say] a licensing fee would be like 5% of something. So, we’re going to get a fraction of the margin? That doesn’t lead to… you need enormous volumes in production to be successful at licensing. Enormous volumes on a fast growth in order to have a very successful licensing business.

Do we have potential to do that? Heck yeah! Of course! But it comes… we’ve got steps to do… You know it’s like licensing the jet fuel process, sure I can do it, take it in the shorts, cause it works. Sure, I could do it. But why would I give that margin away now when I can put it in my own pocket and make this profitable?

So, yes to licensing, that’s all part of it! And deals and working with people, all part of it. I think everyone we touch says, “You know, let’s build out Luverne first, that makes sense.” That makes it absolutely unequivocal that everything works at a large scale, and all the supply chains are in place. There is no risk once or ever at that point of any type. Then it is just cookie cutting. People get that.

You know, one of the things in contrast that someone may be wondering as an investor is that a lot of these companies talk about… they’ll just say, well we’re going to license. I’ve got news. Nobody licenses something that doesn’t work, that isn’t proven to work. Nobody does – that’s BS! And so, a lot of companies in our space talk about how we’re going to license this and we’re going to license that. Uh huh. OK. Show me! Good luck – just show me one! Show me one, I don’t know them. So it’s one of those things where everyone wants it that way, but it’s not the way the real world works.

We’re unusual in that we’re the furthest along in doing large scale biofuels that have these valuated properties that look to be economical. We’re the furthest along from hydrocarbons. There’s the oil seed guys. You know [illegible company name] has done a great job.  He’s done a great job on the biodiesel. You’ve got Nest doing a great job on the biodiesel, plus they’re doing some of the high [illegible] stuff for making jet fuel or diesel fuel and stuff like that. So those guys, those are all good.  They’re ready.  They’re good commercial licensing opportunities that make sense. Carbohydrates space? No!

Question – Poet inc is the largest ethanol producer in the US with 27 plants, and plans to build a cellulosic ethanol plant next to each one. Has GEVO had any substantial discussions with them?

Answer – Everybody in the industry, in ethanol, who’s big knows us and we have relationships. We have constructive relationships with… collaborative relationships.  They know us.  They can pick up the phone and talk to us and we can talk to them.

Question – The FAA Wants “1 billion gallons of drop in sustainable jet fuel by 2018” is this even possible? If so, how is GEVO able to participate in this growth?

Answer – That’s not possible.

At this point, my time was running out. So, I gave the floor to Pat, as always, to let GEVO investors in on anything we haven’t covered. Here’s what he had to say:

“I can say this… One of the things that’s really fun is, think of the discussion and how it’s changed over the last few months. A few months ago, I was talking about, look, we’re just going to work on surviving. This conversation is completely about how we grow and become profitable with real customers, real contracts, real business, real strategic partners, the whole bit! What a change huh? That’s shocking. And so, when I’m out talking to people, they look at us and go Oh my God, you’re a Phoenix!

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