Top Stock: Hemispherx Biopharma Inc. (HEB)

By: Smallcaps.us - Date: January 03, 2009

Introduction

The first Company I would like to present in our "3 stocks for 2009"-series is Hemispherx Biopharma Inc. (HEB). Hemispherx, headquartered in Philadelphia, is a biopharmaceutical company dedicated to treating and preventing chronic viral and immune-based disorders through the development and manufacturing of compounds that enhance the natural immune system of the human body.

Hemispherx made it to my list as high-risk stock because it expects an FDA ruling on or before February 25th, 2009.

In July of 2008 the U.S. Food and Drug Administration (FDA) accepted for review the Company's New Drug Application (NDA) for Ampligen to treat Chronic Fatigue Syndrome (CFS)*. Hemispherx is seeking marketing approval for the first-ever treatment for CFS.

* CFS sufferers exhibit a wide range of profoundly disabling symptoms including the inability to overcome fatigue by rest, swollen lymph nodes and cognitive deficiencies. The CDC characterizes CFS as often equally disabling as multiple sclerosis, lupus, rheumatoid arthritis, congestive heart failure and similar chronic conditions. CFS is estimated to afflict approximately 4 million Americans according to the Centers for Disease Control and Prevention (CDC). The disorder has a negative economic impact in the United States estimated at more than $9 billion annually.

Chronic Fatigue Syndrome (CFS) has a top priority status at the Centers for Disease Control and Prevention, the governmental agency responsible for disease surveillance, as a serious and debilitating disease in the U.S. There are currently no approved therapies for CFS.

Phase III Results

We believe Ampligen has a fair chance of being accepted by the FDA because the Phase III results were all satisfactory. During the double-blinded phase III clinical trial, Ampligen demonstrated medically and statistically significant increases in the primary endpoint (exercise treadmill duration**) compared to placebo after a 40-week period.

** Treadmill tests have been employed for many years by various governmental agencies to evaluate the condition of patients with cardiac and pulmonary conditions for the purpose of determining disability.

The Company, which worked with the FDA on the design of the Phase III clinical trial, reported that the difference in improvement in exercise treadmill duration in the Ampligen cohort compared to placebo was 13.6%, which is over twice the minimum considered medically significant (6.5%) (p=0.022).

By comparison, analysis of seven clinical studies, which resulted in commercial approvals (or "approvable" letters) for various drugs used other allied disease categories, showed much lower magnitudes of physical performance improvements due to therapeutic interventions. For example: Fosinopril (6.7% improvement), Captopril (6.2%), Ranolazine (6.5%) and Ranolazine (5.7%), Tracleer (10.6% improvement), Remodulin (8.0%), Remodulin (4.1%) and Remodulin (6.1%). All therapeutic measurements in these seven other studies were determined by exercise treadmill testing (or extent of walking), similar or identical to the therapeutic endpoint used in the CFS study.

Furthermore, no significant differences were observed between the two groups (drug vs. placebo) for treatment dropouts, the incidence of serious adverse events, or missed treatment doses. With respect to relative safety of the experimental therapeutic, there were also no significant differences in week forty blood chemistry, hematology, or thyroid function parameters.

Based on these results, I believe we can say that Ampligen works and is safe.

Valuation

Investing in small biotech companies is speculative in nature. However, there are methods with which you can determine the potential value of a new drug. In order to do so, we must take three steps: identify the patient population, estimate the market share of the drug and try to price the drug.

In our June 2006 Company Report (pdf) on page 4, we estimated HEB's valuation based on the above steps.

However, since the publication of that report, the estimated number of Americans afflicted by CFS has been revised upwards by the Centers for Disease Control and Prevention (CDC) from about 500,000 in 2006 to about 4,000,000 nowadays.

So, if the estimated annual revenue per share for Ampligen in the Company Report has to be adjusted it would have to be upwards.

PDUFA Date

The PDUFA date or action date is the date by which the FDA has to decide upon a filing for approval. It may be 6 months (Priority Review) from the date of NDA filing or 10 months from the date of the filing. In Hemispherx' case, the FDA has until February 25th, 2009 to reach a decision. Note, if the FDA has additional questions, this date can be postponed.

Cash Position

At the end of the third quarter, ending September 30th, HEB had a little over 7.5 million dollar in cash. For a cash burning biotech Company this isn't an awful lot, but it should be enough to last two more quarters. Additionally, Hemispherx is in negotiations with several marketing partners which can take care of filing all the necessary paperwork and selling Ampligen once it's approved by the FDA.

When Hemispherx closes a marketing deal, for a product like Ampligen, it should receive tens of millions of dollars as upfront payment plus an extra payment when Ampligen is approved by the FDA and a royalty payment on all sales.

Our Opinion:

In short, Ampligen works and is safe. There are millions of people suffering from CFS all over the world. And so far no other treatment is available. If Ampligen is approved by the FDA, it has a high chance of becoming a blockbuster drug.

A friend recently called Hemispherx: "a lottery ticket with a fair chance of winning". And that's the way you have to look at this Company. Don't bank your house on it, instead buy a few shares. This may become your top percentage gainer for 2009.

General information

Market	AMEX
Symbol	HEB
Price	$0.36
Contact	One Penn Center - 1617 JFK Boulevard - Philadelphia, PA 19103
Telephone	215-988-0080
Website	www.hemispherx.net

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