By Jason Napodano, CFA
On May 15, 2012,
Nile Therapeutics (
for the first quarter 2012. The company reported grant revenues of
$195K in the quarter. Net loss for the quarter was $0.8 million or
$0.02 per share. Nile exited the first quarter ended March 31, 2012
with $0.4 million in cash and equivalents. Operating burn for the
first three months of 2012 was $0.6 million.
...Cash Raise Buys Management Time...
In April 2012, Nile raised approximately $1.04 million through a
private placement of 3.6 million shares of common stock at $0.40
per share. We note that Nile's Executive Chairman, Richard B.
Brewer, President and CEO, Joshua A. Karam, CFO, Daron Evans, and
VP of Clinical Development, Hsiao Lieu, MD, all participated in the
deal, ponying up $110,000 of their own money.
The net $1.04 million raise in April, along with the $0.4 million
balance at the end of the first quarter, buys management time. We
model operating burn of approximately $0.5 million per quarter for
the second and third quarter. Therefore, the current cash position
is enough to fund operations into the fourth quarter 2012.
...Searching For A Deal...
Despite the fact that management participated in the private
placement, the April financing has not been well received by the
market. Nile's stock is down nearly 60% year-to-date. Investors
expected a deal with Medtronic shortly after data from the
successful phase 1 study was presented at the American College of
Cardiology (ACC) meeting in March 2012. The data presentation from
the trial demonstrated that Nile's cenderitide was safe and well
tolerated when delivered via subcutaneous infusion to patients with
chronic heart failure. We discussed this data and provide a
background on Nile's drug in this earlier
But a near-term deal with Medtronic seems unlikely. Medtronic was
interested in testing its MiniMed Paradigm pump, currently
indicated for continuous infusion of insulin, in cardiology
indications. Whether or not they are interested in taking a
pharmaceutical product into phase 2 remains to be seen.
In the meantime, Nile continues its discussions with additional
parties, including large and specialty pharmaceutical companies.
But given that data from the phase 1 trial was only recently
presented, we suspect that these companies will require several
more months of due diligence before a deal can be signed.
Nile is developing cenderitide as a 90-day outpatient treatment for
heart failure patients following admission for acutely
decompensated heart failure (ADHF) - referred to as the
"post-acute" treatment period. The company is searching for a
development and commercialization partner willing to fund
cenderitide starting with a planned phase 2 trial later this year.
Management at Nile is currently preparing to file a protocol to the
U.S. FDA in the next month or two. We believe Nile would like to
test cenderitide in 300 patients with chronic (post-acute) heart
failure, with the primary endpoint of safety and tolerability over
the 90-day infusion period. Secondary endpoints will seek to
identify improvement in clinical heart failure surrogate markers
and a potential trend in the reduction of the hospital re-admission
We think that Nile requires $18 to $20 million to fund this
program, plus an additional $2 to 4 million to fund overhead
operations until the middle of 2014. Finding a partner willing to
shell-out nearly $25 million to a company with a market value of $9
million is a daunting task. But cenderitide, if successfully
commercialized, is a potential blockbuster drug. So the upside to
the partner (and investors) is clearly there. Our previous
outlines why we believe this is the case.
There is clearly precedent to back up this argument. In 2002,
J&J paid $2.4 billion to acquire Scios and their drug Natrecor
(nesiritide). Natrecor, a B-type natriuretic peptide (BNP) was a
$400 million drug and soaring in 2004 before an FDA Dear Healthcare
Provider letter derailed that meteoric rise. We believe
cenderitide, a combination of C-type natriuretic and D-type
natriuretic peptide (CD-NP), has improved safety and efficacy
characteristics verses nesiritide.
Nile is looking for a partner that shares that belief. Partners are
probably waiting for the FDA to approve the phase 2 protocol before
they pony-up the dough. However, if no deal can be reached by
September 2012, we believe that Nile will push forward with an
additional equity financing seeking to raise the necessary funds to
initiate the planned phase 2 trial on its own. If that were to
happen, the shares may come under further selling pressure. But
with a market value of only $9 million, we see favorable risk /
reward. Nile, with a phase 3 ready asset in cenderitide, could be
worth $100 million in value. That's a ten-fold increase, and the
reason why we are sticking with our bullish thesis on story.
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