MEI Pharma, Inc. (MEIP)

[rufustherat]

MEIP, Trading Below Cash, Could be the Next AQXP: $4 – $14 Target
http://www.storytrading.com/meip-trading-below-cash-could-be-the-next-aqxp-4-14-target/


Last week at the Wedbush PacGrowth Healthcare Conference, the CEO revealed new data points and had very positive remarks when discussing his company’s Phase 2 and Phase 1b drug trial data.
All three drug candidates in the clinic with data expected by the end of this year
MEIP Pharma trades significantly below enterprise value and should be trading at $4 TODAY
With $70 million in cash and 3 strong drug candidates in the pipeline, MEIP would be an attractive takeover candidate.
MEIP is very similar to AQXP, Aquinox Pharma who’s stock first sold off significantly on disappointing trial news, and now was up as much as 1000% earlier this month

When I was writing this article the 1985 Dire Straits classic “Money for Nothing” kept playing over and over again in my head. Maybe it was because MEI Pharma is very similar to that song, where you get the “Money for Nothing and the Drugs for free.” Specifically at time of writing, MEI Pharma has a market cap of $54 million USD and as of last quarters 10Q they had $70.5 million in cash on their balance sheet. MEIP is currently trading below cash as it was so oversold and left for dead. Investors think it failed a phase 2 test because of early disappointing data in ONE portion of its phase 2 trial. The same thing happened to AQXP and look where that stock is today. The street hears “failed drug trial” which has tainted the stock, when in actuality that is far from the case. MEI Pharma also has a number of short term catalysts upcoming, including positive Phase 2 and Phase 1 data, with its lead drug ready for Phase 3 trials commencing as soon as Q4.

MEI Pharma’s lead drug candidate Pracinostat, is currently in Phase 2 studies. Pracinostat is a leukemia drug that is being tested against 2 different types of leukemia’s; Mydelodysplastic Syndrome (MDS) and Acute Myeloid Leukemia (AML). MDS is a condition that occurs when the blood-forming cells in the bone marrow are damaged. This damage leads to low numbers of one or more types of blood cells. AML is a type of cancer of the blood and bone marrow that affects immature blood cell growth. The Acute Myeloid Leukemia (AML) therapeutics market was USD 239.3 million in 2011 and this market is forecasted to reach USD 731.1 million in 2018. GlobalData estimates that the global myelodysplastic syndrome (MDS) market was valued at $652.6m in 2010 and forecasts it to grow at a Compound Annual Growth Rate (CAGR) of 12.2% to reach $1.5 billion by 2017

On March 23, 2015 MEI Pharma announced that it’s lead Phase 2 drug candidate Pracinostat, when combined with Celgenes azacitidine (which is marketed as Vidaza), for MDS did not show an improvement in complete response (CR) compared to azacitidine alone. The combination of the 2 drugs caused more frequent side effects of fatigue and diarrhea, and more patients withdrew from the study, depleting the sample size. Without taking Pracinostat’s AML trial and MEI Pharma’s other portfolio of drugs into consideration, investors hit the exits, shares sold off on the news and MEIP stock plummeted 226% overnight. Recent data released by the company at last weeks conference, now say for MDS patients that were able to tolerate the combination of the drugs for greater than 4 cycles were able to achieve prolonged progression free and overall survival, compared to azacitidine alone.

Pracinostat for (AML) is also in phase 2 and its numbers for AML are approaching fantastic! In new data presented by CEO Daniel P. Gold at the Wedbush conference just last week, the CR rate increased from 20% to 42%, the 60 day mortality dropped from 17% to 10%, and the one-years survival rate increased from 40% to 60%. Overall survival is increasing every month now. At the conference, Dr. Gold even mentioned that there is talk of starting the Phase 3 AML trial, but he wanted to get the last bid of data from this trial first.

MEI Pharma also owns lung and ovarian cancer drug candidate ME-344, which is in phase 1b clinical testing. On May 4, MEI Pharma issued a press release with positive findings in which Daniel P. Gold, Ph.D., President and Chief Executive Officer of MEI Pharma stated “ME-344 has demonstrated broad and potent anti-tumor activity in a number of pre-clinical studies, followed by promising single-agent activity in the clinic.” MEI Pharma owns exclusive worldwide rights to all of its drug candidates, including ME-344

The third drug in MEI Pharma pipeline is PWT143 which is indicated for Hematologic Cancers and has shown superior pre-clinical activity compared to other delta inhibitors including Idelalisib, marketed as Zydelig by Gilead. Zydelig sales are estimated to be $1.2 billion by 2020. Did I mention MEI Pharma owns exclusive rights to all of its drug candidates? Also revealed at the conference last week, Dr. Gold stated that the First-in-human study of PWT143 was initiated in June 2015. Data from the study will be released by 4Q 2015 with plans for its Phase 1 study to begin 1Q 2016.

Financials
MEI Pharma is a clinical development biotech company so, like most, its current revenue is limited. On its first quarter 2015 10Q, the company had 0 revenues and an operating loss of 8.9 million or .27 per share. The good news is that they have 70.5 million cash on their balance sheet and zero debt. The company has a cash burn rate of 5 million a quarter so they have enough cash to finance them through 2016.

Social Sentiment
MEIP has limited chatter on Stock Twits and Twitter. One active Stock Twit user has written a couple of bullish articles for Seeking Alpha in the past year.

A new 13G was filed last week by Frigate Ventures LP who disclosed a 5% stake or 1,715,000 share holding.

Technicals
MEIP has traded in a range between $1.60 -$2.00 since June. The current 50day moving average is $1.72 and the 200 day is a perfect $3.60. The MACD crossed above the signal line last week and remains above it. 3 month average trade volume is 567k

Valuation
The AML therapeutic market is estimated to be $731 million by 2018. Based on the data numbers revealed at last week’s conference I think MEIP is well on its way to tap 50% of that which is $366 million

The MDS therapeutic market is estimated to be 1.5 billion by 2017. A conservative share for MEIP would be 10% or $150 million.

PWT143 looks to be superior to Gliead’s Zydelig who’s estimated 2020 sales are 1.2 billion. A discounted 20% of that is $240 million.

I couldn’t identify a market share for ME-344 because it was not specific enough, so at this stage I applied 100 million mkt share. I estimate MEI Pharma’s 2020 market share to its drug pipeline to be $856 million. Applying discounted cash flows to that using 50% and the 2Q cash estimate of $65 million gives an appropriate market cap 12 months from now of $493 million MEI Pharma has 34,160,000 shares outstanding. A 12 month price target of $14.43 which is 801% higher than where the stock trades at today which is $1.60/ share


Mkt Share Est Discount MEIP estimated 2020 Mkt Share
(millions) (millions)
AML therapeutic $731 50% $366
MDS therapeutic $1,500 10% $150
PWT143 $1,200 20% $240
ME-344 $1,000 10% $100
$856
DCF: 50%
$428
Cash est. 2Q: $ 65
Appropriate Mkt Cap: $493



Acquisition is another possibility. If Pracinostat makes Celgene’s Vidaza more effective, it makes perfect sense and would be easy for CELG to acquire MEIP at current levels.

Trade Plan
I already hold a position and will add more on dips. It should break through the 50day moving avg of $1.72 and then go over $2. The next conference MEIP presents at is the Wells Fargo Healthcare Conference on Sept 9-10. I’m expecting MEIP to appreciate rapidly this fall as data is slowly released leading up to the major hematology conference ASH which is Dec 5 – 8, 2015.