Pre-Dance Jitters
Jun. 25, 2018 1:02 PM ET
Summary
Undervalued company at just a $115 million market cap with low float, strong insider and 10% institutional holders, Recent analyst coverage average 12 month target at $7, or a 100%+.
First product, Symjepi FDA approval announced June 2017.
Mylan Epipen shortages on top of last years pricing debacle tarnishing Epipen reputation.
Improved EPI PFSdesign includes smaller size which could lead to greater penetration in bothnon-retail and consumer markets.
Recent sell offunwarranted but provides opportunity for investors.
Intro
Adamis Pharmaceuticals (NASDAQ:ADMP) expects to announce a partner for their first product, a pre-filled syringe containing the drug Epinephrine. While this process has taken longer than expected the company assured Investors in May filing that they were close to closing a partnership deal for Symjepi. FDA approval of Symjepi Jr for children under 66 lbs is expected later in 2018.
Mylan continues to dominate this market with its Epipen product, which last year showed the market to be around 1.2 billion and growing. Unlike the simple syringe Adamis developed, Mylan’s Epipen is rather more complex. The design intended to hide needle from patients involves greater complexity, forcing costs higher.
Adamis intends to be the low-cost producer in every market they enter and the simpler design of Symjepi gives Adamis a pricing advantage over their competition. The form factor or physical size of Symjepi is also a competitive advantage as users prefer a smaller device as opposed to the bulkier Epipen.
Consumer groups over the last few years have not only objected to some of Mylan’s pricing but also pointed out the added complexity of the auto-injector introduces potentially life threatening reliability issues involving not only the mechanical design but the ability of the device to be properly used in an emergency. No such concerns surround a syringe.
Pipeline
The Adamis pipeline demonstrates Adamis is not a one-trick pony when it comes to potential products. Most of the markets Adamis is addressing going forward are considerably larger than the market for their first product, Symjepi & as can be seen by the chart taken from the Adamis webpage, most of these products are well along in development cycle and expected to go to market in the next 12 months.
It should be noted the FDA approved syringe used in the Symjepi product can be used for multiple products besides Epinephrine. APC-6000 for instance will be utilizing this syringe to deliver Naloxone, a long approved drug for use in combating Opioid overdose. The Naloxone market could be considerably larger than Symjepi.
It is reasonable to expect other such spin-off products based on this platform device ensuring Adamis as the low cost producer in each market they enter.
Adamis has also developed their own inhaler (APC-1000) as well as obtaining an advanced inhaler (APC-4000) designed originally by 3M Corp. The inhaler markets are really the crown jewels for Adamis and by far the largest potential markets for them.
GlaxoSmithKline generated over $786 million in global sales for 2016 with its Flovent® Diskus® product for asthma, delivering fluticasone. Fluticasone is a corticosteroid medicine commonly prescribed to prevent certain cells in the lungs and breathing passages from releasing substances which cause asthma symptoms. Adamis believes their APC-4000 product could successfully compete in this market utilising the Adamis (3M) Platform Inhaler to distribute fluticasone to the patient. With a lower price and a more effective inhaler design delivering quicker response times while using less drug for the same effectiveness should ensure Adamis is competitive in this large market.
Concerns
Symjepi was approved last June with a partnership expected almost immediately by most investors. While one can speculate why there currently is no partnership that’s not particularly relevant to evaluating Adamis today. In May Adamis confirmed they were engaged in partnership talks and expected to conclude those shortly.
Capital requirements suggest some sort of capital raise will be required in due course. This should hardly come as a surprise for a small cap, pre-revenue company in development of new products. However, there are also several scenarios in which this could be largely or wholly be avoided entirely.
Since we’re not presently privy to the terms of any upcoming partnership deal this is only speculation but serves to illustrate there can be multiple possible paths for the company to satisfy it’s capital needs without the need for additional dilution.
In the previous Allergan deal, Adamis received $10M upfront with another $10M milestone payment due upon FDA approval. Instead the FDA handed Adamis another CRL costing them both the partnership and another year to respond to the CRL. Should the next partnership deal be anything similar in terms this would forestall the need for immediate Capital.
There are still several warrants in effect that are callable by Adamis should the share price exceed different price points. This would require the stock price to rise significantly from its current levels & remain there for a period of time so this path is less likely but still possible.
Should any partnership result in rapid move into market the ensuing revenues could offset or reduce capital requirements. These are details we’re not likely to know even after an announcement.
Assuming a capital raise is required but occurs after a partnership announcement, the dilution would be substantially less due to expected rise in share price.
Conclusion
Adamis is well positioned to move forward on development of multiple products. Partnership for their first product Symjepi is expected soon & should have a major impact on share price as the company is currently priced for worst case scenario thanks to jitters from investors looking backwards rather than forwards.
It would seem reasonable to expect that any partnership deal could likely include multiple products still in development by Adamis. This would also explain why negotiations may have been more complex than they might have for a single product only.
With a depressed share price, a short position well over 3 million shares and a gap on the chart all the way back to $8 one could expect fireworks whenever a partnership is finally announced. Investors would do well to focus on the fundamentals of the company moving forward as the pipeline tells a compelling growth story and opportunity for investors.
