Tuesday, October 26, 2010


I will warn you that reading this post will take a little patience and its about a micro cap stock, to boot.

Back in early 2009, when most of us were sweating over the security of our FDIC-insured checking accounts (remember those days?), dozens of small biotechs were trading for pennies on the Dollar. Dollar being hard cash minus all on- and off-balance sheet liabilities PLUS the next 12 month's cash burn.

Neurobiological Technologies was one such name. Here is a summary of an old write-up (dated 2/16/09) on it:

"Summary: After the failure of a key drug (Viprinex) in 2008, NTII is left with no significant operations. Its most recent balance sheet dated 12/31/2008 shows a cash & investments balance, net of liabilities, of $7.6 mm or $0.28 per share.

However, a closer inspection of SEC filings reveals that deferred revenue liability of $16 mm will never have to be paid, bringing NTII’s true net cash to $23.7 mm or $0.88 per share.

Yet another potential asset which doesn’t show up on the balance sheet is NTII’s 13%-22% retained interest in a drug called XERECEPT, which the company sold to a private equity concern Celtic Pharma in 2005. The results of the completed Phase III trials will be presented by Celtic in Q209.

I estimate NTII’s ownership stake in XERECEPT to be worth anywhere from zero to $0.77 per share. After making some further adjustments to the balance sheet and accounting for cash burn/generation of ($0.16) to $0.12 per share, I estimate NTII’s potential NAV at the end of 2009 to be $0.69-$1.83 per share versus the stock price of $0.62.

This valuation gap is not lost upon everyone. Three large shareholders representing 45% of total shares outstanding have recently asked management to liquidate the company. NTII can immediately make cash distribution of $0.60-$0.70 per share which would create a free stub for investors consisting of (1) XERECEPT worth $0.00-$0.77 per share and (2) auction rate securities worth another $0.30-$0.40 per share. The main risk is that management doesn’t accede to shareholder demand and instead decides to spend the cash on an acquisition etc."

On June 1, 2009, Celtic Pharma published the results of Phase III trials and unfortunately, XERECEPT did not meet its end point. You can read that press release here: http://www.celticpharma.com/news/pr/release_060109.pdf

On September 1, 2009, NTII announced that it will liquidate. Subsequently, it made several dividend payments to shareholders.

As of the last 10K filed on 9/28/2010, the Company estimates Net assets on liquidation basis available to common stockholders as of June 30, 2010 to be $1.54 mm or approximately 6 cents per share which is where the stock is currently trading.

The liquidation value estimated by the Company does not have any value derived from XERECEPT.

Here's what has changed and the reason for my posting this saga.

Celtic has apparently revived its efforts on XERECEPT and here is a press release issued just days ago:

Celtic Pharma Announces Issuance of U.S. Patent 7,816,323 for Xerecept® in Combination with Avastin as a Treatment for Breast and Colon Cancers

Thursday, October 21, 2010

New York, NY, London & Bermuda -- Celtic Pharmaceutical Holdings L.P. ("Celtic Pharma") today announced that the U.S. Patent Office has issued U.S. patent 7,816,323, for novel methods to treat breast and colon cancers using a combination therapy of Xerecept® with Avastin®. The patent is based on in vivo data demonstrating the successful inhibition of tumor growth using a combination therapy approach. This patent was filed in April 2010, recognized as "special" based on specific criteria of the Patent and Trademark Office, and therefore expedited and issued on October 19, 2010.
Xerecept is a synthetic version of the natural peptide hormone Corticotrophin Releasing Factor. Celtic Pharma has been pursuing Xerecept's clinical development as a treatment for edema associated with cerebral tumors. In trials to date, Xerecept has demonstrated that its use enables significant reductions or elimination of corticosteroid dosing in cerebral tumor patients, and that patients tolerate chronic daily Xerecept dosing over several years without significant side effect issues.

Celtic Pharma and its co-investigators first presented the results from Xerecept administered in combination with Avastin against both breast and colon cancers at the Annual Meeting of the American Association of Cancer Research (AACR) in April, 2010. The data showed both synergistic activity between the two molecules and potentiation of Avastin by Xerecept.

"Celtic Pharma believes that Xerecept continues to show great promise as an important addition to the therapeutic options in clinical oncology," said Stephen Evans-Freke and John Mayo, Managing General Partners of Celtic Pharma. "We are committed to ensuring the potential of Xerecept is realized, both in its application for the treatment of cerebral edema and in this exciting new opportunity as a potential oncology drug in major solid tumor types."

Dr. Jerry Posner, Former Chair of Neuro-Oncology at Memorial Sloan-Kettering Cancer Center commented, "The emerging data from the combination of Xerecept and Avastin is an important development that strongly suggests the need for evaluation of this combination treatment in patients. Combination therapies are an important part of modern anticancer therapy. The use of rational combinations of targeted, mechanism-based treatments offers the clinical oncologist the promise of more potent therapeutic options for addressing the multifaceted complexity of cancer."

Celtic Pharma is actively exploring clinical trial strategies to assess combination treatments of Xerecept with Avastin in order to validate these important preclinical findings in a clinical setting, and is also considering the potential for exploring Xerecept in combination with other leading cancer therapies. Celtic Pharma is in productive discussions with the U.S. Food and Drug Administration (FDA) in regards to the design of a registrational study evaluating objectively the clinical benefit associated with reductions in steroid dosing that may be achieved with the use of Xerecept in both primary and metastatic brain tumor patients. Celtic Pharma is also currently evaluating Xerecept in a pediatric trial for patients requiring high doses of corticosteroids to control their cerebral edema, with resulting heavy burdens of steroid-related symptoms.

Preclinical Studies

Several preclinical studies using implanted solid tumor (breast and colon) human xenografts into nude mice, as well as both pediatric and adult human brain tumor xenografts, were evaluated when treated with Xerecept® alone and in combination with Avastin®. All of these particular models demonstrated statistically significant tumor regression and prolongation of survival following combination treatment with Xerecept and Avastin, compared to Xerecept or Avastin alone.

Specifically, in the human breast model, both Xerecept and Avastin by themselves produced similar antitumor effects; however, when Xerecept was combined with Avastin, the antitumor effect was significantly increased (p<0.001). The enhanced combination effect was statistically different (p<0.03) than either result associated with the monotherapies. In the human colon xenograft model, Xerecept was not active alone against this tumor model while Avastin produced a significant tumor growth delay compared to the vehicle-treated control. However, the combination therapy of Xerecept plus Avastin significantly increased the overall survival of animals when compared to treatment with vehicle (p<0.001) or Avastin alone (p<0.01). In the high grade pediatric glioblastoma model, Xerecept demonstrated activity by itself and the combination of Xerecept with Avastin was significantly better than Xerecept or Avastin alone. These preclinical findings demonstrate that Xerecept has the ability to potentiate or provide a synergistic enhancement of the antitumor effects of Avastin in these various models.

About Xerecept

Xerecept® is a synthetic version of the natural peptide hormone Corticotrophin Releasing Factors. In trials to date, Xerecept has demonstrated that its use enables significant reduction or the elimination of corticosteroid dosing in cerebral tumor patients, and that patients tolerate chronic daily Xerecept dosing over several years without significant side effect issues.

About Celtic Pharmaceutical Holdings L.P.

Celtic Pharmaceutical Holdings L.P. (Celtic Pharma) is a global private equity investment firm focused on the biotechnology and pharmaceutical industries. Celtic Pharma was founded by Stephen Evans-Freke and John Mayo, CBE and is based inBermuda, with offices in New York and London. Celtic Pharma has acquired and invested in late stage pharmaceutical programs and manages these programs through their development for ultimate sale to established pharmaceutical companies. Celtic Pharma is fully invested at this time. Celtic Pharma's aim has been to bridge the gap between the established pharmaceutical companies' new product pipeline crisis and the biotech industry's capital drought. For further information, please visit Celtic Pharma's website at www.celticpharma.com.

About Avastin

Avastin® is a trade mark of Roche / Genentech, Inc for the monoclonal antibody Bevacizumab.