Fibrocell Science (FCSC) is an autologous cell therapy company involved in the development of medicines for aesthetic, medical and scientific application. FCSC's diverse drug pipeline revolves around applications of the fibroblast cell. The fibroblast cell plays an important role in the production of growth factors and collagen that support the skin and soft tissues. The fibroblast cell is the most important cell in regards to synthesizing the extracellular matrix and collagen within the skin itself. Here is a diagram showing how the organelles and fibroblast cells work together.
The fibroblast cell is the most common connective tissue in mammals and reptiles. Collagen is a protein that gives skin its durability and elasticity and plays a major role in the healing of a wound. Fibrocell is studying applications for autologous fibroblast technology that would potentially extend into almost all aspects of wound healing. Below, I will delve into this under-followed stock's unappreciated clinical developments and why they extrapolate into an asymmetric investment opportunity.
LAVIV® (azficel-T)
LAVIV®, Fibrocell's main product, is used for improving the appearance of moderate to severe nasolabial fold wrinkles in adults. On June 21, 2011 LAVIV became the first FDA-approved autologous fibroblast cellular product. Recently FCSC extended their patent protection on LAVIV (azficel-T) until 2031, giving FCSC ample time to complete and receive FDA approval for the treatments that I will discuss in detail in the following section of this article (Press Release). LAVIV works by taking the patients personal skin samples and millions of fibroblast cells in culture, and then injecting these cells into the dermis of the skin. The safety of azficel-T for areas other than the nasolabial fold has not been established, but FCSC is exploring the benefit the drug may have on other conditions, such as acne scarring, restrictive burn scarring, and vocal cord scarring.
Clinical Development
Fibrocell Science is on the path to become the first company with a drug certified by the FDA for the treatment of acne scarring. As of 2012, there was an estimated 20 million people suffering from acne scarring, leaving a sizeable market for this product. FCSC has already completed a Phase II study of azficel-T for the treatment of acne scars. Here are the results of the study. The study's start date was November 2007; it was completed in March 2009. It was fulfilled with 120 enrollees and a primary objective of evaluating the safety and treatment effects of autologous human fibroblasts against facial acne scars. The study was placebo controlled, randomized, and double blind with an intervention model using parallel assignment. In this study azficel-T met all of the efficacy end points and was accepted widely by the patients. FCSC is in the process of further evaluating azficel-T for the treatment of acne scaring in Phase III studies, already having started discussions about the design of the study with the FDA. Following are the before and after pictures of the acne scars treated with azficel-T.
Clinical Trial Page
Another possible condition Fibrocell Science is looking to treat is that of restrictive burn scars. An estimated 45,000 people a year are hospitalized for new burns. Those patients plus those who are dealing with burn scars from previous years leads to a sizeable market for treatment by azficel-T. FCSC has initiated a Phase II trial of azficel-T for the treatment of restrictive burn scars in the second half of 2013, focusing on patients with a restrictive mobility and scars in joint proximity. The study will be double blind, randomized, and a placebo-controlled pilot study. The intention is to determine whether injection of autologous fibroblast cells will reduce the limitations set by the restrictive scars and increase mobility. The study is set to be completed by December 2014. There are no FDA approved drugs for the treatment of restrictive burn scars.(click to enlarge)
Clinical Trial Page
Lastly, Fibrocell plans to explore the benefit of azficel-T in patients with scarring of the vocal cord, hoping to improve a person's voice quality. Approximately 500,000 people are affected by vocal cord scarring in the United States currently, with no FDA approved drug for treatment; voice therapy is the most widespread attempt of therapy. Azficel-T injections will replenish the diminished collagen levels in the tissue and allow the vocal cords to obtain their original flexibility, resulting in a higher quality of speech. Fibrocell will evaluate this through a Phase II trial for the treatment of vocal chord scarring and age-related dysphonias, testing for an improvement in voice quality.Clinical Trial Page
There are currently no FDA approved drugs for acne scars, restrictive burn scars, and vocal cord scarring, leaving a huge market for FCSC to fill with the various applications of azficel-T.
Randal J. (RJ) Kirk and $45M Deal with Intrexon
Announced in October 2012, one of the most notable biotech investors, Randal J. Kirk, CEO of Intrexon Corporation and founder of investment firm Third Security, closed a deal in which he invested $45M in Fibrocell. FCSC also received access to the resources that Intrexon Corp. has in regards to synthetic technology. In return, FCSC is gifting $3.3M in stock as a down payment for the deal. Intrexon receives two board seats and royalties for any products that are a result of the agreement. Here is a link to the press release for the agreement, which includes this quote from RJ Kirk, "We believe Fibrocell is poised to lead in an important new category of therapeutic arts. The Company has an excellent management team, deep technical expertise, and proven production and commercial platforms. With the capital this raise provides for expansion and growth, we expect great success for LAVIV. And, through access to Intrexon's technology and the ability to innovate on top of an established and approved platform, such that even early experiments may be conducted within a GMP operating system, we expect the Company to establish a leadership role in creating additional high-value cellular therapeutics for underserved health needs. We are committed to our partnerships with Fibrocell and look forward to working with David and his team."
Background on RJ Kirk
In 1983, RJ Kirk co-founded General Injectable and Vaccines (GIV), which is a next-day supplier of medical supplies for doctors. In 1998, Kirk was the only owner of GIV and sold the company for $65M in cash and $25M in deffered payments. But that is just the tip of the iceberg. In 1999 Kirk founded Third Security, LLC, an investment firm that is dedicated to providing start up biotechnology firms with the capital that they need for equity and board positions, and subsequently remaining with those companies until they go public or sell out to a buyer. In 2003, Kirk was on the board of Scior Inc, when Johnson & Johnson acquired the company for $2.4 billion. In 2004, he took public New River Pharmaceuticals Inc., a company that develops technology to make existing drugs safer and more resistant to abuse, public. Later in 2007, New Rivers developed Vyvanse, the popular attention deficit disorder drug. In the same year, New Rivers was sold to Shire PLC for $2.6B; at the time RJ Kirk owned more than fifty percent of the company. Again in 2011 Kirk was serving as chairman and majority shareholder of Clinical Data, Inc, an anti-depressant drug developer, when it was acquired by Forest Laboratories, Inc for $1.2B.
RJ Kirk is a passionate, experienced, and intelligent investor. He has an unmatched success rate when it comes to underappreciated and undervalued biotech companies, such as Fibrocell Science. "We're really looking for opportunities where, through out personal efforts, we can add value," Kirk says, "if we're not adding value ourselves, there's not a reason for us to be working in this thing. If we're going to live and sleep and breathe this thing for a decade, we've really got to love it."
Possible Use of Genetically-Modified (GM) Autologous Fibroblasts for the Treatment of Recessive Dustrophic Epidermolysis Bullosa (RDEB).
GM autologous fibroblasts could be used to improve the condition of patients suffering from genetic collagen deficiencies, such as Epidermolysis Bullosa (EB). EB is a blistering disorder, whose origins are genetic. The blisters form after the patient has been subject to some kind of trauma incident. The disorder usually appears in the affected during infancy or early childhood. These blisters can form at almost any point on the body, but the most common place is on the skin, where a patient is most likely to have a trauma accident. The National Epidermolysis Bullosa Registry reported that EB is expected to occur in 20 newborns for every 1 million live births in the United States. Estimates, though unclear, propose that between 25,000 and 50,000 people in the United States are dealing with EB, leaving EB in the rare and ultra rare categories. RDEB is the most severe form of the disease; Fibrocell states that the disorder is characterized by the loss of collagen VII, an important protein component of the anchoring fibers that connect the dermis to the epidermis. RDEB has the highest rate of mortality among blistering conditions and, like the scarring conditions listed previously, there is no FDA approved drug to treat the cause of RDEB. The mutual goal between Fibrocell and Intrexon is to explore the use of GM autologous fibroblast cells for the treatment of EB, in particular RDEB.
Financial Status
First and foremost, Fibrocell Science, Inc has no debt on its balance sheet. In addition, FCSC has a stable cash position, with $31.3 million on hand as of December 2012.
Once the company announced that it had been cleared to submit a listing application to the NYSE MKT in April 2013, a one-for-twenty-five reverse stock split was initiated on April 30, 2013, in order for FCSC to meet the minimum $4 requirement of share price. The company then went through a twenty-day trial period, which was successful. FCSC is now a full-fledged member of the NYSE.
Additionally, Fibrocell is not at risk for dilution in the short term. According to the YE2012 10-K, Fibrocell had $31.3MM in cash/cash equivalents, enough for at least the next 12 months. As of Q1, they still had a sustainable $26.18MM. I would expect a cash raise during the first half of 2014.
On May 7, 2013, FCSC gave a presentation, highlighting three points concerning the company's capital structure.
All outstanding preferred stock was converted into common stockAll outstanding convertible debt was extinguishedApproximately 99% of warrants conceded anti-dilution provisionsPossible Risks
On June 28, 2013 FCSC announced that its board of directors accepted the resignation of Fibrocell's Chief Financial Officer and Chief Operating Officer, Declan Daly. Some people may see the resignation of a CFO as a sign of internal instability in a company, but the reason that Daly resigned was so that he could reside in Ireland full time. With Daly gone, the company is able to acquire a new CFO that will reside in Exton, PA, at the company's headquarters full time. Daly will stay with the company until November 2013 so that there will be a smooth transition for the new CFO. At the end of the day I think that FCSC will benefit in the long run from this resignation. Although it will take the new CFO some time to get comfortable, he will be able to give the company his full attention at a location where he is most needed.
Another factor that one should take into account when looking at FCSC is that their lead product, LAVIV, has not been a good selling product. Although revenue for the product has increased from 16K to 26K from 2012 to 2013, the cost of sales has increased much more. Cost of sales was $1.5M in 2012 and increased 51% to $2.3M in 2013, leaving a gross loss in 2013 of $2.2M. Reasons for this loss are charges for biopsies and injections of the product, which can be given to the consumer at a reduced price or complimentary. In addition, when manufacturing a cell specific product, there are a lot of manufacturing costs associated with the complexity of the process. FCSC has increased the price of LAVIV on the market effective on May 1, 2013.
Final Synopsis
Fibrocell Science became part of the NYSE as of May 17, 2013 and resulting in an increase in stock price from just under $5 dollars to $7, before settling down at approximately $5.50. Since FCSC's entrance into the NYSE, its stock price has been quite volatile, but FCSC's long term growth and promise is a virtual certainty. The strength of the azficel-T pipeline and the market demand for the conditions FCSC is looking to treat, accompanied with sound financial statistics, will provide the catalysts for Fibrocell's future growth. The ongoing development of Fibrocell's pipeline, in addition to legendary biotechnology investor Randal Kirk's involvement, offer new, exciting reasons for an investor to look into Fibrocell. The recent pullback in the stock has offered a good opportunity to buy on the volatility. In addition, developing potential treatments for acne scars, restrictive burn scars, vocal cord scarring, and RDEB, which no current treatments are available for, could result in an aggregate market value of $2.3B, excluding the RDEB markets. If FCSC was to gain 10% of the market, it would more than double the current market cap of $150M, with a price target of $13/share.
FCSC is not a one-trick-pony; on the contrary, it is an innovative, growing dermatology company that is working on various conditions which no treatments are available for. This could result in being a potential acquisition target down the road, especially if demand rises for their products as more wealthy baby boomers get older and want cosmetic/dermatology work done. I am looking forward to what Fibrocell has in store next.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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