Diligence and Valuation Report
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Diligence and Valuation Report Arrowhead Code: 69-03-02 Company: Hemispherx Biopharma Inc. Coverage initiated: 06 November 2014 Ticker: NYSE MKT:HEB This document: 21 February 2015 Headquarters: Philadelphia, Pennsylvania Fair share value bracket – DCF $1.67 - $2.79 Chairman, CEO, President, CSO: Dr. William A. Carter, M.D. Share price 20 February 2015: $0.24i CFO: Mr. Thomas K. Equels, Esq. Analyst Team Senior VP of Operations Mr. Wayne S. Springate Snehal Mahajan Website: www.hemispherx.net +1 (212) 619-6889 [email protected] Market Data Innovative product pipeline; Alferon N Injection® - 52-Week Range: $0.21– $0.49ii Nearing Commercialization Average Daily Volume (3M Avg.): 1,487,786iii Arrowhead is updating coverage on Hemispherx Biopharma Market Cap (20 Feb. 2015) : $52.8 MM Inc. with a fair value bracket of $1.67 in the low bracket and $2.79 in the high bracket scenario using the Discounted Cash Financial Forecast (in USD) (FY Ending – Dec.) Flow (DCF) Valuation Method. '14E '15E '16E '17E '18E '19E '20E Key Highlights: (1) Alferon N Injection® presents a huge High NI (12.3) (4.4) 45.4 77.7 143.6 151.9 106.7 growth potential for the Company due to growing number of (MM) High patients in US suffering from genital warts, a common clinical (0.06) (0.02) 0.21 0.35 0.65 0.69 0.49 EPS manifestation of HPV infection;(2) Further, Alferon N Low NI ® (12.3) (4.4) 23.8 41.3 81.5 87.9 94.4 Injection is the only natural interferon approved by FDA for (MM) Low marketing in the US and hence the Company enjoys a (0.06) (0.02) 0.11 0.19 0.37 0.40 0.43 EPS favorable competitive position; (3) The Company is Company Overview: Based in Philadelphia, conducting work, based on published studies, on the potential Pennsylvania, Hemispherx Biopharma Inc. (hereinafter use of natural killer cell levels and activity to act as a referred to as “Hemispherx” or “the Company”) is a biomarker for CFS, which if positive could facilitate approval specialty pharmaceutical company primarily engaged in of Ampligen® for CFS.;(4) Alferon® & Ampligen® are also the clinical development of new drug therapies based on good candidates for treatment of Ebola as they have natural immune system enhancing technologies for the demonstrated broad anti-viral efficacy. Further, studies treatment of viral and immune based chronic disorders. indicate that nasally-delivered Ampligen® plus an intranasal The Company has two flagship products, 1) Alferon N seasonal influenza vaccine induces cross-reactive antibody Injection® - approved for a category of STD infections; 2) formation against Avian H5N1 and H7N9 Influenza HA in Ampligen® - an experimental Ribonucleic Acid developed humans (5) The Company has invested more than $7.5MM to to treat viral diseases and disorders of the immune upgrade the Alferon manufacturing facility and the system, specifically Chronic Fatigue Syndrome (CFS). The management expects this facility to be approved in Company is also developing an oral formulation of Alferon approximately one year from now; (6) The Company has N, Alferon® LDO (Low Dose Oral), for treating Influenza. formed a strategic partnership with Armada Healthcare for The Company has formed collaborations with many the distribution & marketing of Alferon through its strong research laboratories to examine if Ampligen® and/or network of independent specialty pharmacies. Alferon® exhibits antiviral activity against the Ebola virus Key risks: Key risks include cash flow uncertainty; & testing Ampligen® in humans in conjunction with a unsuccessful product development; uncertainty related to nasal flu vaccine. The Company owns and exclusively regulatory approval; and inadequate financial resources and operates a Good Manufacturing Practice manufacturing risk of delayed commercialization. facility in New Jersey. Valuation and Assumptionsiv: Given the due diligence and 9MFY2014: Revenue increased by 38% Y-o-Y to reach valuation estimates, Arrowhead believes that Hemispherx’ $157,000 in 9MFY2014, due to increase in the number of fair share value lies in the $1.67 to $2.79 bracket calculated patients using Ampligen® through the Ampligen® cost using the DCF method. It has been assumed that the Alferon recovery program. Net loss stood at $12MM for N Injection® is estimated to start contributing to the revenue 9MFY2014, primarily due to combined effect of increase in from 2016 for treatment of refractory/recurring HPV genital gain from sale of New Jersey State net operating loss warts and from 2018 for treatment of Vulvar Vestibulitis. carry-forwards, a 14% decline in cost of goods sold and Although promising, it is not tangible at this point to project 4% decline in R&D cost. Cash and cash equivalent stood any revenue or expense for Ampligen® for CFS and hence has at $17.4MM as of September 30, 2014. not been included in the valuation. HEMISPHERX BIOPHARMA INC – Arrowhead BID 1 NYSE MKT: HEB Due Diligence and Valuation Report See important disclosures on page 25 of this report Table of Contents 1. SUMMARY AND OUTLOOK ........................................................................................................................ 3 2. BUSINESS OVERVIEW ............................................................................................................................ 4 2.1 Product Offerings ............................................................................................................................... 5 2.1.1 Alferon N Injection® .................................................................................................................. 5 2.1.2 Ampligen® ............................................................................................................................... 6 2.1.3 Alferon® LDO (Low Dose Oral) .................................................................................................... 6 2.5 Company Premiums ............................................................................................................................ 7 2.6 Company Risks ................................................................................................................................... 9 2.7 Corporate Strategy .............................................................................................................................. 9 2.8 Shareholding Pattern ......................................................................................................................... 11 2.9 Listing and Contact Details ................................................................................................................. 11 3. KEY VARIABLE ANALYSIS ..................................................................................................................... 12 3.1 Alferon N Injection® - Sales (Volume) – Refractory or Recurring External Genital Warts............................... 12 3.2 Alferon N Injection® - Price – Refractory or Recurring External Genital Warts ............................................. 12 3.3 Alferon N Injection® - Price – Vulvar Vestibulitis .................................................................................... 12 4. NEWS ................................................................................................................................................... 13 5. MANAGEMENT AND GOVERNANCE ........................................................................................................ 15 6. TECHNOLOGIES AND MARKETS ............................................................................................................. 17 6.1 Interferon ........................................................................................................................................ 17 6.2 General Action of Interferons ............................................................................................................. 17 6.3 Types of Interferons: ......................................................................................................................... 17 6.4 Functions of Alpha and Beta .............................................................................................................. 17 6.5 Alpha and Beta Work Mechanism ......................................................................................................... 18 6.6 Alpha Interferon .............................................................................................................................. 18 6.7 Types of Alpha Interferon - Natural and Recombinant ............................................................................. 18 6.8 Anogenital Warts market ................................................................................................................... 19 6.9 Vulvar Vestibulitis ............................................................................................................................. 19 6.10 Chronic Fatigue Syndrome (CFS) ....................................................................................................... 20 7. VALUATION ........................................................................................................................................... 21 7.1 Discounted Cash Flow Method ............................................................................................................. 21 8. APPENDIX ............................................................................................................................................. 24 9. ANALYST CERTIFICATIONS AND