Constructive Knowledge, Warrant Overhang, Biotech Hypothesis

Cellectar Biosciences (CLRB) is a late-stage scientific biotech firm (not a “damaged biotech”) that lately reported constructive knowledge for his or her lead therapeutic, Iopofosine I 131, for the therapy of Waldenstrom’s macroglobulinemia (“WM”), which is an unusual sluggish rising sort of non-Hodgkin lymphoma.  WM usually inflicts these over the age of 60 and people with WM succumb to the most cancers inside 5-10 years.  Whereas I attempt to keep away from science performs round right here, the outcomes had been fairly exceptional and supply hope for these with WM who’ve unsuccessfully tried two prior strains of remedy.  The FDA has granted Iopofosine each orphan drug and quick monitor designations, Cellectar plans to file a brand new drug utility (NDA) within the second half of this yr with an accelerated 6 month approval timeline.

One of many advantages of remedies for uncommon ailments is the affected person inhabitants tends to be tightly concentrated inside specialised well being care communities and because of the R&D growth prices, extraordinarily excessive pricing is norm in orphan medicine to recoup that funding over a small affected person inhabitants.  Cellectar is within the strategy of transitioning from a scientific stage biotech to a industrial one (assuming FDA approval), they’re outsourcing a lot of the manufacturing and solely spending $25MM to face up a gross sales and industrial help group.  Absolutely the variety of sufferers is comparatively small, however once more, this might be a excessive priced remedy (a fast google search, the median orphan drug prices $200k+ yearly).

Doing a bit of again of the envelope math (full warning, this may very well be wildly off), if 1500 new sufferers are identified with WM yearly and 80% finally obtain a third line therapy, then CLBR’s annual affected person market section is about 1200 folks.  If 2/3rds of these find yourself taking Iopofosine at $250k (made up quantity, barely above the median orphan drug, I have not seen administration point out pricing wherever, please appropriate me if they’ve) a bit, that is $200MM in annual income.  Moreover, Cellectar is working a Section 2 research for Iopofosine in sufferers with a number of myeloma (“MM”) and central nervous system lymphoma, plus a Section 1b research is simply kicking off for pediatric sufferers with mind tumors.  In the event that they’re in a position to repeat the success in WM, this might change into a a lot bigger income alternative.

Cellectar has a messy and complicated capital construction.  In September, they raised capital by way of a non-public placement for $24.5MM by promoting Collection E-1 convertible most well-liked inventory that converts to inventory at a strike worth of $1.82/share (CLRB at present trades for ~$3.40/share), stapled to the Collection E-1 prefs had been two tranches of warrants, designed to behave as milestone funds to offer funding for Cellectar submit constructive WM research outcomes and the second tranche submit FDA approval.  The tranche A (train deadline 10 days submit constructive knowledge, or 1/19) has a strike worth of $3.185/share and if totally exercised, will usher in $44.1MM to Cellectar.  The second tranche, tranche B, has an train worth of $4.7775/share and would usher in $34.3MM if CLRB receives FDA approval and the warrants are fully exercised.  This personal placement was designed to be large enough to get the corporate to its industrial section the place it might doubtlessly be self funding.  CLRB does have further warrants, one tranche, the “2022 frequent” is within the cash with a $1.96 strike and expires in 2027, the others are all properly out of the cash and may usually be ignored.

Above is my try on the share rely math and proforma money assuming the tranche A & B warrants are totally exercised (to be extra conservative, you possibly can take extra burn under consideration for the reason that FDA approval trigging the tranche B warrants will not come till someday within the first half of 2025).  However I get a present proforma enterprise worth within the mid-$80MMs for a remedy that might do $200+MM in annual gross sales, that appears low-cost to me.