A Break-Out For Tekmira Ahead of Next Week's Trial Date Against Alnylam Pharmaceuticals? Print E-mail
By M.E.Garza   
Thursday, 08 November 2012 03:44
icon_tradecatalystDespite a dismal day for the market which saw the Dow close down 313 points, shares of Tekmira Pharmaceuticals (Nasdaq:TKMR) (TSX:TKM) closed up +5.61% and continued higher after hours to $4.50 on three times the average daily volume.

This after we told our premium subscribers about the significant upcoming catalyst for this undervalued
big board listed stock which trades both on the TSX in Canada as well as on the NASDAQ. 

In fact, Tekmira shares are now very close to breaking out past their 52-week high of $4.66. Still the firm is currently only valued with a $59.25M market cap despite having what most in the industry consider a clinically validated "gold standard" for RNA interference (RNAi) therapeutics delivery.

While experts feel that "RNAi will revolutionize medicine" with its ability to turn off genes, thus enabling new drugs for dozens of diseases. The real challenge for the
Nobel Prize winning technology and field has been delivery and that's where Tekmira shines.

Earlier in the month, shares rallied after Tekmira announced that the US Department of Defense has decided to continue its contract with the company to develop an RNAi-based treatment for Ebola virus infection. Tekmira has $120M in funding to develop that EBOLA vaccine. If the vaccine is successful it would provide an estimated $240M in cash flow to TKMR for each stock piling year.

TKMR is also the delivery partner for a recently approved drug which enhances a common chemo drug (Marquibo). They will receive a royalty estimated to provide between $7 to $21M a year after the drug along with two other liposomal chemotherapy products were licensed from Tekmira to Talon Therapeutics in 2006. Talon is now responsible for all future development of these products, and Tekmira is entitled to receive those milestone and royalty payments based on the successful development and commercialization of these product candidates.

These two partnerships alone are worth more than the current market cap of the company but investors have started to accumulate shares for another reason.

Next week, on November 14th, the company is finally set to go to trial against one of their most important partners, Alnylam Pharmaceuticals (NASDAQ: ALNY). At stake is a dispute of alleged misappropriation of Tekmira’s trade secrets regarding lipid particles for effective delivery of therapeutic siRNA.

There are some cautionary statements in Alnylam's most recent quarterly filing with the SEC,
as pointed out by Dirk Haussecker- who is not only captivatedby the biotechnological potential of this technology, but keeps one of the most in-depth blogs on the subject.

Dirk writes:
“As the trial date approaches, The Company (Alnylam) is pursuing all reasonable approaches available to it to reach resolution of this matter, including both settlement negotiations and full trial preparation. The Company (Alnylam) does not currently believe that a settlement of this legal proceeding is probable, in accordance with ASC 450, Accounting for Contingencies, due to a number of factors; however, the Company (Alnylam) intends to continue to evaluate all possibilities for resolution of this matter, including a potential settlement.”

For Alnylam, in particular, there appears to be significant financial risk if this case actually goes to trial. This point can clearly be seen in Alnylam's SEC filings which state that Tekmira has argued to the Court that they are entitled toaggregate multiple theories. The various theories of plaintiffs’ damages under the plaintiffs’ most recent expert report range from approximately $61 million to $234 million. If the theories of monetary recovery included in the plaintiffs’ most recent expert report were aggregated, it would result in damages within a range of approximately $310 million to $484 million. In addition, under one of the plaintiffs’ claims, any compensatory damage award sum could be subject to doubling or trebling, which could increase the potential damages up to approximately $1.5 billion, and the plaintiffs would also be entitled to recover their reasonable attorneys’ fees. As of June 30, 2012, Tekmira reported a contingent liability to their lead counsel in the amount of $12.5 million, which is likely significantly higher as of the date of this filing. The plaintiffs are also seeking prejudgment interest.

Logically, it stands that Alnylam Pharmaceuticals might simply attempt to acquire TKMR for well over $12.00 per share, or settle out of court with a "best-guess" $100M plus settlement.

Until now, however, Alnylam has reacted by filing two complaints against Tekmira in their own suit filed in January. Alnylam alleges that Tekmira improperly provided lipid nanoparticle-formulated small interfering RNA molecules to pharmaceutical collaborators, infringing on several patents exclusively licensed to Alnylam, but Tekmira CEO Mark Murray said in a statement that the those lawsuits “are absolutely without merit” and that the company would “file the procedurally appropriate answer to both complaints.”

“It is important for our shareholders to understand that we are confident that Tekmira has access to the intellectual property we require for the development of our own products and for collaborations with our pharmaceutical partners,” Murray said.

While there are certainly many more details to explore about next week's trial, here a few quick facts as they relate to the main issues:

If Tekmira loses the trial, they haven't lost anything other than the potential large, one time, settlement. Tekmira are still partnered and entitled to milestone payments and royalties from the defendant. The defendant’s market cap has increased to $1b based on a drug partnered with Tekmira. The positive data which has driven ALNY’s share price (one of many partnered with TKMR) is estimated to do $2b which would bring $100M a year in licensing revenues to Tekmira.

An affiliated company to the defendant admitted stealing thousands of documents containing trade secrets. Earlier a judge also did not see the merit of eliminating Alcana Technologies a second defendant from the case- as argued by the Defense- given what some see as the integral role of Alana staff in the alleged misappropriation of Tekmira’s proprietary chemistry for siRNA delivery, e.g. SNALP (standing for “stable nucleic acid lipid particle”).

In a similar situation Merck settled out of court with a $60M payment to Tekmira. This sector has developed considerably subsequent to that payment and, again, Alnylam is much more dependent on TKMR.

It is important to understand that if Alnylam's one drug is approved Tekmira would become a billion dollar company. Plus EBOLA. Plus Marquibo (approved). Plus the other drugs partnered with ALNY (remember RNAi has implications for dozens of diseases involving genes). Plus the new partners who are suspected and rumored to be lining up to do deals post the pending litigation.

Yes, we see the pending trial as tremendous catalyst for the stock, but we also see great proof that Tekmira has been mostly under the radar to most retail investors and certainly under-appreciated given their upside potential.

Disclosure: Long TKMR

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