When we first looked at OWC Pharmaceutical Research Corp (OTCMKTS:OWCP) back in mid-January, the company traded for around $0.5 a share. Subsequent to our initial coverage, the stock ran up to late February highs of $2.70 a share, logging a gain of more than 440% across the period. Subsequent to these highs, however, OWC corrected pretty substantially and bottomed out at $0.54 a share during the middle of June. Over the last couple of weeks, this decline has turned around somewhat and the company currently trades for $0.70 a share, having gained 6% early this week on a fresh development from its lead asset.
We think this bottoming out represents a longer-term turnaround for this stock and that we could see some strength as we head into the latter half of 2017 and beyond.
Our expectations are rooted in the implications of the latest release and what it means for the product it covers going forward.
For those new to this one, OWC is a healthcare and wellness type company that is developing a portfolio of products based on cannabinoids, which are the active compounds associated with the marijuana plant. The lead application of this cannabinoid formulation right now is a psoriasis treatment that comes in the form of a topical cream designed to treat moderate to severe versions of the condition.
We have looked at this asset on a number of occasions over the last few months in quite a lot of detail, so readers looking to catch up on the science that underpins its mechanism of action can do so here. As a quick intro, however, it’s rooted in the impact that cannabinoids can have on the immunomodulatory elements of our preferred system. Even under the framework of modern medicine, doctors still don’t know what causes psoriasis. We know that it’s rooted in an autoimmune imbalance, but the triggers and causes remain a mystery.
What we do know, however, is that cannabis, in various forms, can have a positive effect on the condition’s development. OWC developed its topical cream based on this legacy knowledge and has spent the last few months trying to demonstrate its safety and efficacy in the psoriasis population. Data from the research trials have gone a long way towards doing just that and the company is now pretty much ready to go to market with the asset.
Which brings us to the latest development.
On June 27, OWC announced that it has filed a patent application with the United States Patent and Trademark Office for the cream. This follows the filing of a provisional patent earlier this year.
The importance of this is that once granted, the patent will put the company in a position from which it can start to attract partners in both the development and the distribution of this asset. Prior to patent protection, this is difficult. Once protection is in place, it’s far easier.
And it is in this protection that we are rooting our medium-term bull thesis. In order to get this product on shelves and in the hands of as wide a patient population as possible, and as we’ve noted before, OWC would be far better collaborating with a deep-pocketed name as opposed to going it alone. The company doesn’t have too much cash on hand and any self-funded commercialization efforts would likely put pressure on shareholders from a dilution perspective (as OWC would have to raise to fund any such efforts).
The fact that the company is seeking to protect its asset right now suggests that it is looking to fall in line with the strategy we just described, which removes (in theory, at least) a large portion of dilutive risk from the equation for anybody thinking of picking up an exposure to this company and, specifically, this product, near term.
This doesn’t mean dilution is off the table, of course. We know the company is negotiating with certain parties right now, but these things can take time, and OWC has costs to meet every quarter. With that said, however, if the company expects an infusion of capital based on a collaboration deal, or alternatively, for another company to foot the bill for commercialization of the psoriasis asset, then the chances are that any rise will be smaller (and by proxy, less dilutive) than it otherwise might have been in an alternative scenario.
Catch up on the whole story: check out our previous coverage here.
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Image courtesy of Psoriasis Netz via Flickr
Disclosure: We have no position in OWCP and have not been compensated for this article.