Immune Pharmaceuticals Inc (NASDAQ:IMNP) is a company that we have covered on quite a number of occasions over the last 12 months and it’s one that – across the period – has given us plenty to discuss. Just recently, management announced that it had formed a subsidiary, the remit of which would be to focus on the oncologic side of Immune Pharmaceuticals’ development pipeline. The decision wasn’t met with wild fanfare and the company has failed to pick up any real strength from a market capitalization perspective on the back of the restructuring. For current shareholders, however, despite market reaction, and somewhat contrary to current perception of the arrangement, the revised and refreshed focus that the subsidiary type structure will afford Immune Pharmaceuticals could be beneficial long-term.
Before getting into why, it is worth noting that, as things stand, the subsidiary, called Cytovia, remains just that – a subsidiary. However, chances are that we will see it spun out from its parent over the coming six months or so and, if shareholders get a bit of luck, we will see it list on the NASDAQ. If this is the case, Immune Pharmaceuticals shareholders will be eligible for a certain portion of the new company, delivered to them by way of a share-based dividend. We don’t know exactly what portion of the new company the overall dividend will represent, but anywhere between 20% and 30% is not unreasonable to assume.
So, with that out of the way, let’s look at why a Cytovia spinoff could be a good idea.
Immune Pharmaceuticals has a development pipeline that is led by a drug called bertilimumab, which is currently targeting inflammatory conditions and – primarily – bullous pemphigoid and ulcerative colitis. The drug is promising and is currently under investigation as part of two separate midstage trials in these indications, but the programs are costly and cash is something that Immune Pharmaceuticals doesn’t have right now. This is not unusual at this end of the biotechnology market, but shareholders have grown weary of a repeated equity raise/reverse split pattern that is gradually eating away at their respective holdings.
Cytovia, the subsidiary, is focused on a drug called Ceplene. This one is an oncology drug (as mentioned above) and is primarily targeting various types of myeloid leukemia (acute myeloid leukemia, AML and chronic myeloid leukemia, CML, right now).
Unlike bertilimumab, however, Ceplene is already approved in Europe. This means it can already generate revenues for Immune (and going forward, Cytovia) which can start to help foot the bill for the research and development side of things that – as has been the case over the last few years – shareholders are having to take the brunt of through dilution. With the two companies sharing resources (time and money, but primarily the latter) there has been little to no development on the Ceplene side of things as late. Sure, it’s approved, but these drugs need a sales force behind them or they just end up sitting on shelves. Now that Cytovia is Ceplene focused it can start to boost sales in the already approved markets. And we’re not talking a small market – management expects the initial addressable market to be somewhere in the region of 7,000 patients.
Once sales start to come in from Europe, Cytovia can start to funnel some of the revenues towards advancing the drug along a development pathway in the US, where the addressable market rises to more than 21,000 – three times that of the European estimates.
Bottom line here is that it’s all about stimulating cash flow so as to take pressure off shareholders. That’s what the Cytovia spin out can do and – assuming management expectations are aligned with what we have outlined above – that’s why it could be a strong move for the company.
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Disclosure: We have no position in IMNP and have not been compensated for this article.