2012-11-08 13:12:16 -
By M.E. Garza
Despite a dismal Wednesday 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.
In play is a 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 a completely
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 captivated by
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
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,"
While there are certainly many more details to exploare 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
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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