BioPath Holdings Inc. (BPTH): Why A Bad Golf Company Won't Make A Good Gene Therapy Company

by Sonya Colberg, Senior Editor - 4/26/2016 12:35:32 PM

BioPath Holdings Inc. (Nasdaq: BPTH) has swung and sliced to the right. Now it hopes investors will run after the ball. 

The company spent six years fruitlessly trying to make a buck selling ugly pants, clashing shirts and other golf paraphernalia. It eventually made the unlikely transformation into ...  gene therapy.

But BioPath is still missing the ball and will almost certainly continue to do so as this company attempts to produce a drug delivery platform.

Indeed, the new company presents these massive risks for investment portfolios:

* Reverse Merger; Inexperienced Management: The CEO/CFO/Treasurer/Chairman/President reverse merged a golf company to create a biotech. He is among the company's four leaders with virtually no experience in biotech. 

* Unfortunate Supporter: Recent support from Rodman & Renshaw and Maxim offer good reasons for investors to avoid BioPath.

* Uncertain Revenue Generation: Any possible product sales are distant dreams. The top drug candidate is only in Phase II trials. The second candidate is approaching Phase II. So the candidates must get through one to two more phases of study before even going after FDA approval to market the drug. 

* Fierce Competition: No one knows whether the drug candidates will succeed and some experts are skeptical. Meanwhile, many established companies are developing encouraging therapies for the very same target patients.

* Low Institutional Interest: Five institutions have sold out, including a particularly noteworthy investor.

* Stock Dilution Looms: BioPath's cash has fallen to an estimated $7.65 million. At a $1.25 million quarterly burn rate, it will take plenty of money to proceed with trials and business operations. A big ATM brimming with share dilution potential is poised.

Investors may find other viewpoints here. Meanwhile, here are details on the top six reasons TheStreetSweeper is convinced BioPath's drug game will be no better than its golf game.

*1. Odd Beginning

So it all began in 2000 when Ogden Golf Corp. opened and began selling golf items in Ogden, Utah.

After six straight years of losses and nothing to show for it but over-tapped friends and family, the board apparently realized the golf course would not drive the company straight to wealth and happiness. So managers registered with the Securities and Exchange Commission, began selling shares for 50 cents apiece and looked around for business ideas.

They found that idea in the most unlikely of places ...

*2. Reverse Merger; Inexperienced Management.

The CEO/CFO/Treasurer/Chairman/President decided to reverse merge the golf company to create BioPath Holdings in 2008, two years after Ogden Golf closed.

But, while Peter Nielsen may know golfing, he lacks real biotech or healthcare leadership experience. Yet here he  is - the CEO, CFO, treasurer, chairman and president of a Bellaire, Texas biotech - albeit a biotech that has failed to advance a product as far as Phase III in eight years.

Peter H. Nielsen. Mr. Nielsen is a co-founder of Bio-Path, serving as its Chief Executive Officer, President and Chief Financial Officer/Treasurer and Chairman of the Board since 2008. Mr. Nielsen has developed a close working relationship over the last six years with key individuals at The University of Texas MD Anderson Cancer Center and its suppliers. Mr. Nielsen has a broad management background in senior management, leading turnarounds of several large companies.  He also has experience in finance, product development, cost and investment analysis, manufacturing and planning.  He has also worked with several other biotech companies developing and executing on strategies for growth and previously served as a director of Synthecon, Inc., a manufacturer of 3D bioreactors.  Prior to joining Bio-Path, Mr. Nielsen served as Chief Financial Officer of Omni Energy Services Corp., a NASDAQ traded energy services company.  Mr. Nielsen was a Lieutenant in the U.S. Naval Nuclear Power program where he was Director of the Physics Department and was employed at Ford Motor Company in product development.  He holds engineering and M.B.A. finance degrees from the University of California-Berkeley.

But Mr. Nielsen's biotech experience is so light that the second line of his biography highlights his friendship with folks at The University of Texas MD Anderson Cancer Center.

While the bio states he led "turnarounds of several large companies," it mentions Synthecon, a Houston Technology Center incubator product with little public presence since 2010. And the bio mentions an oil services company, Omni Energy Services Corp., where he became CFO in September 1999.

But the oil field service company priced at  $11 per share in its initial public offering in 1997 soon fell into financial disarray.

According to this release on a lawsuit, his predecessor claims to have been hired as part of a turn-around team because "its stock price was depressed and the company had narrowly avoided delisting."

So it doesn't sound like Mr. Nielsen was present during a "turnaround."

Indeed, Omni reported gross profit worsened from $-2.7 million when he arrived, to $-3.6 million, when Mr. Nielsen apparently left as he signed his last amended annual report in April 2000. Omni was later folded into a private, Canada-based oil service company, Gibsons.

BioPath co-founder Douglas P. Morris also lacks prior biotech experience. The company director left his BioPath executive position in 2014.

Douglas P. Morris. Mr. Morris is a co-founder of Bio-Path and has served as a director of Bio-Path since 2007 and served as an officer from 2007 to June 2014. Mr. Morris currently serves as a co-founder, Managing Member, and Secretary of nCAP Holdings, LLC (nCAP), a privately held technology based company. Between 1993 and 2010, Mr. Morris was an officer and director of Celtic Investment, Inc., a financial services company. Since 1990, Mr. Morris owns and operates Hyacinth Resources, LLC (“Hyacinth”), a business-consulting firm and is also a Managing Member of Sycamore Ventures, LLC, a privately held consulting firm. Mr. Morris has a B.A. from Brigham Young University, and attended the University of Southern California Masters program in public administration.

Chief operating officer Ulrich W. Mueller (page 51) and director Dr. Amy P. Sing (page 52) both have biotech experience. So four out of six BioPath leaders have no significant biotech experience. This compares with strong biotech experience in eight out of nine people in the executive suite of Juno Therapeutics.

And, considering how little the 11-person company has advanced in nearly a decade, executives are generously rewarded. The two top executives haul in around $1 million yearly.

(Source: Company SEC filing)

Now, let's look at an investor that was, in our opinion, unfortunately attracted to BioPath.

*3. Unfortunate Support: Rodman & Renshaw

One reason for caution is the April 18, 2016 $5 buy rating from Rodman & Renshaw. The note apparently helped push up the stock but a price increase is temporary ... and could suddenly reverse course. 

Rodman & Renshaw reportedly was among those that had pushed aggressively for people to invest in Chinese companies around 2010 to 2013.

Interest in Chinese stocks soon collapsed on reports that some companies had hyped profits or committed outright fraud. 

Soon, various investigations into suspected Chinese stock fraud revealed everyone from institutions to mom-and-pop investors had lost multi-millions of dollars invested in the over-hyped, underperforming companies.

ABC News found 20 of 40 Chinese companies that presented at Rodman & Renshaw's 2010 conference had lost their listings within three years and 10 others were trading around $1 per share.

While we're not implying any wrong-doing on Rodman & Renshaw's part in connection with BioPath, we think investors do deserve to know the firm's background and consider whether the firm represents another layer of risk.

Below is an example of how bulls pushed up a Rodman & Renshaw-promoted stock to ~$10, where it had fallen from a high of ~$53 eight months before (click here to see that Rodman & Renshaw issued at least 25 reports on SinoCoking from July 2010 to September 2011.)

The second chart shows how the stock, now called "Hongli Clean Energy Technologies trading under the symbol CETC, has plummeted. The company recently received a delisting notice.

(Source: Nasdaq)

Below is the company's current stock chart. Yesterday's $50 stock is now 50-cent stock.

(Source: Yahoo Finance)

The Maxim Group is another firm that invested in BioPath. The firm has issued nine "buy" reports since initiating coverage in 2014.

*4. Uncertain Revenue Generation

BioPath's experimental product is a way of delivering certain drugs to the right place in body cells. BioPath is working on the systemic delivery of two antisense drug candidates.

The top candidate - which targets acute myeloid leukemia (AML) - is only in Phase II study. The second candidate - which targets chronic myelogenous leukemia (CML) - is approaching Phase II.

So the candidates must get through the long process of one to two more phases of study before seeking Food and Drug Administration approval to market the therapy.

(Source: Commpany SEC filing)

These potential products are in the very early stages, so any possible sales are distant dreams.

Many roadblocks will likely be ahead because gene therapy, itself, is extremely complex and the FDA "has not yet approved any human gene therapy product for sale."

BioPath's MD Anderson-licensed technology approach to gene therapy does have its skeptics, as shown here.

Researchers with ICRF Oncology Group wrote:

"(There) are important reservations to be addressed before we can say antisense reagents really offer useful new therapeutics opportunities.

"(A)side from establishing the principle that antisense strategies can work in certain highly controlled (and carefully chosen) model systems, is there really any prospect that a new therapeutic principle has been established?"

Authors also question whether the agents may be toxic or immunogenic under long-term use.

Interestingly, BioPath's own accountants consider the technology licenses worth just $2.5 million. With the market cap at an unbelievable $250 million, accountants value the technology at 1% of what the market thinks its worth.

Read on to get an idea of how institutions are apparently thinking about BioPath's risks ... Then we'll look more closely at this highly competitive field.

*5. Institutions: Selling Out; Including A Key One

Big banks are showing little interest in BioPath, accounting for only ~11% of BioPath shareholders. And the trend is for 10 times more decreased positions than increased positions:

(Source: Nasdaq)

Five institutions have recently sold out of BioPath. Investors will be particularly disappointed to see that notable healthcare investor, Sabby Management, recently completely sold out of BioPath.

(Source: Nasdaq)

*6. Fierce Competition

Maybe those selling out have re-examined those risks plus the growing competition. In fact, the company is racing against hundreds of blood cancer drugs and an uncountable number of gene therapy companies, here.

More than a dozen gene therapy companies are listed on the stock market, including:

* Bluebird Bio (BLUE): Gene therapy for cancer, neurological disorders, sickle cell, other genetic and rare diseases. Car-T treatment under partnership with Celgene.

*Alnylam Pharmaceuticals (ALNY): Gene therapy based on lipid-based delivery / siRNA interference.

*Cellectis S.A. (CLLS): Gene therapy for cancer using CAR-T therapy.
 
*Aptose Biosciences (APTO): In vivo gene therapy products including AML treatment.

Two well-positioned companies working on drugs that target blood cancers include:

*Juno Therapeutics (JUNO): Gene therapy for cancer including CAR-T treatment (T-cell therapy). Primarily targets leukemia and lymphoma. Juno studies indicate complete remission for 29 of 32 patients (91%) with lymphoblastic leukemia when they were treated with its therapy. Juno makes $18 million in yearly revenue.

*Kite Pharma (KITE): Gene therapy for cancer using CAR-T therapy. The company reported in December that five of seven patients (71%) with aggressive large B cell lymphoma responded partially or completely to its therapy.
 
Juno and Kite also look far better positioned than BioPath from a financial standpoint:

(Sources: BioPath SEC filing ($8.9m cash on Dec. 31, 2015 minus $1.25m cash burn/qtr); SEC filing; Yahoo Finance)

These comparisons are like comparing a dinged up golf cart to a brand-new Mercedes Benz. BioPath looks like a brushed up former shell with a couple of licenses and an ever-growing need for more money ... likely providing shareholders even more future dilution.

*Conclusion:

BioPath's pathway from golfing to gene therapy is definitely unusual. Maybe leaders should have tried another opportunity. Because here the company is with over $25 million in losses, managers with no or little experience, riding on hype over an unproven and uncertain therapy that they hope will get to market someday ... albeit well behind gigantic competition.

Cash has dropped to about $7.65 million. At a $1.25 million quarterly burn rate, if it expects to advance in trials, BioPath will soon need a significant cash infusion. A $25 million at-the-market facility allowing BioPath to sell stock without further notice awaits, looming with dilution potential. And we believe more dilution may be imminent.

Indeed, a market cap of $250 million is outlandish for a stock this early in the process and this risky. We're going with BioPath's accountants who imply a $2.5 million valuation. We expect the stock will soon go screaming down to a very fair valuation  of $1.50 per share.

* Important Disclosure: The owners of TheStreetSweeper hold a short position in BPTH and stand to profit on any future declines in the stock price.

* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to scolberg@thestreetsweeper.org.

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