Nile Digs In


By Jason Napodano, CFA

On May 15, 2012, Nile Therapeutics (NLTX) reported financial results for the first quarter 2012. The company reported grant revenues of $195K in the quarter. Net loss for the quarter was $0.8 million or $0.02 per share. Nile exited the first quarter ended March 31, 2012 with $0.4 million in cash and equivalents. Operating burn for the first three months of 2012 was $0.6 million.

...Cash Raise Buys Management Time...

In April 2012, Nile raised approximately $1.04 million through a private placement of 3.6 million shares of common stock at $0.40 per share. We note that Nile's Executive Chairman, Richard B. Brewer, President and CEO, Joshua A. Karam, CFO, Daron Evans, and VP of Clinical Development, Hsiao Lieu, MD, all participated in the deal, ponying up $110,000 of their own money.

The net $1.04 million raise in April, along with the $0.4 million balance at the end of the first quarter, buys management time. We model operating burn of approximately $0.5 million per quarter for the second and third quarter. Therefore, the current cash position is enough to fund operations into the fourth quarter 2012.

...Searching For A Deal...

Despite the fact that management participated in the private placement, the April financing has not been well received by the market. Nile's stock is down nearly 60% year-to-date. Investors expected a deal with Medtronic shortly after data from the successful phase 1 study was presented at the American College of Cardiology (ACC) meeting in March 2012. The data presentation from the trial demonstrated that Nile's cenderitide was safe and well tolerated when delivered via subcutaneous infusion to patients with chronic heart failure. We discussed this data and provide a background on Nile's drug in this earlier NOTE to investors.

But a near-term deal with Medtronic seems unlikely. Medtronic was interested in testing its MiniMed Paradigm pump, currently indicated for continuous infusion of insulin, in cardiology indications. Whether or not they are interested in taking a pharmaceutical product into phase 2 remains to be seen.

In the meantime, Nile continues its discussions with additional parties, including large and specialty pharmaceutical companies. But given that data from the phase 1 trial was only recently presented, we suspect that these companies will require several more months of due diligence before a deal can be signed.

...What's Next...

Nile is developing cenderitide as a 90-day outpatient treatment for heart failure patients following admission for acutely decompensated heart failure (:ADHF) - referred to as the "post-acute" treatment period. The company is searching for a development and commercialization partner willing to fund cenderitide starting with a planned phase 2 trial later this year. Management at Nile is currently preparing to file a protocol to the U.S. FDA in the next month or two. We believe Nile would like to test cenderitide in 300 patients with chronic (post-acute) heart failure, with the primary endpoint of safety and tolerability over the 90-day infusion period. Secondary endpoints will seek to identify improvement in clinical heart failure surrogate markers and a potential trend in the reduction of the hospital re-admission rate.

We think that Nile requires $18 to $20 million to fund this program, plus an additional $2 to 4 million to fund overhead operations until the middle of 2014. Finding a partner willing to shell-out nearly $25 million to a company with a market value of $9 million is a daunting task. But cenderitide, if successfully commercialized, is a potential blockbuster drug. So the upside to the partner (and investors) is clearly there. Our previous NOTE outlines why we believe this is the case.

There is clearly precedent to back up this argument. In 2002, J&J paid $2.4 billion to acquire Scios and their drug Natrecor (nesiritide). Natrecor, a B-type natriuretic peptide (:BNP) was a $400 million drug and soaring in 2004 before an FDA Dear Healthcare Provider letter derailed that meteoric rise. We believe cenderitide, a combination of C-type natriuretic and D-type natriuretic peptide (CD-NP), has improved safety and efficacy characteristics verses nesiritide.

Nile is looking for a partner that shares that belief. Partners are probably waiting for the FDA to approve the phase 2 protocol before they pony-up the dough. However, if no deal can be reached by September 2012, we believe that Nile will push forward with an additional equity financing seeking to raise the necessary funds to initiate the planned phase 2 trial on its own. If that were to happen, the shares may come under further selling pressure. But with a market value of only $9 million, we see favorable risk / reward. Nile, with a phase 3 ready asset in cenderitide, could be worth $100 million in value. That's a ten-fold increase, and the reason why we are sticking with our bullish thesis on story.

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