Friday, March 09, 2007

Shareholders in Hollis-Eden Sickened by Neumune Failure

Drug developer Hollis-Eden Pharmaceuticals Inc. (HEPH-$2.90) said Thursday the Department of Health and Human Services rejected the company's radiation sickness drug, Neumune.

Neumune is postulated to work by mitigating neutropenia (loss of white blood cells known as neutrophils), thrombocytopenia (loss of key clotting elements known as platelets), and anemia (loss of red blood cells).

The stock got nuked on the news, stumbling $1.38, or 32.2 percent, to $2.90 per share, on the Nasdaq Stock Market on heavy volume, after hitting a 52-week low of $2.81 earlier in the session.

There was a turtle by the name of Bert
and Bert the turtle was very alert;
when danger threatened him he never got hurt
he knew just what to do...
He ducked! And covered!
Ducked! And Covered!
He did what we all must learn to do'

[Click to Play Duck and Cover - Video]

“Given the nature and stage of our communications with HHS regarding our original ARS proposal and subsequent revisions, this decision by HHS to exclude our proposal and cancel the RFP is shocking and difficult to understand," stated Richard B. Hollis, Chairman and Chief Executive Officer of Hollis-Eden.

The 10Q Detective took an interest in Hollins-Eden for two reasons:

  1. To determine if the HSS denial of solicitation of Neumune could have been foreseen by an informed investor.
  2. Will plaintiffs in the expected securities fraud suits be able to “prove that the act or omission of the defendants (management/board)” caused the loss for which the shareholders will ultimately seek to recover [financial losses]?

After an extensive read of regulatory filings, clinical trials, and press clippings, we believe that an informed investor could have heard the Geiger counter clicking; however, the incessant promulgations from management made it more difficult to reliably ‘hear’ the “Danger, Will Robinson” warnings [Lost in Space, 1960s sci-fi television classic].

Sit back, watch the show, and make your own informed decision(s).

Let us start at the beginning:

In the aftermath of September 11, U.S. intelligence officials feared the risk of a terrorist attack with a biological, chemical, radiological or nuclear agent. On July 21, 2004, President Bush signed the Project BioShield Act, legislation that provided, among other components, a mechanism for speeding research in promising areas of medical countermeasures, including the development and stockpiling of next-generation drugs that act as medical countermeasures to weapons of mass destruction.

A total of $6 billion was allocated to purchase medical countermeasures under this legislation.

Project BioShield also contained provisions enabling the Department of Health and Human Services, or HHS, to begin purchasing new medical countermeasures for the Strategic National Stockpile, or SNS, in advance of any formal FDA approval.

October 4, 2004. [HEPH-$11.14] In lethal studies, initially reported on at the Annual Meeting of The American Society for Therapeutic Radiology and Oncology (ASTRO, Neumune demonstrated a reduction in both neutropenia and severe thrombocytopenia, as well as a survival benefit as compared to animals not receiving Neumune.

[Ed. note. Under the FDA ‘Animal Rule,’ because it is unethical to conduct radiation-induced efficacy trials in humans, results in animals are used as a surrogate for efficacy results in humans—sorry PETA.]

Dr. Dwight Stickney, VP-Medical Affairs: We believe the model we have developed is one that recognizes the reality of the effects of a mass casualty scenario following a nuclear event…. we believe we have both defined, and shown potential benefit in, a model of the most stringent and relevant endpoint for radiation injury protection—survivability of high-dose radiation exposure.

RED FLAG! Statistical concerns: (i) the trial was originally powered to study 100 – 200 Rhesus macaques. The actual pilot study sample size was 30 monkeys. Ten of the animals received no treatment, while 10 received placebos, and 10 received Neumune beginning several hours after radiation exposure. (ii) Contrary to press release, the results were not statistically significant (p = 0.07).

October 19, 2004. [HEPH-$8.81] The Department of Health and Human Services (HHS) formally issues a Request for Information (RFI) for therapeutics to treat neutropenia and thrombocytopenia associated with ARS.

December 21, 2004. [HEPH-$9.35] Hollis-Eden announces that the company has submitted a formal response to the RFI. This response included data generated with Neumune in pre-clinical models of ARS, as well as information relating to safety and manufacturing, and also included preliminary estimates of pricing that were volume dependent.

March 31, 2005. [HEPH-$7.05] During the first quarter of 2005, Hollis-Eden continues to advance its Neumune development program for Acute Radiation Syndrome.

In late March, the Company initiated the first in a series of Phase I safety and pharmacokinetic (PK) clinical trials with Neumune. This first study is being conducted in the Netherlands.

The purpose of the Phase 1 studies, in addition to analyzing safety, is to determine the concentration of Neumune that can be achieved in human blood. The PK data can then be used in selecting the final dose for the pivotal efficacy study in non-human primates. By comparing the concentration of Neumune that can be achieved in humans to that which has already been established in non-human primates, the Company expects to be able to match the dose most likely to achieve efficacy in the pivotal study with a dose that is achievable and tolerable in humans.

In addition, the Company continues to expect to file an Investigational New Drug (IND) with the FDA in the first half of 2005 to initiate U.S. clinical studies. Safety and PK results from these studies are expected to be available in a timeframe that enables the Company to initiate the pivotal efficacy study in non-human primates in the second half of 2005.

To date, Hollis-Eden has conducted and reported on both sub-lethal and lethal radiation studies in over 200 non-human primates.

May 31, 2005. [HEPH-$8.49] Hollis-Eden files an IND application with the FDA to begin Phase I clinical trials in human volunteers with Neumune in the United States.

The similar Phase I clinical trial for Neumune is still ongoing in the Netherlands.

“Filing our IND to commence human studies with NEUMUNE in the U.S. is another significant milestone for our ARS development program,” stated Richard Hollis, Chairman and CEO of Hollis-Eden Pharmaceuticals. “We believe Hollis-Eden is the first company to file an IND with the FDA for a compound designed to treat ARS.”

Management informs its stockholders, too, that HHS has recently indicated on its website that it anticipates releasing by July 2005 a draft RFP for therapeutics to treat ARS.

“Issuance of a draft RFP for ARS under Project BioShield will be a positive market signal that the government is moving to procure a drug therapy for this indication,” said John Clerici, a partner at McKenna Long & Aldridge LLP, recently retained by Hollis-Eden to assist in responding to the potential upcoming RFP for ARS therapies.

July 5, 2005. [HEPH-$7.64] Hollis-Eden announces FDA clearance to commence Phase 1 human clinical trials with Neumune in the United States.

August 2, 2005. [HEPH-$8.67] RED FLAG? “Given the advanced stage of Neumune’s development, we are rapidly reaching a point where specific input and a firm commitment from HHS is critical to conducting the final components of the program,” stated Chairman and CEO Richard B. Hollis. “Given the current uncertainty with respect to the timing of this input and commitment from HHS, we are unable to provide guidance at this time as to anticipated timelines for the remaining steps necessary to potentially begin supplying Neumune to the Strategic National Stockpile.”

October 18, 2005. [HEPH-$5.11] The Company presents positive data from a preliminary interim analysis of its ongoing Phase I human clinical trials at the 47th Annual Meeting of The American Society for Therapeutic Radiology and Oncology (ASTRO) in Denver, including data showing a five-day treatment course in Neumune--treated human volunteers experienced statistically significant increases in neutrophils and platelets versus placebo-treated animals.

Hollis-Eden also reported at ASTRO updated data from pre-clinical studies indicating that Neumune can provide protection and benefit in non-human primate models across a wide range of radiation exposures (including lethal exposures > 600 cGy) both in settings where no other medical support is administered as well as in settings where supportive care can be provided.

This data suggests that Neumune could possibly be administered on an outpatient basis, or be self-injected by those exposed if the compound were previously forward deployed to those at risk.

An important finding from these studies, too, was that the best predictor for survival in primates exposed to lethal doses of radiation was days of thrombocytopenia (loss of platelets) through day 14 after radiation exposure, highlighting the importance of protecting platelets in addition to neutrophils.

Representative data suggests that giving the compound once-per-day for 5 days by injection at a dose of 15 mg/kg reduced the number of days of severe neutropenia from 12 to three. Similarly, days of thrombocytopenia were reduced from 8 days to zero days. Both of these results were statistically significant [p value N/A].

Human Clinical Trials: To date, a total of 95 volunteers have been enrolled in safety/dosing trials. Interim results indicate the compound is generally well tolerated, with pain and swelling at the injection site being the most commonly reported adverse event [to be expected].

September 30, 2005. [HEPH-$6.39] On the ARS procurement front, the Department of Health and Human Services issues a draft RFP for therapeutics to treat neutropenia associated with ARS.

October 31, 2005. [HEPH-$4.75] Management announces that included in its formal response to the draft RFP is a memo addressing its concern that the number of treatment regimens of a countermeasure for ARS is insufficient to protect the U.S. population at-risk called for in the draft RFP. The Company recommends increasing the targeted stockpile volume from 100,000 to 12—24 million treatment courses!

Furthermore, the Company categorically says that focusing solely on neutropenia, which is a change from the original Request for Information, runs counter to data indicating thrombocytopenia is a significant source of morbidity and mortality from ARS.

[Ed. note. Never contradict Big Brother!]

December 9, 2005. [HEPH-$5.25] The U.S. Department of Health and Human Services issues a Request for Proposal, specifying an initial potential stockpiling order of up to 100,000 treatment regimens, which is substantially lower than Hollis-Eden had anticipated.

December 30, 2005. [HEPH-$4.84] 39 –out of—111 volunteers have completed the 5-day treatment course in the Phase 1 human clinical trials. As expected, these healthy volunteers experienced a dose dependent, increase in neutrophils and platelets during the study. The magnitude of the increase in platelets and neutrophils in healthy volunteers was generally consistent with that seen in un-irradiated monkeys when given doses of Neumune that led to protection in radiation studies.

[Ed. note. Monkey see = Monkey do. Translation: Validation of ‘Animal Rule’ model. RED FLAG! SAMPLE SIZE STILL TOO SMALL.]

Stewart Simonson, is the man who oversees Project Bioshield. Simonson is a Republican political appointee who, before running Project Bioshield, was a lawyer for Amtrak. Republicans as well as Democrats have criticized his management of the program.

[Ed. note. Simonson--who has no scientific background--steered more than $1.0 billion in R&D monies to a still useless Anthrax vaccine program, and reminds many in Washington of Michael "FEMA" Brown--someone who is in way over his head.]

In January 2006, correspondent Ed Bradley did a 60 Minutes’ story on Project BioShield.

Simonson declined 60 Minutes' request for an interview, but his deputy, Dr. William Raub, was made available. Raub defended his boss. "When he worked for Amtrak, one of his major responsibilities was terrorist threats against the rail industry. He’s brought a considerable background and expertise and he’s provided strong leadership," he said.

Ed Bradley: “Why did the government decide to buy only 100,000 does to treat acute radiation syndrome?”

"Well this is the place to start and we don’t see 100,000 as the end, we see 100,000 as the beginning," says Raub.

The truth, according to 60 Minutes, is that [political hack] Simonson seems to be going in a different direction. He wrote a letter to Congress emphasizing that nuclear victims bleeding to death could be treated in hospitals. [Huh? Has he ever been to an ER during a flu outbreak—never mind radiation fallout.]

March 16, 2006. [HEPH-$6.17]

10-K filing: “In addition to a possible BioShield procurement under the initial ARS RFP issued by HHS, we believe there are multiple other significant market opportunities for Neumune. Among these is a potential procurement of a countermeasure such as Neumune by the Department of Defense, which has been seeking an ARS therapy since the 1960s and considers Neumune its lead product candidate for ARS. The Department of Defense has issued a Sources Sought Notice, or SSN, for an ARS therapy for use by U.S. forces, and we responded to that SSN in January 2006.

The Department of Defense also indicated in a letter to us that it would be issuing by mid-year 2006 its own RFP for an ARS therapy for the military. In that letter, we were highly encouraged by the Defense Department to respond to this RFP.”

April 27, 2006. [HEPH-$5.70] Hollis-Eden files its annual Proxy statement. 10Q Detective Due Diligence reveals that of the seven members on the Board of Directors, just one director, Thomas C. Merigan, Jr., MD, 72, has a science/research background.

Chairman and CEO Richard B. Hollis, 53, has a sales and marketing background, and a B.A. in Psychology from San Francisco State University. Despite the fact the Company is bleeding red, his salary/bonus in each of the last three fiscal years was $750,000, $810,000, and $798,000, respectively.

[Ed. note. RED FLAG! Hollis-Eden has been unprofitable since our inception [March 1997]. As of March 31, 2006, the Company had an accumulated deficit of approximately $168.2 million.

Further, as of December 31, 2005, the aggregate revenue [contract] earned by Hollis-Eden was an anemic $119,000—less than Messer. Hollis makes in just two months!]

June 26, 2006. [HEPH-$4.89] Hollis-Eden provides its shareholders with the anticipated update of Neumune RFP: The Department of Health and Human Services in a letter says that Hollis-Eden “is within the competitive range for discussion and further evaluation” with respect to Hollis-Eden’s response to HHS’ Request for Proposal entitled “Medical Countermeasures to Mitigate or Treat Neutropenia Alone or in Combination with Co-Morbidities Associated with Acute Radiation Syndrome (ARS).”

After two years of false starts, the negotiation process for a potential procurement is formally underway. HHS indicates in their letter that the new estimated date of award is September 15, 2006.

August 18, 2006. [HEPH-$6.93] RED FLAG! Richard Hollis and other members of Hollis-Eden's senior management team, announce their intent to sell a portion of their Hollis-Eden stock over time as part of “individual long-term strategy for estate planning, asset diversification and liquidity” via pre-arranged stock trading plans (SEC Rule 10b5-1).

[Ed. note. Insiders who invoke Rule 10b5-1 have successfully refuted—in court—allegations that the trading was done pursuant to previously established trading plans—and not because of possession of material non-public information. RED FLAG! Nonetheless, this begs the question: Why sell before the big day?]

September 27, 2006. [HEPH-$5.57] RED FLAG! The announcement of first procurement of Neumune by the HHS is delayed, and while “HHS has not provided Hollis-Eden with a new estimated contract award date, based on this extension an award could be made under this RFP at any time prior to the end of November 2006.”

October 13, 2006. [HEPH-$6.34] RED FLAG! Companies with nothing new to report often fill the void with noise: “Hollis-Eden presents new clinical data—in a study that enrolled 18 patients! —supports the use of Neumune in mitigating ARS.”

November 13, 2006. [HEPH-$6.11] Hollis-Eden announces 3Q:06 fiscal results: “From inception through September 30, 2006, the Company has generated approximately $323,600 in revenues [still less than one-year ‘s salary of its co-founder, Richard Hollis] and the aggregate net loss was approximately $183.6 million for this period.”

RED FLAG! General and administrative expenses were $1.9 million and $7.1 million for the three-month and nine-month periods ended September 30, 2006, respectively, compared to $1.9 million and $6.5 million for the same periods in 2005.

The 10Q Detective notes that in calculating its option expense for 2006, expected volatility fell year-over-year from 136% to 91 percent! (Such a material decline in implied stock price volatility tends to lower option expenses.)

December 29, 2006. [HEPH-$5.26] Still no news from HHS….

February 1, 2007. [HEPH-$5.47] Hollis-Eden Gets New HHS Date on Award

RED FLAG! The Department of HHS revised its award date to March 7. Previously, Hollis-Eden expected a decision by Jan. 31, and prior to that, by the end of September.

February 26, 2007. [HEPH-$5.46] Blah! Blah! Company posts new monkey data demonstrating the ability of Neumune to increase survival in a primate model of lethal radiation injury.

Of note, in its press releases, the Company is getting more novel in describing its proprietary class of adrenal steroid hormones: “Hormonal Signaling Technology Platform” has replaced “Immune Regulating Hormones” in the Company’s lexicon.

March 8, 2007 (7:51 A.M.) HHS considers Hollis-Eden's Neumune “technically unacceptable” and no longer in the competitive range. Closing price: [HEPH-$2.90]

Circumstantial evidence? Yeah--but in our view, starting in October 2005, the Company was conjuring away doubts as to Neumune's eventual fate with hollow press releases and smoke and mirror promises of riches just over the next mushroom cloud.

Sadly, any drug to treat acute radiation sickness will probably never see the light of day.

Farewell the neighing steed, and the shrill trump,/ The spirit-stirring drum, the ear-piercing fife,/ The royal banner, and all quality,/ Pride, pomp, and circumstance.... -- Shakespeare's Othello

Save for some 300 million doses of mallpox vaccine stockpiles, biodefense countermeasure initiatives are nonexistent--mired in bureaucratic muck. Knowing this--and given Hollis-Eden's constant assurances that its RFP was tracking on schedule, we look for investors to charge the company with issuing false statements about Neumune's prospects.

The 10Q Detective predicts that the first shareholder class-action lawsuit will be filed by the close of trading today.

Editor David J Phillips does not hold financial interests in any of the companies mentioned in this posting. The 10Q Detective has a Full Disclosure policy.


Anonymous said...

This is all very interesting and makes me feel much better that I never bought it after the "60 Minutes" episode HEPH was on. They were VERY compelling and I almost bought it at 6.80...again at 8...wiped my brow in relief when it landed at 4...considered it again at 5...then promptly forgot about it.

Lesson learned not to buy based on news shows. Exhibit B: International Fight League (IFLI).

Anonymous said...

Well, since you don't list "scientist" as part of your qualifications (or did you, and I missed it), the Department of Defense says Neumune is the best drug out there for ARS. You didn't mention that, or did I miss that too. When 9/11 happened, the DoD contacted HEPH and asked them to get on it with Neumune. Call the company for verification. The DoD on 60 Minutes said that " Neumune is in a class of its own." Sadly, you think a small company is out to do nothing but survive. The 60 Minutes show was done for a reason. The company stated that HHS indicated at the last extension they needed to do inhouse administrative motions in order to make the award. They indicated they wanted the drug according to Hollis Eden. This is nothing but a personal vendeta between Fauci and HEPH, and apparently you. If their drug was no good, they should have been told so up front. You are just a paid hatchet job.

David J. Phillips said...

Did I miss the part, too, where the Company repeatedly said in their regulatory filings how huge the market potential was/is for Neumune, too?

Would someone out to do a hatchet job declare--and agree with you--that Simonson is nothing more than a political hack (and is no more qualified to run Project BioShield than Michael "Brownie" Brown was to running FEMA]?

SellToWhom said...

Take a look at HEPH's past for the sordid tale of their supposed AIDS drug. To anyone who knew the HEPH story then, the failure of Neumune was no surprise. What is a surprise is how little research the 60 Minutes crew did on the company.