Small Cap Network Blog

The final chapter of this story is all but written, though everyone should have put the book down long ago. However, if you’re still reading it, the saga ends in disaster.

OK, enough with the dramatic metaphors. Let’s just get to it.

It looks like the final nail has been hammered into Orchestra Therapeutics’ (OTCBB: OCHTE) coffin. Their remaining trial drug research - on the autoimmune disease treatment called Neurovax - has been discontinued, most employees have been laid off, and Dr. O’Neill’s employment has been terminated. The only thing left to do is turn off the lights on the way out. I don’t believe there will be an Orchestra Therapeutics at all by the end of the year.

The company is looking to sell its research and real estate, then pay off their creditors with those proceeds. If there’s anything left, shareholders will get it. Personally, I don’t think there will be anything left. So…

If you ignored our original suggested stop and rode this thing lower, I think this batch of news should be enough motivation to get out while there’s still something left to get. You can bail out at 25 cents as of today, which is a heck of a lot better than nothing.

What a debacle. These guys ended up being a joke, and an embarrassment to Jonas Salk’s name. Failure to find successful biotechnologies would have been one thing…and even acceptable. Orchestra failed in terms of letting investors know what was going on and what the risks were, which is completely unacceptable.

Needless to say, though we were effectively done watching the company several weeks ago, we’re officially ending coverage now. We suggest any remaining owners go ahead and dump this one and at least benefit from the tax break.

For the official word from the company, click here. It was quietly buried in an 8-K.

As you’ve probably already heard, Orchestra Therapeutics (OTCBB: OCHT) has decided to discontinue the development of their HIV treatments, currently in trials. The bottom line was they just didn’t see enough of a benefit in the results achieved by the 52-week mark. If you want the full details, the link to the press release is below. I just want to focus on my opinion of how this impacts investors rather than the underlying science.

Honestly, I have mixed feelings here. In some ways, you have to admire a company willing to do what makes the most sense for everyone in the long run, even if it’s an unpopular decision. IR103 and REMUNE - the two developmental HIV drugs being dropped - don’t work well enough, and the company doesn’t want to burn money for no reason. Certainly at this point investors can appreciate that.

On the other hand, it was only a few months ago the company was touting their work (which really did have some promise) against HIV/AIDS. That was the exciting part to investors - including me - in addition to being the key driver for most of the company’s fund-raising. Now it’s just plain gone.

There’s an old investing adage….if one of your three top reasons for owning a stock has changed, then you probably don’t want to own the stock anymore. I know for a lot of us, the possibility of creating a cure for HIV was the compelling factor. I’ll let you interpret that however you want, but……

Though the IR103 and REMUNE vaccine programs are being dropped, don’t forget they’ve got a leg up in the development of drugs for other autoimmune diseases like multiple sclerosis (MS), rheumatoid arthritis (RA), Crohn’s disease, Psoriasis, Lupus, and type-1 diabetes. In fact, that was the whole reason for the name change from Immune Response to Orchestra Therapeutics - to better reflect the company’s new focus.

The autoimmune disease treatment market is much smaller, with a lot more competition, but the downside is countered with the notion that Orchestra has a much better shot at getting something to the market in the autoimmune arena.

The point being, though the old three reasons you may have had for being a shareholder are now changed, maybe there are three new reasons just as valid. 

On a side note, though the release didn’t really detail this, the books could be getting ready for a jolt of cash. All of their HIV technology, research, and collective work may be up for sale to someone with the means to carry it through to the next level. And the biotechnology facility that’s going up for sale now that Orchestra doesn’t need it anymore? It’s worth an estimated $75 million.

Now, according to the company’s most recent SEC filing, Orchestra’s current market cap is somewhere less than $10 million. See the math there? The break-up value may end up being a hack of a lot bigger than the share’s price, even if they can only divest their properties at half their value. Just something interesting to think about.

My only advice is this - don’t dwell in the past. OCHT was a poor-performing stock, when the focus was on an ultimately-doomed HIV treatment. The autoimmune disease focus is mostly new, and may also mean brighter days for the stock. If it were anybody besides Orchestra with the same news, opportunity, and knowledge, would you be interested then? That’s the litmus test.

Just for the record though, I’m not counting on brighter days real soon in terms of scientific progress…or even for investors. I see some of the same patterns popping up with the NeuroVax (their lead autoimmune drug) trials that we saw with their HIV work; we’re hearing about how great it could be, but phase II testing isn’t anywhere near done. I’m thinking they need to really ’show me’….something I seem to be saying a lot lately.

I think the company also has a ton of ill-will to overcome. They burned a lot of people…..a failed HIV drug, unfair financings, poor communication - the reasons are numerous. It could be a while until enough faith is restored to get the chart moving upward again. Needless to say, I don’t expect much at this point.

For more details on the HIV trial results and Wednesday’s decision, click here.

We haven’t heard much from Orchestra Therapeutics (OTCBB: OCHT) lately, but that doesn’t mean they haven’t been busy. This morning, they released on update on Phase II testing of their potential multiple sclerosis vaccine. The drug, called NeuroVax, appears to enhance the number and capability of regulatory T cells (the good kind) to identify and kill pathogenic T cells (the bad kind).

Though there’s still some work and testing to be done before it even gets to the market as an approved MS treatment, it looks pretty promising so far. Better still, NeuroVax may also serve as a vaccine against psoriasis and rheumatoid arthritis.

This is pretty good news for the company, and even better news for those affected by autoimmune disease. There’s no timeframe yet on when this might proceed to the next level, but it may be worth keeping an eye on.

Equally importantly (ok, maybe more importantly), Orchestra still says they intend to update the Phase II testing data on IR103 sometime during Q2…..which ends this month. IR103 is their HIV treatment, which the company has recently suggested would be dropped, but even more recently said they’d let this upcoming batch of data determine the next course of action.

I’ve seen the term ’strategic alternative’ used a few times regarding the decision, so I’m not personally hopeful that IR103 will continue being tested. But, maybe I’m being too pessimistic. The company has been mostly unwilling to provide any additional commentary besides that.

One way or another, we’re going to get that news soon.

In the meantime, OCHT has certainly been tough to own. Maybe the impending IR103 news could do the trick and pull the stock out of its rut. But, considering they have no revenue-bearing product right now, and no assurance they ever will (and being years before they ever did if they did), I have to wonder if the stock has used up all of its goodwill. A couple of disadvantageous (in my view) financings didn’t help any either.

I guess we’ll find out, but I’d personally need to see a lot of planets line up in favor of Orchestra before I became confident again.

For more on the MS treatment news, click here.

If it was your understanding Orchestra Therapeutics’ (OTCBB: OCHT) - formerly known as Immune Response - HIV drug was being dropped in the middle of its trials, you weren’t alone…..that’s what I inferred from the news they released back on April 4th. Here’s the clip straight from the press release:

The transition to the new name coincides with the Company’s decision to terminate the HIV clinical trials to fully focus the weight of the Company’s resources on the autoimmune program. The 52-week data from the first large cohort of HIV clinical-trial participants have already been gathered, and analysis of the data will be completed and disclosed in the second quarter of 2007. Based on this data, the Company will consider strategic alternatives for the HIV program.

Additionally the Company has decided to scale back operations at its manufacturing facility in King of Prussia, Pennsylvania, effective immediately. This decision will reduce costs by approximately $3 million per year, while allowing the Company to maintain the facility pending strategic decisions about the HIV program.

Maybe I missed something, but that seems pretty clear and fairly decisive. However (as it happens sometimes), questions, rumors, and whispers all lingered a little too long to just ignore. In this case, the idea has surfaced that their HIV treatment - called IR103 - is actually not being dropped.

I, not being a big fan of uncertainty, did the obvious - I asked the company what the deal was. Here’s ‘the deal’ according to one of the key upper management team members…… They won’t have the data on the first group of patients from the 52-week trial until it’s completed in June. At that time, they’ll have some analyzing to do, but they expect to have concrete data by late June. Their plan is to ‘let the data speak for itself’…..whatever that means. (I asked for further clarification about IR103’s future, but didn’t get more than what you just read.)

Is it me, or is the trial still going in despite what April’s press release said? To say it’s “a bit at odds” would be an understatement, wouldn’t you agree?

At this point, I don’t know what to think. I know they just announced another round of financing a few months earlier than they said they would need to. I also know what the press release said then versus what other company heads are saying now.

I’m one of the most patient people I know, but this is getting pretty frustrating - well past the point of steering clear of the stock unless they can answer some questions in a meaningful way. I don’t have a warm fuzzy here…..just too much inconsistency for me, and has been for a while.

Anybody have any other thoughts or insight?

We mentioned it was in the works a few days ago, but here it is…..the ticker symbol for Orchestra Therapeutics - the old Immune Response Corporation - is now ‘OCHT‘. The old ticker may work for a while (or not), and/or the new one may work (or not), depending on your data feed. Soon though, you’ll have to use OCHT instead of IMRP. The symbol switch changes nothing about the share value, and changes nothing about the number of shares issued and outstanding.

You might recall the whole purpose of the name change was to better reflect the company’s new focus on treating autoimmune conditions (like MS, diabetes, and Lupus, just to name a few) with their impressive FOXP3+ cell research. The HIV program is being phased out. We’re presuming the risk/reward pendulum of carrying both trial programs was just swinging in one direction - in favor of NeuroVax, the company’s autoimmune disease treatment currently in Phase II trials.

For more on the ticker change, click here.

Today, Immune Response (OTCBB: IMRP) posted an interim update for its Phase II (Italy) testing of two HIV vaccine candidates. Both of the drugs being tested, REMUNE and IR103, have been shown to sustain a CD4+ T-cell count over a 36 week period.

In English, we think this is an important sign that Immune Response’s work is showing promise so far. CD4+ cells are important to the body’s immune system, but they’re specifically attacked by HIV. By prodding a patient’s body to maintain its CD4+ T-cell level, the body’s own immune system remains strong enough to fight the virus’ effects on its own. Plus, it can help stave off other infections commonly considered AIDS symptoms. Most alternative HIV drugs are designed to attack the virus directly, which can be less effective (and perhaps ineffective) than a patient’s own immune system trying to do the same.

But is it good for the stock? In general, we think so, although we’re not looking for this thing to quadruple on today’s news. There’s still more work to be done in Phase II, and then Phase III testing has to verify the drug’s efficacy on a much larger scale. Yet, we also have observed how the market can ‘reward’ a stock when it believes there’s going to be success in the future.

While this could make for a good short-term trade, we’ll repeat something we’ve been saying all along…..this stock is probably better suited to be a longer-term investment, reflective of the time it takes to get a drug through all the required approvals and introduced to the market. But wow, if this thing works as well as hoped, the sky’s the limit for the stock.

On a semi-related note, one thing we’ve seen from Immune Response is how quickly they’re pushing progress. Yes, there’s still going to be a regulatory process in the United States just like there is in the Italian study, but it seems the company is moving more quickly than other drug companies tend to move. So, while the stock’s not an overnight winning lottery ticket, we won’t be surprised to see these shares move well in advance of any final approvals. Just a thought.

More on the news.

A recent letter from a reader regarding Immune Response (OTCBB: IMRP) was going to prompt a blog entry/reminder, but after thinking about it, we figured the letter itself would express our opinion as well as any thing else. So…..

Dear SmallCap,

I noticed in one of your recent blogs that the Immune Response Corporation is working on a “cure” for HIV. In my opinion, Joseph O’Neill would not broach such an issue unless he was pretty comfortable with the progress of their therapeutic vaccine candidates. That point, coupled with the massive deal Merck just made with Idera, the company behind Amplivax, has me thinking there might be some very good news on the horizon. Of course, I still don’t understand why investors aren’t buying this equity hand-over-fist.

At the very least, I hope you’re feeling as bullish as ever.

We agree on all counts. Dr. O’Neill is probably about as overqualified as a person could be for the job, so for him to choose to get involved speaks highly of Immune Response and their work. And yes, that’s part of the attraction for us.

The only thing we feel merits a little discussion is the word you used….’cure’. But, it’s not that you’re wrong. IR103, as we understand it, would work like a ‘cure’ in the same sense Dr. Salk’s original ‘cure’ for polio worked. In fact, it’s the same biological principle as the polio vaccine. And, that’s why we can even talk about the idea of a true ‘cure’…it’s a vaccine, instead of an antiviral.

The reason we don’t like to necessarily use the word is twofold. First, we don’t really know for sure that it will beat HIV. If it works like the polio vaccine does, yes, the problem is solved efficiently and permanently. But at this stage of the game, there may be a possibility that HIV is different than polio. We’re optimistic, but we’re not going to be irresponsible in our predictions.

The other reason we tend to steer away from the word ‘cure’ is simply that it might stir up a frenzy in the market - as well as in the world of healthcare. As much information is out there, and as thorough as everyone should be, we just worry that the right or wrong group of investors will hear the word ‘cure’ and then jump to every wrong conclusion imaginable. Yes, IR103 offers enormous hope, and if it lives up to the company’s expectations, it could mean the end to an epidemic as well be very profitable. But, we’re not there yet. We just want everyone to keep a level head. With that said though, yeah….so far, Immune Response appears like they’re working a true cure for HIV.

Are we bullish? Yes, but not blindly. It could be years before any HIV treatment hits the market, if it hits the market at all. However, if it does, it could mean huge returns. So, it may be prudent to view IMRP in light of its high-risk/high-reward potential.

We plan on publishing a newsletter specifically on Immune Response soon, so be sure to keep an eye out for it.

You may recall from a blog entry a few days ago that the Immune Response (OTCBB: IMRP) ticker symbol was set to change following its reverse split. Well, today’s the day….the stock is now trading at $0.85 following the 1-for-100 split. The ‘IMNR’ ticker has been replaced by ‘IMRP’.

Note that either or neither ticker might work for you, depending on your data feed. It could take a couple of days for the switch to fully propagate through all the data channels.

Remember, the ticker will stay switched through mid-January to ensure that nobody will be confused about the post-split pricing (by the virtue of forcing them to figure out how the ticker changed). After a month or so, the plan is to revert back to the old ticker. On the other hand, the original plan was also to let the stock trade under the ticker ‘IMNRD’ after it split, and that clearly changed.

We’ll keep you up to date on the process.

In the meantime, the price change also leads us to change our previously suggested target and stop. The new target is now set at $85.00, with a stop of $0.50.

On Friday, we finally got word on the long-awaited reverse-split (1:100) of Immune Response Corporation (OTCBB: IMNR) shares. The stock will first trade on a post-split basis on December 20th.

Note that the ticker symbol will temporarily switch to ‘IMNRD’ to denote that the stock is trading on a post-split basis, as the highly elevated trading levels could make an investor think shares had gone ballistic….if they weren’t aware of the split. Around the middle of January, the ticker will revert back to the old IMNR symbol. If you’re following the company’s stock, we’d just recommend using both tickers until the whole deal is done later in January. That way you’ll be sure to receive accurate quotes and all the news, no matter how your data provider handles the switch. 

In our opinion, we think this is a good move for the company, and could potentially benefit current owners as well. While a stock’s price level shouldn’t matter, we still think it does…..if only for credibility reasons. A 2 cent stock can be tough for an institution to buy, and it’s not exactly an easy psychological battle for a retail investor either. We feel a $2.00 stock, though, can be much easier for both groups to work with. And, it’s a step in the right direction to getting listed on a major exchange in the future.

The re-introduction of Immune Response (OTCBB: IMNR) has created quite a buzz already! Below is a re-print of one of the e-mails we’ve received about the company’s potential….we figured rather than just keep the exchange bottled up between us and this reader, we could all benefit from sharing everyone’s thoughts.

SmallCap,

Like you, I’ve been following the Immune Response (OTCBB: IMNR) for many years. I was in the ‘02 private placement as well as the most recent private placement. I have a tremendous amount of the faith in Joe O’Neill and agree wholeheartedly with your thoughts regarding the prospects of the company.

However, I’m absolutely dumbfounded by the market cap. In my opinion, Joe O’Neill’s confidence in the science alone is worth $200 million. He’s the TOP AIDS guy in the country - if not the world! I simply don’t understand why investors are not buying this equity. I currently have 10 million shares. Keep up the great work and let’s get this company re-discovered…!

…

I simply don’t understand why anyone would be a seller at this point. Joe O’Neill has stated with great confidence that he strongly believes in the prospects of the company. Based on his guidance, why would one sell? Are there flaws in the company that I’m overlooking? Any thoughts you have would be appreciated.

All the best, EW

Hi EW.

In a nutshell, we’re with you. Some of the details you pointed out about the market cap and Dr. O’Neill were things we discussed in detail in the November 1st newsletter, so be sure to visit that link if you missed it the first time around.

Selling? While we agree that buying at these levels looks attractive, truth be told, there’s not necessarily a lot of selling going on right now….more like exchanging. Obviously for volume to increase four-fold last Wednesday as well as today there has to be somebody selling their shares. But, with the price holding steady, it looks like the buyers still far outnumber anybody looking to get rid of any IMNR shares they own. 

As far as flaws are concerned, we don’t necessarily see any ‘flaws’ per se. Yes, we’d love to see their two key therapies past Phase III testing, and we’d love to see the company sitting on a ton of cash. But, those aren’t flaws…..those are just realities. Although we’d be the first and last folks to point out the risk involved, we don’t necessarily see any hidden land mines in the way…this is a speculative company that appears to be on a promising track to treat HIV and MS. If either treatment gets approved, then the reward could be enormous. If not, the shares may not budge. That’s the name of the game. But no, no ‘flaws’ for anybody who understands all the pros and cons.

The only thing we thought might be a short-term hindrance was those 2 cent warrants that could nearly double the current float. If somebody was thinking that could cap the current (outstanding) shares, we wouldn’t argue the notion. Of course, the exception to the idea came to light today, when shares reached 2.2 cents. So much for the cap idea! That said, the warrants still may keep shares near 2 cents as long as they’re out there, although it still doesn’t mean the current trading level isn’t advantageous…..the 0.18 cent gain so far today is still a 9.38% gain. (Remember, it’s all relative.)

Late yesterday, Immune Response (OTCBB: IMNR) announced the second set of warrants, issued through their latest round of financing, would be extended past their original expiration date of November 30th. The same warrants will now expire on March 1st, 2007.

And what better reason to add some detail to the deal, which we only got to touch on with our initial profile last week? Basically, this tranche of warrants - the second set established by the deal set up earlier in the year - could potentially inject $12,000,000 into the company’s operating fund via the sale of up to 600 million shares, at 2 cents each. Each share issued through the warrants would be a newly issued share, adding to the current float of about 850 million shares.

As for what it means to investors, in our opinion, it’s mostly a non-issue. Adding shares to the ones already outstanding seems like it could potentially dilute the current float (and in some ways it would), but considering anyone can buy shares on the open market for a little less than two cents, it doesn’t present any real burden on current owners. The upside for everyone, including current share-holders, is the cash. Given that Immune Response burns through about $1 million per month, the deal could actually fund the company for up to a year. And, that benefits everyone (and it was something that was going to have to happen sometime anyway). The only potential downside might be the notion of other open market buyers not wanting to act until the warrants aren’t hanging over their heads. But like we said, the financing has got to happen now or later. So, the issue is one of time much more than one of valuation.

Of course, we also have the advantage of knowing the time frames Immune Response has in mind with both of their key drug therapies currently in Phase II trials. They plan on ending Phase II and starting Phase III trial for both vaccines in 2008. If and when that happens, we can see the market’s interest in the opportunity growing exponentially, even though Phase III would take a few years to complete. Why? Remember, investors have historically ‘rewarded’ biotech milestones, knowing that the process of getting a drug to the market can take years. The potential payoff of any FDA approval is often well worth the risk of owning shares before Phase III is completed.

The point being, if things go well for either or both drugs in Phase II, and Phase III is started, we think getting new financing should be a relative piece if cake. But, they need some cash to get there from here. The company raised $18 million in March with warrants and convertible notes, and could potentially add another $12 million with the warrants that were prolonged today. That should keep the company afloat about long enough to get through Phase II trials, and get Phase III started.

The bottom line is simple though…in our opinion, this warrant extension doesn’t really materially change anything about this stock’s long-term potential. And as we discussed in today’s newsletter, 2 cents (or less) per share appears to be a risk-commensurate bargain for traders so inclined to take a swing.

Note that some e-newsletters Wednesday included a typo that could potentially be confusing. The Immune Response (OTCBB: IMNR) profile may have spelled the company name as ‘Immuno Response’, where it should have been ‘Immune Response’. The search-and-replace feature on our e-mail editor got the better of us, as what was supposed to be ‘replaced’ was the typo, yet we ended up errantly replacing the correctly spelled word with the typo.  

Our apologies to Immune Response, and to our readers.