1. health and fitness
2. disease

April 10, 2015
Jason Napodano, CFA
312-265-9421
jnapodano@zacks.com
Small-Cap Research
scr.zacks.com
10 S. Riverside Plaza, Suite 1600, Chicago, IL 60606
Amarantus BioScience Holdings, Inc.
AMBS: It s Time To Start Moving Forward
Current Recommendation
Prior Recommendation
Date of Last Change
Current Price (04/10/15)
Target Price
Buy
N/A
10/14/2013
$0.05
$0.15
(AMBS-OTCQB)
UPDATE
On April 7, 2015, Amarantus Bioscience Holdings, Inc.
(AMBS) reported financial results for the fourth quarter and full
year ended December 31, 2014.
Below we provide a quick review of the key drivers at
Amarantus, including the diagnostic division and therapeutic
products eltoprazine, MANF, and ESS.
Despite a difficult March 2015 for the stock price, largely due
in part to raising capital and delaying the close of the
Cutanogen transaction, we believe the shares are attractive at
today s price for investors looking for high risk / high reward
positions in the biotech industry.
SUMMARY DATA
52-Week High
52-Week Low
One-Year Return (%)
Beta
Average Daily Volume (sh)
$0.19
$0.04
-39.11
-3.23
7,241,152
Risk Level
Type of Stock
Industry
Ultra High / Speculative
Small-Growth
Biotech
ZACKS ESTIMATES
Shares Outstanding (mil)
Market Capitalization ($mil)
Short Interest Ratio (days)
Institutional Ownership (%)
Insider Ownership (%)
Annual Cash Dividend
Dividend Yield (%)
1,042
$52
N/A
15
5
$0.00
0.00
5-Yr. Historical Growth Rates
Sales (%)
Earnings Per Share (%)
Dividend (%)
N/A
N/A
N/A
P/E using TTM EPS
N/A
P/E using 2015 Estimate
P/E using 2016 Estimate
N/A
N/A
Revenue
(In millions of $)
Q1
(Mar)
Q2
(Jun)
Q3
(Sep)
Q4
(Dec)
Year
(Dec)
2014
0A
0A
0A
0A
0A
2015
0E
0.05 E
0.10 E
0.35 E
0.50 E
2016
4.50 E
2017
10.00 E
Earnings per Share
(EPS is operating earnings before non-recurring items)
2014
2015
2016
2017
Q1
(Mar)
Q2
(Jun)
Q3
(Sep)
Q4
(Dec)
Year
(Dec)
-$0.01 A
-$0.01 E
-$0.01 A
-$0.00 E
-$0.01 A
-$0.00 E
-$0.01 A
-$0.01 E
-$0.03 A
-$0.02 E
-$0.02 E
-$0.01 E
© Copyright 2015, Zacks Investment Research. All Rights Reserved.
WHAT S NEW
FINANCIAL UPDATE
On April 7, 2015, Amarantus Bioscience Holdings, Inc. (AMBS) reported financial results for the fourth quarter and
full year ended December 31, 2014. The company did not report any revenues in any period during 2014. This was
in-line with our expectations. Operating loss in the fourth quarter totaled $12.0 million. Loss in the fourth quarter was
driven by $9.7 million in R&D and $2.3 million in G&A. Net loss was $13.3 million, or $0.01 per share. For the full
year 2014, operating loss was $21.4 million, driven by $13.8 million in R&D and $7.6 million in G&A. R&D expense
for 2014 was up substantially from the $2.1 million reported in 2013. The increase in R&D expense for 2014
included the progression of several active programs, including LymPro® and MANF, as well as in-process
expenses associated with intellectual property and technology acquisitions relating to the Lonza/Cutanogen,
Memory Dx, and PGI/eltoprazine transactions. In the fourth quarter alone, the company recorded $7.2 million in
R&D expenses associated with the acquisition of Cutanogen and payment to Lonza to acquire ESS.
Amarantus exited 2014 with only $0.2 million in cash on the books. Cash burn from operating and investing
activities in 2014 totaled $12.8 million. The company raised $12.5 million through various financing activities
throughout the course of the entire year. Subsequent to the close of the quarter, between the start of the year and
late March 2015, the company raised approximately $5.7 million in gross proceeds through various financing
activities. Approximately $2.7 million was raised through the sale of 37.9 million shares of common stock to Lincoln
Park Capital and approximately $2.9 million was raised through the sale of Series E Convertible Preferred Stock to
various institutional investors, including Dominion Capital LLC. The conversion price on the Series E preferred stock
has been adjusted to $0.05 per share. We believe the reset of the Series E conversion price to $0.05 per share
along with the sale of common stock to LPC was primarily responsible for the recent weakness in the shares.
Nevertheless, we believe Amarantus now has sufficient cash to fund operations into the second half of 2015. No
doubt, at some point over the next several months, Amarantus will require additional capital to keep the pipeline
moving forward. The company has approximately $14.5 million remaining on the equity financing facility with LPC.
As of early April 2015, the basic share count stands at approximately 1.042 billion. The fully diluted number is
approximately 1.191 billion, with approximately 45.0 million warrants exercisable at $0.12 per share.
Uplisting and/or Diagnostic Spin-Off Remain Key Non-Pipeline Milestones to Watch for in 2015
The two biggest non-pipeline related milestone for investors in 2015 remain the potential to uplist the shares to a
national exchange, such as the NASDAQ or NYSE-MKT, and the potential spin-off or sale of the Amarantus
Diagnostic wholly-owned subsidiary.
With respect to a spin-off or the sale of Amarantus Diagnostics ( AMDX ), management has retained a CEO search
firm to find the right candidate to head up the division. We discuss the key drivers for AMDX below. In short, given
the recent transaction to acquire DioGenix, and with it MSPrecise®, along with the option agreement entered into
with Georgetown University, it is clear that building a self-sustained CNS-focused diagnostic division is among the
top priorities for management. That being said, we are not anticipating any transaction to sell or spin-off AMDX until
much later in the year, and believe Amarantus must demonstrate significant commercial success with LymPro and
MSPrecise before either option is remotely feasible.
With respect to an uplisting of the shares to a national exchange, Amarantus exited 2014 reporting no revenues,
negative income, and a shareholder s deficit of $4.1 million. The current market capitalization based on 1.042 billion
shares and a stock price of $0.05 per share equates to $52 million. As of March 25, 2015, there were 82
shareholders of record. We do not see how the above metrics will allow the company to uplist based on the income,
equity, or market value standard for the NASDAQ-CM. To qualify, Amarantus must have:
$4.0 million in shareholder equity (or $5.0 million if the market cap is below $50 million)
$50.0 million in market value (not a requirement if shareholder equity is $5.0 million)
300 shareholders of record
Stock price $4.00 per share (or $3.00 per share if net tangible assets $2.0 million)
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DIAGNOSTIC DIVISION UPDATE
The key focus for Amarantus with respect to the diagnostic division is to drive uptake for the Alzheimer s disease
(AD) blood test, LymPro, in the Investigational Use Only (IUO) market. In this regard, management signed the first
biomarker services collaboration with Anavex Life Sciences Corp. in February 2015. The deal came about through
a shared contact on each company s respective scientific advisory board, notably Dr. Jeffrey Cummings, M.D.
Under the terms of the agreement, Amarantus will evaluate the pharmacodynamic effect of ANAVEX-2-73 and
ANAVEX-PLUS on the expression of the biomarker CD69 in specific sub-populations of peripheral blood
lymphocytes using the LymPro test. In parallel, the companies have entered into a Letter of Intent for Amarantus to
assist Anavex in planning the scope of the blood-based biomarker components of its next larger, potentially Phase
3, Alzheimer's disease clinical trial that is expected to follow the ongoing Phase 2a study. Data from this Phase 2a
trial is expected in the third quarter of 2015.
As a reminder, CD69 expression is decreased in patients with AD, as compared to healthy controls and patients
with confounding dementias. Peer-reviewed published literature on LymPro show the test measures CD69
expression in AD patients with high sensitivity and specificity. The ability of a new drug candidate to increase CD69
expression, as measured by LymPro, may be indicative of a modification in the fundamental Alzheimer's disease
process known as cell cycle dysregulation.
We believe the deal with Anavex is the first of many biomarker services deals to come from Amarantus Diagnostics.
We calculate the total IUO market is around $150 million in size. For example, a quick delve into
www.clinicaltrials.gov shows that there are approximately 75 active Phase 1 and Phase 2 clinical trials in the U.S.,
with an average of around 300 patients. For larger Phase 3 trials, we found roughly 40 active programs, with the
average trial enrolling roughly 1,500 patients. Amarantus is positioning LymPro as a key asset to help screen and
select patients for these clinical trials. To put things into perspective, the recent positive Phase 1b data released by
Biogen (BIIB) in March 2015 enrolled 166 patients; however, we are told that the company screened nearly 10times the number of patients to select the potential best responders to aducanumab. A product like LymPro could
greatly reduce both the time and cost to enroll AD patients for planned clinical programs.
In that regard, to expand the company s offering in providing broad-scale biomarker services in the AD market, in
January 2015, Amarantus entered into an exclusive option agreement with Georgetown University to license the
university s blood based biomarker test for AD and memory loss. The deal is an interesting one because it expands
Amarantus attractiveness to potential partners because the company can now bring a suite of diagnostic products
targeting multiple biomarkers, including lymphocytes proliferation, lipids, and exosomes (amyloid & tau). Amarantus
and Georgetown are engaging in additional research on the asset, after which time we expect the company to
execute on the licensing agreement.
In the meantime, Amarantus is also conducting multivariate analysis with LymPro in support of the CLIA application
later in the year. We believe the CLIA market for AD biomarker services is at least 10-times the size of the IUO
market, and if cleared by CMS we believe this will be a major inflection point for the potential sale or spin-out of
AMDX later in the year or in 2016.
Read our analysis of LymPro from September 2014 >>> LINK
In January 2015, Amarantus acquired DioGenix, Inc. by paying 99.4 million shares of stock (valued at the time at
$8.1 million), plus $2.0 million in potential milestones related to results of clinical testing and future revenue from
products in development. By acquiring DioGenix, Amarantus took control of MSPrecise®, a proprietary test for the
diagnosis of patients with relapsing/remitting multiple sclerosis (RRMS) at first clinical presentation.
MSPrecise is a cerebral spinal fluid (CSF) test designed to work in concert with oligloclonal banding (OCGB), the
current standard of care used for the diagnosis of MS, to help improve early detection and treatment of patients with
suspected MS. Data generated by DioGenix shows that the combined results of MSPrecise with OCGB has an
accuracy of 92% (p < 0.001, sensitivity = 96% and specificity = 83%). As of now, we are still trying to ascertain the
true commercial potential of MSPrecise. Management believes the product has $300 million in sales potential;
however, to obtain sales in this range the product would need to demonstrate a meaningful improvement over the
standard diagnostic technique of OCGB. Based on a 2011 systemic review of literature conducted by the University
Medical Center in Hamburg, Germany, CSF oligloclonal banding showed sensitivities between 69% and 91% with
specificities between 59% and 94% (Schaffler N, et al, 2011).
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If by adding MSPrecise to the diagnosis paradigm, physicians can improve their accuracy rate of MS detection
consistently to 92%, the product would have utility. However, if most physicians are already comfortably obtaining
accurate diagnoses in the 90% range without MSPrecise, we see very little reason why adding the product into their
standard protocol makes any sense. This is something we believe Amarantus needs to clearly communicate to
investors in 2015 in order for the market to better understand and value the asset.
Read our analysis of MSPrecise from January 2015 >>> LINK
THERAPEUTIC DIVISION UPDATE
In our opinion, the primary driver of valuation inflection at Amarantus is eltoprazine, a recently acquired asset for the
treatment of Parkinson s disease levodopa induced dyskinesia (PD-LID). The key to creating that valuation
inflection will be the release of Phase 2b data hopefully by the end of the year. An investigational new drug (IND)
application was cleared by the U.S. FDA in late March 2015. We are expecting the Phase 2b program, a
randomized, double-blind, placebo-controlled, four-way crossover design, to being in the second quarter of 2015.
The purpose of the study is to assess the safety and tolerability of various doses of eltoprazine over longer-periods
of time, as well as investigate the effects on dyskinesia and akinesia using various motor scoring scales recorded
by motion sensors and patient diaries. Secondary goals will include finding the minimal efficacious and maximum
tolerated doses, as well as to help define the statistical analysis plan for the Phase 3 trial in 2016.
Read our analysis of eltoprazine from March 2015 >>> LINK
We are optimistic on the eltoprazine Phase 2b program, largely in part due to the previously evidenced clinical
safety and utility of the drug. We remind investors that Amarantus just published the Phase 2a data in BRAIN in
February 2015. As noted above, positive Phase 2b data is often the catalyst for significant valuation inflection in
CNS assets. It is also often what opens the doors to potential licensing agreements with larger organizations. We
can point to several deals that emerged for PD-related assets following positive Phase 2 data, including AcadiaBiovail ($395 million total deal) and Civitas-Acorda ($525 million total deal), as well as other notable deals for small
biotech companies with derisked PD assets like Chelsea Therapeutics (acquired by Lundbeck for $530 million) and
NeuroDerm (recent $200 million IPO). We also note that, much like Acadia did with pimavanserin, Amarantus plans
to expand the clinical investigation of eltoprazine outside of PD into potentially larger areas, including adult ADHD
and Alzheimer s disease aggression. We note that eltoprazine has been studied in 47 human subjects with ADHD,
with data published in the European Journal of Pharmacology (Alexandrov et al, 2015).
Another huge potential driver for Amarantus in 2015 is moving ESS into Phase 2a studies. As a reminder, in
November 2014, Amarantus announced that it had entered into an exclusive option agreement with Lonza
Walkersville, Inc. to acquire subsidiary, Cutanogen Corporation. Acquiring Cutanogen gives Amarantus rights to
develop Engineered Skin Substitute ( ESS ), an autologous skin replacement product for the treatment of Stage 3
and Stage 4 intractable severe burns.
To acquire the rights to ESS, Amarantus paid Lonza Group an exclusivity fee of $0.25 million in cash. Unfortunately,
this expired on December 31, 2014 before Amarantus closed the transaction. As such, Amarantus has continued to
pay fees to Lonza to keep exclusivity period intact, to date totaling an additional $1.1 million on top of the initial fee
of $0.25 million. The current period expires at the end of April 2015. The exclusivity fee for May, June, and July
2015 will be $0.6 million per month, so we are hoping that the transaction closes this month! Nevertheless,
Amarantus has stated publicly (and in filings) that some portion of the exclusivity fee is being reinvested by Lonza
into preparing ESS for the Phase 2a clinical study. Unfortunately, we do not know how much.
The delay in closing the transaction is due to a number of circumstances, namely waiting for IRB approval to begin
the clinical study and financing. To execute the transaction, Amarantus must pay Lonza $4.0 million in cash. That s
a tall order for a company that exited 2014 with $0.2 million in the bank, and then went out in early January 2015
and spent another roughly $10 million to acquire DioGenix and entered into an exclusive option agreement with
Georgetown University. Besides the upfront payment, Amarantus has also agreed to pay milestones to Lonza of
$1.0 million for a successful clinical trial and $4.0 million upon the filing of a Biologic License Application (BLA).
Lonza is also entitled to 2% royalties on future commercial sales.
Despite the delays in closing the deal and the still open-ended price that Amarantus is paying for the product, we
see big potential for ESS if the planned Phase 2a study is successful. The market for severe intractable severe
burns is wide open, as there is truly no effective standard-of-care, and initial data on ESS looks outstanding.
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Besides the significant market potential for the product, we note there is existing funding available in the sum of
$0.725 million from AFIRM, with the potential to increase that amount to $15-20 million with a new grant. ESS has
already been granted Orphan Drug designation by the U.S. FDA. Positive Phase 2a data on ESS, likely to be
reported in 2016, is another major potential valuation inflection for the company.
Read our analysis of ESS from November 2014 >>> LINK
The final potential driver of the therapeutic pipeline over the next several years is MANF, the core asset under
which Amarantus was founded. Although development with MANF remains pre-clinical, Amarantus added
significant value to the program in 2014 by filing two Orphan Drug applications, one already granted in Retinitis
Pigmentosa (RP) and another in central retinal artery occlusion (RAO) currently under review. We anticipate
another Orphan Drug application to go under review for Wolfram s Syndrome in the near future.
In the meantime, the company is currently conducting preclinical IND-enabling studies with MANF, with a goal of
filing the U.S. IND application in early 2016. MANF has yet to enter clinical testing, so we believe that Amarantus
must demonstrate acceptable PK/PD profiles in healthy patients; however, because MANF is a naturally-occurring
protein we do not anticipate any significant safety or tolerability issues. As such, we believe the asset becomes
highly attractive to potential partners based on the Orphan Drug indications and potential for non-dilutive funding for
Phase 1 and Phase 2 programs in 2016 and 2017.
Read our analysis of MANF and the potential for in RP from December 2014 >>> LINK
VALUATION
Amarantus remains an enigmatic company. Despite the abysmal stock price, the company boasts two divisions: A
Diagnostic division with two commercially ready assets and the opportunity to in-license another in 2015, and a
Therapeutic division with a Phase 2b CNS asset we believe could be worth multiples of the current valuation, an
Orphan medical product in Phase 2 for a wide-open pediatric indication, and one of the most intriguing pre-clinical
assets in recent memory.
That being said, it is understandable why the shares have been under pressure lately. In November 2014, the
company entered into an exclusive agreement to acquire ESS. While we believe the product has significant
potential, investors viewed the transaction as a strategy drift from the previous CNS-focus with MANF and
eltoprazine, and the fact that the transaction has yet to close, costing Amarantus another $1.1 million in fees, is also
frustrating. One of the main reasons the ESS transaction did not close was that in January 2015 Amarantus
acquired DioGenix, and entered into another exclusive option with Georgetown. Investors perceive management as
having bitten off more than they can chew with the $8.1 million deal, and although management is clearly optimistic
on MSPrecise, the jury is still out on the commercial utility of the product.
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One thing we have not discussed above with respect to DioGenix, and something investors should be aware of as
to why Amarantus decided to go ahead with the deal whilst in the midst of the Cutanogen acquisition, is that in
November 2014 DioGenix was awarded a $7.45 million Grow NJ Assistance Tax Credit to facilitate the
construction of a laboratory in Camden, NJ. These tax credits can be sold in whole or in part for a minimum of 75%
of face value ( $5.6 million). Amarantus is intending on evaluating the possible sale of these credits, which could
potentially drive the total acquisition cost of this deal down to approximately $2-3 million, and provide some nice
non-dilutive funding later in the year.
Nevertheless, to fund both the acquisitions of Cutanogen and DioGenix, Amarantus has been raising capital
through its committed equity financing with LPC and by selling Series-E preferred stock to select institutional
investors. In March 2015, the company raised approximately $5.7 million in cash. The transaction with LPC creates
excess selling pressure on the open market, as LPC is unlikely to be holding the shares and the adjustment down
from $0.08 to $0.05 on the Series-E converts also created selling pressure on the shares. Stock prices often move
to the offering price, and Amarantus was offering a lot of stock in March 2015 at $0.05 per share. That being said,
we believe this creates a new floor in the shares and that, absences of significantly more financings in the coming
months, the stock should recover back to the $0.08 - $0.10 range shortly. We believe closing the Cutanogen
transaction and starting the eltoprazine Phase 2b trials are two near-term events that will ease the selling pressure
on the open market.
Our valuation for Amarantus is $188 million in market value, or approximately $0.15 per share. We arrive at this
number by calculating a fair-value of $60 million for the entire Diagnostic division (AMDX) and $128 million for the
Therapeutics division.
For AMDX, we believe biomarker services (LymPro + Georgetown) are worth $50 million, or 5x our forecasted
peak sales number of $10 million in 2018 (assumes only IUO and CLIA). For MSPrecise, we assume a
valuation of only $10 million about what Amarantus paid for the asset in January 2015. At this point, we are
only comfortable saying it is worth what they paid, and are eagerly awaiting additional clinical validation data
and the CLIA filing later in the year to get a better sense of the commercial opportunity. As noted above, the
true accuracy of the standard of care for MS diagnosis, oligloclonal banding, has high interlaboratory variability,
so interest in the product may be high or low on a lab-by-lab basis.
For eltoprazine, we have built a detailed financial model forecasting sales in both PD-LID and ADHD, with a
22% discount rate (comparable to the recent Series-E financings) and various probabilities of success (25% for
LID, 10% for ADHD). Our NPV model pegs eltoprazine to be worth $70 million.
We have built a similar model for ESS using the same discount rate and a 20% probability of success. We are
assuming a rapid path to market for ESS and Orphan Drug pricing on the product. Our NPV analysis pegs the
value of ESS at $35 million.
We believe MANF, in all its preclinical glory, is worth $10 million. While we are intrigued by the various Orphan
applications and potential for the drug in massive indications like diabetes and myocardial infarction, the earlystage nature of the asset forces us to apply a significant probability adjustment to our models. At this point, we
are still likely twelve months from seeing the IND application cleared by the U.S. FDA, and although we believe
MANF is partnerable in 2017 based on Phase 1 data, we do not feel comfortable saying MANF is worth more
than $10 million given that the drug has yet to be tested on human subjects.
Despite what we believe is aggressive discounting and downward adjusting of our models based on overly
pessimistic probability assumptions, we are still arriving at a target NPV for the entire company of $188 million, or
240% above the current stock price. Even with 1.191 billion (fully diluted) shares outstanding, we still believe the
stock is worth much more than the $52 million value it is trading at today. Management clearly has work to do
before an uplist to the NASDAQ is even possible, but a positive return on $0.05 per share seems like a good
risk/reward for investors.
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PROJECTED FINANCIALS
Amarantus Bioscience, Inc.
Income Statement
© Copyright 2015, Zacks Investment Research. All Rights Reserved.
HISTORICAL ZACKS RECOMMENDATIONS
© Copyright 2015, Zacks Investment Research. All Rights Reserved.
DISCLOSURES
The following disclosures relate to relationships between Zacks Small-Cap Research ( Zacks SCR ), a division of Zacks Investment Research
( ZIR ), and the issuers covered by the Zacks SCR Analysts in the Small-Cap Universe.
ANALYST DISCLOSURES
I, Jason Napodano, CFA, CFA, hereby certify that the view expressed in this research report accurately reflect my personal views about the
subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the
recommendations or views expressed in this research report. I believe the information used for the creation of this report has been obtained from
sources I considered to be reliable, but I can neither guarantee nor represent the completeness or accuracy of the information herewith. Such
information and the opinions expressed are subject to change without notice.
INVESMENT BANKING, REFERRALS, AND FEES FOR SERVICE
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does not expect to receive compensation for investment banking services on the Small-Cap Universe. Zacks SCR may seek to provide referrals
for a fee to investment banks. Zacks & Co., a separate legal entity from ZIR, is, among others, one of these investment banks. Referrals may
include securities and issuers noted in this report. Zacks & Co. may have paid referral fees to Zacks SCR related to some of the securities and
issuers noted in this report. From time to time, Zacks SCR pays investment banks, including Zacks & Co., a referral fee for research coverage.
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ADDITIONAL INFORMATION
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ZACKS RATING & RECOMMENDATION
ZIR uses the following rating system for the 1074 companies whose securities it covers, including securities covered by Zacks SCR:
Buy/Outperform: The analyst expects that the subject company will outperform the broader U.S. equity market over the next one to two quarters.
Hold/Neutral: The analyst expects that the company will perform in line with the broader U.S. equity market over the next one to two quarters.
Sell/Underperform: The analyst expects the company will underperform the broader U.S. Equity market over the next one to two quarters.
The current distribution is as follows: Buy/Outperform- 16.8%, Hold/Neutral- 76.5%, Sell/Underperform
business day immediately prior to this publication.
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6.1%. Data is as of midnight on the
scr.zacks.com