Under the Symbol:
Spherix Inc. (NasdaqCM: SPEX) Trading Below Book Value; Diversified Asset Base Adds Value
Tuesday, June 11, 2019 10:10 AM
Spherix's investment portfolio into emerging biotech stocks has resulted in substantial gains, turning a roughly $860,000 investment into a position worth more than $11 million at current share price levels, and marking a Price to Book ratio of less than 100%; The recently announced asset-purchase agreement of CBM BioPharma extends pipeline promise
MIAMI BEACH, FL / ACCESSWIRE / June 11, 2019 / Emerging stocks rarely provide more than a single compelling reason for investment. After all, they usually represent what their description implies - being a development stage enterprise that lacks funding, an asset base, or a management team that is capable of advancing their targeted initiatives. However, not all emerging companies are necessarily created equally. And, that inequality may be the strength for Spherix Inc., (NasdaqCM: SPEX) who is reaping the benefits from several investment and acquisition agreements made since 2017 that positions the company to aggressively monetize its diversified portfolio of assets in the coming quarters.
Having completed a recapitalization in May of 2019 that leaves SPEX with just over two million shares outstanding, the company's strategy to identify and invest in cutting-edge technology is already proving to be a profitable business model for SPEX. As an example, the company's investment portfolio into emerging biotech stocks already resulted in significant financial gains, turning a roughly $860,000 investment into a position worth more than $11 million at current share price levels.
The gain from investments, combined with the income generated from patent assets, positions SPEX to identify, acquire, and develop additional sources of revenue and to expand clinical studies associated with their recently announced asset-purchase agreement with CBM BioPharma. That deal can be lucrative for SPEX, who is evaluating in clinical studies the potential applications of at least two promising drugs, KPC34, to treat both acute myeloid leukemia (AML) and acute lymphoblastic leukemia, and DHA-dFdC to treat pancreatic cancer indications.
An Undervalued SPEX Builds Asset Base
Moreover, while KPC34 and DHA-dFdC both serve up a compelling thesis into the near and long-term potential of SPEX, the diversified sources of revenue are making their story even more compelling. And, despite the disconnect between their portfolio assets to the recent share price in SPEX of approximately $3.00, investors are beginning to recognize the value opportunity and are taking advantage of share prices that currently offer a more than 100% discount to its book value. And, that's assuming that the company's investments do not continue to rise, which is unlikely based on the clinical progress that is being made by those companies. Moreover, for each dollar increase in the share price of its investment assets, the book value of SPEX increases by roughly two million dollars.
Furthermore, the rising book value in SPEX is not happening by accident - it's the result of the accumulation of assets driven by a management team that can recognize opportunity early and seizes on its potential. And, the yield curve of its asset base is ascending, bringing with it a compelling investment opportunity based on real ownership numbers. Most of all, with SPEX sitting with a market cap of roughly $6 million, the market is almost entirely ignoring the tangible assets that are wholly owned by the company. However, as the SPEX story makes its way into the market, that metric may soon change.
Spherix Is Shaping Its Future Through Acquisition And Investment
Spherix Inc. planted its roots back in 1967 with its focus intent on cultivating scientific research. However, adapting to both changing markets and opportunities, SPEX has evolved into a more encompassing company that is seizing diversified market opportunities to develop and advance innovative ideas designed to provide multiple sources of revenue and insulate the company from single sector vulnerability. Make no mistake, though, while SPEX is investing in a set of diversified assets, their primary focus is centered on creating value through biotech research and development.
For SPEX, 2018 proved to be a transformative year for the company and substantiated their strategy to build value through identifying and investing in the promise of development stage companies. And, its ownership stake that is highlighted in its regulatory filings adds to a strong balance sheet that sets the stage for SPEX to expand into additional selective opportunities, particularly its asset-purchase agreement with CBM BioPharma that will provide SPEX with certain proprietary rights to the promising AML and ALL drug, KPC34, as well as to a potentially disruptive pancreatic cancer drug, DHA-dFdC. Notably, the assets being acquired from CBM have already demonstrated compelling preclinical data for its preliminary success in treating several disease indications. Thus, SPEX may again be on the path to monetizing their investments and increase shareholder value through the eventual marketing of these two pipeline products.
The terms of the CBM BioPharma transaction are compelling as well, and many investors appear to have missed the benefits. Put simply, SPEX not only contracted to buy the assets of CBM BioPharma, but they also purchased a 20% stake in the company. Thus, what investors apparently missed in the translation is that when CBM sells their shares of SPEX, a cash dividend will likely be announced for which SPEX will receive 20% of the distribution. To put the deal in a broader perspective, the structure of the agreement not only provides future funding to SPEX in the form of a dividend, but those distributions would increase in size as SPEX stock appreciates. Moreover, its a deal structure that can ultimately provide SPEX with more capital than initially invested in consummating the deal.
Furthermore, beyond its current asset base, SPEX is actively engaged in the acquisition and development of innovative technology through internal or external research and development, and to expedite results by acquiring existing rights to intellectual property that allow SPEX to monetize already issued patents and pending patent applications in the United States and abroad. Although the attention should be kept on the biotech assets in the near term, two other assets are worthy of a brief introduction.
Spherix's "Mellow Scooters" Changing Local Transportation
Spherix's investment into Mellow Scooters provides the company with a 25% stake in an innovative vehicle-sharing platform that is enabling both entrepreneurs and municipalities the opportunity to benefit from the growth of the vehicle-share industry.
The model is already gaining traction throughout the United States, with both large and small markets embracing the concept as existing vehicle-share companies, like Turo, are proving that the model can generate substantial revenues for all the parties involved in the local programs. Users benefit from renting the vehicle, municipalities can earn income from renting the space to the Mellow platform, and riders receive value from having a connection to the "last-mile" of transportation that is often missing in the public transit systems. The business model is proven and is ripe for significant growth in the coming years. Thus, despite Mellow Scooters working through the development and implementation stage, SPEX involvement in the sector may ultimately provide a sizable return on investment.
DatChat Taking Advantage Of The Changing Social Media Environment
Spherix has a second investment in the innovative and patent-pending communications platform, DatChat. DatChat is looking to take advantage of the dynamic changes in the social media, email, and messaging markets by becoming one of the only communications platforms that allow its users to control their messages both before and after hitting the "send" button. The platform has been best described as a Personal Messaging Rights Management Platform that allows a sender to send a message, control the time parameters for viewing, and even provides an option to self-destruct after a certain number of views have been counted. Furthermore, at any time in the process, a sender can wipe messages off a recipient's device or give them more or less time to view the message.
DatChat was founded in 2014 and is considered to be the first privacy platform to provide its users the option to erase or change how long messages stay on another person's device. The innovative platform keeps the contributor in full control of their personal privacy, and its patent-pending technology allows any person that sends a message to wipe it from both their phone and the recipients at any time.
And, while the investments in both Mellow Scooters and DatChat may ultimately provide significant revenue generating opportunities, the company's recent asset-based acquisition of CBM BioPharma will likely deliver the near-term catalyst for SPEX and its shareholders. Here's why.
Spherix Takes On Assets Of CBM BioPharma, Significant Value Included
In May of 2019, SPEX announced the terms of its asset-purchase agreement with CBM BioPharma, a privately held pharmaceutical company with exclusive drug development rights from world-renowned partners including Wake Forest Innovations and the University of Texas at Austin. In the release from SPEX, the company announced revised terms that will allow the deal to become quickly accretive to SPEX by lowering its cost of the purchase price to $8 million and includes a 20% equity stake in CBM.
The deal brings to SPEX a team of leading drug development scientists, as well as an experienced Chief Scientific Officer, that will help advance the CBM BioPharma platform that targets the treatment of severe diseases, including acute myeloid leukemia (AML), Acute Lymphoblastic Leukemia (ALL) and pancreatic cancer.
Each drug has shown promising preclinical results, and each can be a disruptive therapeutic option for patients needing better care and treatment outcome.
KPC34 To Treat AML and ALL
KPC34 is already showing promising results in preclinical studies to treat Acute Myeloid Leukemia (AML) and Acute Lymphoblastic Leukemia (ALL). Developed at Wake Forest School of Medicine, KPC34 is proving its benefit as a next-generation treatment that is demonstrating an impressive ability to overcome multiple resistance challenges associated with the current standard of care. The drug has already published preclinical data that demonstrate its effectiveness in treating AML relapse cases, and in preclinical animal studies has shown the ability to significantly increase the lifespan of mice treated with the drug. However, there are more benefits.
Competitive advantages include that KPC34 can be orally administered, a critical benefit for patients that are unable to tolerate repeated cycles of chemotherapy. Also, KPC34 has shown that it can double the mean survival time versus the current standard of care treatments in a mouse model of leukemia. These two advantages alone have proffered enthusiastic reviews of its potentially disruptive nature, and recent videos and publications demonstrate the effectiveness of the drug. (See Video Demonstration of CBM Drug KPC34 Reversing Paralysis in Preclinical Study)
A publication by BloodJournal.org also highlighted the effects of KPC34. Its study demonstrated the power of KPC34 as a novel phospholipid conjugate of the deoxycytidine analog gemcitabine, which is often administered intravenously to treat various tumors and lymphomas but is rarely used for leukemias. The comparisons showed that when compared to cytarabine, gemcitabine treatment inhibits DNA replication more effectively, and simultaneously can prevent repair of damaged DNA. And, by tweaking the delivery of KPC34, the Wake Forest scientists found a link to more effective treatment.
Also, the study showed that KPC34's novel properties resulted in improved pharmacokinetics compared to gemcitabine and demonstrated a unique ability to overcome leukemic chemoresistance to cytarabine by bypassing the need for ENT-1 uptake and dCK activation. The study further noted the benefit that KPC34 can be administered orally, and has shown predictability to cross the blood-brain barrier which allows it to target CNS-infiltrating leukemia's.
Of notable interest, multiple publications support the future of KPC34 to effectively treat the AML and ALL patient market, and SPEX may be ideally positioned to become the prime beneficiary from the rewards of its treatment application. Moreover, because of the low patient population, SPEX noted that they will seek orphan drug designation through an FDA filing which can provide expedited review and seven years of exclusivity from the approval date of the new drug.
DHA-dFdC Targets Pancreatic Cancer
Spherix's second promising drug, DHA-dFdC, is licensed from the University of Texas at Austin and is targeting the treatment of pancreatic cancer. Current statistics show that pancreatic cancer is the third leading cause of cancer-related death in the United States, and is expected to take the number two position by 2020.
According to the Hirshberg Foundation for Pancreatic Cancer research, the disease has the highest mortality rate with roughly 91% of all patients succumbing to the cancer within five years of diagnosis and more than 78% dying within its first year of diagnosis. Notably, pancreatic cancer is one of the few diseases for which survival rates have not improved over nearly four decades of research, and current treatment options including surgery, radiation therapy, and chemotherapy still only serve to extend survival or relieve symptoms, but seldom eradicate the disease.
What the team under SPEX leadership is trying to prove is that DHA-dFdC can become the next-generation of chemotherapy treatment for advanced pancreatic cancer. The drugs promise is demonstrated through studies at the University of Texas at Austin that has shown positive results in preclinical studies that inhibit tumor growth in clinically relevant transgenic animal studies.
SPEX can also ride a wave of positive data from research that shows that DHA-dFdC can inhibit pancreatic cancer cell growth, can overcome tumor cell resistance, is well tolerated in preclinical toxicity studies, and may stimulate immunogenic cell death to activate host antitumor immunity. The drug is a product of more than a decade's worth of experience by the scientists at the University of Texas, who are discovering next-generation chemotherapeutic agents that can more effectively treat pancreatic tumors and overcome tumor resistance.
The chorus of enthusiasm for the mechanism of DHA-dFdC stems from the finding that when injected into mice in preclinical studies, an unexpectedly high concentration of the drug was found in the pancreas. Thus, with more cancer-fighting compounds able to attack the disease at its source, scientists believe that DHA-dFdC can become a breakthrough drug to treat pancreatic cancer indications. Additionally, scientists showed the effectiveness in treating mice that were genetically modified to develop pancreatic tumors which demonstrated significantly extended survival rates after DHA-dFdC treatment, extending survival by a reported 62%, from 172 days to 280 days.
As the drug emerges from the preclinical stage, the study data show that DHA-dFdC may provide targeted and effective therapeutic benefit to treat pancreatic cancer indications, with studies already proving less tumor growth and high efficacy results throughout the animal studies.
And, after extrapolating the data, researchers believe that DHA-dFdC can become the first meaningful clinical treatment development to target pancreatic cancer, and because of the growing number of cases each year, may provide a significant opportunity for SPEX to capitalize on the drugs promising future.
Sum Of The Parts Create Value
In a sum of the parts perspective, SPEX may be on track to emerge as a significant revenue generating company by seizing opportunity from its more than 200 patents, its diversified portfolio of businesses and technology-based interests, and its balance sheet strength that provides additional opportunity for near-term acquisitions.
With roughly two-million shares outstanding, assets of just under $12 million and total liabilities of only $982,000, SPEX is positioned to capitalize from the growth in the vehicle-sharing sector, the communications sector, and the innovations taking place in the biotech sector.
But, the message about SPEX should not be diluted. Despite its diverse portfolio of assets and investments, SPEX is focused on developing disruptive drugs that target multi-billion dollar market opportunities. And, with two drugs already demonstrating promising preclinical results, combined with the capital to fund additional research to bring these potentially disruptive drugs to market, SPEX is likely to grow into the valuation it deserves, which is considerably higher than current levels.
Perceptive Advisors, LLC
Miami Beach, Florida
SOURCE: Spherix, Inc.