Adeona Pharmaceuticals, Inc. (AEN)

I am still waiting for my Adamis Pharmaceutical (ADMP) pick to take off.  I have great hopes for that stock and look for some great things ahead for it.  And, you know that I like pharma companies.

Adeona Pharmaceuticals (AEN) reminds me of ADMP in some ways.  Granted, they are totally different (drug types, financial position, drug pipeline, etc…), but they are alike in their tremendous potential and the depressed price of their stock.

The Company

Adeona Pharmaceuticals (AEN) has a very robust drug pipeline specializing in drugs for the Central Nervous System diseases (CNS).  Their primary strategy is to license clinical-stage drug candidates that have already demonstrated a certain level of clinical efficacy and develop them to a valuation inflection point resulting in a significant development and marketing collaboration (essentially they develop them until they can attract the big pocket pharma guys and then do a co-development deal). They have five product candidates, four are drug candidates and one is a medical food product candidate in clinical development.

Here is their drug pipeline chart (I left the hotlinks in, so you can get more info on anyone of of the drug candidates by clicking on the link)

Trimesta – Treatment of relapsing remitting MS in women

Effirma Treatment of Fibromyalgia (partnered with Meda)

Zinthionein ZC – Dietary mgt. of Alzheimer’s disease and mild cognitive impairment

dnaJP1 – Treatment of rheumatoid arthritis

ZincMonoCysteine – Treatment of dry age-related macular degeneration

In addition to drug development, AEN purchased a CLIA-certified diagnostic laboratory in July of 2009…now called Adeona Clinical Laboratory.

Fundamentals

As of June 30, 2010, AEN emerged, for accounting purposes, from being a development stage enterprise with $979,782 in second quarter profit. Total net revenues for the three and six months ended June 30, 2010, consisting of license revenue and laboratory revenues, were $2,194,888 and $2,254,927, respectively. There were no revenues for the same periods in 2009. The revenues in 2010 are the result of the Meda AB sublicense agreement of flupirtine for fibromyalgia less the $375,000 payment to McLean Hospital and revenues for services provided by Adeona Clinical Laboratory.

As of the last quarterly (6-30-2010), AEN had $3.3MM in cash with no debt.  The balance sheet, while clean, is not especially strong.  However, AEN has a number of grants that it is funding operations from, as follows:

1.  Trimesta trial is being funded by a $5MM grant from the NIH, among others

2. Effirma is being funded under a partnership announced in May of 2010 with Meda (A Swedish specialty pharma company).  Meda has assumed all future development costs and will pay AEN up to $17.5MM in upfront and milestone payments along with royalties once the drug is on the market.

3. dnaJP1 is being funded by a $5MM grant from the NIH

The Chart

Here is where things get really interesting.  AEN is trading near its lows for reasons that I cannot readily detect.  The news has been all good, yet the stock has continued to drop.  The chart is indicating a bullish divergence has developed with the MACD strengthening while the stock price is falling.

The Bottom Line

I don’t believe that an investment in AEN is a high-risk venture.  If you listened to Dr. Kou’s webcast, you would have heard him expand on his low-risk strategy that I believe could be very effective for the company.  He stated that AEN’s strategy is to “partner with pharma companies and let them take the drugs all the way through development.  ”  He also made the point that several of the drugs in the pipeline have blockbuster potential (Effirma being one).  By partnering, AEN won’t be in line for the huge payday that being the sole owner of a blockbuster drug could bring, but with such a low float (14MM shares), any deals signed and revenue booked could make this stock fly.

The acquisition of Hart Labs in 2009, now called Adeona Clinical Laboratories, gives the company a strong “cash cow” with strong revenues and excellent profitability.  The company is also using the lab to produce their own compounds for the ongoing clinical tests.

I laugh when I read message boards usually, but those who are following AEN seem to be very bullish on the company’s prospects and the stock itself.

Here is what I am looking at for entry/exit points

Last Close:              $0.79

Buy Opinion:          $0.75 – $0.85

Short Term Sell:   $1.25 (50%+ gain)

Long Term Sell:     $2.00+

Good Luck and Great Trading,

Jeffrey Dean

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