Analysis: Hollis-Eden to Endure Stock Nuke

By STEVE MITCHELL

Hollis-Eden shares plunged nearly 30 percent Thursday after the U.S. government rejected its Neumune for treating radiation sickness in the event of a terrorist attack, but some analysts think this is merely investor hysteria and the stock remains a good investment.

The Department of Health and Human Services surprised Hollis-Eden and Wall Street late Wednesday by declining to pursue a contract to purchase the company’s drug Neumune for inclusion in a national stockpile to be used in the event of an emergency.

Shares of Hollis-Eden fell from its closing price of $4.28 on Wednesday to $3 in early trading Thursday.

Rodman & Renshaw analyst Navdeep Jaikaria told United Press International the plunge was mainly due to overreaction by investors who don’t realize the full value of the company.

We view this as more of an overhang out of the way because investors were placing a lot of focus on this particular event rather than Hollis-Eden’s true value that is coming from their pipeline, Jaikaria said.

The company has enough cash on hand — approximately $64 million — to sustain itself for two years, and Jaikaria expects it to begin clinical studies with four or five compounds in large indications in the next year.

All that will drive shareholder value and therefore we believe the stock, after being hit, is attractive for long-term investors, he said. Jaikaria rates the stock as outperform.

The company’s most promising candidates include HE3286 and HE3235, which have potential applications in diabetes, rheumatoid arthritis, multiple sclerosis and cancer, Jaikaria said.

In a research note, Jaikaria said the HHS rejection may not spell the end for Neumune. A bill proposed in the House would require the Department of Homeland Security to expedite the assessment of threats, which could motivate HHS to acquire Neumune via a second-generation contract.

Jaikaria said he is confident this second-generation contract could come to fruition, but the timing is uncertain.

Hollis-Eden said the HHS informed it Wednesday that it had determined Neumune was technically unacceptable and was no longer in the competitive range, but offered no other explanations for rejecting the drug.

The company said it was perplexed by the decision because HHS had twice informed it that Neumune was in the competitive range — the second time coming as recently as October. In addition, HHS had not requested any additional safety or efficacy data about the drug since that time.

Given the nature and stage of our communications with HHS regarding our original (acute radiation syndrome) proposal and subsequent revisions, this decision by HHS to exclude our proposal and cancel the (request for proposal) is shocking and difficult to understand, stated Richard Hollis, chairman and chief executive officer of Hollis-Eden.

The company emphasized Neumune is the only agent to reduce mortality from acute radiation sickness in primates when administered hours after radiation exposure. The compound has also been shown to be safe and potentially efficacious in humans.

Hollis, who used surprisingly sharp language, said HHS’ decision meant U.S. citizens were vulnerable to a nuclear attack.

The ongoing search for a potentially ideal agent may never be realized and at the very least is years away, he said. In the meantime, Americans are left unprotected from what numerous government officials claim is the greatest threat we face as a nation.

Saying that this is not what Congress intended when it passed the Project Bioshield legislation, Hollis added that company representatives will make ourselves available over the next several weeks to members of our government who are committed to addressing these shortcomings.

HHS spokesman Bill Hall told UPI the agency withdrew the RFP for Neumune because it felt it did not meet the requirement of the government.

Asked if the issues were due to safety or other concerns, Hall said, Those are proprietary things we cannot get into.

He added that the decision does not change HHS’s commitment to pursuing ARS countermeasures, and the agency plans to reissue an RFP as soon as it can.

Despite the setback, Hollis-Eden said it remains upbeat about its future and now plans to shift its attention to pushing its pipeline candidates into clinical trials.

We will now be tightly focused on moving our three clinical candidates into clinical trials for preventing or treating healthcare acquired infections, diabetes, arthritis and cancer, Hollis said. While this action clearly represents a near-term setback, we are convinced the future for this technology is very bright.