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Wednesday, January 11, 2017

JPM Meeting Notes - InVivo Therapeutics (NVIV)


My meeting with InVivo Therapeutics (NVIV) was rather boring. We talked about the weather and Boston sports teams – not much to report.

Just kidding!

Obviously, enrollment was a primary topic of discussion. Management continues to believe that the pace will accelerate in the coming weeks and that full enrollment is probable by the end of the second quarter. They point to evidence that enrollment was accelerating in May 2016 just prior to the FDA halt. As of today, 29 sites are up and running (more than back in May) and it sounds like new centers in Canada and the UK are going instrumental in getting the trajectory moving up. Those countries have “National Centers” where the majority of SCI work is done, making it ripe for new and exciting technology like InVivo’s NSI.

We talked about the fact that five of 12 patients have been at one center (Charlotte, NC). This has been an area of concern for some investors. To me, it seems like the PI at the Charlotte site (Dom Coric, MD) not only “gets it” from a therapeutic standpoint, but was already familiar enough with the criteria and type of patient InVivo is looking for to enroll. This makes him more efficient. For example, all patients in INSPIRE must be AIS-A. That seems a simple concept, but it’s not something that neurosurgeons are actively focusing on prior to surgery. It’s more an after-the-fact. That seems the case because the surgery is the same whether the patient is AIS-A or AIS-B. There are no real operational differences; again, it’s more a classification for progress tracking during rehabilitation and healthcare database. So InVivo needs to get more PI’s actively thinking and looking for patients that fit into INSPIRE. I don’t think the protocol is restrictive and I absolutely do not think this is “just too small a market”. I think there are logistical issues slowing the pace, and guys like Dr. Coric can help with best practices for other PIs. All fixable stuff.

We also talked about the control issue. This is the bigger issue for me. Full enrollment is a "when" not "if" problem, and it sounds like management expects the “when” to be in about 5-6 months. I’m fine that. We’ve waited this long! What is far more important is the “how” and the control issue needs to be addressed. Right now the OPC is 25% and that is based on PubMed and databases that suggest normal history at 10-15%. What management is doing now is enhancing that support package, including finding and presenting new databases to the FDA. It’s an ongoing process and what management is doing make sense to me. I think if the company can convince the FDA the current path forward makes the most sense – which I think they have a good shot at doing – I think the stock has a big recovery. I think a lot of institutional investors are on the sideline because the “how” question is far more important than the “when”. Hopefully, that gets resolved soon.

Other topics discussed were when management anticipates moving forward with the cervical trial and the BNT program. It sounds like InVivo pulled the cervical application because getting to a resolution on questions around INSPIRE – mostly the “how” discussed above – were more important. I think InVivo figured they will tackle one issue at a time. That being said, it sounds like the cervical trial is on track to start later in the year, only in Canada instead. I’ve got no issues with that plan. If they said Turkmenistan than I might have pushed back (no offense to my huge Turkmenistan following)! If management can generate some safety and efficacy data with a small cervical trial in Canada, that’s great. The FDA will be on board with a larger U.S. study thereafter or after the protocol for INSPIRE has been (finally) finalized. With respect to BNT, InVivo is still engaged in discussion with organizations that might provide the cells. This includes academic centers and public and private companies. There are a lot of moving pieces here so I’ll just leave it at that.

We also talked about how the newly passed 21st Century Cures Act increases the number of eligible patients under HDE to 8,000 from 4,000. I haven’t seen any investor chatter about this even though it’s quite important. Now, perhaps INSPIRE doesn’t even target 4,000 patients. Given the slow pace of enrollment, that might be a fair statement, but when you start including cervical and incomplete injuries, being limited to 4,000 capped InVivo’s commercial upside. At 8,000, the addressable market opportunity is twice the size. I think the FDA did that because they are looking to encourage more HDE applications. Biopharma companies have exploited (perhaps overly so) the Orphan Drug pathway, but medical device names have yet to really capitalize on HDE. That may change in the coming years thanks to the Cures Act.

Finally, we talked about the offer from Pixar Bio. What more is there to say? The offer is not credible and I do not see IP issues at InVivo.

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28 comments:

  1. Thank you, Jason, for going to bat for us little guys! Your notes definitely quelled some of the worries I've been having about NVIV.
    Does InVivo regularly correspond with the FDA-- or is there a planned 'make or break' meeting coming up this year in which they will present the newly compiled historical data? (Basically I'm wondering if we'll have a heads up as to when the FDA will make a decision)

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    1. They are engaged in back and forth with the FDA. I don't want to say it is "a constant" back and forth but the discussions are ongoing.

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  2. Jason, do you get the sense that the steering committee members are working together to get enrollments going or is it just 29 IRB sites signed up with varying degrees of interest in this study? The 29 sites that they have is very impressive but it appears that many PI's aren't very committed to actually enrolling patients. Thanks....

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    1. So that is an astute observation Rick, but it's not uncommon in how clinical trials are run. Ask any CEO/CMO/COO of a biopharma companies running a multi-site clinical trial and they will tell you the 80 / 20 rule applies for subjects and sites. Companies like to say we have "200 subjects at 50 sites" but the truth is probably >150 of the subjects are going to come from 10 sites. Inevitably, some PIs are going to be on-board with the concept and others are not. The same thing happens when companies promote drugs. There may be X number of physicians that specialize in that area but the company is only going to build a sale force to target the top decile or quartile. I think NVIV needs to try to leverage people like Dr. Coric to not only get more patients at his site, but also do more peer-to-peer education to help other sites come on board. I think the NSI is so "new" that it's just not part of the standard SOP.

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  3. Hi Jason, Thanks as always for your commentary on NVIV.

    I read a comment on SA regarding the control arm and was looking for your insight. Essentially the comment stated that the FDA would like a control arm to compare patients who receive the NSS to those who just receive decompression. I believe you or Perrin (maybe both) addressed this previously.

    Can you please refresh my memory as to the validity of that theory that the results we've seen may be a result of just the decompression? What are your thoughts on that being the control arm comparison?

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    1. (If I may, Jason, I've included this partial transcript from your article/post, "Interview with InVivo Therapeutics Chairman & CEO - Mark Perrin", published Wednesday, May 25, 2016, as it relates to the question of patient benefit as a result of decompression alone, or, as a result of the complete therapy NSS (decompression & scaffold). Source: http://www.bionapcfa.com/2016/05/interview-with-invivo-therapeutics.html

      JN: That’s helpful to hear. Let’s return to the other patients and the conversions you’re observing. How can you be sure the NSS is working and that it’s not simply the reduction of pressure from opening up the spinal cord?

      MP: As I mentioned earlier, two of the four conversions were in patients with a compound injury in which there was no pressure inside the cord due to the laceration or maceration. In contusion injuries, the primary objective in releasing the necrotic material is to lavage the injury so the cavity is exposed for NSS implantation. The fact that the pressure is relieved is a secondary benefit.

      JN: Then what is the primary mechanism of action of the NSS?

      MP: Simply put, neural regeneration and remyelination. Whether the injury is a contusion or a compound injury, the NSS degrades and is replaced by remodeled tissue that is neuro-permissive, allowing neurons to regrow into or through the remodeled tissue. In both rodent and primate models, we have seen evidence of myelinated or insulated axons in this remodeled tissue in the region of injury. We believe that this same neural regeneration is occurring in our patients. This belief is supported by the fact that our first patient has experienced progressive improvement over the first year after injury and that one conversion happened six months after the surgical implantation - a time period beyond which the vast majority of improvement is expected to occur. Improvement over these long periods suggests evidence of neural regeneration, which would be expected to take place over many months.

      In addition to neural regeneration, we have recently made the exciting preclinical observation that "remyelination of denuded axons" occurs three months after implantation of the NSS in rodents. The term "denuded axons" refers to the loss of insulation around spinal cord nerves, and "remyelination" refers to the reparative process whereby new insulating cells called Schwann Cells repair the site of demyelination. Demyelination is a well-recognized cause of neurological injury, and remyelination has long been a desired therapeutic goal.

      twenty2

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  4. RegalManor, great question for Jason! For reference, the comment at Seeking Alpha: "The Backdrop For PixarBio's Offer To Acquire InVivo Therapeutics" http://seekingalpha.com/article/4035317-backdrop-pixarbios-offer-acquire-invivo-therapeutics#comment-74060218

    Many Thanks, for your reporting, Jason!

    twenty2

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  5. Thanks for the good reporting. I looked at old posts and your $21 share price model is interesting. I feel like you are very well informed and professiinal but exceptionally conservative. To me the new "Standard oF Care" would mean the scaffold is used on every operable case. Your market assumptions tend to choke the sales to unreasonably small numbers and change practices over a long time. Regarding the model result, I think it apears to calculate PV oF future NET INCOME per share. Im unable to see the formulas but a SHARE MARKET PRICE should be a multiple of the share net income, for example, $21.25 net income per share x18 typical PE multiplier =$382.50 market price per share not $21. With your model applied I think if the scaffold is priced in the $10k-$20k ballpark, then you get closer to a $20 share price. I think $10k-$20k is probably the way insurance companies and FDA would argue to price it. Also it appears that some inputs representing marketability are overly conservative but one needs to make assumptions and you have done that. If I estimate the sales price for scaffolds based on full cost recovery plus operations and profit I am closer to $20k than $100k. Here is my main concern...I think if investors are aware NVIV doesn't need sales at $100k to support a share price near $20 the market enthusiasm will be revived and the present day share price will move from $4-$5 upward toward $20. Investor confidence is driven by belief, risk preception and notions oF uncertainty. A price of $100k for such a simple device does not pass a test of reasonableness when one knows what the cost is. Insurance companies limit their willingness to pay in a way that limits or eliminates windfalls. So, can your model tell us, what does one have to accept regarding market saturation to get $21 with a scaffold price of $10-$20k? For example, 12,000 sales at $10k = $120,000,000 - $50,000,000 assumed annual cost = $70,000,000 net / 37,000,000 shares gets close to $2, and a PE multiplier of 18 gets a share price of $36. Yes this ignores PV discounting, assumes immediate market saturation, zero risk, acceptance as a standard of care, and insurance coverage, etc. I feel like I missed an important part of your spreadsheet. Maybe the PE adjustment is internal? Would you be willing to recalculate with different assumptions?

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    1. No, you are not doing the math correctly. The $21 was my price target based on discounted cash flow. You are incorrect in your assumption that this was net income and equates to a target of $382.

      Also, I suggest you do more work on what the decompression and spinal stabilization procedure costs, as well as relevant potential cost savings of going from AIS-A to AIS-B. There is absolutely no way InVivo will price the NSI at your predicted price of $10-20k. I've done significant work on this pricing issue. Your statement, "Insurance companies limit their willingness to pay in a way that limits or eliminates windfalls" is completely inaccurate. That is NOT the way insurance companies reimburse drugs or medical devices. They look at the cost to treat and then what percent of that cost to treat can be saved by intervention. Under this model, I believe the NSI will cost and be fully reimbursed at $100k per implantation.

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    2. Thank you. I see your point. You describe how an upper limit price is calculated. Nobody would pay more because then thr cost paid would exceed the savings gained. Calculations based on cost plus return is a minimum. Nobody would accept less because the cost would be greater than income. Real world pricing takes place between these practical limits of willingness-to-pay. However with a monopoly the seller sets the price and the buyer has zero power other than a choice to participate or not. I do note however that according to numerous Internet sources, for example, Dr Deyo at Oregon Health Sciences Univ (one of our approved centers) says, "When combined with surgical costs, medications, magnetic resonance imaging (MRI), rehabilitation and disability, the average spine surgery case approaches $100,000 or more. The direct costs are astronomical and may reach as high as $169,000 for a lumbar fusion and $112,000 for a cervical fusion." I also looked at " http://www.spine-health.com/forum/discussion/23793/treatment/back-surgery-and-neck-surgery/cost-lumbar-fusion-surgery-90-k" So, adding the scaffold at another $100k essentially doubles the cost. These days the medical, legal and insurance communities are extremely cost sensitive. Hence my question about what does one have to believe about the market saturation to get $21 share price with a $10k-$20k scaffold price? Can we get there? Is the scaffold marketable at a lower price in numbers adequate to reward the investors? I think an affordable "new standard of care" saturates the "A" thoracic market immediately and the rest of the market follows rapidly as possible. However at $100k per, both saturation trends are more doubtful and I would say even the timing and probability in your spreadsheet scenario might be too optimistic. I am long on the stock based on assumptions of more enrollments and conversions getting nviv beyond hde thoracic A and started into other applications before 2018. The other applications are where the market potential is large enough to support higher share values. The company hired a commercial expert to deal with this but that front has been quiet. Thank you for looking into the control group issue. That is more worrisome than marketing assumptions and pricing at this point.

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    3. I do not think NVIV can get anywhere near $21 unless they charge $100k for the implant. Where we differ is that I think $100k is reasonable because insurance companies will look at the cost savings that implanting the NSI nets in future years. For example, an AIS-A injury is going to cost an insurance company $70,000 per year to support a patient (according to 2014 National SCI Facts & Figures). Now, if that patient goes from AIS-A to AIS-B, they cost drop to $50,000. It saves the insurance company $20k per year if the patient converts. Assume a 25-year old (like Jordan or Jesi) and over 40-years of life, that's a savings of $800,000! Assume perhaps the average life is only 25 years and that's still $500,000 in cost savings from converting. If 25% of NVIV patients covert, that's a net-net savings of $125,000 per implant to the insurance company. Hence, NVIV can charge $100,000 per implant and the insurance company will still pay.

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    4. Yes, thank you. To me the eventual market includes all levels of injury. So with an expanded target market a lower price is viable. I guess this could also mean the scaffold just becomes more profitable as time goes on. I'll defer to your experience and expertise. I'm staying long.

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    5. So the market beyond AIS-A is a bit of a wildcard and I'm not sure how to model what does on there. I know costs drop to less than $10k per year for AIS-D and costs for AIS-E (normal) are $0, but I have not done the work on the economics of going from AIS-C to AIS-D. Perhaps $100k is too much for this level of improvement. The big jump is obviously from "A" to "B" or "C".

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    6. Agreed, conversion from B, C, D, is hard to monetize with a decent level of certainty and intuitively there is much less $saving there. Regarding my reference to an expanded market I was thinking in terms of "A" conversions but including "A" conversions for cervical and lumbar in addition to thoracic. I know this is outside of the scope of the hde and INSPIRE but to me it is the future. Perhaps that market is so far out that PW makes it relatively insignificant although it increases the number of patients by 4x. Probably could be reliably modeled if one could identify a reasonably acceptable time schedule for NVIV to move into those clinical trial arenas in the USA. Just my opinion but I think cervical trials are possible in two years. The savings for cervical conversions are probably outrageously high.

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  6. Jason, if Invivo needs a control group, why not just do a follow up all the patients that were approached at their sites but declined the procedure? Thanks

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    1. ^^^ Winner Winner, Chicken Dinner ^^^

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    2. Jason, have they given any indication what the FDA originally was asking for as far as the control group and are they making any progress toward that end?
      Rick M

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    3. They are in active discussions with the FDA around this issue.

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  7. Jason, is your share price modeling based only on US potential only? Based on another analyst's estimate it would seem you are only valuing the US. It would seem that the potential beyond US is ripe once NVIV gets FDA approval.
    Also, with the 21st Century Act giving NVIV more potential sales (maybe double), what does that due to your $21 target? Thanks!

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    1. Yes, U.S. only but with significant off-label use beyond the HDE population. So while a deal outside the U.S. clearly raises my target, HUD going from 4,000 to 8,000 really has only minor impact because I predicted sales above 4,000 quick as the label expanded. Moving to 8,000 speeds that up a bit, but not enough to get excited about. A deal for Europe or Japan would be more exciting.

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  8. Jason, if say NVIV converts the next 3 out of 5 patients and pretty much maintains the same % success rate is this what the FDA might be looking for and will forget the control group request? I am wondering if just a little more continued success will make the FDA back off. Thoughts? Also, what is your take on eventually a potential suitor? When would they likely pounce (before or after approval) and for how much in your opinion? Keep in mind that the real money is in the chronic market and that is potentially worth $$$. Thx.

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    1. I was thinking the same thing. But was more like 5 persons converting. I remember back in 2014, the rules were that the patients had to be stagger(3 months between new patient enrollment. Then Jordon(first patient converted) converted and the FDA immediately lifted the stagger rule

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  9. Source: InVivo Corporate Presentation pdf 1-25-17 http://www.invivotherapeutics.com/investor-relations/presentations/
    Slide #21
    Contemporary Thoracic SCI Cohort Study
    A Complement to the INSPIRE Study

    • In May 2016, FDA recommended inclusion of a concurrent control group in INSPIRE
    in a Study Design Consideration (SDC)

    • SCI registries are well-defined and curated databases intended to provide natural
    history grounding for clinical trials

    • As an alternative to a concurrent control, InVivo is proposing and plans to submit a
    protocol for a Contemporary Thoracic SCI Cohort Study (the “Cohort Study”)
    – A robust evaluation of the recent natural history of acute, complete thoracic SCI patients
    – Utilize existing databases and registries (e.g., Model Systems, EMSCI)
    – To the extent possible, match patient characteristics to INSPIRE
    – Evaluate only patients injured since 2010 – almost concurrent with INSPIRE

    • Cohort Study will provide matched and contemporary benchmarks for INSPIRE

    • InVivo plans to submit the INSPIRE study and Cohort Study together for HDE approval


    twenty2

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  10. Hi JASON, are you worried about the relapses/reversions back to AIS A sci per latest patient update

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    1. Yes, I'm worried. It's clearly not ideal news. NVIV's PR says that patients bouncing around is common and I doubt doubt that but it's still bad news. That said, it's only month 2 for these patients so it is very possible they can re-convert back to AIS-B in the next four months.

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    2. Jason, those two most probably would be no-converts if not for the scaffold. By 20 patients, if they end up with about half converting then who cares if some are teetering between conversion and no conversion. The NSS is still successful.

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  11. My question is similar to the previous poster's, asking if you are concerned about the reversion. But, specifically, I wonder if it is common for patients to bounce back and forth between A and B, or if reversions are usually permanent. And also if you beleive NVIV will PR these situations in the future if more arise.

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