Description

Long TST.TO

A special situation with near term catalysts and intermediate term opportunity targeting 50%-4x returns.

SUMMARY

While most everyone has been focused on the recent overall weakness in large and mid-cap biotech stocks and the discussion over pricing paradigms and Schrodinger-owned pharmacies, we believe we have found a gem in the micro-cap space with potential to be our best investment over the next few years.  A combination of good news, adverse market pressures, and improving prospects has led us to take a sizable position in Montreal-based biotech company Telesta Therapeutics.  An orphaned, core business divested, rebranded, foreign-based biotech company with a market cap under USD$200m, Telesta probably doesn’t register on most people’s radars.  We believe this will not last.  Formerly known as Bioniche Life Sciences, Telesta recently had its Biologics License Application (BLA) for its MCNA treatment of bladder cancer accepted for priority review by the FDA.  With an AdCom date on November 18^th and a PDUFA on February 27^th, this has set the stage for multiple short and intermediate term catalysts for the company which we believe poses an exceptional R/R opportunity over the coming months and subsequent years.  

Unfortunately for those not yet involved, the stock has already doubled in the past twenty days coinciding with the announcement of the Ipsen deal.  With that said, the announcement has also decreased the risk significantly in our opinion, which we address later on.  In that light, we still think the stock is still substantially undervalued on a risk/reward basis.  For those who don’t want to carry the AdCom risk, you may be better off waiting until after the 18th.  Apologies for late notice on the imminent catalyst.

BLADDER CANCER AND TREATMENT BACKGROUND

Bladder cancer is the 6^th most common form of cancer in the U.S. (3^rd or 4^th in men, 11^th or 12^th in women) with an estimated 74,000 new cases per year and 16,000 deaths.  When diagnosed, bladder cancer is characterized and classified by its current progression and risk of spreading.  The most important determining factor of bladder cancer treatment and prognosis is whether or not the cancer has progressed through the lining of the bladder and into the surrounding muscle tissue.  Cancers where the tumor has progressed beyond the bladder wall and into the surrounding muscle are aptly known as “muscle-invasive” bladder cancers.  Bladder cancers of stage T2, T3, or T4 are muscle invasive and require aggressive treatment, more than cancers which are still contained within the bladder.  

Luckily, the majority of bladder cancers are diagnosed before they have progressed though the lining of the bladder and into the surrounding muscle. These stages (Cis, Ta, and T1) are considered “non-muscle invasive bladder cancer” (NMIBC).  Stages Cis and T1 are considered “high-grade” and are at high risk of progressing through the bladder lining into the surrounding muscle.  These stages are treated more aggressively than Ta bladder cancer which has a lower risk of progression.  

The current standard of care for patients with early stage NMIBC is to undergo Bacillus Calmette-Guerin (BCG) therapy.  A biologic, BCG has been used since the 1980’s to treat bladder cancer as well as a vaccine against tuberculosis.  The current method of treatment is an initial introduction period of weekly instillments by intravesical infusion (i.e. catheter) for 6 weeks, followed by maintenance treatments once a month for up to a year.  Although the majority of bladder cancers are caught and treated in these early stages, BCG therapy has a high relapse (patient becomes disease-free but cancer reappears) and refractory (patient never becomes disease-free) rate with an estimated 60-70% of patients either recurring or experiencing progression of their cancer.  (Literature varies between 50-90% on this range depending on stage, BCG treatment definition, and period of observation post treatment)

BCG is the first and primary line of defense against early stage NMIBC.  But with a failure rate approaching 40%, BCG failures are common and pose difficulty for urologists and oncologists in treating NMIBC.  Most low grade bladder cancers, generally stage Ta, are likely to return but uncommonly progress into the muscle.  However, high-grade early stages Cis and T1 progress into the muscle and develop into more aggressive and deadlier cancers in nearly 50% of BCG failures.  

For patients with high-grade bladder cancer who experience BCG failure (namely Cis and T1), the current recommended progression of care is a radical cystectomy (surgical removal of the bladder and some surrounding tissue).  The decision to undergo a cystectomy is extremely difficult for the patient as there are significant risks to the surgery as well as a permanent impairment in quality of life post-op.  Usually a new bladder is constructed using a part of the intestine; however with the removal of the bladder, significant side effects include impairment of sexual function and loss of control of urinary functions requiring permanent catheter use.  Consequently, this is a difficult proposition for many patients and many urologists face difficulty in convincing patients to undergo this procedure.  Faced with this prospect, many patients opt to forgo radical cystectomy, if they were even initially eligible, and proceed with either another round of BCG, which has a progressively lower chance of success with each subsequent course, or undergo intrabladder chemotherapy (Valrubicin).

Further complicating the current standard of care has been the ongoing global shortage of BCG.  As we will describe later, a significant and major reason we are so confident the FDA will approve MCNA is the shortage of BCG and the need to have an alternative drug on the market.  

Understanding the landscape of bladder cancer is critical to understanding why we believe in the prospects of MCNA.  While attempting to meaningfully explain this complicated and highly variable disease in a one page summary is an exercise in futility, we believe it’s prudent to set the stage for explaining why we are so positive on the drug.

TELESTA AND MCNA

This leads us to Telesta.  On June 29^th, Telesta submitted a BLA to the FDA for its MCNA treatment of bladder cancer.  Intended to treat patients with high-risk bladder cancer who previously failed or did not respond to BCG and are unwilling or unable to undergo a cystectomy, MCNA will offer an alternative and new method of care which we expect to become standard.  The MCNA agent works as both an immunotherapeutic agent, similar to BCG in provoking a response from the immune system, as well as a chemotherapeutic agent directly attacking cancer cells.  The results of its Phase III study (Trial NCT00406068) conducted from 2006-2011 were published in the Journal of Urology in October 2014 and showed beneficial outcomes with minimal significant adverse side effects.  The article, Efficacy and Safety of MCNA in Patients with Nonmuscle Invasive Bladder Cancer at High Risk for Recurrence and Progression after Failed Treatment with bacillus Calmette-Guerin, concluded that MCNA “provides a safe, effective alternative for those who are not candidates for or who refuse cystectomy.”  We encourage those interested to read the 8 page study, which can be found with a simple search.

On August 28^th, the FDA accepted the BLA for priority review and set a PDUFA date of February 27^th, 2016.  In addition, on September 28^th, the FDA sent notice of an AdCom scheduled for November 18^th to review the BLA.  We consider both of these events obvious short-term catalysts for the company.

BLA APPROVAL AND ADCOM

We believe that BLA approval will be swift and relatively seamless.  The company has met with the FDA twice in the past year discussing how to proceed with the application and conferred over any concerns.  Notably, the Phase III trial initially targeted a 40% DFS rate after one year based on results from the drug’s predecessor’s Phase II trial concluded in 2003.  After the trial failed to meet this objective and only estimated a 25% DFS rate across all existing NMIBC cancer stages and conditions, the company met and asked for guidance on how to handle this overly ambitious and, quite frankly, failed initial target in its application.  From consultation, we believe that the results of the study are more than adequate and demonstrate significant medical benefits despite the trial missing its target.  Furthermore, on February 12^th, the company met with the FDA again.  The following day, the company announced that it was postponing the filing of the BLA from March 2015 to June 2015 to amend its manufacturing process and enhance the strength of its BLA.  Again, despite the setback, we view this voluntary delay in the filing of the BLA as a positive indicator of the thoroughness and sophistication Telesta is demonstrating during this process.  The BLA was successfully filed in June and subsequently in late August, the company received notice from the FDA that it had been accepted for priority review, shortening the review period from the normal 10 months to 6 months.  To us, this outcome demonstrates the quality of the application and the interest of the FDA in assessing MCNA.

Crucially, we cannot understate the importance of a new alternative treatment for bladder cancer in those who fail BCG.  There has not been a new treatment for bladder cancer for decades.  The only option for recurring or relapsing NMIBC is either another round of BCG possibly with interferon (increasingly less effective and risks allowing the tumor to progress and metastasize), Valrubicin chemotherapy (only applicable for Cis NMIBC patients and much worse side effects), or radical cystectomy (infeasible in many patients and very difficult and life-altering in the rest).  Bladder cancer remains a limited-option diagnosis, with BCG being the first line of defense followed by either removal of the bladder or chemotherapy.  There remains dearth of options for patients in between those who do not respond to BCG but would rather not undergo radical cystectomy.  The difficulty in treating high-risk patients who fail BCG is that progressing to these next treatments is a dramatic escalation of treatment.  Like performing a lobotomy because you still have a headache after taking Tylenol, a cystectomy is a radical step for a person who has anywhere from a 50-75% chance of never experiencing progression!  We believe the study demonstrated that MCNA would offer a legitimate intermediary step between BCG and cystectomy or chemotherapy.  

Of particular note in the study was the improvement of Cis DFS patients relative to Valrubicin.  The results of the study demonstrated positive outcomes in a significant and systemic subset of patients.  For those that have failed BCG and are at high risk, results like 20% DFS are welcome relative to the alternatives of chemo or cystectomy.  We believe that MCNA will fill this niche between BCG and aggressive treatment and be quickly adopted as the standard second-line treatment.

However, don’t just take our word for it.  We sought out expertise where needed and spoke to a handful of urologists and oncologists.  They were instrumental in building this thesis since they are the most qualified to say bunk or not with respect to any study on a new drug.  There is only so much a statistician analyzing a study can see into the potential of a drug so we would be remiss not to include our summary of the doctor’s responses.  For a profession where there are a dozen hyped “maybes” for every one truly exciting breakthrough, their view was considerably positive on MCNA’s prospects.  They highlighted that the results are favorable where the only other nonsurgical options are Valrubicin and BCG/interferon.  In addition, we asked point blank if there is a place for this drug if approved in the treatment spectrum and the answer was an unequivocal yes from those we asked.  There is a gap in the treatment spectrum and this drug should fill it.

Building on our thesis for FDA approval is the current status of BCG availability.  You can read more about BCG shortages on the FDA’s CBER website, but the WSJ ran an article in late May about drug shortages and focused on BCG as its primary example.  The story, U.S. Drug Shortages Frustrate Doctors, Patients, is easily found online and discusses patients who were not able to undergo BCG treatment when originally expected due to the shortage.  All of the BCG for sale in the U.S. is manufactured in one of two plants, one owned by Merck and the other by Sanofi.  The shortage began when one of the facilities was shut down for mold and was exacerbated when the other facility experienced delays of its own.  As a result, both facilities experienced concurrent delays, lending to the 3-year shortage.  While the shortage is a random occurrence of circumstance, we know the FDA despises drug shortages, particularly when alternatives do not exist.

The FDA currently expects shortages in the U.S. to persist until early 2016 after nearly 4 years of shortages.  Urologists we consulted said that the shortage has more or less already abated, but that the past 12 months were particularly tough.  Due to BCG being the first and only line of defense apart from radical cystectomy, we believe the FDA will likely be very keen to introduce an alternative treatment into the marketplace.  With only 2 manufacturers supplying the entire U.S. market, we doubt the FDA wants to risk another BCG shortage like the one that is just ending now.  You can find anecdotal evidence of patients who were affected by the BCG shortage all over the support group forums.  The previous recommendation was that in certain cases the dosage to be administered should be diluted to only 1/3 the normal amount.  While there was little or inconclusive evidence linking lower doses to higher risk, for a cancer where the death rate if caught in NMIBC stage is only 12% but which triples if it progresses into muscle-invasive, you can imagine how upsetting it would be if a 3-year drug shortage even slightly affected your treatment.  From this perspective, offering an alternative treatment would have twice the positive consequences.  Not only would it improve outcomes in certain patient populations, but also potentially ease demand on a drug recovering from a protracted shortage.  With this in mind we think the shortage of BCG will aid the case for approval and we view it as one of the motivating factors of the FDA’s placement of MCNA on priority review.

All of our research comes from well respected academic journals and if anyone would like to comment on a fact or statistic or other thought we have, we’d welcome to opportunity to share.  Citing can be tedious and time consuming as everyone here knows.  

OPPORTUNITY

Telesta anticipates introducing and developing the drug through a combination of marketing partnerships in foreign countries and direct commercialization in the U.S.  Relative to other specialties, oncology is generally one the faster adopters of new therapies, and we estimate that the time from approval to widespread adoption of the drug will be under 2 years.  Management has said that it intends to rollout the drug through an initial targeted introduction phase, which we estimate will take around 6 months from FDA approval to patient treatment as the drug has to be approved by various hospital P&T committees, manufactured, distributed, etc.

The company estimates the target market for the drug in the U.S. will be about 8,500 patients per year, a figure with which we are comfortable after estimating the potential subset of patients using a top-down stratification.  This figure also agrees with estimates provided by the urologists and oncologists we consulted with.  They estimate that about 10% of the patients they treat would end up on MCNA if the drug is approved and works as advertised.  Although obviously not scientific, these are the care providers who will be prescribing the drug.  With 75,000 BC patients per year, 10% of this figure is in line with both the other estimates, lending confidence to the opinion.

In September 2014, the company hired Medical Marketing Economics to conduct a thorough assessment of the market potential of a commercialized MCNA in the US.  MME estimated that the peak market for MCNA based off of estimated adoption, reimbursements, and access in the U.S. would approach USD$400m per year in sales.  This was twice the estimated size of the market Telesta internally projected in Q1 2014 which estimated peak sales of USD$200m.

Pricing per dose is expected to be $3k+ per dose, which we view as a favorable and realistic price.  Since the average patient will receive 9-12 doses per year, each patient represents about $36k in revenue for Telesta.  Therefore, every 10% of its target population Telesta reaches corresponds to about $30m in revenue.  We think Telesta will reach between 10-20% of the target population in 2017 at an operating margin above 40%.  After adjusting for repayable government assistance, we think that the company will net above $20m+ in income then.  2018 should be Telesta’s breakthrough year, assuming they aren’t bought before then.  Telesta should address at least 40% of its TAM in the U.S. by then, equating to about $120m in revenue.  Without having to spend a significant amount on R&D, we think operating margins should be near 50% by then.  Bear in mind, these figures are U.S. based only and not inclusive of any royalties or incentives met from the Ipsen and other agreements.*

*While we have our own ideas regarding many of the variables to be estimated, the lack of available data points make it difficult to have a strong degree of confidence in our models for terminal value.  Even at the somewhat precise figures we state, discounting to now gives us anywhere from a $1.50 to $3.50 valuation with our base case being close to the upper end of that range.  At this point, we have positioned and sized for the binary event and will update with more specific numbers once we have more confidence in them.  With that said, we believe there is a high probability the company can generate at the minimum high tens of millions in net income within the next few years, which is why we think the market is undervaluing the stock.   Even at $0.80, the market is either pricing in a terminal value far too low for the stock, or a probability of approval below where our research has guided us.  Hence the value we see in the stock.  

When estimating adoption, we believe that penetration of the therapy will be quick for a number of reasons.  On the instillation front, the drug will be administered by the same catheterization process as current BCG instillations, making the transition simple for urologists and nurses.  Concurrently, the reimbursement scheme should be similar to the existing reimbursement schemes for BCG therapy according to the company which occurs on a per treatment basis.  

On a longer timeline, we expect MCNA to be introduced in other countries to treat some of the over 400,000 worldwide new cases of bladder cancer.  The company expects similar market opportunities to the U.S. to be available globally and we expect Telesta will be able to secure patents and rights worldwide in conjunction with its partners to develop MCNA on a larger scale.  While the company is rightly focused on FDA approval and U.S. introduction, we cannot forget to mention the opportunity which exists beyond the United States.  Telesta currently has signed agreements in place with companies to handle regulatory, marketing, and distribution in South Korea through BL&H Co. and in South Africa, Mexico, and Canada through Paladin Labs (now Endo International).  

In line with our expectations for additional licensing agreements when we initiated our investment into Telesta, on October 28^th, the company announced that it had completed a licensing agreement for MCNA in all other countries (primarily Europe) except Japan and the ones previously announced.  The terms of the deal highlight to potential of MCNA.  In addition to an upfront cash payment of USD$10m, there are incentives for an additional $127m as well as a tiered double digit royalty on sales.  We believe this royalty, which will fully cover the Endo royalty, will be worth $25+m per year.  Despite this, we still remain focused on the primary U.S. market as the crux for this investment even though announcements like these can be catalysts to move the stock significantly.

Consequently, we anticipate global peak sales to be safely above USD$400m but to be conservative we do not include any estimates for worldwide sales into our thesis for investment in the company.  As a result, while our thesis is only predicated on approval and revenue from the U.S., additional opportunities outside the U.S. we view as substantial added benefits to be evaluated once the drug becomes established.  With that in mind, and the company’s focus on U.S. introduction, any estimates for sales ex-U.S. are premature in our opinion.

During the past two years, the company has been focused on improving its financial position and altered its prospects to hinge on the success or failure of MCNA.  While this has clearly made the company an all-or-nothing bet, we believe this is a bet with a high likelihood of being successful.  The company has divested itself from its veterinarian sciences business, put assets up for sale not relevant to the commercialization of MCNA (One Health), and focused on raising and storing cash for introduction.   

To this extent, on August 19^th, the company announced a private placement of USD$28.6m worth of stock to 14 investors at the previous 5-day average market close price.  The company issued 109m shares at CAD$0.3405 to raise the share count from around 171m shares to over 280m shares.  This capital raise was as shareholder friendly as possible in our opinion with no discount to market price as is commonly seen in these situations.  Among the investors, which included current management, was Consonance Capital, which purchased over half of the new shares issued and now owns just shy of 20% of the company, the only 5% holder of the company’s shares.  All the investors agreed to a 4-month hold period, which extends beyond the AdCom date into December, a sign we see as highly bullish considering the importance of the AdCom.  In total, the company currently has about 290m shares outstanding with another 27m warrants and 9.5m options at various strike prices.  Turnover is pretty light with only an average of 500k shares per day (post Ipsen 1m+); however, this is a marked increase from before the capital raise when the stock was barely doing 100k on most days.  There has been some selling pressure, we believe, resulting from warrant exercises in September impacting dynamics, but we also find the uptick in volumes interesting considering that all the shares offered in the raise are under lockup through mid-December.

The recent surge in volume has coincided with the run up in the stock.  The volume uptick has been seen both on the pink sheets BNHLF as well as TST in Toronto.  Most of the BNHLF volume is expectedly retail in our opinion, but we wouldn’t be surprised to see a few other institutions show up with TST on their next quarterly update.  The stock is obviously very hot right now, probably too hot, but we saw large support just below the bid through the 70s all last week.  It’s obviously costing people who weren’t already in before the Ipsen deal to get in now before AdCom.  The Ipsen deal in our opinion was when the value of MCNA began to be realized.  $100m+ in incentives on top of a royalty bodes extremely well for the company, something we believe the market was missing until it got smacked in the face with it.

Telesta also maintains its commitment to improving its visibility and awareness on the Street in the future.  EuroPac Canada initiated coverage on the company in March and Roth partners initiated on October 8^th.  Management has said it is working towards attracting coverage from larger U.S. based institutions in the future and a U.S. listing, both potential catalysts for visibility and attention.

Financially, with the recent USD$28m Telesta raised from the equity offering and an additional few million from recent warrant exercises and licensing agreements, we believe the company is in a comfortable position with around CAD$55m in cash on hand post Ipsen.  After divesting other assets, the company expects its monthly burn rate to be under CAD$2m for now into the run-up to commercialization.  The company currently has maybe 50 or 51 employees and expects to hire an additional 10-20 in sales for the push into the United States.  Additional expense will also need to be incurred to grow the manufacturing facility in Montreal, which right now can only produce about 30,000 doses per year.  We believe this figure will conservatively need to at least triple to service just the United States effectively.  With current PP&E valued at under CAD$2m, we don’t view this expense as exceptionally burdensome to accomplish.  Finally, although approval and introduction will add expense, we believe there is more than enough time for the company to execute profitability in the U.S. and do not have a concern for the company in the near term requiring another raise.

While estimates are obviously difficult to pin down, we believe the company will initiate sales in late 2016.  Judging from the size of the previous Phase III trial, we believe perhaps 100 or so will begin treatment by the end of calendar 2016, generating about USD$1-3m based on 6 doses per patient at $3k per dose.  2017 will be the year of inflection and significant growth with sales in the mid-tens of millions and by 2018 sales should safely by in the 9 figures with manufacturing buildout and expansion into international markets occurring by that point.  Obviously we would love to be more exact, but at this point and hopefully not at the risk of falling into a good-story trap, we think it would be foolish to try and defend specific numbers.  Regardless, the company probably becomes a takeover target long before it reaches anywhere near peak market penetration, but again, our investment thesis at this point hinges on a positive AdCom and FDA approval.  

THESIS RISKS

The primary risk of the thesis is the potential for the FDA to deny approval or delay and ask for another Phase III study.  From talking to doctors familiar with the study, one of the primary concerns which was unclear in the study is if MCNA increases the progression risk in patients who do not respond to MCNA.  The trial’s results indicated that there is a certain percentage of the population which responds favorably to MCNA; this is obviously the crux of our positive thesis.  However, it does not break out the patient sample and address if MCNA increases the progression risk from a baseline level in patients who do not respond to the treatment.  Further concern can be had over the thought that attempting to treat with MCNA after a failure of BCG prolongs the period that the tumor can grow and proceed.  This may put more patients at risk of experiencing a progression event.  This concern is difficult to quantify and warrants additional consideration if treating with MCNA.  We expect the company to address these concerns at AdCom and do not believe it will hinder the approval process, considering the company communicated with the FDA about only running a one-arm study.  With that said, if there were a crack in the study which could delay approval, we believe it would be related to this issue.

Furthermore, the size of the trial was somewhat small by Phase III standards with only 129 patients partaking.  While that might cause questions as to how safe or effective the drug truly is (this uncertainty cuts both ways), we think the safety data demonstrated in the studies will be sufficient to warrant approval.  Most of the side effects were mild to moderate and from the 129 patients in the study, the side effects were similar in type and magnitude to those of TheraCys (BCG).  The comparison is not apples to apples since BCG is used to treat low-grade tumors as well as high-grade, while MCNA would be introduced only to high grade tumors after BCG treatment.  To put it succinctly, our analysis indicates the drug is very well tolerated.  Remember, beyond BCG failure is either chemo or surgery.  Nevertheless, there is a nonzero chance that the FDA sends them back for a larger trial, at which point this company is set back 3 years or more and everyone sees another dilution.    

As stated numerous times, there are only a handful of options for treating NMIBC, of which the big three are BCG, chemotherapy (Valrubicin), and cystectomy.  However, there are a few other drugs being studied at various phases in their development cycle.  The company does a decent job we believe at summarizing them in their Annual Information Form.  Notably, the only other drug at Phase III level is a recently started trial for Vicinium.  The Phase III trial has an estimated completion date of mid-2018 which puts any potential approval of the drug nearly 4 years away at best.  There are other drugs at earlier stages of developments which may or may not perform better than MCNA; however we believe they are too early into their development to pose any risk to TST at this junction.  With that said we are more than open to any questions or discussion about other potential treatments which may impact the thesis.

For those who dig into the company a bit, you will see that Telesta underwent a protracted and public shareholder dispute under its previous name of Bioniche Life Sciences regarding the sale of its animal health unit and direction of the company.  The court ruling can be found online, but the dispute with the two activist shareholders was eventually resolved with all but two directors and the CEO stepping down.  The current CEO was then appointed and one of the activists accepted a board position, which he soon thereafter relinquished.  

Importantly, with regards to debts and existing and ongoing liabilities, in exchange for worldwide rights to MCNA, in December 2012 Telesta agreed to pay Endo International 5% of all future sales of a commercialized MCNA on a country by country basis for 10 years.  This is a significant royalty and while we are obviously not thrilled with it, the deal was made a number of years ago.  We do not use this to knock current management and simply view it as an undesirable part of this company.  In addition, a previous conditional government loan is repayable on commercialization of MCNA at a rate of 6% of sales up to CAD$11m.  While these are not risks per se, they do reduce income potential of the company and are therefore noteworthy.  

With respect to the intellectual property the company possesses over MCNA, Telesta was recently awarded its composition of matter patent for MCNA in the U.S. and anticipates the issuance of other U.S. patents in the coming months.  Other patents granted in other countries demonstrate their ability to secure the rights and safeguards necessary to protect this asset so we therefore have no worries about IP.

Finally, one of the red flags raised is the low insider ownership of the company.  From the last report, it read that only 0.6% - yes, six-tenths of one percent – of the company is owned by insiders.  Some will use this to question to alignment and belief of management in their own company.  However, this number will be updated higher with the next release as members of the executive team participated in the August equity raise, which can be found on the SEDI website.  Additionally, management and employees are aligned in that they hold most, if not all, of the existing 10m+ options outstanding, the number of which appears to have grown significantly in the past quarter.  Nevertheless, there are some slight misalignments between management compensation and shareholder priorities, which we are mindful of looking forward.   

FINAL THOUGHTS

Telesta is one of those stocks which will either be a homerun or a bust, hence its categorization as a special situation and not a value play at this point.  After approval, the thesis may very well change to a value play, but when the downside is zero, it’d be comical for us to come in and call this a value stock.  It’s not.  It’s more Sarepta than Sanofi.  From our research, the drug is safe and has a significant benefit to patients.  That’s what is important to the FDA, especially for oncology drugs.  Our consultations indicate it would carve a well-sized niche by itself in the oncology regimen.  We think this niche paves the way for MCNA approval in February.  The potential of MCNA is tremendous with what we believe a clear runway to generate net income near Telesta’s current market cap within a 3-5 year period.  So why does this opportunity exist you ask?  Well, it doesn’t fit in anyone’s portfolio except those who specialize in these situations.  Besides being an unknown, microcap, Canadian listed, pre-revenue and pre-approval biotech company with all its eggs in one basket, what else could go wrong?

Catalyst

Major

• AdCom November 18^th
• PDUFA February 27^th

Minor

• Shareholder Meeting November 12^th
• Additional Research Coverage