When was the last time you saw a stock with a $5 million market cap trade on the NASDAQ at a value below book? Chances are that your answer is never. The fact of the matter is that it’s hard to find any company trading below book value. Nonetheless, that’s the story of Spherix Inc (NASDAQ: SPEX), well, part of it.
Just by looking at the book value of the company’s investments, it’s easy to see that the stock is undervalued by around $7 million, or 140%. However, there’s more to the story. In fact, with recent and upcoming developments, this stock is becoming one that should be watched closely.
What Is Spherix?
Spherix was founded in the mid-1960s as a scientific research company. Today, the company can be considered a patent powerhouse, but is operating much like a hedge fund.
Over the years, Spherix has made several investments, primarily in the biotechnology and pharmaceutical fields. Most notably is the investment that the company made in Hoth Therapeutics.
About two years ago, Spherix invested approximately $700,000.00 in Hoth Therapeutics, a company with a focus on the development of drugs for Eczema. Today, Hoth Therapeutics trades with a market cap of around $50 million, about $10 million worth of the company is owned by Spherix.
While the company’s investment in Hoth Therapeutics is an impressive one that has seen incredible value appreciation, it’s important to understand that the company is well diversified.
Recently, the company announced that it acquired a 20% stake in CBM BioPharma, an oncology company looking to advance assets targeting some of the most stubborn forms of cancer.
Nonetheless, all of the above has to do with the SPEX of today. What I’m most interested is the SPEX of tomorrow.
What’s Next For SPEX?
Although the investments and diversification that we’ve seen out of Spherix in the past are impressive to say the least, the company’s plans for the future are what I find to be most impressive.
In particular, while Spherix recently announced the acquisition of a 20% stake in CBM BioPharma, it doesn’t plan to stop there. In fact, the company intends to acquire the key developmental assets at the company, moving from a patent company acting as a hedge fund to a full-fledged pharmaceutical development company.
The assets that the company is looking to acquire include KPC34 and DHA-dfdc, both of which have shown incredible potential to treat some of the most debilitating forms of cancer.
KPC34’s Dual Action Could Solve A Large Unmet Medical Need
First off, we have KPC34. The treatment was developed at the Wake Forest School of Medicine as a potential option targeting Acute Myeloid Leukemia as well as Acute Lymphocytic Leukemia, or AML and ALL, respectively.
The treatment is a next generation candidate that is designed to overcome several resistance challenges that we see in today’s standard of care. In preclinical studies, KPC34 has shown strong levels of efficacy in treating relapsed AML in mouse models. In fact, the drug notably increased the lifespan of treated mice models of the ailment. In preclinical studies, the lifespan of mouse models of leukemia doubled.
The treatment works through two methods of action. First off, a lipid component within the treatment inhibits protein kinase C, an enzyme associated with the proliferation of cancerous cells. During this process, an active nucleoside triphosphate is formed. Once formed, the nucleoside triphosphate heads to the nucleus of the cancer cell, works its way to the DNA of the cell, and halts DNA synthesis. Both of these mechanisms of action work together to kill diseased cells.
An important competitive benefit of KPC34 is the fact that the drug can be orally administered. This oral bioavailability may create a critical option for patients that are unable to tolerate repeated cycles of chemotherapy.
For a detailed overview of how the drug works, play the video below:
DHA-dfdc May Provide An Option In The High-Value Pancreatic Cancer Space
The other asset that Spherix is working to get its hands on is known as DHA-dfdc. The therapeutic candidate was developed at the University of Texas at Austin, and preclinical data is already turning heads.
In the preclinical setting, the drug has proven to inhibit pancreatic cancer cell growth with a potency rate of up to 100,000 times that of gemcitabine, the current standard of care. This has led to documented efficacy against pancreatic tumors in a clinically relevant transgenic mouse model.
Once injected into the mouse model, the treatment showed an unexpectedly high concentration in the pancreas. This led to a significantly extended survival rate and high levels of efficacy when treating mouse models of both genetically mutated and human transplanted pancreatic cancer.
In the mouse models, the treatment proved to be generally well tolerated. Moreover, it has demonstrated preclinical activity in other forms of cancer, such as leukemia, lung cancer, and melanoma.
The Market Potential Here Is Incredible
Should Spherix acquire the CBM assets, the market potential provided through the acquisition would be incredible. Think about it. At the moment, the assets are aggressively targeting leukemia and pancreatic cancer. These are huge markets.
According to Market Research Engine, the leukemia market is expected to grow to be worth around $12 billion annually by 2022. The same experts suggest that the pancreatic cancer market will grow to be worth $13 billion by 2023.
While the data suggesting efficacy in these markets is early, it is remarkable. Moreover, for a company with a market cap around $5 million, the potential that these markets provide is incredible. After all, a breakthrough in either one of these spaces would mean a significant increase of value for SPEX and its investors.
The Potential Acquisition Is Partially Self Funded
Due to the fact that Spherix currently owns 20% of CBM BioPharma, should the acquisition be approved, it would be partially self-funded. That’s because the majority of the payment for the deal will be made in stock; $7 million in stock to be exact.
If and when CBM BioPharma decides to liquidate Spherix stock, the company will receive about 20% of the proceeds of the liquidation via dividends paid by CBM BioPharma. This significantly discounts the deal, considering that once SPEX shares are sold by CBM, the company will receive around $1 million back in cash.
Ever Seen A $5 Million NASDAQ Listed Biotech Declare Dividends?
Probably not. It’s unheard of, but Spherix is doing it. Should it receive shareholder approval for the acquisition of the CBM BioPharma assets, the company intends to issue a dividend worth more than half a million dollars.
The dividend will be paid via Hoth Therapeutics shares, immediately returning value to shareholders. Importantly, these shares will not be restricted and may be sold immediately upon receipt.
The Company’s Potential Is Not Contingent On A Positive Acquisition Vote
At this point, you can clearly see that I believe that the acquisition of CBM BioPharma assets would be a strong move for Spherix and deserves a yes vote. However, I also don’t want to get off key here.
The truth of the matter is that nobody can see into the future, including myself. Nonetheless, even if shareholders were to reject the acquisition of assets, there are plenty of reasons to be excited here.
First and foremost, Spherix has made strong investment decisions over the past few years, consistently returning value to investors. Trading at less than half the book value of the company’s assets, it’s hard to argue against the fact that the company is undervalued.
Moreover, Spherix will be a part of these two assets, albeit a small part, even if an acquisition does not take place. Let’s not forget that SPEX owns 20% of CBM.
It’s also worth mentioning that the company’s investment in Hoth is a big deal. Not only has the investment led to substantial growth in the book value of the company, but it gives SPEX financial strength that you just don’t normally see in sub-$50-million biotechnology companies.
As Hoth continues to develop its eczema treatment and gain in value, so too will the shares in the company owned by Spherix.
All of this, combined with a management team that’s heavily focused on delivering shareholder value through the proper use of its funding make SPEX a stock that’s hard to ignore.
CNA Finance, parent company to Alpha Stock News, has a monetary relationship with Spherix. Learn more about this relationship and read all relevant disclosures here.