At the end of first quarter 2014, Immune Pharmaceuticals Inc (NASDAQ:IMNP) traded for just shy of $4.50 a share. During the 36 or so months since, the company has declined to trade at current levels below $0.2 a share – a more than 95% decline across the period. As a symptom of this decline, Immune has long been out of favor with NASDAQ, and has failed to meet the minimum one dollar bid requirement for coming up to 15 months. That it hasn’t been delisted already is something of a surprise, but things are now coming to a head, and Immune is having to act, or face a quick delisting. As usual, at this end of the market, a reverse split is pretty much inevitable if the company is to avoid the drop. Again, as usual, this is something that shareholders are not particularly enamored to (to put it nicely) and this is weighing on sentiment.

With a reverse split pretty much sewed up (shareholders voted For last month and Immune is currently riding out an appeal based extension), the question now becomes, is there any value in an exposure? To answer, we’ve got to look at the operational side of the company, in an attempt to figure out whether its potential outweighs the potential dilutive impact of a split.

Immune is an early stage biotechnology company developing treatments in the spaces of immuno-inflammation and immuno-oncology.  It has two primary lead assets, one called Ceplene, an oncology asset designed to improve the efficacy of IL-2 in patients with Acute Myeloid Leukemia (AML); and one called Bertilimaub, a first-in-class monoclonal antibody designed to block the protein eotaxin-1, which is responsible for causing inflammation in a significant number of diseases. The former is about to enter a pivotal trial in AML in the US, with the company having received guidance from the FDA back at the end of October as to the makeup of this trial. The latter is currently under investigation in two phase 2 clinical trials targeting bullous pemphigoid, an orphan auto-immune dermatological condition, and ulcerative colitis, a gastrointestinal inflammatory condition. Immune  secured $11 million in new financing to fund these latter two trials at the end of November.

So what is the value in these assets?

The lead in our eyes is Ceplene – at least right now. If the company can get its pivotal trial kicked off successfully, and enroll quickly (which shouldn’t be too much of a problem, AML is relatively common and doesn’t have a really effective treatment on the market right now) then it could push out a host of potential catalysts rooted in the study’s advancement. Assuming the drug demonstrates clinical benefit, these catalysts should (and that’s speculative) induce value gain that outweighs the negative impact a reverse split might have on Immune stock. Data from trials to date have been pretty impressive, and the science underpinning the treatment is sound, but of course, nothing is guaranteed at this stage of the development pathway.

Beyond Ceplene, we are looking at the completion of two phase 2 Bertilimaub trials as next in line for inducing positive news flow. It sounds like a loose thesis, but right now, news flow is what this stock is all about. A reverse split is probably going to bring its price to somewhere in the region of five dollars a share, but we expect this to get beaten back down to between $2.5-3 a share. It is then all about maintaining positive sentiment, and the only real way to do this when you are in Immune’s position is to keep the trial related news coming thick and fast, and maintain a market perception of clinical benefit for your lead assets.

It’s a risky play right now, sure. There are plenty of red flags – delisting, weak cash position, too many shares issued, etc. – that are probably enough to ward off a majority of traditional retail investors. For those not averse to a bit of risk, however, there could be an opportunity to take advantage of negative sentiment and get in ahead of a longer term recovery.

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Disclosure: We have no position in IMNP and have not been compensated for this article.