THE TEN BILLION UNICORN IN INMB: ON MY INVESTMENT THESIS AND INMB’s PRICE MOVEMENTS

In my mind's eye, these stairs keep on going into 2023 and the years after.

INTRODUCTION

The previous five blogs have laid out the essence of my investment thesis for INmune Bio.

- Blog 1 explained neuroinflammation as a more recent hallmark in Alzheimer’s disease and other neurodegenerative diseases, the phenotypical change in microglial cells that brings, and how XPro as a soluble TNF inhibitor leads to reduction of 15% of neuroinflammation in 3 months;

- Blog 2 explained how XPro had shown effects in animals over different neurological diseases, how soluble TNF is considered to be the master cytokine, and how it led to continued reduction in neuroinflammation of twelve months with continued improvements in axon integrity and remyelination;

- Blog 3 explained CAR-T and CAR-NK cell therapies, which downsides both had respectively, what the effects were of NK cell activation, the threshold in that respect, and where INKmune could fit in as so-called ‘pseudokine’™;

- Blog 4 took a deeper dive into the mechanism of action of INKmune, priming resting NK cells, leading to strong tumor avidity, memory-like NK cells with remarkable persistence and proliferation in vivo, all at a much lower than usual manufacturing cost;

- Blog 5 contained partnership/buyout considerations for the savvy investor, and made a valuation exercise as a justification of the title to the series.

This blog covers why the current pricing, though I would have loved to have seen it different, does not bother me.

I am investing in INmune Bio because I firmly believe I understand all of its science, which INMB has been willing to explain to its investors like myself, and I appreciate that effort from management tremendously. On the basis of the knowledge I have gained, I believe this company will over time bring good results in both platforms it is pursuing, which will eventually lead to a substantial share price increase, and that for me is investing. As that understanding took a while and essential parts of the information were sometimes hidden in webinars, I chose to write it out for all retail investors to know.

For me, it also sets INMB apart from many other companies, mostly in the CNS space, sometimes in the oncology space. I would almost say, with your regular CNS company, there’s pretty much always something you don’t fully understand about what they’re saying (or deliberately not saying), and I don’t see that with INMB. For example, I have recently tried to understand AVXL’s science, and I still struggle, after days of study. I don’t understand why they don’t give me data on neuroinflammation. They must know it’s such a hallmark of neurodegenerative diseases. The same was the case with ANVS and CRTX in the past year, I just didn’t feel comfortable with their scientific explanations, and so I chose not to take positions there either because I felt like taking a position would be more like gambling than understanding what they had and how it worked, for good reason it has appeared. But I’m not taking any bets, even after their share price has fallen tremendously, which is not to say I know these companies are not going anywhere – I hope for them and for humanity they do. With INMB, however, the scientific confirmations just keeps on coming month after month. Some of these are listed on the INMB website. I pick one article from 2021 that I like, entitled ‘TNF-mediated neuroinflammation is linked to neuronal necroptosis in Alzheimer’s disease hippocampus’, which could not be more spot on. In April 2022 one of the topics in a Virginia seminar will be on the positive effects of XPro on neuroinflammation and neurological deficits in Gulf War Illness, and INMB is apparently partnering with the VCU Department of Surgery in that area. The scientific community has picked up on it, the investor's world not yet. That's where the opportunity is.

My investment time frame is long term. I firmly believe INMB will be trading at different levels altogether perhaps already in the course of this year, but even more so in three or five years from now, barring any prior buyout, with its results being appreciated by the market and its visibility improving. It’s obviously gaining momentum since July 2020.

An investment thesis wouldn’t be one if it wouldn’t regularly be challenged by a share pricing not moving in the direction one believes it should be headed to. I am doing a brief analysis below of the chart of INMB, to analyze the reasons for its share price movement, and whether they challenge my investment thesis. As I have started investing at around May 2021, I can offer more detail as to the price movements as of that time.

A BROADER LOOK AT THE PERIOD SINCE IPO UNTIL THE FIRST HALF OF 2021

INMB IPO’d on the Nasdaq in the beginning of 2019, after having been created as a private company some years before.

The chart from the moment of its IPO to 21 January 2021 is shown below. Volume can be seen at the bottom. The red horizontal line is the price where INMB is currently at. A further chart below will focus on last year’s price movement.

Source: tradingview

For the period from IPO to January 2021 (the rest will be covered in more detail below), six things stand out for me:

- volume being significantly higher as of July 2020;

- a huge spike in both share price and volume in July 2020;

- a huge spike in share price, but not in volume, in the end of 2020;

- a share price around $ 8-9 acting as a new resistance level since the run-up in July 2020;

- high share price volatility as of July 2021.

The run-up in July 2020 was triggered by the data release of the biomarker data on neuroinflammation. I have not come across a more impressive biomarker readout in the history of AD drug development or another CNS drug development, so that run-up makes sense to me.

A second run-up, with an accompanying drop over the period of October 2020 to May 2021, was in my eyes related to the broader market’s reaction to the Covid vaccines’ emergency use authorizations, and subsequent profit-taking. I did not see no immediate news events immediately connected to the share price rising or dropping over that period. It is the period afterwards that gets interesting. Additionally, inflation worries were already very present in March and April 2021, and the aduhelm accelerated approval decision came on 15 June 2021.

THE VOLATILY SURROUNDING JUNE AND JULY 2021

Respectively on 12 June 2021 and 14 July 2021, INmune announced a $15 million credit facility to purchase the warrant option its licensor Xencor had to reduce future dilution, and first person dosing of INKmune in high-risk MDS. I think both events triggered a rise in the share price. The purchase of the warrant option of Xencor, to me, was a majorly bullish event, and I refer to TW Research’s article of 15 June 2021 in that regard (login is free). Both the warrant option purchase and first dosing of INKmune confirmed my investment thesis. I was surprised to see this first INKmune dosing during the pandemic, as it had previously been announced dosing would start after the pandemic.

The upward movement of the share price was abruptly stopped by the announcement, on 14 July 2021, of a $40 million registered direct offering for $22. That event led to a sell-off from a high of $29 to around $20. That offering however did not change my investment thesis. The divergence in price of the direct offering and the share price at the time of the announcement ($22 vs $29) was unfortunate. I assume during negotiations on the price of the direct offering, parties had not expected the share price to rise so quickly, from $17.28 to $28.81, over the course of 9 trading days (1 July 2021 to 13 July 2021).

A further fall, from $20 to around $14, occurred with 26 July 2021 as triggering date, which was the date of the announcement of the design of the upcoming Phase 2 Alzheimer’s disease clinical trial and new phase 1b AD biomarker data, none of which has ever been criticized in any way.. This one is harder to explain. It is my feeling that the 2021 AAIC conference served as a ‘kill the news’ event to eradicate positive sentiment surrounding the Alzheimer-related stocks that would present during that conference and had known a run-up in the months before. Around that time, SAVA was experiencing a fast-rising multi-billion share price in light of a further readout on cognition that would take place on 29 July 2021. That rise must have resulted in quite some losses for short sellers and market makers. ANVS had also experienced a fast rising share price, and INMB to a slower extent, I would say. I am happy to hear otherwise, but cannot myself reasonably explain an immediate drop from $20.75 to $16.14, or about 20%, on the day of the aforementioned news. During that same week, SAVA would fall from a price of around $140 to about $69, shedding half of its value in two trading days, on a positive cognition readout. On 28 July 2021, we also saw ANVS share price drop from a high of about $112 to a low of about $34. At least a drop there was vouched for, in my eyes, but not one in which two thirds of the entire company value got shed.

THE CHART FROM AUGUST 2021 TO NOW (JANUARY 2022)

The INMB chart then becomes most interesting to me.

The rise that took place from August 2021 to September 2021, from about $14 to $30 is, in my opinion, mostly related to the upcoming announcement of a readout on the XPro Phase 1 trial in Alzheimer’s. The subsequent sell-off to about $18 could be explained because investors/traders were expecting more effect of the announced news event. In fact, the September readout did not lead to rise in the share price at all. I believe that is due to the lack of press release around that time, and perhaps lack of INMB’s visibility as a CNS player. That does not change my investment thesis.

The data that were shared during the September 2021 showed two essential things that proved the effect of XPro and the reduction of neuroinflammation in AD. What has been shown at that time was a clear, strong and most importantly continued correlation between reduction of neuroinflammation and improvement in both axonal integrity and remyelination. Seeing this data, it is now clear – to me, at least – that reduction of neuroinflammation by itself is the number one culprit in Alzheimer’s disease, as opposed to amyloid and tau, all three being hallmarks of Alzheimer’s disease with neuroinflammation being the only one equally present in the other major neurodegenerative diseases for which no cure exists at present. Those data essentially confirmed my investment thesis, and not a little bit.

One can only guess why these data were not included in a press release. Personally, I believe this may have had to do with the fact that some data had been lost and had not been able to be incorporated in the charts, due to a software update in some of the sites as explained during the webinar, and INMB’s wish to present the results and science in full as is, without a short press release which could be misinterpreted. That’s a missed chance, and the market reacted to it with a sell-off. It however did not change my investment thesis.

For a considerable amount of time, at that point, INMB was trading in the $17 to $20 range. As such, there’s not much to say about that period, other than that the price seemed to have found a new level of stability.

The next big move down event was triggered by the quarterly results call of 3 November 2021, in which INMB essentially announced four things:

- the addition of a three-month Phase 2 trial in MCI – mild cognitive impairment - in 90 patients with readout expected in the first half of 2023, i.e. ahead of the AD trial readout;

- the triple INKmune dosing of a compassionate use patient diagnosed with AML in September 2021, a story that apparently continues to date and which, I hope, may continue much longer for the continued benefit of that young patient who could not qualify for the official INKmune trial as its enrolment criteria were a life expectancy of at least three months and a high-risk MDS diagnosis;

- the intention to go for accelerated approval in Alzheimer’s disease, in light of the FDA’s decision to grant Biogen’s aduhelm accelerated approval;

- the decision not to pursue a Phase 3 trial for Quellor.

I believe the share price reacted merely to the bad news, mentioned last above, and did so pretty violently, dropping from 19.80 on 4 November 2021 to 10.64 on 4 December 2021, even though it is hard to say whether that drop, which would after a hick-up continue and bring us to the 8.78 we’re currently sitting at, was merely due to that quarterly call. In fact, over the same period, the entire biotech sector experienced major headwinds and a drop seldom seen before. The drop in the XBI ETF, tracking a representative number of biotech companies, started on 3 November 2021, at a share price of $134, to trade at a low of $90 today, shedding more than one third of its value. The reasons for that drop are mainly inflation worries and a (possibly) hawkish Fed. Obviously none of both could justify such a drop, but those are, I guess, the ways of the market. On a positive note, INMB traded stable the last week with the XBI still descending.

When it comes to my investment thesis, I found confirmation of my investment thesis in all four of the announcements of the quarterly results call of 3 November 2021. The first two are obvious and will receive little attention, the third and fourth one may require some explanation.

The addition of a short trial in MCI moves up the timeline for a successful readout quite a bit, and the fact that INMB is doing that gives me comfort, as it must be that the data they are seeing allows for such a short trial in a different disease. Even though some say MCI is a milder form of Alzheimer’s, apparently the disease presents quite some different characteristics and manifests in different brain parts.

All the information received so far on INKmune outperforms my investment thesis here. It is still difficult at this time to properly and fully gauge INKmune in relation to other competitors’ drug candidates (even though I plan to make an effort), but the results it is bringing so far, whether it is in the first patient’s ECOG score, the persistency of his memory-like NK cells, the low manufacturing cost and accompanying possible affordability, or any results in both patients on compassionate use, indicate to me that this may well be a slam-dunk.

The decision to go for accelerated approval in Alzheimer’s disease – and possibly MCI – is truly fantastic. INMB is not running away from its approval process in its biggest drug candidate, on the contrary, it is trying to speed it up where it can. I believe this shows confidence of management in the workings of its drug. I also believe both the fast timeline of the MCI and AD trials may picked up by big pharma at a given time. Big pharma may be on the lookout for a partner in the immuno-neurological field, as mentioned in blog 5.

I finally applaud INMB dropping Quellor, which was XPro for Covid-19, as a drug candidate in hospitalized Covid patients. For me, this was never the investment thesis, far from actually. The Covid space is way overcrowded, and I expect many companies that are working on drugs in that space to fail either at the stage of approval or – most certainly – at the stage of commercialization. NVAX is a good example. INMB had never been founded for Quellor, Covid and the pandemic just happened to come along, and cytokine storms being the main cause of deaths, Quellor was introduced. Should INMB have introduced Quellor at the time? For the sake of humanity, ‘yes’, just like the vaccines and other possible treatments companies throughout the world were working on. Did they have something? I’m pretty convinced they did, seeing the recent appearance of an article showing neurodegenerative biomarkers elevated in hospitalized patients with COVID-19, including total tau, phosphorylated tau-18 and neurofilament light chain, and that’s where XPro had shown effect. Quellor could have prevented a significant amount of hospitalized patients or Covid-long patients from having memory loss, depression, and other related issues. However, there is way too much competition in the Covid field, and patients are not getting sick like they used to. The discontinuation of Quellor was made for good reason and fast. The reasons for that discontinuation were multiple: a shot at accelerated approval in Alzheimer’s disease, an added trial in MCI, limited funding and the wish to prevent further dilution, the change in standards of care for Covid, and the uncertainty of the clinical and regulatory environment. I concur with W.J. O’Neill, in ‘How to Make Money in Stocks’, where he wrote that management of a winning stock should be willing to innovate, take risks, move quickly and wisely to keep up with rapidly changing times, and own a lot of stock (p. 181, 4th ed., 2009). INMB checks all of these boxes. Honestly, I’m happy Quellor’s out.

From a broader perspective, I am happy to see trials moving forward, and INMB now officially walking on the two legs it had wanted to walk on from the start, INKmune on the one side, XPro on the other. It will be interesting to see how the timelines of the current and future trials, and any other things INMB has up its sleeve, will lead to press releases. I also believe there will be some unexpected events in the months to come; what these are, are still unclear.

MARKET CAP COMPARISON TO PEERS

Sitting on a current market cap of $156 million, INMB remains drastically undervalued compared to peers. Even after the drop in the biotech rhealm, looking at peers in CNS and in immuno-oncology, they are pretty much all trading higher, many much higher even, with science that isn’t fully understandable (to me), with sometimes less drug development progress, or with (much) less chances at getting approval for a drug candidates. Also, most biotechs do not come with a candidate in both CNS and oncology.

Good things will come to those who wait.

Oh yeah, meanwhile the stock market has just been through its roughest week, a four day week at that, since March 2000, with INMB trading flat as opposed to broader markets and XBI. I don't have a glass ball, but believe that the bad days are (mostly) behind us.

CONCLUSION

I have tried to explain my view on the reasons of INMB’s share price fluctuation over the past years, and more recently how my investment thesis has been confirmed multiple times since my initial investment last year. My conviction as a holder of this stock has only grown considerably stronger.

Several events that have taken place over the past year confirm that thesis, the announcements in the September 2021 webinar first and foremost, and secondly those of the November quarterly call even though one of them led to a drop. Such are the ways of the market. More importantly, I see INMB gaining momentum.

INKmune came out of the gates, and both from a scientific as well as a result-based angle, this drug candidate is looking very promising. The ongoing information in both trial and compassionate use gives me comfort that there is a truly wonderful medicine in the making here.

In conclusion, in my mind INMB should be trading higher instead of lower compared to where it was and has been last year. I am confident that the not so far future will start to take us there.