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While everyone would love to have a cure for HIV, I have serious doubts that Enochian has much at all except a capital structure to greatly benefit it's board which owns about 65% of the company and can continue to grant options, stock and consulting agreements. Now miracles can happen, however we have not seen anything significant to date and currently the company is valued at $300m (fully-diluted) with less than $10m in cash. There are no scientific publications or data and the company is in pre-IND mouse model stage of development. I'll keep this brief. As with short thesis, I do not want to be accusatory or speculative. I believe the company should be worth about $50-100m or about $1-2 as are many companies at this stage with no tangible proof of concept and in need of cash. There are no legitimate healthcare specialized investors in the stock, only large asset managers with index funds. I believe the stock has bounced off of $3 to now $6 due to the relatively low float, the drastic increase in short-borrowing costs (4% to 35% and now 15% on some online brokers timed when commissions went away), and the lack of stock loan to short more shares perpetuating a short squeeze as short interest has gone from virtually zero in January to now about 800k as others in the market seem to have doubts.

Los Angeles based-Enochian (ENOB) was formed from a reverse stock merger in January 2018 with public company Dandrit which was a struggling Danish cancer immunotherapy company with a US exchange listing. The economics were 50/50 and with the Dutch company's shares tightly held and Enochian's predecessor private company (named Putnam Hills) only having a handful of large holders. The company now has a relatively low float of about 15m out of 46m shares and has flown under the radar. The legacy Dandrit shares are also closely held. There is no Wall Street coverage which is also curious for a company of its size. The lockup on the other half of about 65% of shares (18m) is February 2020. While the company includes cancer immunotherapy in its business description, it has moved quietly away from the legacy Dandrit science and focused more on HIV prevention and cures via gene therapy. Both gene therapy and cancer immunotherapy screen well as buzzwords but not all are worthy of premium valuations.

The main driver of value is a license from Weird Science LLC which is owned by company affiliates from the Enochian side. This license includes the use of combinatory gene therapy to promote genetic resistance and intracellular immunity HIV and for an in-vivo gene therapy to eliminate HIV infected T-Cells from the human body. The method Enochian is taking to cure HIV is similar to that taken by Sangamo, that is eradicating T cells with chemotherapy and transplanting CCR5 knockout stem cells so HIV can not enter T cells. Sangamo decided not to commit further internal resources to this because it could not consistently eradicate the virus and it was a cumbersome process which needed chemotherapy to work. Sangamo has since focused on rare diseases and is seeking an external partner for the HIV program. Enochian claims to get around (pg 12) Sangamo's pitfalls with more effective engraftment and gentler chemotherapy. However, we have yet to see anything that suggests this can work in a mouse let alone a human and it will take years and tens of millions of dollars to see if the virus in humans is fully eradicated and worth undergoing the treatment versus a virtually chronic disease treated daily with pills. There is a notable story of Timothy Brown (the "Berlin patient") who had leukemia, chemotherapy and CCR5 mutant stem cell transplant, but this result has yet to be replicated despite efforts like City of Hope and many, many others already in human trials-- highlighting the competition in the space. Should any of these 30+ efforts yield a cure in humans, it would seem that Enochian would face a greater challenge. I would also note that most of these are university programs or companies that are not worth close to $300m (ex-Gilead). Yet, the backbone Enochian intellectual property license sits on the balance sheet as an intangible at roughly $155m, creating inflated book value in my view due to the inflated amount paid for it, and the company is valued at $300m with only $10m in cash. This IP is solely from a patent (pg 14) owned by the Inventor (As the company calls him. I would like to avoid using names). I also have trouble finding a publication from the Inventor or Enochian on the use of autologous stem cells or anything biochemistry-related let alone any scientific data for their treatment from web searches, filings or their own web site. There just seems to be blind hope.

The company has managed to get by on cash from warrants (which are further dilutive with shares outstanding going from 36m to 46m from Sept 2018-June 2019) and an initial private round at the time of the merger of about $10m. It went from 3 to 8 employees this year--mostly entry level lab personnel and a new CFO who resides in Florida. Most of the SG&A (about $8m) is non-cash compensation $1.9m, salaries, public company expenses and leases. The management and board enjoy generous compensation and options agreements particularly for showing no results to date.

Source: Enochian 10-K

The R&D is curious as much of it (particularly in 2019) has been in the form of consulting agreements with entities controlled by Board members or with Board members themselves, some of whom are in labs in the same office building yet don't work for the company per se but hold large amounts of stock. For example, G-Tech Bio is an entity controlled by the affiliates of Weird Science LLC (curious why the consulting agreement was cancelled July 9, 2018 with Weird Science LLC and essentially transferred to this new G-Tech entity with a much greater fee). While consulting agreements were a condition to the merger and not abnormal, the amount of $1.5m relative to overall R&D of $2.4m is still eye opening.

Source: Enochian 8-K Exhibit

Interestingly, G-Tech Bio LLC has the same address as the Inventor's lab and physician practice, a non-profit. Now this could be completely sound as the Inventor along with Weird Science LLC are interested in the same research as Enochian but still makes me wonder what is being done at Enochian with less than $1m of R&D. This is how they can get by for 2 years on about $10m in cash and makes me wonder what they are doing with this $155m worth of intangible IP on the balance sheet, if it is indeed worth that much? And where are the results?

In the spirit of keeping this brief, I see this playing out in the following way. The company has pushed their pre-IND meeting with the FDA from Q3/Q4 2019 to now the "earlier part of 2020." The best they can press release is a mouse model that shows some freedom from HIV after using chemo and engraftment with a CCR5 knockout human stem cells but the duration will likely be unconvincing as we haven't heard anything and 2020 is a couple months away, in my view. The company attends Noble Healthcare conference in January but otherwise isn't very public outside an investor day in February 2019 where they did not have any scientific results. The lockup on the other half of the 36m shares lapses in February and there could be some selling pressure. Weird Science LLC basically got about $150m of value out of thin air assuming current prices for essentially getting a license which I believe is of questionable, unproven value. On top of this there needs to be a financing of some kind if they are to move forward in humans. I do not see the stock performing well absent the occasional short squeeze over the next 3 months and see the $300m or $6 a share dropping to $2-3 with a potential sell the news event if there is a press release on any kind. I do not see how this company is worth $6, and think it moves towards $1 if we see nothing by mid next year.'

Enochian proves me wrong by curing HIV in mice or non-human primates in a convincing way and does see the FDA for a pre-IND meeting in early 2020. They manage to do a financing for clinical trials at a price higher than $6 and generate enough excitement to maintain a higher valuation. Separately, from a trading perspective, there is a short squeeze as has happened in the past into company presentations, though I see these situations as temporary.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in ENOB over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Update, November 4, 2019, 5:03 p.m.: This Disclosure has been updated from a previously incorrect version.

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The Curious Case Of Enochian Biosciences: Value Out Of Thin Air - Price Target $1 - Seeking Alpha