Cell Genesys: Biotech Value
individualinvestor.com
Research Analyst: Bob Hirschfeld (12/27/00)
Among biotech companies targeting cancer through vaccines, Cell Genesys stands out from the pack. Its extremely strong financing should provide investors a measure of security too, something many biotechnology companies lack.
The stated objective of Cell Genesys is to commercialize cancer vaccines and gene therapies to treat cancer and other life threatening diseases.
Cell Genesys' lead product candidate is GVAX, a vaccine in which cancer tumor cells are genetically modified to secrete a hormone (GM-GSF) that plays a key role in stimulating the body's immune response.
The company is currently conducting multiple clinical trials of GVAX, including a Phase II trail for prostate cancer and Phase I/II trials for pancreatic and non-small cell lung cancer. Results to date prove effectiveness: In a trial on patients with advanced non-small-cell cancer, 18 of 25 of those receiving the complete course of vaccinations demonstrated anti-tumor immunity.
And in a 14 patient pancreatic cancer trial, three of eight patients receiving the two highest doses are disease free two years later, while the other patients were reported to have stable disease without evidence of tumor progression after 15, eight, and four months, respectively. All six patients at the lower dose rate have relapsed, suggesting that at high dose levels the vaccine demonstrates very strong anti-tumor activity.
Recent trial news, reported in early December, further raises confidence in the therapeutic. According to John McCamant's Medical Technology Stock Letter, data from Cell Genesys' Phase II prostate cancer trials on patients whose cancer has metastasized to the bone show significant slowing in the progression of the disease. Further Phase II trials using high doses as monotherapy and in combination with standard chemo are planned for 2001.
According to McCamant, it's clear that Cell Genesys sees broad applicability for GVAX, as the drug is in pre-clinical testing for myeloma, leukemia, and melanoma.
Cell Genesys also has a valuable gene activation-licensing program, which could produce near-term royalties (the program has already produced $24 million to date) and a variety of gene therapy programs, including one addressing hemophilia and one used for anti-angiogenesis (for halting the development of tumors by starving them of blood flow).
If the company's research is formidable, its financing is even more so.
As of September 30, the book value of Cell Genesys was $28 per share. At a recent price of $21.88, the stock is offered at about 75% of book.
Most of that formidable book value is comprised of Cell Genesys' 10.5% stake investment in leading antibody company Abgenix (NASDAQ: ABGX - Quotes, News, Boards) , whose shares were spun out of Cell Genesys and have appreciated 20-fold (!) in the past two years.
Since Abgenix shares have declined since September 30, the investment (then worth $23 per Cell Genesys share) is now worth about $13.50 per share. Adding back Cell Genesys' cash and other short-tem investments ($6.80), and netting all of its liabilities (about $2), you reduce book value to the still very comfortable area of $18 per share.
McCamant makes the point that, given the company's huge cash position and Abgenix stake, you are getting the rest of its research for free. McCamant's "for free" statement might be modified to read, "nearly for free" however.
As an operating company, the survival rate of biotechs are often measured by burn rates. On that metric, even without selling a share of Abgenix or its other liquid investments, Cell Genesys still has $60 million in cash, or about four years, given its current burn rate of $15 million per year. And the company has no debt other than a convertible preferred issue comprising but 2% of equity.
How much then is Cell Genesys worth? CEO Steve Sherwin recently indicated that any credible bid would have to be much higher than the current share price, saying "We wouldn't even consider a $30 per share offer."
McCamant considers Cell Genesys shares a 'buy' under $30 and recently set a target price of $75.
Bottom Line:
Put together the research, cash and stock positions of Cell Genesys and you get a chance to own that very rare bird: a value biotech play.
Bosco Addendum:
1) CEGE business model to achieve such a low burn rate; 2) its AAV patent and application portfolio; 3) her JTC connection, to name a few key omission |
