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By Ronald Garren, M.D.
July 9, 2001
Biotech Insight News Alert
Kosan, Bristol-Myers, and Novartis
Friday's market downturn again demonstrates that biotechs are not immune from the continuing high tech slump. I expect that we may have more downside in the higher visibility biotech companies. So is any biotech area immune? Many of the smaller caps (100 to 400 million market caps) are still relatively cheap with much smaller gains over the last few months. I feel comfortable holding a portfolio of smaller companies with potentially big drugs. Of course the real market play may be a few years off but price drivers along the way include IP (patents) protection, early phase trial results (up through phase 2) and confirming partnerships. Biotech Insight newsletters, alerts and stock watch lists highlight many of these companies see www.biotechinsight.com. In the next BioSpace alerts I will mention a few of these companies. One company recently highlighted by a Biotech Insight newsletter is Kosan (KOSN).
Kosan, a small cap ($217 million) company in the SF Bay area, has a powerful platform technology that allows the manipulation of a class of compounds (polyketides) that are among the most important pharmaceutical products (antibiotics, anti-cancer drugs, etc. -- about $12 billion in pharmaceutical sales/year.). This class of molecules is notoriously complex and difficult to manipulate using techniques of standard chemistry. They are mostly isolated from soil bacteria, fungi and plants. Some are produced semisynthetically making minimal chemical modifications to the natural product. However, it has been very difficult to truly due combinatorial type chemistry on polyketides. That is, it is too difficult to generate whole new polyketide molecules in order to make a large library of polyketides to use in drug screens. Combinatorial libraries made by modular chemistry and automated screening techniques are two of the engines driving drug discovery.
Another problem with polyketide synthesis is that many times the bacteria or fungi that make them are slow growers and inefficient producers. Kosan has solved the above problems with proprietary techniques, which enable scientists to mix, match, and alter genes in the polyketide synthesis pathway using molecular biology. Each gene in a polyketide gene cluster is responsible for adding a 2-carbon unit to the growing molecule. Mastery of the polyketide genetic pathway enables Kosan to synthesize new molecules that may have important biologic activity-the first real approach to a polyketide library. It also allows Kosan to lift en mass the complete genetic cluster and transplant it into another bacteria that has better growth and production characteristics.
The first drug to reach clinical trials will be epothilone D, a potent microtubular agent that has powerful anti-cancer activity. This compound works in Taxol (one of the most used chemotherapy agents) resistant tumors-a real plus. Bristol-Myers and Novartis are also working in this area and are ahead in clinical trials. However, a recent PNAS (Proceedings of the National Academy of Science 7/3/01 from Sloan-Kettering) article points out that Kosan's compound is the most potent in the class, with the best therapeutic index-meaning the best tolerated. It is also more potent in the human tumor xenograft model than other standard anti-cancer agents and with minimal toxicity. Kosan has rights to other modifications coming out of Danishefsky's lab at Memorial Sloan-Kettering (Danishefsky is probably the best chemist working in the field).
So that is the story -- Kosan is a company with respected leadership (Dan Santi), a market cap of $217 million, an underlying powerful platform technology and a wholly owned drug about to enter phase 1 trials. These are the types of companies that I put into a small cap biotech portfolio. Next week I will write about another such company, which I have a much more intimate connection to.
As a matter of disclosure I want all readers to know that I own many of the stocks I write about in my personal account and always maintain a long position. I also write about many of these stocks first in Biotech Insight, a web-based newsletter published at www.biotechinsight.com. The following is further disclosure: Dr. Garren is a member of Biotech Insight Management, LLC, a California registered investment adviser and the general partner of a hedge fund that invests in biotechnology companies, including some of the companies discussed in this newsletter. Garren also consults for following: 1. a second large hedge fund focused on the healthcare industry with a heavy emphasis on biotech and 2. the Biotech Select Focus Portfolio, a group of managed accounts domiciled at Schwab Institutional and managed by Smolen Capital Management, an independent fee compensated Registered Investment Advisory firm, www.smolencapitalonline.com. I recommend many of these same stocks to the investment funds mentioned above. It should be noted that hedge funds can go both long and short on any particular stock. Many of these disclosures were detailed in the fine print, which usually never gets read. The information in this column under no circumstances serves as a recommendation to buy or sell stocks. These disclosures were detailed in the fine print below, which usually never gets read.
Ronald Garren, M.D. |
