This is one of the few stocks I've purchased this year that have worked out well. It's a low-profile, low-risk stock, hopefully of no interest to the shorts. <g> (And it's a reasonable munch candidate as well).
June 5, 2:13 pm Eastern Time
Reuters Company News
No regrets at Connetics after leaving biotech
By Deena Beasley
LOS ANGELES, June 5 (Reuters) - A year after giving up on fashioning a pregnancy hormone into a biotech drug, Connetics Corp. (NasdaqNM:CNCT - News) credits its new focus on the slower, yet steadier dermatology market for saving its face amid a punishing stock market.
"A year later, I believe it is very clear that we made the right decision," said Thomas Wiggans, the company's chief executive, adding, "we now have a very full, very low-risk development pipeline."
Shares of the Palo Alto, California-based company have nearly doubled over the past 12 months to just over $13.00, but they still trade at less than half their all-time high of $26.88 set in October 2000, just before an experimental biotech treatment for the skin disease scleroderma failed pivotal-stage testing. That news sent the company's shares down 79 percent in a single day.
The performance of Connetics' stock looks even better in comparison to its former biotech peers. Hit by a string of regulatory and scientific setbacks for experimental drugs, the American Stock Exchange biotech index (AMEX:^BTK - News) has lost nearly a third of its value over the past year and the shares of many development-stage firms are trading for pennies.
"The business model Connetics has today is much lower risk. They have revenue, they are developing new drugs but they are not trying to develop chemical entities," said Donald Ellis, an analyst at Thomas Weisel Partners.
'DRUG DEVELOPMENT TOO RISKY'
"Given what's been going on at the FDA (U.S. Food and Drug Administration), drug development is just too risky for my blood," he added, referring to a perceptions that regulators are taking longer to review new drug applications.
Connetics was founded in 1993 as a spin-off with development-stage products from Genentech Inc. (NYSE:DNA - News), the world's second-largest biotech company. Its focus was on developing products for connective tissue diseases -- like scleroderma, an often fatal autoimmune disorder that causes skin and internal body organs to thicken and harden.
A year ago, Connetics slashed its workforce and abandoned efforts to use genetically-engineered relaxin -- a naturally-occurring hormone thought to be responsible for many cardiovascular changes that occur during pregnancy, including increased blood flow -- as a treatment for several diseases.
After the scleroderma disappointment, Connetics continued to pursue relaxin, based on evidence that it improved blood flow, as a treatment for vascular diseases, infertility and kidney dysfunction. But those efforts were completely abandoned in May of last year after a second pivotal-stage trial of the drug proved disappointing.
"Regrettably, both of our biotech candidates failed in late stage trials," Wiggans said.
The company also sold the rights to its rheumatoid arthritis drug Ridaura to Prometheus Laboratories Inc. for $9 million and a 5-year royalty on annual sales above $4 million.
Connetics now has two commercial products -- Luxiq, a steroid foam used to treat scalp problems and Olux, a higher-strength product. It is also seeking regulatory approval for Olux as a treatment for psoriasis in non-scalp areas.
NEW PRODUCTS AND DELIVERY SYSTEMS
The company is also developing new products, including treatments for acne and hair loss, along with delivery systems, including aerosol foams and topical gels.
Its foam technology was licensed to Pharmacia Corp. (NYSE:PHA - News) which plans to use it for the hair-growth promoter Rogaine.
"Foam is less messy and less greasy than cream or oil. If the product is easier to use it means patients will be more compliant," Wiggans said.
Earlier this month, the company licensed a gel from Japan's Yamanouchi Pharmaceutical Co. (Tokyo:4503.T - News) that it hopes to eventually launch in the United States as a treatment for acne that combines an antibiotic with retinoic acid, the two leading drugs now used to treat the skin disorder.
First-quarter sales of Connetics' dermatology products rose 80 percent to $10.1 million.
"Most people think drug discovery is the only way you get billion-dollar drugs, but there are very few of those. I'm much happier with companies that are hitting singles and doubles rather than trying just for a home run," Ellis said, using baseball terms.
He noted that Connetics' focus on dermatology will allow it to ride the demographic trend of aging baby boomers, a population group likely to live longer and spend more money on looking younger than their parents.
The analyst, who does not own Connetics stock, has a 12-month price target of $23 for the shares.
Peter |
