SPECIAL SITUATIONS
Genstar Therapeutics (AMEX: GNT) $0.48
The recent decline in the biotech sector has decimated many promising biotechnology stocks. Companies that have spent tens of millions of dollars developing promising technology are now trading at or for less than their cash positions. One example is GenStar Therapeutics, a biopharmaceutical company developing innovative gene therapy products, for the treatment of serious medical disorders. The Company’s research and development efforts, utilizing advanced gene delivery technologies, are focused on hemophilia, cancer, and HIV/AIDS.
The company has raised over $25 million from institutional investors to date, and had approximately $13.1 million at the end of March. Its lead opportunity is focused on Hemophilia, where it has initiated a Phase I clinical trial for Hemophilia A. This is a hereditary bleeding disorder characterized by a deficiency in the Factor VIII blood clotting protein. Factor VIII levels of less than 1% are characteristic of severe disease, while higher levels are associated with a more moderate condition.
The company believes that gene therapy should provide a greater duration of active Factor VIII function, decreasing chronic bleeding and joint damage that are characteristic of this disorder. The company has already seen promising clinical results using its MAX AD Factor VIII platform. The first patient sustained an expression level of Factor VIII at approximately the 1% level. This is much higher than is typical for a patient tested with a severe form of the disease. The company continues to register candidates for the study, and anticipates starting a similar trial in Europe during the second half of the year. The MAXIMUM-AD will be developed and distributed through research and marketing agreements with Baxter Healthcare, the premier marketing rights holder and sales leader for hemophilia products worldwide.
The company also reported a successful pre-IND meeting with the FDA, positioning the Company to initiate Phase I clinical trials for its prostate cancer DUAL AD product in late 2002. GenStar's DUAL-AD cancer product is comprised of a mixture of two adenoviral vectors that complement each other to directly destroy tumor tissues and to express the gene for interleukin-3 that enhances the effects of radiation and induces anti-tumor immune responses. The DUAL-AD is comprised of the MAX-AD vector platform along with a second "helper" vector that complement each other to permit selective adenoviral replication and tumor cell destruction.
GenStar's DUAL-AD vector system was shown in pre-clinical trials to eradicate tumors through a combination of direct tumor destruction, radiation enhancement and the generation of anti-tumor immunity. The company believes that the technology may be broadly applied to increase the efficacy of radiation in a wide variety of other tumors treated by radiotherapy. The total potential market for this Pan-Cancer product is significant, as over 600,000 patients are treated with radiation therapy annually in the United States.
The company also believes that it its technology can be applied to HIV/AIDS. The Company was awarded a $1.6 million grant by the National Institutes of Health for its Hemophilia and AIDS programs. It also signed a research agreement with Centocor, a Johnson & Johnson company, employing GenStar's viral gene delivery technology. Despite these positive developments, the stock has not escaped the downturn in the biotechnology sector, and trades at a discount to the 55 cents per share in cash it had as of March. The stock’s closing price on Friday was just slightly above its 52-week low set earlier this week.
We believe that those biotechnology companies that trade at or below their cash positions merit a close look in today’s environment, as investors are essentially receiving millions of dollars that were invested in the science for free. In the case of GenStar, the company’s stock has declined from a November, 2000 high of $13.31 without any clinical setbacks. We feel that while the biotechnology sector may not recover significantly this year, companies such as GenStar present an attractive risk/reward profile for investors. |
