Since he encourages the sharing of his e-mails with friends, I hope this is within the spirit of that injunction. In summary, Ron Garren is buying GLFD and selling part of his position in DOVP.
The markets rallied on Friday and most of the biotech issues ended up. The big news for the small caps was the FDA’s broad approval of MGI Pharma’s (MOGN) palonosetron. I sold this company out of the Model Portfolio a while back on the fear that any glitch in the approval process, which was unlikely, would send the stock back to the low teens. Guess I’m getting a little more conservative--. MOGN now will have to execute on sales. They have about a two year window before Zofran goes generic. I think the easy money is out of this stock and from here on it will be dependent on whether the company meets sales expectations. They definitely have a better product and oncologist usually adapt to significant changes quickly.
I have gotten questions from a few readers about Allos (ALTH). The stock has been drifting down and frankly I have little insight as to whether the FDA will even really accept a filing on RSR13. As opposed to others I think the drug has a biologic rational as a radiation sensitizer. The fact that chemotherapy can work as a radiation sensitizer doesn’t diminish the need for a sensitizer in the CNS (brain and spinal cord) because most chemotherapies don’t penetrate the blood-brain barrier. Also the use of chemotherapy as a sensitizer comes with the price of added toxicity in terms of fibrosis, etc. Data from the recent Phase III trial showed convincing (to me) efficacy in a non-approved subset analysis (metastatic breast tumors). The question is whether the FDA will be swayed without another Phase III trial—I think there is a slim chance that they will. Anyway for the moment I am holding the investment in Allos (see archives for further info). I will be speaking to management shortly to get some update. There has been insider selling even at the $3 price level but these people have big positions with millions of shares.
Cambridge Antibody (CATG) is another company in the Model that took a hit over the last ten days. The stock looks cheap to me at this price. I have no idea what drove the stock down. See archives for further details. A new addition to the Model Portfolio is Guilford Pharmaceutical (GLFD). GLFD has been primarily known for the Gliadel wafer, an implantable device that delivers chemotherapy to patients with GBM (a bad primary brain cancer). The product was traditionally implanted during salvage procedures after primary surgery failed. In February it was also approved for primary treatment as well. This is a small product (sales were running between $1.5 to 3 + million a quarter) and will not drive the company’s value to any degree even with the expanded indication. A second product GPI 1485 generated a good deal of excitement until Amgen pulled out of a partnership (September ’01) because of a failed trial in Parkinson’s disease. This drug was thought to have neuroprotective and possibly neuro-regenerative abilities. The Phase II trial looked at two dose schedules over a period of six months. The results were not impressive enough for Amgen to move forward to a Phase III trial. However, on further analysis GLFD found evidence of efficacy at the higher dose level. A review of patient dopascans (a radioactive tracer study that measures dopamine transporter levels) at the 4 gram dose showed a 3% increase of dopaminergic neurons while the controls had a 2.5% decrease. Guilford has taken back the project and started a two year study at the higher dose level. I don’t expect any real data until August of ’95. However I am interested in GLFD for two other more near-term reasons. The first and main reason is their Aquavan program.
Aquavan is a water soluble prodrug formulation of the common anesthetic propofol. Propofol is used for sedation in both inpatient and outpatient surgery centers. It is given by an anesthetist. Guilford’s prodrug formulation may bring this drug to the conscious sedation market (colonoscopies, bronchoscopies, etc.). The company is in a dose-ranging study testing Aquavan in endoscopy suites. This would be a huge market with millions of screening colonoscopies being done every year. The advantage over the current generic sedative (Versed) is that patients will presumably wake up faster, be more alert when they wake up and have less risk of respiratory depression and hypotension. Aquavan can be given as a bolus which if done prior to going into the endoscopy room could speed up the whole system. It is the prodrug formulation that conveys the safety aspect. When given as a bolus (all at once) the body converts it into the active agent slowly and at a predictable rate. To really capture the conscious sedation market Aquavan has to have at least some of the advantages listed above and the FDA will have to approve it for conscious sedation, which means gastroenterologists would not need an anesthesiologist in the room. If the advantage is only modest doctors will not convert from a regimen that they are already comfortable with. Versed is generic with the price being about $10 per patient. I suspect that even if GLFD markets Aquavan at $30/patient they would not run into price resistance. With Medicare reimbursement for screening colonoscopy I only see the market increasing. Competition in the screening colonoscopy market could come from DNA stool testing from Exact Sciences and from further technological development of the Given camera system but I think these are long-shots (especially stool testing). GLFD is currently in a Phase II dose ranging trial with anesthesiology present and will report data later this year. The plan is move on with a Phase III study in ’04 (this would not incorporate anesthesiology). The prodrug formulation uses a known chemical addition that is cleaved by the enzyme alkaline phosphatase. So far there are no known functional polymorphisms that would make metabolism difficult to predict (this is the company’s response to my question). Other companies are working on water soluble formulations of propofol but none are incorporating the prodrug concept. This would make the competitors products more suitable for general anesthesia (a field that Aquavan could also compete in).
Another reason for liking GLFD although less immediate is the potential for GPI 1485 in other indications. As noted above this is an oral compound with preclinical data that shows neuronal protection. It is currently in a Phase II trial for Parkinson’s disease. There is also very convincing animal data that this drug can protect nerves after crushing type injuries. The company is planning to start a trial in patients having prostatectomies for prostate cancer. One of the very frequent side effects (about 50%) is injury to the local nerves causing erectile failure—this still occurs at high rates with the so-called nerve-sparing surgery technique. The primary end-point will be erectile response to Viagra at 6 months post surgery. This is potentially a very big market not only for patients with prostate surgery but also for other peripheral nerve injuries such as Bell’s palsy and carpel tunnel syndrome. I really like that the trial will only take six months so we could have results back by the end of ’04 (this trial should enroll very quickly). Also we already have clinical data on safety and side effects from the Phase II Parkinson trial. One note is that the current formulation is a very large pill taken four times a day—the company may eventually have to reformulate the drug into a Tums- like chewable tablet.
One near-term unknown is whether Gliadel revenue to be reported on 8/6 will meet expectations. Although this is not a significant part of the long-term story it will affect the stock price especially since this is the first full quarter reflecting sales of the Gliadel Wafer for upfront therapy. So investors may want to wait till after that announcement before jumping in. In terms of financial data, the company recently raised a net $52 million by issuing a 5% convert that matures in July of ’08. The current market cap is about $157 million. My estimate is that the company has about $110 million in cash and about $60 million net cash. The later are all rough estimates and the conference call on 8/6 will give the exact data. I bought GLFD for my personal account in the mid-$4 range over the past few weeks.
Portfolio trades done at the end of the trading day on Friday, August 25th.
Bought 5,000 shares Guilford Pharm. (GLFD) at $5.28/share for total of $26,400. Sold 5,000 shares Dov Pharm. (DOVP) at $12.45/share for total of $62,250. Cash remaining $53,040.
ron garren md |
