BioCryst: More Than a Bird-Flu Play
By Marc Lichtenfeld
Senior Columnist, thestreet.com
2/13/2007 11:14 AM EST
Click here for more stories by Marc Lichtenfeld
Sick birds are BioCryst Pharmaceuticals (BCRX - Cramer's Take - Stockpickr - Rating) investors' best friends. It seems as if every time a chicken sneezes in China, BioCryst shares tick higher on the Nasdaq.
While BioCryst may be a good way to play any bird-flu scare, the company has a small but promising pipeline that could someday be more significant than its influenza business.
Oncology
Fodosine is BioCryst's oncology candidate. It is a purine nucleoside phosphorylase (PNP) inhibitor, which controls the abnormal multiplication of T-cells. If T-cells reproduce uncontrollably, cancers can occur.
Fodosine is believed to be the only PNP inhibitor in development. It is being studied in a variety of cancers including T-cell leukemia, cutaneous T-cell lymphoma (CTCL), chronic lymphocytic leukemia (CLL) and acute lymphocytic leukemia (ALL).
The company recently initiated a phase IIb study in T-cell ALL that will be conducted under a special protocol assessment. That means the company worked with the Food and Drug Administration in designing the trial. This is significant because the FDA can grant approval for the drug after the phase IIb study, rather than requiring a phase III trial.
As a result of the initiation, BioCryst received a $5 million milestone payment from partner Mundipharma. Additionally, Fodosine was granted orphan drug status in Europe for CTCL and ALL. That entitles the company to 10 years of market exclusivity in Europe.
Fodosine's appeal is that so far in clinical trials it appears as effective as other treatments such as GlaxoSmithKline's (GSK - Cramer's Take - Stockpickr - Rating) Arranon, but less toxic.
Vinny Jindal, analyst with ThinkEquity Partners, has high expectations for Fodosine. "It could be the next Revlimid," he says. Celgene's (CELG - Cramer's Take - Stockpickr - Rating) revenue from Revlimid reached $321 million in 2006, and that number is expected to climb to more than $1 billion, perhaps as early as this year.
Jindal, who believes BioCryst's stock is undervalued, has a price target of $21. ThinkEquity does not have an investment-banking relationship with BioCryst. Jindal does not own any shares.
News Is King
The oncology division may have promise and the company's fundamentals may be strong, but what moves this stock is news flow, according to Rodman & Renshaw's Ren Benjamin. He points out that the stock is in favor when bird flu is in the news and out of favor when news dies down. "The one thing that drives small-cap biotechs is news flow," he says. "So if news is lacking, investors sort of take a back seat. I think we're at that point now."
BioCryst is in phase II trials with peramivir, an antiviral for seasonal influenza. The U.S. government's Department of Health and Human Services awarded the company a $102.6 million contract to develop peramivir for "seasonal and life-threatening influenza, including avian flu." In other words, the government is paying for the research-and-development costs of peramivir.
The opportunity in flu is tremendous. Roche just reported government stockpiling of Tamiflu worth $1.3 billion in 2006. Tamiflu sales should be well over $1 billion again in 2007.
Peramivir, which has fast-track status, was shown to be active against bird flu in animal studies. Should cases of avian influenza show up in the U.S., it is possible the government would stockpile peramivir even before the drug is approved. In an emergency/pandemic situation, the government can dispense drugs that have been shown to be safe in humans and effective in animals.
However, we're not likely to see any influenza data until the end of the year, and Fodosine data are not expected anytime soon either. Therefore, Benjamin suggests there's nothing to get BioCryst investors excited other than bird-flu headlines. "That's a tough thing to predict," he cautions.
The analyst suggests that investors wait until later in the year to pick up shares, when he believes it's likely the stock will have traded down to $8 or $9. Rodman & Renshaw does not have a banking relationship with the company, and Benjamin does not own any shares.
BioCryst is not likely to have any drugs on the market until 2009 at the earliest and is not expected to turn a profit until 2010. On the plus side, its deal with the government is slowing its cash burn to an expected $36 million in 2007. As of year-end 2006, the company had $46 million in cash, suggesting that a liquidity event is possible next year.
Interested investors may want to follow both analysts' advice. Pick up a few shares here in order to have exposure to any headlines that will move the stock, but keep some arrows in the quiver to pick up more at lower prices if the news flow dries up. |
