Cash, Assets And Deep Product Pipelines Make Small Biotech Firms Attractive To Big Pharma Buyouts; Dr. Kimberly Lee Sees Phase III Trial Data Results Promising For Specific Drug Treatments
wallstreettranscript
On Wednesday November 24, 2010, 11:46 am EST
67 WALL STREET, New York - November 24, 2010 - The Wall Street Transcript has just published its Biotechnology & Pharmaceuticals Report offering a timely review of the sector to serious investors and industry executives. This Special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Blockbuster Lineup of Patent Cliffs - Investment Ramifications of Biosimilars - Uncertainty Around Health Care Reform - Pipeline Product Acquisition Through Corporate Mergers
Companies include: Medarex (BMY); ADVENTRX (ANX); AMAG Pharmaceuticals (AMAG); Abbott (ABT); Achillion Pharmaceuticals (ACHN); and many more.
In the following brief excerpt from the Biotechnology Report, interviewees discuss the outlook for the sector and for investors.
Dr. Kimberly Lee, D.O., is a Managing Director and Senior Analyst at Global Hunter Securities, LLC, where she focuses on the health care sector. Dr. Lee was most recently a Senior Research Analyst covering biotechnology at Wedbush Securities, identifying and recommending investment ideas to institutional clients, in addition to developing a widely followed annual industry outlook report. While at Wedbush, Dr. Lee received a 4-star rating from StarMine for stock picking and performance. Dr. Lee earned her Doctor of Osteopathathic Medicine from Kirksville College of Osteopathic Medicine and a Bachelor of Science in biological sciences from Stanford University.
TWST: What are the major themes in the small-cap biotech space?
Dr. Lee: I'm looking at names that have a pipeline, have some cash, a deep pipeline that maybe Big Pharma will be interested in, because it looks like the M And A activity is picking up in the biotech space. We had Pfizer (PFE) announce that it will acquire King Pharmaceuticals (KG) at the beginning of this month, and there have been other M And A transactions this year that look like Big Pharma has been acquiring these other smaller companies, like ZymoGenetics and Trubion and 4RX, names like that. Those are the kind of trends I'm looking at - companies with pipelines, and some cash and assets.
TWST: Who do you like in your coverage right now?
Dr. Lee: I like BioSpecifics, that's ticker BSTC. It's a company that brings in royalty revenues for their drug, Xiaflex, which is on the market for Dupuytren's contracture. What's great about this story is I think it's a better valuation play than Auxilium Pharmaceuticals, which is the company that licensed Xiaflex in three indications from BioSpecifics. BioSpecifics is a pure Xiaflex play. They have a highly leveraged bottom line, and they spend less than $5 million a year, and the majority of the revenues from the top line flow down to the bottom line. We estimate they could become profitable in Q2 next year, and I think that they're going to be a great takeout candidate either for Auxilium Pharmaceuticals or Pfizer, which is partnered in Europe with Auxilium, or some other possibly med device companies that are looking into the orthopedics space.
TWST: Anybody else that has an interesting story?
Dr. Lee: Yes, Corcept Therapeutics has an interesting story. They're a company that is developing a drug called Corlux for the treatment of Cushing's syndrome, again another orphan indication. They have a big binary event coming up in December where they're going to announce Phase III data for this drug. So far there have been no well-controlled studies for indication, and their trial designs have been approved by the FDA, and they should have some pretty positive data out. It's an open-label study, so if there were any major safety events we would have known by now, and the company would need to report that. Certainly, it's a small indication. The population is less than 10,000 patients, but it becomes a significant market opportunity for the company, given that they can price the drug at possibly over $100,000 a year.
TWST: What about Medivation? That's a name we've heard a lot about in the past but seems to be out of the press lately. What's going on with them?
Dr. Lee: I am positive on Medivation as well. They're developing two drugs, one for Alzheimer's disease and Huntington's disease, and they're partnered with Pfizer on that; and then they're developing another drug, MDV3100, in hormone-refractory prostate cancer, and they're partnered with Astellas (ALPMY) on that. Medivation suffered a failure in their second Phase III Alzheimer's program earlier this year in March, where they didn't show any efficacy for the drug Dimebon. So the Street has pretty much written off Dimebon working in the second indication, Huntington's disease. We are expecting Phase III data in Huntington's disease in the first half of 2011 could happen in Q1 of 2011, so the Street is attributing no value to that indication. The base-case valuation is really based on their prostate cancer drug, MDV3100, right now. So we are positive on this name in that we believe the chances of having positive Phase III data in Huntington's is greater than 50% and certainly a better chance than in Alzheimer's disease.
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