another good read from optioninvestor.comStock News, Tuesday, 02/22/2000
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SciClone Pharmaceutical: A Profitable Small-Cap Biotech?
Believe it or not, there are other sectors in this booming economy to invest in other than optical networking and business to business e-commerce that can offer big potential returns. The biotech industry happens to be one of them. The average biotech mutual fund rose more than 60 percent last year. This year looks like it could be a repeat.
Consolidation in the industry is creating larger, more efficient companies. This consolidation is allowing companies to combine their respective drug pipelines, thus, reducing the gaps between product releases. Also, automation in the sector has helped speed up the process of conducting clinical trials. The benefit of consolidation and automation: a company that can bring more new drugs to market faster and more cost- effectively.
One way to play biotech is to bet on the Pfizers and Warner Lamberts of the world. These companies are profitable and have proven track records with established drugs. These companies may receive FDA approval on several drugs each year. It is the safer way to invest in biotech. And for taking the safer route, the probability of losses is reduced, but at the same time, so is the probability for huge gains.
The other way to play biotech is to invest in a small company with perhaps a very limited track record, and one or two drugs in later-stage clinical trials that have some promise. These are the companies typically have no profits and don't plan on generating profits for several years. However, approval of just one drug could send shares of a small biotech to the moon, especially if the drug has a large potential market and is costly to administer.
SciClone Pharmaceuticals (SCLN), based in San Mateo, CA, just may be that company. Sciclone is no Pfizer or a Warner Lambert, but it does have some good things going for it.
SciClone acquires, develops, and commercializes drugs for treating chronic and life-threatening diseases. Its lead drug, ZADAXIN, targets hepatitis B and C, cancer, and certain immune disorders. ZADAXIN is approved for treating hepatitis B in China, Kuwait, Peru, the Philippines, and Singapore. It is also used as an influenza vaccine in Argentina, and is undergoing clinical trials for treating Hepatitis C in the US and Europe. The firm has an agreement with Schering-Plough (SGP) to develop and market ZADAXIN in Japan. A second drug is undergoing clinical trials in the U.S. for use against cystic fibrosis, called CPX.
Hepatitis B is a highly infectious liver disease that can lead to liver cancer and death. Worldwide, there are approximately 350 million long-term carriers of the Hepatitis B virus, including 1.2 million in the United States. According to the Centers for Disease Control and Prevention, over 200,000 Americans contract acute Hepatitis B each year.
Just last month, SciClone announced the start of a U.S. Phase II Hepatitis B study using its ZADAXIN, in combination with lamivudine (discovered by BioChem Pharma and developed by Glaxo Wellcome), an FDA-approved nucleoside analogue. The study will assess the safety and efficacy of the combination in the treatment of chronic hepatitis B patients. Approximately 1.2 million people in the U.S. are chronic carriers of Hepatitis B. Lamivudine currently is used as a singular treatment, but has been unsuccessful.
Doctors say that it is quite possible that multi-drug cocktails will emerge as the preferred treatment regimen for hepatitis B in the U.S., just as we have seen with HIV and hepatitis C.
"We believe that ZADAXIN plus lamivudine could be an ideal combination therapy for Hepatitis B, a combination designed to boost the patient's immune system while suppressing hepatitis B viral replication," said Alfred R. Rudolph, M.D., SciClone's Chief Operating Officer.
SciClone expects to start pivotal U.S. Phase 3 studies for Hepatitis C during this year, and has filed for ZADAXIN marketing approval in 19 additional countries.
Cystic fibrosis is the most common fatal genetic disorder among Caucasians. Cystic fibrosis will kill most of its 70,000 worldwide victims before they reach the age of 31.
SciClone, just last week, announced plans to move forward with the next stage of its phase II development program for CPX. Sciclone plans to study a new formulation of CPX, based on results of its initial phase II study.
"CPX is one of the most promising therapies for CF patients," said Robert J. Beall, Ph.D., President and Chief Executive Officer of the Cystic Fibrosis Foundation (CFF).
From a valuation standpoint, Sciclone's financials are looking better and better.
For the year ending December 31, 1999, the company reported total revenue of $9.4 million versus $3.7 million for 1998. Net losses were $5.4 million, or 26 cents per share, a decrease of 74 percent, from a loss of $21.1 million, or $1.29 per share, excluding a dividend of 19 cents per share, in 1998.
The company's net loss for the fourth quarter was just $535,000, or 2 cents per share, a 94 percent reduction compared to a loss of almost $9.5 million, or 52 cents per share, for the fourth quarter of 1998.
Sales of ZADAXIN for the fourth quarter of 1999 were $2.99 million versus $1.26 million in the prior year period. Total ZADAXIN sales for 1999 were $9.1 million versus $3.6 million for 1998.
SciClone said the improvement in operating results is based on the 1999 restructuring of the company to focus on sustaining international sales growth, increased drug development activities through partnerships and relatively stable operating expenses. The company expects these trends to continue in 2000 and maintains the goal of operating profitably by the end of this year.
CEO Donald Sellers has increased his stake in the company by more than 50 percent to around 52,000 shares in the past few months. One director made a 68,000-share open market purchase in July of 1999. Insider purchases are always a good sign of management's confidence in the company.
Cash totaled almost $12.7 million as of February 2, 2000. According to Zack's Investment Research, Sciclone is forecasted to post reduced losses of 9 cents per share for 2000 and a profit of 46 cents per share for fiscal year 2001. The one analyst covering the company has a Strong Buy rating on the shares. Sciclone has no debt.
SciClone stock is currently trading at $9 per share, which values the company at less than 20 times fiscal year 2001 earnings of 46 cents per share. With two promising drugs, one moving to late-stage Phase II trials and one scheduled for U.S. Phase III trials, no debt, profitability in 2000, and strong insider buying, SciClone looks poised for future growth. |
