Looking Beyond The JPM Global Healthcare Conference: More Biotech Than Meets The Eye

by: Nouvelle Asset Management

This week will begin the annual watershed gathering of publicly traded healthcare companies at the JP Morgan Global Healthcare Conference in San Francisco, an amalgamation of small- to large-cap life science companies looking to broaden their reach through corporate presentations and Q&As. It's a meeting of the best and brightest in healthcare investing, and while the JPM Healthcare Conference has always dominated the landscape, there are, in fact, two other biotech-focused conferences in town. While the bigwigs of biopharma present to the masses of analysts and fund managers at JPM, a menagerie of smaller biotech companies, both private and publicly traded, take the stages at EBD's Biotech Showcase and OneMedPlace's OneMedForum. Both venues are ideal research platforms, offering perhaps more significant opportunities for biotech discovery than the well-knowns presenting at JPM.

Glancing through the list of presenting companies, a number of new and exciting names jumped out that warrant further diligence, as well as many familiar names. Small and micro-cap discovery plays a major role in biotech investing, and we're always eying up the next big play. Below are a mix of names that have peaked our interest looking through the presenters this year, unknowns and familiar names alike.

Advanced Cell Technology (ACTC.OB) is much loved by the biotech trading community and has generated a cult following of sorts due to its volatility and momentum swings; following some insider buying towards the end of last week, ACTC shares gained 32% ($0.02) in a single session on Friday with volume of more than 25M. Nevertheless, the stem cell technology developer is one of a few stem cell companies to demonstrate promise with its technology. Its lead candidate in the clinic is being tested as a treatment for degenerative retinal diseases (age-related macular degeneration and Stargardt's disease), and while the company operates in a controversial space, it may pan out for shareholders in the long run. The market for an effective macular degeneration treatment is enormous (the company pegs the market opportunity at more than $25B), and Advanced Cell's retinal pigment epithelium (RPE) program, its lead program, has already shown tolerability and safety in early clinical trials. More importantly, the company will finish up Phase II studies in the next year, which will be major catalysts for the stock if positive. And ACTC secured a common stock purchase agreement with Lincoln Park Capital in September, obligating the institutional investor to purchase $35M in common stock over three years. With the Lincoln Park agreement, $8.3M in cash and equivalents at Sept. 30, and an average annual burn of $16M, the company should have sufficient capital for a year or two of operations.

Oddly enough, ACTC decided against uplisting to a major exchange at the end of last year and remains on the OTC BB. That and a history of questionable debt deals, plus an immense amount of shares outstanding, suggest that investors should proceed with caution. While ACTC holds some promising technology, management needs to prove its commitment to shareholders (high compensation, lack of a CFO, no uplisting) before investors throw caution to the wind. ACTC may be best suited for the day traders and long-term value-seekers with some cash to gamble. Along the same lines, Athersys, Inc. (NASDAQ:ATHX) develops a number of candidates using its MultiStem technology and has some notable catalysts in the next year. ATHX's lead program in Irritable Bowel Disease is carried out under a partnership with Pfizer (NYSE:PFE) and should report topline, Phase II data in the first half of 2013. In the back half, Athersys will report results from a Phase II trial with Ischemic stroke patients, for which its stem cell treatment already showed an improvement in patient recovery following post-stroke administration. ATHX moved progressively lower through 2012 with no major catalysts and the imminent risk of a financing, but in November, Athersys finished a stock offering that netted $21.1M. The stock bounced off of its lows around $1.00 and has climbed 20% into the new year. With important trial data in the next twelve months and the risk of a capital raise no longer pressuring shares, the stock holds promise in the New Year. Again, the risk inherent in the unproven stem cell segment warrants further diligence in this small company.

We've been interested in Navidea Biopharmaceuticals (NYSEMKT:NAVB) since the FDA accepted the company's resubmitted New Drug Application for Lymphoseek and the stock bounced off of its lows in mid-November. Lymphoseek is a radiopharmaceutical agent being developed for external lymph node imaging (lymphoscintigraphy) and intra-operative lymphatic mapping, both crucial to diagnosis and treatment of breast cancer. Lymphoseek has a somewhat torrid history, however, which resulted late last year in a depressed stock with room for gains based on its previous performance. The FDA issued a Complete Response Letter (CRL) to Navidea's original NDA in September 2012, based purely on manufacturing issues, causing the stock to drop precipitously. But more importantly, prior to the CRL, NAVB shares topped $4.75 in anticipation of an approval. With Lymphoseek back in the hands of the FDA and a PDUFA date of April 30, shares should rise in 1Q13 towards previous highs, as the biotech community largely expects lymphoseek to receive approval in April with FDA manufacturing concerns put to rest. Concerns then shift to lymphoseek's market opportunity. The agent is partnered with Cardinal Health, ideal for commercializing the product but a hit to NAVB's topline as the large supplier keeps 50% of lymphoseek revenue. Some have also questioned lymphoseek's pricing and marketability. Nevertheless, NAVB's 'majority' shareholder Platinum-Montaur Life Sciences has been building a position in the company since 2007, and upon exercise of warrants and preferred share conversion could own more than 40M shares of common stock. The fund has put up considerable capital to ensure the commercial success of Navidea, and fund manager Michael M. Goldberg recently said, "We are confident that Lymphoseek will be rapidly adopted by the medical community as soon as it is approved by the FDA as we believe it provides a clear benefit to patients. We remain optimistic about Navidea's recent progress and look forward to the continuing development of their exciting pipeline of precision diagnostic agents." Investors can take some solace in the backing of a major venture firm, but should remain watchful for insider selling.

Cyclacel Pharmaceuticals (NASDAQ:CYCC) caught the attention of the biotech community last year as the media took interest in its Acute Myeloid Leukemia treatment sapacitabine and the race for success against Sunesis Pharmaceuticals (NASDAQ:SNSS) and its own AML treatment, vosaroxin. Sapacitabine is being evaluated in the Phase III SEAMLESS trial for elderly AML patients, and is notably being carried out under a Special Protocol Assessment from the FDA. The agreement suggests FDA confidence in the design of the trial, even though the comparator arm, which utilizes Dacogen, has come under some scrutiny. Cyclacel recently announced a common stock purchase agreement with Aspire Capital worth $20M over two years, relieving some of the financial concerns that depressed the stock in the third quarter of 2012, but CYCC's markedly low market capitalization of $49M is certainly pricing in approval risk for sapacitabine. As an undervalued oncology play, that leaves considerable room for upside if the SEAMLESS trial proves sapacitabine's benefit, but a position in CYCC requires risk tolerance.

Presenting at the Biotech Showcase this week is an interesting take on an old standard in medical care. Utilizing its SynCon synthetic DNA vaccines and electroporation delivery technology, Inovio Pharmaceuticals (NYSEMKT:INO) targets a number of cancers and infectious diseases that are currently untreatable or are poorly treated, using both therapeutic immune responses and preventive immune responses. Following vaccine delivery, electroporation stimulates the body's cells at the injection site, opening pores in the cell membrane that promote greater vaccine uptake. Inovio's pipeline consists of a number of mid-stage products, most notably VGX-3100 for cervical dysplasia and cancer, the WT1 Vaccine for Leukemia, and ChronVac-C for Hepatitis C. Perhaps most exciting, VGX-3100 demonstrated best-in-class immune response in earlier trials, and its ongoing Phase II trial will read out in the second half of 2013, a major event for the company considering the large market and unmet medical need in cervical cancer - more than 12,000 patients diagnosed annually. Partner Chrontech will also release preliminary Phase II data for ChronVac-C in the first quarter of this year. In December, Inovio reported that its H1N1 flu vaccine doubled patient immune response vs. placebo in a Phase I trial, and positive interim results for the Phase II WT1 leukemia vaccine prompted enrollment in a second arm of the study early in the month.

Eight compounds in the clinic, two of which will soon read out crucial mid-stage data, plus improving visibility in the markets, suggest that 2013 will be an inflectional year for Inovio. Management believes the company has sufficient capital to last into the third quarter, but an At-The-Market issuance agreement initiated in June could bring in an additional $25M through market-priced stock sales. Shares have sold off roughly 30% since mid-October, a reaction to large-scale selling by a majority shareholder, which has opened up an entrance opportunity for investors. Yet institutions still hold a notable portion of the small company's outstanding shares, unusual and indicative for a thinly-traded biotech. With a market capitalization of just $74M, it seems the broader market has yet to catch up to the opportunity in INO's pipeline.

Visibility of Alliqua's (NASDAQ:ALQA) development progress is just emerging, and interestingly, some high-powered figures are coming together to build the wound-care company, perhaps most notably, pharma billionaire Dr. Phillip Frost (Chairman of TEVA, Founder and former CEO of IVAX) has taken an 11.1% position in the stock. The company is focused on topical drug delivery and wound care and makes its own hydrogel-based products, two of which are approved and ready for sale: Hydress, a non-medicated hydrogel used to help wounds heal faster, and SilverSeal, Alliqua's hydrogel for infected wounds. ALQA has a market cap of just $11.4M, but recently the company has attracted two new Board members, Dr. Jerome Zeldis, long-standing Chief Medical Officer of Celgene (NASDAQ:CELG), and David Johnson, former CEO of Convatec. Dr. Zeldis joined the company in late November as Chairman of the Board, and investors have yet to take note that someone of this caliber is associating himself with this under-the-radar company; his experience should go a long way towards creating value for ALQA shareholders. In addition, James Sapirstein, a business development executive with experience at Bristol-Myers Squibb, Eli Lilly, Roche, and Gilead recently took the helm of ALQA. Leadership like this says something is happening with this small company, and investors may want to keep tabs on ALQA's progress. At just $0.04 per share, speculating investors might look at this stock as an inexpensive call option.

As a poster child of the biotech trading community, Zalicus (ZLCS) will likely garner some attention at the Biotech Showcase as well. Following the Phase IIb failure of lead candidate Synavive in September, Sanofi (NYSE:SNY) relegating Prednisporin to a sublicensing in October, and the threat of a NASDAQ delisting, the stock traded to lows around $0.40 in November. Nevertheless, shares began rallying again in December and early this year as the company progressed Z160, a calcium channel blocker, into its second Phase IIa trial. Z160, says, the company, could represent a potent treatment for chronic neuropathic pain, and both Phase IIa studies are set to release results in the second half of 2013. Zalicus initiated a Phase I multiple ascending dose clinical study of Z944, a T-type calcium channel blocker, which will read out in 1Q13. Given the cult following behind Zalicus, even positive early-stage results may rally shares in the next few months based on Z944 alone. ZLCS's high beta and the threat of a NASDAQ delisting, however, mean the stock remains a speculative investment, better utilized by day traders for the time being.

Even for those unable to attend, the extensive list of companies presenting at both the Biotech Showcase and OneMedForum offer a meaningful stepping off point in the discovery and diligence process. The innumerable transcripts and presentation webcasts to follow these conferences should aid in idea generation for the savvy investor.

Disclosure: I am long NAVB, INO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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