Nuclear medicine uses small amounts of radioactive isotopes to diagnose and/or treat diseases such as cancer and heart disease, while also providing doctors with information about both structure and function within the body. Using radioisotope diagnostics, a doctor can gather medical information that would otherwise be unavailable, require surgery, or necessitate more expensive diagnostic tests. These imaging procedures often identify abnormalities very early in the progress of a disease - long before many medical problems are apparent via other diagnostic procedures. Radioisotopes used therapeutically are "tried and true", with primary uses focused on cancers that respond well to the treatment or when tumor locations do not allow for surgical removal. New radiotherapies and radioactive diagnostic approaches are revolutionizing our understanding and treatment approach for a range of diseases and conditions. Below are four companies involved in radiotherapies or radioactive diagnostics that I believe are poised to see their stocks perform well in the year ahead.
General Electric (GE) generally does not come to mind when discussing radiotherapies, but it should. Nuclear medicine is a growing field, and GE, through its subsidiary GE Healthcare, has a wide variety of diagnostic solutions in development. GE also manufactures a wide range of imaging resources including MRI, PET, and CT scanners that deliver a clear visual image of the body. GE Healthcare also has teamed with Merck (MRK) to collaborate on an experimental therapy to diagnose and treat Alzheimer's using GE's PET amyloid-imaging agent, flutemetamol, to detect signs of Alzheimer's, along with Merck's lead Alzheimer's drug candidate, MK-8931, which targets beta amyloid thought to affect the lead-up of neuron degeneration in Alzheimer's disease. 5.3 million Americans suffer from Alzheimer's, and the number of Alzheimer's cases is expected to triple by 2050s. In the U.S. alone the cost to treat Alzheimer's is approximately $172 billion a year, and is expected to rise to $1 trillion by 2050.
Beta amyloids are proteins that can clump together and form plaques in the brain, commonly found in the brains of Alzheimer's patients. Flutemetamol, a tracer molecule associated with the isotope fluorine-18, binds to beta-amyloid, and therefore can be used as an imaging agent to detect beta amyloid deposits, which in turn should then be able to better identify patients who might benefit from MK-8931. Preliminary results from two Phase II trials with flutemetamol have met their primary endpoints to confirm the potential application of flutemetamol as an imaging agent to detect beta amyloid plaque. Separately, MK-8931, Merck's novel investigational oral β-amyloid precursor protein site-cleaving enzyme (BACE) inhibitor, entered Phase II/III clinical trial designed to evaluate the safety and efficacy versus placebo in patients with mild-to-moderate Alzheimer's disease. MK-8931 inhibits the BACE enzyme, which is vital in the production of amyloid β peptide, believed to be the underlying cause of Alzheimer's. Using this approach, MK-8931 is being developed to prevent the formation of amyloid plaque deposits.
GE closed on Wednesday February 20th at $23.41 per share, just under its 52-week high. The company, which has its hands in a vast array of industries, including GE Capital, aviation, transportation, energy infrastructure, and GE Healthcare, has a market capitalization of $245.5 billion. For 2012, GE posted a net income of $13.6 billion on revenue of $147.4 billion, up from net income of $13.1 billion and revenue of $147.3 billion in 2011. The company plans on completing its $18 billion sale of NBC Universal to Comcast by the end of the 1st quarter, which will add to GE's cash stockpile of roughly $95 billion. The cash will help move forward the proposed buy back of about $10 billion in company shares throughout the year.
I like GE, I think its worst days are in the rear view mirror; Zacks Investment Research expects GE to see earnings growth of 9.7% in 2013, well above the industry average of 3.2%. GE is an excellent company to have in one's long-term portfolio; the company appears to be refocused, has a tremendous amount of cash on hand; it's been working diligently to cut costs, and has been actively pursuing new interests in emerging markets. I am long on GE, but I wouldn't be surprised to see a slight pullback before the stock begins to rise again.
Eli Lilly (LLY) expanded into nuclear medicine in 2010 when it acquired AVID Radiopharmaceuticals in a deal that cost upwards of $800 million. Many analysts believe that Lilly paid a premium for the company, but it did so to receive the radiopharmaceutical drug florbetapir, now with the trade name Amyvid. Like GE's flutemetamol, Amyvid was developed to assist doctors in diagnosing Alzheimer's and track the progression of the disease. Last April the FDA approved Amyvid for detecting beta-amyloid plaques in patients with cognitive impairment who are being tested for Alzheimer's disease. The European Union followed up by approving Amyvid earlier this year. Amyvid is a radioactive diagnostic agent that, like GE's flutemetamol, utilized the isotope fluorine-18. Amyvid is injected into the bloodstream, where it crosses the blood-brain barrier and selectively binds to amyloid plaques, allowing radiologists to see signs of Alzheimer's on a PET scan, potentially allowing an earlier diagnosis. To date, the tests are being used mainly to rule out Alzheimer's, as patients who have no brain plaque do not have Alzheimer's.
Lilly, a $62.6 billion market cap company, has seen its stock rise 40% year-over-year. The stock continues to see positive results - up almost 10% year-to-date. To some its upward trend could be a tad surprising considering that Lilly has not had the success it expected with its pipeline of products, as a number of its drugs in clinical trials have failed, including tabalumab for rheumatoid arthritis, Alimta for lung cancer, pomaglumetad methionil for schizophrenia, and Forteo for back pain. Also harming the company's bottom line are the drugs that have come off, or are soon coming off, patent protection. An example is Zyprexa, which once boasted $4.92 billion in yearly sales, has slid 49% after coming off patent. To add to the bearish trend, the company's other successful drug Cymbalta, with $3.07 billion in sales, loses patent protection this June.
On February 15th the Jefferies Group reissued its underperform rating, and currently has a $43.00 price target on the stock. At the end of last month, Goldman Sachs reiterated a neutral rating and raised its target price from $54.00 per share to $56.00 per share. Lilly has a solid dividend of $1.96 per share, paid in quarterly installments. The company saw quarterly earnings of $0.85 per share beating analysts' estimates of $0.79 per share. I wouldn't be too quick to dismiss Lilly; it still has a number of drugs in late stages of clinical trials and has implemented cost cuts helping sustain its profit levels. I am a hold on Lilly, but if the stock has a pullback it could make for a good buying opportunity.
While radiotherapy has made great strides in diagnosing and treating certain illnesses, and the use of radiotherapies will continue to increase, there is one caveat in the deck: Radiotherapies require nuclear isotopes and, due to government regulations and aging nuclear reactors, there is a shortage of medical isotopes today. A small company out of Washington State, Advanced Medical Isotope Corporation (ADMD.OB) is engaged in the production and distribution of medical isotopes. The company hopes to remedy the isotope shortage issue and to become a major producer of medical isotopes for the U.S. The market for medical isotopes represents over $1 billion a year. In the U.S. 18 million medical procedures are performed using medical isotopes, in Europe the number is 10 million, and those numbers are expected to grow at 10% annually. In the United States, approximately 90% of the medical isotopes used come from foreign countries.
ADMD is positioning itself to be the top producer of medical Isotopes in the U.S., utilizing its relationships with the University of Missouri at Columbia, Pacific Northwest National Laboratory, the University of Utah and, most recently, Colorado State University, to produce isotopes at their research reactors. In its own facility in Washington, ADMD uses the PULSAR Isotope Production system, which is a compact linear accelerator (LINAC) designed to produce the full spectrum of PET imaging radioisotopes for diagnostic and therapeutic applications. LINAC replaces the larger cyclotron systems for the production of medical isotopes. Along with radioisotopes molybdenum-99 (Mo-99) and technetium-99m (Tech-99), both used in 80% of all the nuclear medical procedures worldwide, ADMD produces a number of other isotopes for the medical community, including fluorine-18, the same isotope used in both GE's and Lilly's PET imaging product for Alzheimer's.
While I can see potential in its isotope production, what has caught my interest about the company is that ADMD is also developing a novel approach to targeting cancer tumors with an injectable radiotherapy, RadioGel. RadioGel consists of isotope Y-90 microspheres in a water-based polymer. The polymer is injected directly into the tumor using a needle, and once injected the polymer quickly begins to warm to body temperature. This temperature change transforms the gel into a lattice-like structure, trapping the Y-90 in the targeted tumor. High-energy beta particles irradiate the cancer cells within the targeted mass, allowing little systemic irradiation from the trapped Y-90. RadioGel would allow medical personnel to deliver higher doses of radiation exactly where needed, especially in tumors that cannot be surgically removed.
RadioGel is versatile; it can be injected through the skin or during a surgical procedure when a cancer tumor cannot be surgically removed. According to James C. Katzaroff, CEO of ADMD, "RadioGel will provide doctors with greater flexibility to safely direct radiation therapy to the interior of tumors, as well as to tumor margins following surgical removal. We anticipate further development of RadioGel products that will eventually be used to treat cancers of the breast, liver, kidneys, and pancreas, as well as the brain and neck."
In what could be considered a big step forward for the company, earlier this month ADMD submitted data on RadioGel to the FDA and requested a collaborative meeting, which represents the initial step in the FDA's pre-market review process. Based on favorable results of animal studies recently concluded at the Pacific Northwest National Laboratory, the company is submitting to the Washington State Department of Health the information required for a Sealed Source and Device registration, which will allow the use of the RadioGel in hospitals and clinics to be authorized in Nuclear Regulatory Commission Agreement States. ADMD believes RadioGel has the potential to be a blockbuster therapy and estimates sales could grow as high as $70 million to $100 million.
Advanced Medical Isotope is a small company with a lot of potential. It has a market cap of $14.6 million. In 2012 the company saw its stock grow 83%. This year the stock has moved very little, and sits where it began the year, at $0.18 per share. But there is great opportunity in ADMD with its isotope business and RadioGel. If RadioGel continues to show progress I wouldn't be surprised if a larger pharmaceutical company would either invest in a collaborative effort with RadioGel or just buy the company outright. I am long on ADMD and see it as a sleeper stock that could potentially generate high profits. But along with great rewards there are risks investing in nano-cap companies. Know your risk tolerance, and caution is always advised for this type of investment.
Disclosure: I am long on GE and ADMD.