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Biotechnology investors seem to want either a platform technology or mechanism of action that has multiple pathways. Yet most platform biotechs are rather limited in scope. Psivida (NASDAQ:PSDV) has a platform with great potential and scope.

I bought Psivida on 3 July at $3.95. Here's my long thesis:

a. A novel delivery system with broad applications using a compound that is naturally found and broken down in the body – silicon.
The advantage of the compound is that it can be machined into a nanostructure to dissolve at controlled rates.

b. PSDV is not well known in the US. The technology comes out of work done by DERA (Defense Evaluation and Research Agency in the UK) and the successor entity QinetiQ remains the largest shareholder. Most shares are traded in Australia and Germany. However, this is changing with the acquisition of Control Delivery Systems in Dec 2005.

c. Initial trials focused on releasing cancer compounds (radioisotopes) into specific sites – Liver cancer and Pancreatic Cancer. This requires a fine bore needle for delivery. So far a Phase IIa was completed in Singapore – a small sample size of 8. In October 2005, a Phase IIb study commenced also in Singapore and other sites in Vietnam and Malaysia.

d. In May 2006, PSDV announced a Phase IIa trial in London & Singapore for inoperable pancreatic cancer.

e. PSDV acquired Control Delivery Systems in December 2005 which placed PSDV in the ophthalmology markets with two FDA approved treatments for delivery of drugs via sustained release.
Vitrasert is a treatment for CMV Retinitis, while Retisert is an implant for chronic non-infectious Uvetis – a release for upto 20 months. Both products are manufactured by Bauch & Lomb (BOL). Retisert was approved by the FDA as an orphan drug in April 2005 and receives full Medicare reimbursement (US$18,250) for which BOL pays PSDV a significant royalty.

f. The next generation of products for PSDV is where the drug is injected into the eye for sustained release (18 to 36 months) and not surgically implanted. This is the Medidur product which delivers a steroid (flucionolone acetonide) into the back of the eye which is designed to treat Diabetic Macular Edema (DME). DME is a potentially large market (affects about 10% of all diabetics) and there is no approved FDA treatment. Medidur is currently in Phase III having been granted Fast Track Status by the FDA. The studies have been broadened to international sites. PSDV’s has partnered with Alimera Sciences.

Risks:

a. High cash burn and continually returns to the market to raise funds.
b. Shares are thinly traded in the US and Australia and can be volatile.
c. While US float should become more substantial, under the Control Delivery Systems deal the shares are now unlocked and could force price to decline.

Company Data:

(all in US$)
Price: $3.95
Year End: Dec
Shares O/S: 39m
Market Cap: 157m
Cash: 24m
Cash Burn: 4m per Q
EPS 2005: $0.00
EPS 2006: $0.00
EPS 2007: $0.00
P/E 2006: N/m
P/E 2007: N/m

Disclosure – I, David Segelov, have a significant long position in PSDV.

Source: Psivida: A Biotech Platform With Great Potential (PSDV)