Would you invest all your money in the biotechnology sector if there was unlimited potential to go along with no risk? Most of us would jump at an opportunity of that nature, but unfortunately investing is not that easy and risks are always a part of the territory. When a biotechnology company can solve unmet patient needs or have a diverse pipeline offering a lot more than hope in one single treatment or cure, investing in them can offer more value and less risk. Another reduction in risk can be realized by good timing that can be characterized by initiating a buy at a low valuation that leaves less room for any downward movement. A combination of two of these "risk reducers" can often lead to sound investments that make investing in the biotechnology sector easier to stomach and more of a portfolio changing event. These four companies have something to offer patients and investors alike and with the right timing have the potential to take investors over the top.
Rockwell Medical (RMTI)
Rockwell Medical has a pipeline focused on the treatment of various forms of renal disease including chronic kidney disease (CKD) and associated factors like iron deficiency, secondary hyperparathyroidism and hemodialysis (HD). Rockwell Medical's emphasis is on treating iron deficiency and other issues that are arise from the extensive dialysis treatments typically associated with treating CKD and other kidney related conditions. In these patients, anemia often results from a lack of red blood cell production that is often a result of the dialysis treatments. Patients with CKD have trouble producing, erythropoietin (EPO), which is a hormone that helps initiate red blood cell production. This lack of EPO coupled with the blood and iron loss from the dialysis process combines with the restrictive diets that limit iron intake by cutting out many foods are high in iron, to compound the problem. Currently this iron deficiency condition is treated with erythropoiesis stimulating agents (ESAs) administered along with an IV solution of iron to help stimulate red blood cell production. This treatment, however, has issues as an enzyme in the liver locks up the "alien" iron rendering the ESA treatment less effective as well as poisoning the liver with the iron build up. In order to combat this, Rockwell Medical has created Soluble Ferric Pyrophosphate (SFP) which is an iron salt, much smaller in size, that does not get trapped in the liver and flows directly to the bone marrow where it is needed for red blood cell production. This therapy is at the final stages of Phase III trials with results due out sometime in July for one of the studies and October for the other. The treatment has the potential to reduce the risk to the liver, fight anemia and lower the amount of ESA required to boost red blood cell production in dialysis patients.
Rockwell Medical also is developing Calcitriol, an injectable Vitamin D, for the treatment of secondary hyperparathyroidism in dialysis patients with chronic renal failure and has several other HD concentrates like CitraPure citric acid concentrate and Renal Pure liquid acid concentrate. SFP is also in other studies for combating anemia and iron deficiency problems in women and other patients where such deficiencies are most likely to occur.
There are over 430,000 patients in the US alone that are on dialysis and the vast majority of these dialysis patients suffer from anemia or some other form of iron deficiency. This is a huge marketplace for this unrivaled formulation of iron delivery. Calcitriol is in the submission stage of the FDA approval process and has a potential marketplace alone of about $350 million. Approval of SFP would be significantly more lucrative. Rockwell Medical's stock is currently trading at $3.85 a share (May 28th) and is down a whopping 53.85% from a year ago. The 52-week high of the stock is $10.70, while the 200-day moving average is $5.50 a share indicating lots of room for growth, given the right news or conditions. Rockwell Medical recently closed a $40.3 million stock offering deal which will easily get the company past the SFP trials. The company currently generates over $12 million a quarter in revenues and despite rather large quarterly losses, has no debt. The company will be coming out of Phase III trials with a product that can satisfy unmet needs and has a large marketplace. Since this treatment has passed Phase I and II trials and has a more proven action, the likelihood of FDA approval is greater. The timing for taking a long look at Rockwell Medical couldn't be better.
Vical has plenty of value with its core pipeline of DNA vaccines and non-viral gene therapies offering a variety of products aimed at treating everything from infectious disease to dengue, cytomegalovirus (CMV) and more. Vical also has a few pipeline candidates for the treatment of cancer led by Allovectin a first-in-class DNA-based treatment for stimulating immune responses in local tumors and distal metastases. They also have developed a hTERT vaccine for helping to extend the life expectancy of cells thought to be a primary cause of the onset of cancer. In its cancer pipeline, Vical also has ONCEPT, partnered with Merial, for treating oral melanoma in dogs. Vical's angiogenesis platform is anchored by Collatagene, in a collaboration with AnGes MG, for the treatment of peripheral arterial disease that leads to critical limb ischemia in affected patients. Vical has many collaborations besides the two previously mentioned for Collatagene and ONCEPT to help them advance their potent pipeline. They have a collaboration with Astellas Pharma (ALPMY) for TransVax for latent CMV, Novartis Aqua Health for Apex-IHN for treating infected salmon in the Pacific Northwest and even a collaboration with the government for a dengue vaccine. Some investors have questioned the effectiveness of Vical's Phase III studies of Allovectin that have enrolled only moderate cases of melanoma into the trials raising concerns about their potential for achieving worthwhile results.
In addition to the many collaborations, Vical also has its own studies for CyMVectin in females for preventing the transmission of CMV to the fetus during pregnancy and a HSV-2 vaccine for inhibiting the recurring lesions caused by the herpes simplex virus (HSV-2). These two candidates (CyMVectin and HSV-2) are in pre-clinical stages. Vical's CMV vaccines offer a huge marketplace for and TransVax alone could have a potential marketplace worth about $500-600 million a year. This year, Vical's shares have started to draw more investor interest.
Vical's shares jumped at the beginning of March shooting up over $4 a share from $3.20 a share at the end of February. Since then shares, currently at $3.57 a share (May 28th), have been trading around a 200-day moving average of $3.45 and a 50-day moving average of $3.71 a share. The stock has performed along the same lines as the S&P 500 with an 18% 52-week rise. Vical has positive analyst interest with a mean target price of $6 a share and even plenty of insider and institution interest with a combined stake between these two groups above 50%. Vical has burned through at least $7.5 million in cash each of the last four quarters but still has over $70 million in cash and short term investments and no debt to speak of. The books are good enough to get them through many of their trials including Allovectin, TransVax and Collategen all in Phase III trials. Currently the Salmon vaccine, Apex-IHN and ONCEPT for dogs are the only two approved vaccines generating revenue. A hit on either of the big three will provide the impetus for a breakout of Vical's stock. This might be a stock to watch after some results for Allovectin come in sometime around July of this year, but if there is any dip before then it might be worth adding Vical to your portfolio.
LabStyle Innovations (OTCQB:DRIO)
LabStyle Innovations is revolutionizing the blood glucose monitoring marketplace with their all-in-one Dario glucometer device and software system. As cases of obesity and diabetes continue to increase worldwide, the pressure is on to make blood glucose monitoring less of a chore while ensuring better patient compliance. LabStyle accomplishes this in two distinct manners. Its Dario device has a glucose meter that flips out and plugs into a smartphone, while the lancet and testing strip dispenser is built into the compact device. This sleek device can fit in the pocket of any pair of pants or purse and is designed to give the diabetic freedom from having to carry around a cumbersome kit that also acts to advertise the condition. Once a tiny speck of blood is placed on a strip, it is fed into the glucose meter adapter and a reading is accomplished by the Dario app on the smartphone. It is this Dario app that really differentiates LabStyle Innovations' device from the crowd of blood glucose measuring devices that currently saturate the market. The Dario app produces a fast reading (5-6 seconds) and logs each and every reading on a cloud based software support system. This information can be made available to personal caregivers, physicians or others involved with the patient's care. Insulin intake can also be entered and gets logged to provide a complete history of the diabetic's blood glucose management. This comprehensive approach to care management through the Dario app is what enables many exciting possibilities that can be a boon to investors.
Imagine a messaging service between diabetics that are very ill and their physicians that can monitor their readings and even go as far as monitoring their carbohydrate intakes. Consider alerts that can be set up for children or the elderly to warn them to take readings. The system can even be used to showcase local restaurants that offer diabetic friendly cuisine and grocery products that are low in sugar and carbohydrates that can promote their benefits through the system. Another big plus is that the secure database can offer food manufacturers and pharmaceutical companies a very specific target audience to test products or drugs with diabetics and have results recorded and logged through the system. The benefits of such a diabetes management system extend far beyond the beauty of the device.
Revenue streams are abundant with this system as strips alone represent a huge multi-billion dollar marketplace. Most companies in this sector make money on strips alone and LabStyle has the capability of monetizing the software and app for the potential of even more revenue from this device/system combination. The current valuation of DRIO stock at $3.01 (May 28th) a share offers plenty of room for growth (market cap $46.35 million). LabStyle's stock has coverage from Zack s with a target price of $12 a share. The company recently closed a $10 million financing deal and has plenty of cash to get through European and U.S. approval processes. A distribution deal is already in place with Farla Medical to help get things going in Europe, but the marketing efforts are geared to reach the diabetics in more direct manners and should ensure a higher profit margin as LabStyle moves forward. The LabStyle board is full of worthy experts to help guide the company's growth and the current price could represent a nice value for investors who can see past the typical biotech risks.
Cytokinetics has many solutions to the problems that are becoming more and more prominent today with the aging baby boomer population. Over 700,000 people in the U.S. suffer heart attacks each year and of those 190,000 happen in people who have already experienced a heart attack. Cytokinetics has been developing drugs for patients that experience acute or chronic cardiac failure, skeletal muscle wasting or weakness and amyotrophic lateral sclerosis (ALS). The company also is developing therapies for relaxing smooth muscle contractions in organs like the lungs where they involuntary contractions affect the essential organ functions. For cardiac failure or cardiac muscle damage Cytokinetics has the drug Omecamtiv Mecarbil, in a collaboration with Amgen (AMGN), which is a myosin activator for cardiac muscle. Omecamtiv Macarbil acts to stimulate the myosin motor protein in cardiac muscle to create more force, a longer systolic ejection time and a more efficient stroke. This improvement in efficiency can help lead to cardiac muscle recovery that is harder to achieve with a laboring heart following a cardiac event. Omecamtiv Macarbil performs this function without increasing harmful intracellular calcium levels like other existing positive inotropic agents.
Cytokinetics also has Tirasemtiv and CK-2127107 for activating the troponin complex in skeletal muscle. This activation leads to a slower release of calcium from the complex enabling the sarcomere to become more sensitive to calcium, enhancing muscle function. This improvement in skeletal muscle performance is being developed for cases of muscle aging, wasting or fatigue and ALS or Lou Gehrig's disease. Cytokinetics is also developing smooth muscle relaxers that work by using myosin inhibition in order to reduce the negative effects of involuntary muscle contractions. This pipeline candidate is being studied for use in the pulmonary system.
Cytokinetics currently has two trials with Omecamtiv Macabil, ATOMIC-AHF (IV administration) in Phase IIb and COSMIC-HF (oral administration) in Phase II for the treatment of cardiac muscle. Tirasemtiv is in a Phase IIb trial (BENEFIT-ALS) for ALS while CK-2127107 has initiated Phase I trials for safety and tolerability. The pipeline has plenty of potential, the marketplace for these products is growing quite large and the stock has plenty of upside.
Cytokinetics' stock is currently trading at $1.13 (May 28th) a share which represents a 24.7% gain over a 52-week period. Cytokinetics' stock manages to have coverage from six analysts all considering it a buy along with a mean target price of $3.63 a share. The stock hit its 52-week high in April reaching $1.46 a share and has been performing quite well in 2013. The current share price is just below the 50-day moving average of $1.20 a share, but above the 200-day moving average of $.98 a share reflecting progress in the first part of this year. The financials are pretty solid for a biotech with just under $62 million (March 31st) of cash on hand and a quarterly burn rate running about $10-12.5 million. There should be plenty of money to complete the trials and get through the FDA approval process. The current market cap of about $167.9 million might still be pretty low given the huge marketplace potential of the pipeline. At this value price there is plenty of room for optimism.
Some of these stocks have experienced some upward movement during this year that could have them poised to experience more. Rockwell Medical is close to hearing some news that could lead to considerable revenue growth, while LabStyle Innovations is about to transform an industry. Vical and Cytokinetics offer pipelines full of promise and great hope to offer investors more than one option for achieving growth. There is room for growth in each of these four candidates, but any investment in this sector has to be measured against the risk of failure. In this sector great risk comes with great reward, but the search is always on for stocks that can provide more reward with less of a risk.