Timing Is Everything, And The Time For Coronado Biosciences Is Now

| About: Fortress Biotech, (FBIO)

If you're an investor in biotech, you've probably seen a lot of publicly traded companies with promising research which often end up fumbling during Phase II clinical trials (and that's only if they make it that far). A good investor must constantly analyze the risk-reward and act accordingly. Coronado Biosciences (CNDO) currently has items in Phase II, but unlike other biotech plays, the risk-reward with Coronado is much more attractive.

The Reward

If successful, Coronado's leading product (CNDO-201) would likely replace Humira ($4.3b in US sales in 2012) and Remicade ($3.7b US sales in 2012) as a superior treatment for Crohn's Disease, Ulcerative Colitis, and Psoriasis. The combined market this year is projected to be ~$10 billion in the US alone. Coronado also has trials for Multiple Sclerosis (~$15b global market), and Autism/Autism Spectrum Disorder(roughly $15-20b globally). Coronado already has the license for manufacturing in N. America, S. America, and Japan. All-in-all, by the time Conorado's treatment is fully developed, they could be looking at a target market of $50-70 billion. (There's reason to believe Type-I diabetes and Arthritis could be targeted as well; to stay conservative, I'd rather leave those numbers out until trials have even begun.)

The Risks

It is not uncommon to see varying margins for positive response rates between smaller and larger clinical trials; a treatment thought to outperform existing products may find itself statistically just as good (or worse) when applied to a larger population. Initial studies with a small population show Crohn's remission rates above 70% over a 24 week period. It's very unlikely to be a statistical anomaly. Recent pilot data originating from trial for Autism indicates promising data as presented to the Autism Research Institute. There are substantial reports outside of the clinical setting which indicate positive results using this type of treatment.

Typical Phase II trials failures are due to unintended consequences from using inhibitors or other biochemical engineering that does not occur naturally. Coronado's CNDO-201 is not a drug, but a "biologic" treatment (pig whipworm ova) which occurs in nature and is not unfamiliar in third-world/agriculture communities. In other words, the medical community already understand the side-effects which are negligible compared to those of Remicade/Humira.

A company may have an excellent product, but all-to-often its success hinges on the competence of its management team. Earlier this year, Harlan Weisman was appointed CEO of Coronado Biosciences. Dr. Weisman was head of R&D at Centecor (the maker of Remicade) when it was bought by Johnson & Johnson. He stayed at J&J to become Chief Science and Technology Officer for Medical Devices and Diagnostics before joining Coronado where his compensation mostly comes from stock. The entire management team is quite impressive and SEC filings show plenty of insider trading.

Why Now is the Time to Buy

We should be expecting a lot of results as we round out the year and think about 2014, considering its history (peaking at $12.70 earlier this year), the current stock price makes it ripe for purchase. A lot of insider-trading was in the $5-6 range.

  • Coronado's most advanced trials, TRUST-1 and TRUST-2 (as found on ClinicalTrials.gov) target Crohn's Disease have estimated completion times of November and December of 2013.
  • The Psoriasis trial is expected to complete in December 2013.
  • The Autism trial is expected to complete in December 2013.
  • Data for the Autistic Spectrum Disorders trial is expected in October 2013.
  • Data for the Ulcerative Colitis trial is expected in January 2014.

It's also worth noting that their only other treatment (CNDO-109, an entirely different product) which targets Acute Myeloid Leukemia(AML) should also have results in December 2013. I actually expect this one to not do as well. My suspicion is that they cleverly used Orphan Drug Status of AML to gain tax benefits for the company.

A manufacturing facility is already being established in Woburn, MA to supply stock for Phase-III trials. Release of positive trial data could make the stock soar as Coronado will be well-positioned for big-pharma acquisition.

Disclosure: I am long CNDO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.