Most investors realize that the best investments are made BEFORE they are popular investments. For example, investors getting entry-level positions in technology sector stocks before the 1990s bubble simply could not have made a bad investment. The same could be said for those having the foresight to purchase real estate in the 1990s and early 2000s and then selling those investments during the mid 2000s real estate bubble. Conversely, entries into either of those sectors near the height of their popularity and prices would certainly have spelled disaster for the wrong positions or if those positions were not exited quickly.
The biotech sector is currently very promising and a hot sector to be in for the right markets, particularly the United States and its FDA approvals. However, biotech companies readying their drugs or medical devices for marketing must satisfy many FDA protocols to begin testing, complete testing, complete even larger trials, submit the NDA or 510K application, have it accepted, possibly meet with an FDA panel, be issued a PDUFA date and finally wait for approval or 510K clearance. Meanwhile, they rely on whatever means of financing such regulatory steps until their products begin generating revenue. This level of risk for the biotech companies translates into comparable risk for biotech investors.
The European Union’s CE marking permits marketing of many product groups, for our purposes medical devices, within the European Economic Area (EEA). While the FDA is obviously hard at work regulating medical devices in the United States, its European counterpart for regulating medical devices is also hard at work with a couple of surprise approvals recently indicating a possible busy 2011. For example, Delcath Systems (NASDAQ: DCTH) submitted its packet for CE Mark approval on December 10th, 2011, with a statement in the press release saying “we expect potential CE Mark approval in mid-2011” for their Hepatic Chemosat Delivery System.
However, its April 13th approval for the CE Mark caught many investors off guard that may have been hinging a bet on a run up to the supposed June/July 2011 decision time. Likewise, many investors were also playing a run up to the trial completion, data presentation, CE Mark application and then European CE Mark decision for Cytosorbents (CTSO.OB) but were caught off-guard on March 31, when a surprise CE Mark approval was given to the company for its cytokine filtration device to aid in treating sepsis even before the trial was completed. It appears that the apparent CE Mark application and preliminary data submission was made with no fan-fare of a press release.
The CE Mark approval process is likely ahead of schedule and could provide a robust environment for biotech investors looking for a safer alternative to the FDA regulatory process. Although typical markets for the medical devices are not as large in the EEA, the reward/risk may be better in many situations for investors and biotech companies as many companies may use the CE Mark as a stepping stone to the typically more difficult FDA approval with better chances of approval and a less expensive regulatory route. Following is a small sampling of potential upcoming CE Mark decisions that may or may not come quicker than anticipated by investors and the involved biotech companies.
Cyberonics, Inc. (NASDAQ: CYBX) noted in a press release announcing the FDA approval of its Aspire High Capacity Generator for VNS therapy that it had also applied for the European CE Mark for the same device. Cyberonics’ first generation VNS Therapy System utilizes a surgically implanted medical device that delivers electrical pulsed signals to the vagus nerve. It had already been FDA-approved to treat refractory epilepsy and treatment-resistant depression. The Aspire High Capacity Generator is simply an improvement over that implanted device offering a longer battery life, simplified programming and improved electronics. Although a huge run up in price per share is not anticipated with CYBX for the CE Mark, it should be a safe investment with the product already approved by the FDA and its predecessor device marketed by the same company already having the CE Mark. For investors wanting a fairly safe biotech trade, this could be a good starting point assuming a good entry-level price.
Cormedix, Inc. (AMEX: CRMD) noted in its 2010 achievements PR on January 4th, that it had initiated its application process for CE Mark approval for CRMD003 (Neutrolin). Neutrolin will be marketed as a formulation designed to “lock” or fill central venous catheters when they are not being used. The CRMD003 formulation is comprised of heparin (a blood thinner/anticoagulant), taurolidine (an antimicrobial) and a citrate (aids as an anticoagulant and also likely there as a pH buffer). The indication is to prevent catheter related bloodstream infections and blood clots in its target population. A March 11, PR indicated that Cormedix hopes to have CE Mark approval and be marketing the product by the end of 2011. With the CE Mark decision process apparently working at an accelerated rate, this decision may come sooner than anticipated. As a side note to be considered is a recent analysis revealing a huge institutional ownership of 20 percent of its outstanding shares indicating strong support for the company, its product pipeline and its financial future.
Hansen Medical, Inc. (NASDAQ: HNSN) announced on April 11, that it had applied for a 510K with the FDA for their Vascular Robotic System and Catheter. The system is essentially an improvement on their already-approved Sensei-X Robotic Catheter System currently sold in the U.S. and Europe. The device allows for 3-D robotic control of catheter distal tips of both the outer sheath and the inner leader catheter and also allows robotic manipulation of standard guide wires. The system is designed to be compatible with most 6F therapeutic catheters currently marketed. Mentioned in the April 11, PR was that the system required CE Mark approval to be marketed in Europe. Although not stated in the PR, CE Mark submission is likely underway following this 510K submission to the FDA. Hansen claims that of the 2 million vascular procedures performed each year, roughly one third to one half of them are addressable by the Vascular Robotic System and Catheter. The likely CE Mark application in addition to the recent 510K application will allow Hansen two chances of marketing its product this year. Therefore, near-term catalysts of a 510K decision, CE Mark submission and CE Mark decision are possibilities Hansen Medical investors will be looking forward to in 2011.
Although there is not necessarily a “biotech bubble” investors have to worry about popping in 2011, there does appear to be some softening of the huge run ups to decision dates and other catalysts for the biotech sector. Of course, the scope of this article does not intend to address the possible reasons for this abatement, and changes in the economy over the last few months may help catalyze the money going into these small biotechs once again. However, investors may also now consider a seemingly safer alternative to the FDA's 510K and drug PDUFA decision dates in which in both cases many often sell during the price per share run up before the catalyst date in order to minimize risk. If the CE Mark approval percentages remain much higher than the FDA 510K clearance and much quicker, then investors with long positions may consider holding through the perceived CE Mark decision date rather than selling before at a much lower run up than the counterpart FDA decision dates. This could optimize returns and lower risk. Depending on the market cap of the companies and the marketing potential of the medical devices, investors may find the CE Mark approval process as a viable means of investing at least a portion of their portfolio for small to larger gains.
The challenge may come in finding when and if the companies announce the application packet has been submitted. In many cases it is often a side-note in a 10K or even 510K submission without a press release distributed solely to announce the CE Mark application. The author had a great deal of difficulty finding the three afore-mentioned small cap companies. An additional one, Nanosphere, Inc. (NASDAQ: NSPH), already obtained the CE Mark before the article could be finished. Successful investors willing to spend time looking for these often obscure submissions will likely find it rewarding when the less obscure headline announcing “Shares Gain for X Company as it Receives CE Mark Approval for its X Device” shows up on their biotech watch list.