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Both of these biotech stocks are down roughly 75% from summer highs after the FDA rejected their drug candidate new drug applications. However, these stocks now could be had on the cheap, both trading way below what their net cash positions would indicate.

Transcept Pharma (TSPT)
is a specialty pharmaceutical company focused on the development and commercialization of proprietary products that address important therapeutic needs in the field of neuroscience. Transcept is developing Intermezzo (zolpidem tartrate sublingual tablet) as a prescription sleep aid for use in the middle of the night at the time a patient awakens and has difficulty returning to sleep. Transcept is also developing TO-2061, a low dose ondansetron augmentation therapy for patients with obsessive compulsive disorder (OCD) who have not adequately responded to treatment with approved first-line pharmacotherapy.

In mid-July, the company received a Complete Response Letter (CRL) from the FDA for Intermezzo for insomnia. In the CRL, the FDA said that Transcept adequately demonstrated that Intermezzo is efficacious for use as needed in the treatment of insomnia when a middle-of-the-night awakening is followed by difficulty returning to sleep. However, the FDA stated that it cannot conclude that Intermezzo can be used safely based on the information in the Intermezzo NDA.

As a possible path forward, the FDA suggested that Transcept further investigate whether body weight and demographic factors contribute to differentially elevated blood levels the morning after dosing Intermezzo, develop strategies to decrease next-morning zolpidem levels, and, after mitigation strategies are implemented, demonstrate that next-morning blood levels do not present an unacceptable risk of next-day impairment, which may include an additional driving study.

The company reported Q2 financial results on August 11 and said that it had $59.6 million of cash as of June 30. The company had $3.9 million of liabilities for a net cash position of $55.7 million or $4.12 per share. The stock was last trading at $3.01. The company’s cash burn was $1.2 million per month in Q2.

Adventrx Pharmaceuticals (ANX) is a specialty pharmaceutical company focused on developing proprietary product candidates. The company's current lead product candidates are ANX-188, a novel, purified, rheologic and antithrombotic compound initially being developed as a first-in-class treatment for pediatric patients with sickle cell disease in acute crisis, and ANX-514, a detergent-free reformulation of the blockbuster drug Taxotere, which recently went off-patent. The company’s other product candidate is Exlebine.

For some background, on August 9 the company received a Complete Response Letter from the FDA for Exelbine the treatment of non-small cell lung cancer. The FDA determined that it could not approve the Exelbine NDA in its present form. In particular, the complete response letter noted that, based on inspections at clinical sites, the authenticity of the drug products used in the pivotal bioequivalence trial (Study 530-01) could not be verified, which placed the results of the trial into question. The letter stated that the bioequivalence trial will need to be repeated to address this deficiency.

In addition, the FDA requested information regarding product quality, or CMC matters. All CMC information requests in the complete response letter were the subject of FDA inquiries from earlier in the review cycle, and the Company had submitted responses to each request prior to receipt of the complete response letter.

As of July 31, the company had $40.7 million cash. It had liabilities of about $3.7 million as of June 30 for a net cash position of $37 million or $1.41 per share. The stock was last trading at $1.06. The company anticipates that its cash as of June 30, 2011, will be sufficient to fund its currently planned level of operations for at least the next 12 months.

Source: A Look at 2 Undervalued Biotech Stocks