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Buy Biodelivery Science International (NASDAQ:BDSI): BDSI develops new formulations of proven therapeutics for pain, fungal infections and oncology supportive care, using its patented BioErodible MucoAdhesive (BEMA) and Bioral cochleate drug delivery technologies. The BEMA technology consists of a small edible polymer film for application to the buccal mucosa (or the inner lining of the cheeks). It currently markets Onsolis® for the management of pain in opioid tolerant adult patients with cancer. Its lead compound under development is BEMA Buprenorphine for the treatment of moderate to severe chronic pain and for the treatment of opioid dependence.
BDSI shares were chopped down by 59.5% yesterday after the company announced preliminary findings of its phase 3 study of BEMA Buprenorphine for the treatment of moderate to severe chronic pain in a mixed opioid naïve and opioid experienced population. The study failed to meet the primary endpoint, which was overall pain intensity difference between BEMA Buprenorphine and placebo. However, BDSI indicated later in its conference call that current negative results notwithstanding, they see a clear path forward in getting approval for BEMA Buprenorphine for the chronic pain indication. The company believes that the culprit was a high placebo response rate, and they believe that this issue can be alleviated by removing the starting dose from the statistic, in which case they would have nearly met the endpoint.
The company has indicated that they will perform a complete review of the data to verify the result of these preliminary findings. And if necessary, they would perform a second study with the same population and change the study design to remove the high placebo response rate. Overall, the company is hopeful that they will gain FDA approval, and that they have the financial resources to conduct the second study without further dilution of existing shareholders.
We believe that BDSI is a speculative buy here. BEMA Buprenorphine for chronic pain is a multi-billion dollar market, and the company has a superior product with a good safety profile. Besides BEMA Buprenorphine, the company is also developing BEMA Buprenorphine/ Naloxone formulation for Opioid dependence. The company reported positive phase 1 results for this indication in early September and is scheduled to conduct a pivotal trial and submit a New Drug Application (NDA) in the second half of 2012. Furthermore, its Onsolis® treatment for pain management is on track to start generating meaningful revenue within the next three to six months. And finally, BDSI has over $21 million in cash and cash equivalents, and at yesterday’s closing price of $1.24 it trades at just $36 million in market-cap. We believe that the market has over-reacted to the downside, and shares are priced at attractive levels for a small speculative buy.
Buy Ariad Pharmaceuticals Inc. (NASDAQ:ARIA): ARIA is engaged in the development of drugs that treat aggressive and advanced-stage cancer by regulating cell signaling with small molecules, and it is also developing small-molecule drugs that block signal transduction pathways in cells responsible for osteoporosis, and immune and inflammatory diseases. Its shares fell 7.7% yesterday on no company-specific news.
We covered ARIA in early August when the stock traded in the $8-$10 range, suggesting that it was a buy based on the strength of its pipeline. It has three drugs in various stages of development, Ponatinib in phase two development for chronic myeloid leukemia and phase one for advanced acute myeloid leukemia; Ridaforolimus or Rida in partnership with Merck (NYSE:MRK) is in phase three development for soft tissue or bone sarcomas and in phase one and phase two trials against various other cancers; and AP26113 in preclinical stage for lung cancer, lymphoma and neuroblastoma. Rida is under marketing authorization application for ridaforolimus with the European Medicines Agency, and if approved it has the potential to generate strong cash flow to finance the other two products currently under development. Ponatinib is also well ahead in its development, has blockbuster potential, and could very well be approved by the end of 2012. And lastly, but not in the least, their AP26113 candidate, although in the earliest stage of all three products in their pipeline, may have the largest potential. For a detailed discussion of these opportunities, please refer to our earlier article.
We are not favorites in playing the "roulette wheel" of early stage biotech companies in advance of FDA decisions, but within that context, we believe that the ARIA story with two promising late-stage candidates and one promising early-stage candidate is promising. We continue to recommend a buy on ARIA, and would buy it in stages to take advantage of any further technical weakness as it consolidates between $8 and $10. The mean analyst target is $15.44; and of the eleven analysts that cover ARIA, nine rate it at buy/strong buy and two rate it at hold.

Neurogesx Inc. (OTCPK:NGSX): NGSX is engaged in developing and commercializing novel pain management therapies, based on known chemical entities. Its lead product, NGX-4010, is a dermal patch for managing pain associated with peripheral neuropathic pain conditions. NGSX shares dipped 26.1% yesterday on no company-specific news, but probably in sympathy with the steep drop in BDSI shares as both companies are engaged in developing pain management therapies based on their proprietary drug delivery technologies.
NGSX shares have gone straight down since they hit $10+ high in early 2010, and currently sit 90% off that high, near prior lows from 2008/09 crisis. Wall Street analysts, however, are bullish on the company. They have a mean price target of $7 on the company, well above the 92c closing price yesterday; and of the four analysts that cover the company, three rate it at buy and one at hold.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Source: 3 Biotech Buys Based on Thursday's Losers