Something Wicked This Way Comes

by: Michael J. Ray

Something Wicked This Way Comes is the title of a classic 1962 horror novel written by Ray Bradbury, but might as well be a fitting description of where we find ourselves in relation to the world of biotech and medicine.

Technology and medicine are changing at a rapid rate. Large pharmaceutical and biotech companies currently dominate this medical landscape with their costly drug products and medical devices. Bloated with massive payrolls and huge research and development budgets, these companies have firmly established themselves as the mainstays of the modern era of medicine. Being flush with all types of resources, these behemoths are cunning and have their ears to the ground, so to speak, always looking out for what may be coming down the pipe. They are looking for new technologies and better or more advanced drugs held by smaller entities that could threaten their market share and revenue streams.

Now a significant number of these small entities never truly amount to anything. They run out of funding, fail their trials, or just simply fade away. But inevitably some survive and produce some potentially groundbreaking products. It is these survivors that Big Pharma would consider as the "Something Wicked" as their products have the potential to upset the balance and the status quo. In turn, Big Pharma will also be looking to these smaller companies for the products that will fill unmet medical needs so that their new revenue streams may be add to the fold to the feed the company.

Competition is fierce and once these behemoths identify a smaller company with potential, they will act. They will fight amongst themselves to see who will be in control. They will be forced to the negotiating table and shower the small companies with talk of partnerships, joint ventures, or even wholesale buyouts because they have little choice. On the flip side, many of these smaller companies will relish the idea of joining with Big Pharma. Having to operate in merger financial and operating positions, these companies will look to unlock the new funding and lavish resources that Big Pharma will bring. The question is who are some of these companies that Big Pharma will fear and need?

Our first company could potentially be a very dangerous one on multiple fronts to Big Pharma. That entity is none other than Vivus (NASDAQ:VVUS). VVUS is a biopharmaceutical company developing innovative, next-generation therapies to address needs in obesity, diabetes, obstructive sleep apnea and sexual health. The company's first lead product is Qnexa which is a once-a-day oral drug in clinical trials for the treatment of obesity. Now let's face it, obesity is a big business. The company estimates that obesity affects more than 400 million people worldwide and is a leading risk factor for diabetes, cardiovascular disease and stroke. This is a huge market and the amount of money to be made if this drug is accepted is staggering to say the least. Large companies such as Weight Watcher's (NYSE:WTW) or supplement companies like Herbalife (NYSE:HLF) would surely be concerned at some level as this drug makes it presence known. Also it would be interesting to see the effects the drug could have on other dietary products in the market place. The picture will be clearer as the FDA gives Qnexa another look next year.

If that was not enough, VVUS is also trying to bring another drug to market as well. This drug is Avanafil and falls into the men's sexual health sector of the market. Once again this drug could be huge for the company. According to the company and a Massachusetts Male Aging Study (MMAS), erectile dysfunction (ED) is a condition that affects an estimated 52 percent of men between the ages of 40 and 70. VVUS claims its drug takes as little as 15 minutes to work and that would be a major selling point. In comparison, Pfizer's (NYSE:PFE) Viagra takes somewhere between 30-50 minutes to work. Needless to say, a new entry into the ED market would probably not be welcome by the existing players. One analyst even suggested that VVUS's new drug could even grab 8% of the market and possible generate up to $300 million in sales. Somewhere out there, someone is keeping a very close eye on VVUS as they move forward on multiple fronts.

One company that has the potential to be deemed as truly "Wicked" by Big Pharma is Advanced Cell Technology (ACTC). Long has stem cell regenerative medicine lay dormant as political fallout and lack of meaningful funding lay waste to the landscape that ACTC has had to operate in. Forced into toxic financing deals and major dilutive actions to survive, the company has finally emerged on the other side. Needless to say, the company did not escape entirely unscathed as it still has many unresolved lawsuits swirling. As small retail investors argue the merits of the lawsuits and other day to day operational activities, multinational large pharmaceutical entities are very focused upon ACTC. As well they should, because if this little company can prove their science they will change the landscape of medicine forever. Their impact will be even more felt as their rival Geron (NASDAQ:GERN) recently decided to focus on its oncology programs and discontinue development of its stem cell programs while seeking a partner(s). The tipping point will be ACTC's phase 1/2 clinical trials for Stargardt's macular dystrophy and dry age-related macular degeneration being conducted here in the U.S. as well as the clearance from the U.K. Medicines and Healthcare products Regulatory Agency to begin similar Phase 1/2 clinical trials in Europe. If successful the company will be able to treat the unmet medical need of macular degeneration, plus also has the potential to treat over 200 other eye aliments. This is a market worth over $30 billion in the U.S. and much more when the rest of the world is considered. Any company with an ocular program will be very concerned as ACTC's could definitely obliterate some of their high value revenue streams rather quickly. Seeing the writing on the wall, it seems that the Chinese will be the first to strike. In the latest conference call, ACTC's CEO made the following statement regarding the recent talks with potential Chinese partners.

"The three groups of partners that we are talking about working with all have a long track record of integrity with intellectual property. And as you may know, we have an issued patent in China around our RPE technology."

The CEO then went on to elaborate more about the future partners by adding this statement:

.".. but our objective is to have the entirety of the trial funded by our Chinese partner. And in exchange for the funding of that trial, they want an equity participation in the future sale of these cells in China which strikes us as a reasonable result given the fact that the partner is going to commit to funding the trials not only in the initial phase but obviously all the way through the final new drug application in China and then the ultimate distribution of the drug in China. So, that's why we have chosen to structure it that way. As we introduce this to you, and as we introduce our Chinese partner to you, we will provide you as much transparency into this as we possibly can. I can assure you that the deals that the company has done in the past with licensing and joint venture, will not look anything like this deal."

In the end, ACTC's potential is just too much to ignore. With a Phase II-approved Myoblast autologous adult stem cell therapy for the treatment of chronic heart failure, advanced cardiac disease, myocardial infarction, and ischemia; as well as the Hemangioblast program for the treatment of blood and cardiovascular diseases, ACTC will prove too dangerous for big Pharma to pass on. If the trials are successful, Big Pharma will be desperate to come to grips with ACTC and they will truly prove to be something wicked.

Another company that might be feared by our behemoths is BioSante Pharmaceuticals (BPAX). This company is a specialty pharmaceutical company developing products for female sexual health and oncology. What Big Pharma will be most interested in is the lead product LibiGel. This product is BPAX's treatment for female sexual dysfunction or Hypoactive Sexual Desire Disorder (HSDD), which is the lack of sexual desire. According to the company, this condition affects millions of women in the U.S., especially those past menopause. So why would Big Pharma want control of this product and the company so bad? The answer is that studies show that HSDD is more common than erectile dysfunction which is a $2 billion per year prescription business in the U.S. To add to this, there are currently no FDA approved drug therapies for the treatment of HSDD in women. So when all said and done, BPAX estimates that the market has wide potential with predictions ranging from about $2.0 billion up to $5 billion in sales.

When it comes to control, BPAX has the rights to the U.S. markets, but a company named Antares (AIS) will retain commercialization rights to the rest of the world. The fact of the matter is that if approved this drug has the potential to really generate some massive amounts of revenue. Big Pharma will view both of these companies as major cash cows and will go head to head at some point for control. In the meantime BPAX announced the completion of two pivotal LibiGel Phase III efficacy trials and they expect to announce top-line efficacy results in December 2011. The New Drug Application (NDA) submission is targeted for the fourth quarter of 2012. It will be interesting to see how long it will take either BPAX or AIS to attract some wicked deal.

For our last truly wicked candidates we have the combination of Keryx (NASDAQ:KERX) and AEterna Zentaris (NASDAQ:AEZS). The reason for the combination is that both companies are heavily invested in the drug Perifosine. Of course it should be mentioned that both companies have other high value products in their pipelines, but Perifosine will be the one that makes Big Pharma very interested and on edge in the short-term. The product is an oral anti-cancer drug that is designed to treat advanced colorectal cancer, but also is being tested on other forms of cancer as well. KERX derived the rights to the drug from a commercial license agreement in 2002 with Zentaris AG, which is a wholly owned subsidiary of AEterna Zentaris Inc. If successful, KERX will promote the drug in North America. AEZS has further agreements with Yakult Honsha (OTC:YKLTF) for Japan and Handok for Korea. AEterna Zentaris holds the rest of the world rights after that.

Now Perifosine is being added to many different drug combinations and is showing some good results. Currently the company has multiple Phase 3 trials underway. In the colorectal cancer trial, Perifosine is being used in combination with capecitabine. In the current Phase 3 trial dealing with multiple myelomas, Perifosine is being used in combination with bortezomib and dexamethasone. Also it should be noted that the FDA granted Periosine orphan-drug designation in September 2009 as well as Fast Track designation in December 2009. If the drug is proven to work as well as the two companies might suggest then Big Pharma will be more than anxious to try and take a piece of the pie. The potential revenue stream that this drug could generate is quite large.

In conclusion, above are some examples of truly dynamic companies with groundbreaking technologies that could really shake up the status quo. These wicked entities could potentially be Big Pharma's dream or a terrible nightmare.

Disclosure: I am long AIS, KERX, ACTC.OB.