Investing in speculative biotech is a tough thing to do for investors. In this world stock prices give way to the ebb and flow of rumors and gossip, mixed in with half truths and partial lies. Manipulation runs rampant, and sometime virtually unchecked. Here is where retail investors, hedge fund managers, day traders, and large institutions all collide head on in trying to find the latest and greatest stock to either short or go long. Fortunes are made and lost in seconds, as the never ending game of chance continues every trading day in the markets.
That pretty much sums up speculative biotech investing in a nutshell. The real question though is which of these types stocks are looking to make money for investors in 2012? Needless to say, and after reading the first paragraph, that is a tough if not impossible call to make. That being the case, there are several stocks out there that have some outsized potential for investors in 2012. Actually, there are a handful of stocks that biotech investors should pay particular close attention to this year. To keep it interesting, I have given a nickname, or handle, to each stock that suggests how they are currently being viewed by today’s market sentiment. As a result, we have the Misunderstood, the Time Bomb, the Sleeper, and the Dynamic Duo.
The Misunderstood - Antares Pharma, Inc (AIS)
For our forgotten category we have to look no further than AIS. Lately AIS has been having a pretty rough time of it. The company was joined at the hip with BioSante (BPAX) when in mid December the announcement came out dealing a deadly blow to the drug LibiGel. At that time the markets were all abuzz waiting for the good news. The hope was that this product was going to be a treatment for female sexual dysfunction, but that did not prove to be the case. As the announcement came out, it stated that top-line results from the two pivotal Phase III efficacy trials did not meet the co-primary or secondary endpoints.
That statement was all that needed, and as it hit the wires any stock related to LibiGel was going to feel the wraith of the investor’s furry. Needless to say BPAX’s stock price was decimated in after-hours trading. In turn, AIS and their stock price was not going to be able to escape the pain either. AIS had the rights for the drug’s commercialization to the rest of the world outside of the U.S. markets. Prior to the release of the bad news, AIS’s stock price closed at $2.41. As the bad news cascaded through the markets, the stock price took a hit of 31% in the following day of trading. Traders had thought they had seen the writing on the wall and sold their shares in one wholesale exodus, not understanding the real story of the company.
This is where the name “Misunderstood” comes into play. Any real trader or investor in AIS knows that the company’s future did not depend on how LibiGel played out. For example, the real story comes down to simple mathematics as BPAX had to spend close to $100 million to conduct the trials for the drug. AIS did not spend a dime and their exposure was very limited. Yes, if the drug would have been successful AIS would have reaped quite a reward, but that is not where the company’s foundation lies.
To truly understand AIS one has to look at their real business lines that focuses on topical gel-based products and self injection technologies. On December 8, 2011 the Food and Drug Administration approved the company’s topical gel (Anturol) for the treatment of overactive bladder. Prior to the approval it was agreed upon that Watson Pharmaceuticals (WPI) would be responsible to launch the product and sell it in the United States and Canada. It was also decided that they would make milestone payments based on sales levels, and will be responsible for some manufacturing startup activities. It is said that overactive bladders affect more than 33 million Americans, so the drug could be a hit with a little luck. Add the rest of the world and you get a staggering number of potential patients. Then look at their self injection products which include a variety of very valuable assets which already had such companies as Teva (NASDAQ:TEVA) and Ferring signed on as partners. Anyone paying attention would have seen the pre-established relationships with Teva and Ferring in themselves show that the company had lots of value.
Finally, if one would have looked at their financial statements prior to any release of bad news from BPAX they would have seen a company that is very close to being profitable. Total revenues were $3.9 million and $3.1 million for the three months ended September 30, 2011 and 2010, respectively, an increase of 26%. For the nine months ended September 30, 2011, the company’s total revenue increased to $11.0 million, or 16%, from $9.5 million in the first nine months of 2010. Product sales were $2.2 million in the third quarter of 2011 compared to $1.7 million in 2010, an increase of 33%. For the nine months ended September 30, 2011, product sales increased 41% to $5.8 million compared to $4.1 million for the same period in the prior year. Product sales to both Teva and Ferring increased in both the third quarter and nine-month period compared to 2010.
AIS was simply misunderstood by the traders who abandon them at the wrong time. AIS’s value was never truly tied up in the agreement with BPAX. For those willing to take the time to understand though, the sharp selloff provided a nice buying opportunity. Since then the good news keeps coming as the company has rebounded on positive news of entering licensing agreements with Pfizer (NYSE:PFE) and Daewoong Pharmaceuticals. AIS was and still is misunderstood, but 2012 might be the time for the stock to come out of the shadows and take its rightful place.
The Time Bomb - Advanced Cell Technology (ACTC.OB)
Any speculative biotech investor who has their fingers on the pulse of the market knows of ACTC. Recent events have brought ACTC to the forefront, and now they are the tip of the spear when it comes to the new world of regenerative medicine. This all came about as Geron (NASDAQ:GERN) made the decision to stop focusing its time and talent on stem cell research and turned their attention to their other products in their pipeline. As a result, ACTC now takes the lead in this exciting new field of medical technology.
The question now is why would I classify it as a “Time Bomb”? The reason for this is simple if one were to think about it. The purpose of the “time bomb” is to explode at a future date and cause massive damage, and that is what ACTC is going to do. The real question is what is going to get damaged? If all goes well with the current clinical trial for Stargardt’s macular dystrophy and dry age-related macular degeneration, and ACTC can prove its revolutionary technology works, then the “time bomb” will cause massive damage to the current standards of medical care and the companies that they represent. ACTC’s stem cell technologies will quickly become mainstream and common place around the world as its products can now starts to address unmet medical needs. Established medical companies will quickly be attempting to form partnerships or joint ventures with ACTC to get ahead of the curve and support their income streams. These stem cells will be used to treat macular degeneration, chronic heart failure, advanced cardiac disease, cardiovascular disease, as well as generate clean and safe blood products. This is just a handful of ailments that ACTC states that they can address. Waiting in the wings are more exciting ideas that have yet to be fully discussed.
If all does not go well with the current trials then the “time bomb” will have an equally destructive affect on the current investors. ACTC’s future rests on their stem cell technologies. There is no fallback position or other product in the pipeline to save them if the trials go wrong. Their Phase 1/2 clinical trial for Stargardt’s macular dystrophy and dry age-related macular degeneration is going to be the key for the company. Its pivotal results will either usher in a paradigm shift in medicine or set the stem cell investment world back many years.
The final question is when will the “time bomb” will go off? Unfortunately the answer to that question is not known, but any investor can clearly hear the ticking getting louder and louder as the final moment arrives for the dramatic conclusion. These ticks come in the form of bits of useful information that tell investors that the time is almost up. Here are just some of the “ticks” that investor are hearing.
Tick – 11/22/10 The FDA cleared ACTC to initiate a Phase I/II trial using retinal cells derived from human embryonic stem cells (hESCs) to treat patients with Stargardt's Macular Dystrophy (SMD).
Tick – 12/27/10 ACTC entered into a Memorandum of Understanding with Roslin Cells LTD of Scotland, to work to establish a bank of Good Manufacturing Practice (GMP)-grade human embryonic stem cell (hESC) lines using ACT's proprietary "single-ceblastomere” technique for deriving embryonic stem cells without damage to the embryo.
Tick – 1/3/11 The FDA cleared ACTC to initiate a Phase I/II multicenter clinical trial to treat patients with Dry AMD.
Tick – 2/23/11 ACTC is issued a patent on its “single-blastomere” technique, which is a non-destructive alternative for deriving human embryonic stem cell (hESC) lines.
Tick – 3/23/11 ACTC announced China’s State Intellectual Property Office (SIPO) has allowed the Company’s patent application to provide broad intellectual property protection in China for the manufacturing and pharmaceutical preparations of retinal pigment epithelial (RPE).
Tick – 7/14/11 ACTC announced the dosing of the first patients in each of its two Phase 1/2 clinical trials for Stargardt's macular dystrophy and dry age-related macular degeneration at the David Geffen School of Medicine at UCLA.
Tick – 9/19/11 ACTC announced it has been issued a patent for the Company’s proprietary method for generating and expanding hemangioblast cells from human embryonic stem cells (hESCs).
Tick 10/5/11 ACTC announced that Robert S. Langer, David H. Koch Institute Professor at the Massachusetts Institute of Technology (MIT), has been appointed to the company’s Board of Directors, and will also serve as the Chair of the Board’s Science Advisory Committee.
Tick – 11/9/11 ACTC states in a conference call that they are talking with three groups of Chinese partners who in exchange for the funding of the trial, will get an equity participation in the future sale of these cells in China.
Tick 11/9/11 ACTC states that they are very excited about the results of the trial as this open label study design allows the investigators to monitor the patients on a real time basis. ACTC wants the results to be released with the highest scientific standards and have developed a methodical and highly coordinated scientific and general media plan to inform the public of the results.
Tick – 12/12/11 ACTC announced that the company has entered into settlement agreements with 40 holders of certain warrants and debentures to clear up past financial troubles and clear the way for future growth.
Tick – 1/17/11 ACTC announced that the Wills Eye Institute in Philadelphia has received approval to be site for the Phase 1/2 clinical trial for dry age-related macular degeneration using human embryonic stem cell.
Needless to say, the ticks are coming more quickly and time grows short. The only question is who will be left standing once this bomb explodes.
The Sleeper -Transcept Pharmaceuticals, Inc. (TSPT)
The next company and their handle go together quite well. TSPT is a specialty pharmaceutical company, focused on the development and commercialization of proprietary products that address therapeutic needs in the field of neuroscience. The principal product is Intermezzo, which is a sleep aid used in the middle of the night at the time a patient awakens and has difficulty returning to sleep.
The company has not always been a sleeper by any means. As TSPT tried to get the drug past the initial FDA review in July it was met with a rejection letter. In the ensuing fallout the stock price fell over 70% and traded around the $3 range. But in November of 2011 the U.S. Food and Drug Administration (FDA) approved Intermezzo, and TSPT finally cleared their first hurdle for their drug. The stock price currently trades around $8 a share, so it has not recovered from the high of $11 to $12 range that it made in the past.
In more recent news, TSPT announced in December of 2011 that it had received a $10 million milestone payment from Purdue Pharma L.P. in connection with the listing of Intermezzo in the FDA Orange Book. The milestone payment was made under the terms of the agreement between Purdue and Transcept for the commercialization of Intermezzo in the United States. Purdue has plans to launch Intermezzo in the second quarter of 2012 and to invest approximately $100 million to support sales and marketing during the first year of commercialization.
So other than being in the “sleep business”, why is this stock’s handle known as the sleeper? The answer to that comes from the actual drug’s intended use. Intermezzo is used for the treatment of insomnia when a middle-of-the-night awakening is followed by difficulty returning to sleep. Middle-of-the-night awakening with difficulty falling back to sleep is a common sleep problem, and this drug is the only prescription sleep aid approved for this type of insomnia. The issue is how to value a new drug like this. Analysts have very different takes on how the final outcome will play out dealing with demand and sales. Some believe that Intermezzo will run into serious competition from big players and products like Ambien by Sanofi (NYSE:SNY), Lunesta by Sunovion, Sonata from Pfizer. Others have a different take in that they see the demand for the drug will be high as it can be taken as needed, rather than falling into an automated regiment of taking a daily sleep aid based only on anticipated need.
Until this debate finally gets settled by actual sales figures and trending analysis, the stock might remain a sleeper for a bit. If the medical community receives the drug with open arm, then demand could be very high which would propel the stock price to new heights. As Purdue starts to invest their money in 2012, it should start increase awareness and hopefully the stock price.
Lastly comes the dynamic duo of KERX and AEZS. These two companies are joined together by the drug Perifosine, an oral anti-cancer drug. KERX has the rights to the drug from a commercial license agreement in 2002 with Zentaris AG, which is a wholly owned subsidiary of AEZS. On top of that AEZS has also entered agreements with several other companies for the drug potential usage. Currently the company has agreements with Yakult Honsha (OTC:YKLTF) for Japan, Handok for Korea, and Hikma (OTC:HKMPF) Pharmaceuticals for Middle East and North Africa.
Perifosine is an oral anti-cancer drug that is being tested to treat advanced colorectal cancer. It is also undergoing tests to see if it can treat a variety of other cancers as well. Needless to say, an oral anti-cancer drug that can combat multiple types of cancer would by nothing less than dynamic. Cancer treatments are big business, and if test prove successful then both of these companies should see a big demand for their share product.
Like any dynamic duo, whether from the pages comics or elsewhere, they have their critics and naysayers. It is no different when it comes to Perifosine and the two companies in question. Most recently one finds a number of different types of negative press when it comes to the trials. Current arguments range from such statements that the trials didn't enroll identical patients, all the way to the more silly case that companies under a certain market cap have not been successful before, therefore the trial will fail. In the end what matters is if the science works or not. Does the drug do its job in fighting cancer and prolonging the patient’s life? No amount of trending analysis of market cap or second guessing the FDA approved trial will answer that question. Only the final results will answer the investor’s question.
Until such time that the results are known, volatility in the stock price will be the name of the game. There is no distinct date that the data will be ready for the investors. In the case of Perifosine the clinical trial will end after there are 360 deaths, and that is expected sometime in the first quarter of the year. With this uncertainty comes the all the arguments against the stock that was mentioned above. As a result the stock price will swing wildly as the next bit of news or rumor hits the wire. With initial results due very soon though, investor will not have to wait long to see how it all pans out. 2012 will be an exciting time for the dynamic duo.
In conclusion, the above mentioned companies and their investors should have a very exciting 2012. Of course there is no guarantee that any of them will hit home runs in their trials or business operations, but the potential that each one has for its investors is truly remarkable.
Disclosure: I am long AIS, ACTC.OB, KERX.