When it comes to speculative biotech investing, one can at times make a connection to the sport of boxing. What often occurs with these companies is that for one reason or another they suffer major setbacks. These setbacks can occur for a variety of reason. Prime examples are massive equity dilution, FDA rejection letters, clinical trial failures, plus a whole host of other unique events. The big question on investor's minds is if these knocked down companies can pick themselves back up and continue the fight. Watching these investing stories play out reminds me of an old boxing match between Joe Jeannette and Sam McVey in Paris on April 17 1909. In this 50 round fight to the finish Jeannette was floored 27 times. It was said that Jeannette hit the canvas 21 times in the first 19 rounds and after the 17th round bell had to be dragged to his corner. Obviously the rules in the boxing matches of this period of history were a bit different than are used today. What is surprising though is that when it was all said and done, Jeannette won the fight by technical knockout as his competitor couldn't muster enough energy to continue at the start of the 50th round.
It's an interesting story, to say the least, but how does it relate to speculative biotech? Much like Jeannette there are several biotech companies who have been beaten up and knocked down by both the equity markets and investors. The real question is if they have the ability to stand back up and head back into the ring for more punishment looking for that final win. Here is a list of some companies that are looking to do just that.
BioSante Pharmaceuticals (BPAX)
When dwelling on the topic of beaten up biotech stocks, it is BPAX that first comes to mind. This is obviously from the nasty uppercut the company took last year when they announced that their female dysfunction drug LibiGel failed in two late-stage clinical trials. LibiGel was touted as a drug with huge potential, likened to female Viagra. The original plan was that the gel was to be applied to the skin and deliver testosterone to the bloodstream. The studies lasted six months and almost 1,100 women were involved when the final news came out.
When the news of the failure was released, it really was as if BPAX was hit with a massive uppercut from out of nowhere. The share price plunged over 76% after the news was released and settled well under $1. BPAX was knocked down hard, and seemed to be struggling to continue the fight with all the negative press that followed. But that is not the end of this story.
Recently BPAX has made a comeback of sorts and has moved its way north of the $1 in recent trading. As the LibiGel story slowly fades, BPAX turns its attention to Bio-T-Gel. This drug is a once-daily transdermal testosterone gel in development for the treatment of male hypogonadism, or low testosterone levels. BPAX has estimated that low testosterone affects more than 4 to 5 million men in the U.S., so the market and demand does exist for the product but there is a catch. The problem is that the condition of low testosterone levels is not an unmet medical need. There are current treatments in place, and that means established competition. In addition to Bio-T-Gel, the company is also focusing on it GVAX Cancer Vaccines. These cancer vaccines are in development for the treatment of several different types of cancer including melanoma, pancreatic, breast and prostate cancer. The company has recently reported that there are 17 Phase I and Phase II clinical studies ongoing, and most are being conducted at Johns Hopkins Sidney Kimmel Comprehensive Cancer Center in Baltimore, Maryland.
At the end of the year BioSante had approximately $57 million in cash and cash equivalents and $20.8 million in principal amount of convertible notes outstanding, due on May 1, 2013. The all important projected burn rate for 2012 is approximately $2.5 million per month and that is assuming the LibiGel safety study continues on. Once the studies are halted, the monthly burn rate will drop to $1 million per month.
In conclusion, BPAX took a huge beating when LibiGel failed. Though the company is down, it is not out. With their pipeline to fall back on, BPAX is making its comeback but not with the promise it once had. LibiGel could easily have been a game changer but now that does not seem likely. BPAX will now have to rely on products will lesser promise to fight its way back to the top.
BioCryst Pharmaceuticals (NASDAQ:BCRX)
BCRX is a company with a very unique story as to why their share price suffered the last couple of years. This is a biotechnology company that designs, optimizes, and develops small-molecule pharmaceuticals that block key enzymes involved in infectious diseases, cancer, and inflammatory diseases. If BPAX took a savage uppercut as described above, then BCRX took a sucker punch.
Much of the BCRX story revolves around the drug Peramivir, which is being studied to treat serious influenza cases. Unlike other drugs mentioned in this article, it was not a FDA rejection or failed trial that knocked BCRX down. It was a case of classic rumor, gossip, and panic. It started in 2009 during the influenza scare that made its way into all the headlines and media outlets at that time. Comparisons were made to the Spanish Influenza epidemic that decimated countless numbers of lives. Worry, fear, and hype grew at an alarming rate, but then BCRX arrived on the scene with Peramivir.
This unapproved drug was quickly thrust into the limelight and approved for emergency use. As tensions grew there was talk of massive stockpiling by many nations. Needless to say, many investors and newsletters joined the fray and the stock price did quite well. That was until the pandemic failed to materialize in any meaningful way. As fears quickly faded, so did the stock price. Investors who thought they were going to save the world, and make a buck while doing it, took a nasty sucker punch as the stock price fell from the lofty heights of well over $10 to bottom out at close to the $2 level.
Though BCRX is down, it is definitely not out. Peramivir is proving to be a successful drug and approximately 50 additional clinical sites have been activated to drive the ongoing Phase 3 study to completion. A majority of these sites are located in India. The company expects to issue a date of when the study will be completed sometime after the northern hemisphere flu season. If this was not enough, BCRX has also come back swinging with its new gout drug BCX4208. Recently the company reported that there was a favorable safety profile, followed by sustained efficacy for the drug as an add-on therapy for gout. The sustained efficacy, healthy immune responses to vaccines, and clean safety profile from 900 patient-months of drug exposure in this most recent study provides a good basis for Phase 3 trials.
Turning to BCRX's financials we find that for the third quarter of 2011 the company held cash, cash equivalents and investments of $61.0 million. Net operating cash use for the recent quarter was $10.4 million and $25.3 million through nine months of 2011. BioCryst continues to expect net operating cash use in 2011 to be approximately $35 million.
BCRX is another one of those companies that seems to have the potential to make a strong comeback. As their trials progress and the picture become clearer, it will be interesting to see if BCRX can return to their former glory that once was.
Arena Pharmaceuticals, Inc. (NASDAQ:ARNA)
Anyone that has been around speculative biotech knows of ARNA. The company is a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing oral drugs that target four major therapeutic areas: cardiovascular, central nervous system, inflammatory and metabolic diseases. ARNA's knockdown came at the hands of its drug, Lorcaserin. This is their most advanced investigational drug candidate and is intended for weight management. Needless to say, safe weight loss drugs would be highly desirable in the field of medicine.
ARNA knock down began in December 2009, when after completing a pivotal Phase 3 clinical trial program for Lorcaserin, they submitted a New Drug Application to the FDA. The FDA in turn issued a Complete Response Letter in October 2010, and the advisory committee voted negatively on the drug as they were concerned about the drug's safety. This was the haymaker punch that brought ARNA to is knees. Needless to say, this blow by the FDA laid ARNA's stock price down to very painful levels for those investors expecting so much more. Before the hit, the stock traded close to the $7 level, but afterwards fell to well under $2 a share.
Even though ARNA and the stock price took a thrashing, the company is not down for the count yet. New life has recently been seen in that on February 1, 2012 the company announced that the FDA has notified them that an Endocrinologic and Metabolic Drugs Advisory Committee will meet to discuss the Lorcaserin New Drug Application (NDA) resubmission in the second quarter of 2012. This in no way means that ARNA will prove to be successful in its comeback. Even if the FDA gives ARNA a second chance there are still other companies like Vivus (NASDAQ:VVUS) with their drug Qnexa or Orexigen (NASDAQ:OREX) with Contrave that are still gunning for the chance to get a piece of the prize. ARNA is definitely not out of the hunt, but the road back could be treacherous.
To make a comeback takes money, and that is what ARNA needs. Early this year the company announced that it had agreed to sell 9,953,250 shares of its common stock, at a price of $1.65775 per share, and approximately 9,953 shares of its Series D Convertible Preferred Stock, at a price of $1,657.75 per share, in a registered direct public offering. The preferred stock is convertible into an aggregate of 9,953,250 shares of Arena common stock. Arena's hope was to receive gross proceeds of approximately $33 million to help fund the company as it tries to make its way through this tough time.
In conclusion, these three companies have all suffered through some challenging events that have not only shaken their investor's confidence, but the stock price as well. They are down but definitely not out for the count. It still remains to be seen if they can actually prove their products successful, get them past the FDA, and successfully market them to the medical community.
Disclosure: I am long BCRX.