Monogram’s Drug Resistance Tests Used By Pfizer

 |  Includes: MGRM, PFE
by: Andrew Vaino

Monogram Biosciences (MGRM) is a microcap biotech focusing on diagnostic tests. One problem with treating viruses is they are able to mutate and become resistant to many drugs. This is also a big problem with antibiotics.

Monogram’s products are designed to allow physicians to determine if the disease causing species have become resistant to current therapy.

Monogram went public in the biotech boom at the turn of the century. Its chart since then isn’t pretty, looking somewhat like a cross-section of a black diamond ski hill—pretty much all downhill and quite steep in places.

In April an FDA advisory panel unanimously recommended approval of Pfizer’s (NYSE:PFE) HIV treatment Celsentri (maraviroc). Pfizer expects to hear from the FDA if this treatment will be approved in the next two weeks. This drug is intended for patients with advanced HIV who are resistant to current therapies. This is not a big market, and this ruling will likely not have much effect on Pfizer’s share price. It could make for a fun trade of MGRM, though.

Monogram’s test to determine drug resistance was used by Pfizer in its clinical trials of Celsentri. That is, the test is used to determine if the patient should receive the drug. Pfizer is collaborating with Monogram to make this test available globally: it has also provided financing for Monogram.

So, while approval for Celsentri is not a guarantee, it may give a substantial price boost to MGRM. While the FDA usually follows the advice of advisory panels—and this panel’s recommendation, unlike for Dendreon’s (NASDAQ:DNDN) Provenge, was unanimous—it doesn’t always.

Of course, there is a catch. In its 2006 10-K, Monogram disclosed that it had been informed by Bayer Diagnostics (BAY) that it believes Monogram is infringing on its intellectual property and may require Monogram to enter into licensing agreements. Monogram counter-asserts that Bayer may be infringing on its IP. It does not appear that any litigation has been filed. Presumably Bayer is waiting to see if the Pfizer application is approved and if the sales of the tests generate enough revenue to make a lawsuit worthwhile.

So, while this legal uncertainty adds risk, this may still make for a fun but highly risky speculative trade. The stock closed on June 19 at $1.76. I wouldn’t suggest holding this stock too long after the FDA decision. Monogram’s balance sheet is not the best and the uncertainty with future litigation with Bayer makes for more risk, but for anyone looking to speculate before Canada Day this could be some fun.