Keep Your Eye on GenVec - But Your Money Elsewhere

I'm going to love Genvec (GNVC) some day. Unfortunately, today is not the day. Equally unfortunate – that day is probably at least a year in the future. It isn't a bad play for traders – it has a fairly predictable range – but for investors, there are better prospects right now.

Some day, Genvec may be a huge winner. Their technology platform appears to be effective in a wide variety of areas – pancreatic cancer, rectal cancer, head & neck cancer, malaria vaccines and foot & mouth disease vaccines – to name a few. Did you notice the key word in that sentence? Appears. It appears to be effective.

Plenty of biotechs have products that show early promise that ultimately fail. Genvec could certainly be one of these and that risk must be factored into any investor's decision. Still, considering the early efficacy results in a number of areas, and considering government funding for some research areas, I believe there is a better-than-average chance that Genvec has a ultimately marketable product in its future. And, if they have one commercial product, they probably have multiple.

Why, then, do I consider Genvec a bad play for investors right now? It goes back to the fundamentals of investing – time and money. Neither speaks well to investing in Genvec now.

Let start with time. Genvec's most advanced clinical trial is for pancreatic cancer. As of October 2007, Genvec has around 120 patients enrolled in the program with a goal of adding 6-8 more per month moving forward. In the most recent conference call, Genvec management discussed the likelihood of a interim look at results at the end of 2008. Let's assume the best case – the data at the interim look is good enough to warrant stopping the trial early and making a submission to the FDA for approval. Remember, this is the best case and there is a realistic possibility that the data will be good but not good enough to stop the trial. Even in the best case, with everything going perfectly, it will be early 2009 before investors are privy to the new data and it would be 2009 or 2010 before FDA approval was granted.

And that's the good news! On the foot & mouth front, the company was even less forthcoming during the most recent conference call. Their government research contract was renewed – that's good; there was absolutely no reliable information on the timeline for commercialization or partnership – that's bad. While there may be a solid long term value for the foot & mouth vaccine, it is difficult – if not impossible – for an investor to fairly value the product given the lack of information on timelines.

Moving on to Genvec's other issue, money. The balance sheet is relatively strong for a biotech without a commercial product but cash will be gone by early 2009. Barring a major partnership that infuses cash, there is every likelihood that 2008 will see Genvec carry out another round of share dilution. In fact, during the conference call, Genvec's CFO was explicit in reminding everyone that Genvec had completed a shelf filing that would allow Genvec management to double the number of outstanding shares.

Where does that leave investors considering Genvec? A biotech that has a decent chance at a commercial product but that product may be 2-3 years down the road, future round(s) of dilution to raise cash and the ever-present biotech risk of complete failure.

In short, watch Genvec and be prepared to buy after the next round of financing but there is not a compelling reason to buy before that happens. Put your money to work elsewhere – so that you can purchase even more Genvec when the time is right. Some day, Genvec may be a big winner but not today.

Disclosure: none

Comments

[drugrunner]

hey rocco, any updates to your previous opinions regarding genvec. Now that the FDA will permit overall survival as the primary endpoint and possibly getting a second peak at the data this fall. genvec should be poised for a rally..