The first half of 2012 for the biotech and small pharma sector lived up to its typical expectations of surprises, volatility, money gained and money lost for investors. ASCO 2012 was exciting with solid data proving hope upheld and hope lost with the corresponding share price reactions to reflect on the futures of the presenting companies. Even investors performing diligent research into biotech data and financials are not guaranteed success in this potentially profitable but often unforgiving sector. Like gambling at Las Vegas or Atlantic City, biotech investors must be careful playing all their money on one game and should learn to avoid greed and take profits when the opportunity presents itself.
The second half of 2012 will likely also live up to the volatile, high-risk and often unpredictable outcomes that small capitalization biotechs and small pharmaceuticals present to investors. The rewards for wise and lucky choices are great, and the downside can be just as substantial. To minimize risk and yet maintain exposure to this exciting sector, investors are often advised to perform significant research in their choices and offset risk by investing in several companies rather than just a handful. Diversification is a great asset that successful investors have learned to utilize. This diversification can come not only in the number of companies invested in, but also the types of pipelines that the companies are developing and the targeted indications. Following are some low capitalization, small pharmaceutical companies representing a diverse choice of pipelines and indications. Each of these has significant 2H 2012 catalysts that can drive the companies' stock prices up or down depending on how the catalysts unfold.
Horizon Pharma (NASDAQ:HZNP) leads off the group with the only PDUFA date scheduled for this year in the group. With a $160 million market capitalization, the company is surprising cheap for a small pharmaceutical with an already-approved drug in Duexis for mild to moderate pain associated with rheumatoid arthritis and osteoarthritis. A combination of ibuprofen and famotidine (an H2-antagonist), the combination proves to cause fewer upper gastrointestinal ulcers than ibuprofen alone. The company also boasts an approval in Europe for the sale of Lodotra for rheumatoid arthritis also bringing into question the company's current low market cap.
Horizon has a PDUFA date of July 26th for Lodotra in hopes of having its rheumatoid arthritis drug sales brought to the huge market in the U.S. To be marketed under the name Rayos in the U.S., the drug is a slow release version of the steroid, prednisone. With more complete pivotal phase III data presented recently, the drug showed impressive efficacy and a slightly safer profile than even the placebo group. The company's stock has just recently started trading higher in anticipation of the impending PDUFA date, but it could trade much higher in the coming weeks. Although not likely a blockbuster drug for the company, Rayos' approval would represent solid and steady revenue in the coming months as its pipeline continues to grow.
OncoSec Medical, Inc (NASDAQ:ONCS) had a disappointing first half of the year with its stock experiencing a wild drop from February's $0.75 stock price to current lows below $0.20. The company seemed to be trading solidly in the upper range until a $7.75 million offering catalyzed the dramatic price drop from which is has yet to emerge. A devastating blow for shareholders at that time, the current price may present significant upside for new investors with the company's electroporation technology advancing through trials utilizing chemotherapy or immunotherapy agents to attack cancerous tissues. A novel approach to targeting cancer, the technology utilizes a small electrical current applied to cancerous tissue which dramatically increases the porosity of the cancer cell membranes allowing for a much higher dose of the chemotherapy or immunotherapy agent (OMS ElectroChemotherapy and OMS ElectroImmunotherapy, respectively) to penetrate the cells. The electrical current is then removed which allows the cell membranes to return to their original state, trapping the agent inside the cells for a targeted approach allowing stronger dosages at the tumor site while reducing systemic exposure to the agent.
A recent press release indicated a possible exciting 2H of 2012 ahead with hopes that the company's dwindling stock price could start trading higher with the announced catalysts approaching in June and July. Beginning June 18th, Punit Dhillon, president and CEO of OncoSec, will present a corporate overview of the company in investor conferences on June 18th, June 20th and July 12th. Dr. Adil Daud (principal investigator) and Mr. Dhillon will also take turns presenting data on the company's immunotherapy program and on-going clinicals on June 21-22 and July 10th, respectively, at two scientific conferences. These events may catalyze the stock price to some degree; however, the biggest upcoming catalyst will likely be the phase III data presentation of the company's OMS ElectroChemotherapy trial for head and neck cancer. With promising phase II data behind it, solid phase III data could be a significant catalyst for this $10 million small cap biotech. The phase III data is scheduled to be presented at the 8th International Conference on Head and Neck Cancer in Toronto, Canada on July 22-24. An apparent under-the-radar company, the next month could bring significant volatility as investors begin hedging their bets. With the $7.75 million financing behind them, dilution chances at least for the interim should be minimal. However, this is a very small company and downside risk is also there with no marketed product and financials still appearing to be poor for this fledgling biotech.
Geron Corporation (NASDAQ:GERN) appears to have a dramatic 2H 2012 ahead of it with its telomerase inhibitor, Imetelstat, having topline data being released for phase II trials in breast cancer and for multiple myeloma. Telomerase appears to be a good target for attacking cancer because most cancers have high levels of telomerase activity according to the company s website. Adding to the therapy's potential value in fighting cancer in an adjuvant setting with paclitaxel and/or bevacizumab for breast cancer and with/without lenalidomide for multiple myeloma, the drug is also in phase II trials for non-small cell lung cancer and Essential Thrombocythemia (NYSE:ET) or Polycythemia Vera (PV). However, promising data in preclincals indicating efficacy in inhibiting cancer stem cells (NYSE:CSC) growth in a broad range of tumors could turn into a huge catalyst in upcoming years. CSC's are thought to be responsible for the recurrent nature and metastasis of many cancers, and solid efficacy in advanced trials could prove to be a significant event as this indication is further investigated.
As important as Imetelstat can be for its currently targeted indications, the greater upside in the event of success in both efficacy and safety will be realized if the drug validates itself for any one of these indications. Success in one indication can mean real or perceived success in the many other cancers with elevated telomerase activity. The upside here can be significant, while the corresponding downside is also present as failure in a phase II trial could also mean real or perceived failure of the drug's efficacy/safety in most/all other indications.
Each of the profiled companies has the potential to have phenomenal or devastating times ahead, as most development phase companies can have. Horizon Pharma already has products being marketed, although earnings don't appear to be living up to expectations. Potential competition for its Duexis product from a generic applied for by Par Pharmaceutical (NYSE:PRX) could take market away from one of the company's two approved drugs in the coming months, or could at least cost the company money in defending its product in the judicial system. OncoSec is a very small company under solid leadership that has no marketed product and only one advanced trial completed in its ElectroChemotherapy for head and neck cancer. Much relies on the phase III data presented in late July via the application of its electroporation technology. Success here could further validate the technology while failure here, at least for the chemotherapy portion of the OMS platform, could be devastating. However, OncoSec's platform is more robust in that it can rapidly be modified to use one of many immunotherapy or chemotherapy agents of choice in the event one fails. Geron Corporation is also in a similar situation with a great deal of time and money being invested in the Imetelstat platform. As indicated earlier, much is riding on the upcoming phase II data to validate or deny the platform's applicability. The company does have another product in its pipeline in the form of its GRN1005 LRP-directed peptide-drug conjugate for breast cancer brain metastases and NSCLC brain metastases. However, these are in earlier stages of development with a smaller target patient set than Imetelstat.
The 2nd half of 2012 is now upon investors. The next Human Genome Sciences (HGSI) or Dendreon (NASDAQ:DNDN) could be out there in the form of any of the above or other companies with emerging pipelines utilizing novel mechanisms to fight disease. However, for each success there are many failures in the small pharma sector. These many failures are partly what provide the phenomenal upside that can be had in wise or lucky choices among the remaining successful few companies. The risk is great in these small cap companies, and the reward can be just as great. Investors are advised to hedge their bets with solid and extensive research and the level of diversification that best fits their style of investment.
Disclosure: I am long ONCS.