Life Sciences R...'s  Instablog

Source: George S. Mack of The Life Sciences Report (4/16/13)

http://www.thelifesciencesreport.com/pub/na/15157

Naysayers may harp on the low market valuations of stem cell companies, but Geoff MacKay has an insider's perspective. The Alliance for Regenerative Medicine chairman and Organogenesis Inc. president and CEO asserts that though the regenerative medicine and cell technology industry is still largely in phase 1/2, phase 3 and commercial success are imminent. In this interview with The Life Sciences Report, MacKay explains the promise of cell therapies for both patient health and investors' portfolios.

The Life Sciences Report: Congratulations on being elected chairman of the board of the Massachusetts Biotechnology Council (MassBio). After almost three decades, it's the nation's oldest biotech trade organization. That really speaks to the respect that your peers have for you. Could you tell me a bit about MassBio? What is it about?

Geoff MacKay: MassBio is a not-for-profit organization representing the Massachusetts biotech industry. There are about 700 members, all in the life sciences industry. About 400 members are biotech companies, and the remaining are agencies and companies that support the industry, such as contract manufacturing organizations. MassBio is committed to advancing the development of new, critical science and technology.

MassBio is important not just to the industry, but also to the economy of Massachusetts, where employment in the life sciences has risen 50% during the last decade. As we know, these have been very tough economic times, and yet the life sciences in Massachusetts have continued to prosper, driving the state's economy while developing important lifesaving medicines.

TLSR: Is the life sciences industry larger in Massachusetts than it is in California?

GM: Yes, significantly larger per capita. Massachusetts is the premier hub in the world. One measure is just the number of companies in the state. In addition, the top five hospitals in the country receiving National Institutes of Health funding are here. What makes the cluster special in Massachusetts is the confluence of top academic institutions and hospitals with a proliferation of private companies. There's also a prolific, strong and committed venture capital community supporting the life sciences.

TLSR: You are also chairman of the Alliance for Regenerative Medicine (ARM), and will speak at theRegenMed Investor Day, hosted by ARM, on April 17 in New York City. This is a more specific area of biotechnology. Could you tell me just briefly about ARM?

GM: ARM is an advocacy organization dedicated to advancing the new field of regenerative medicine. It is more than an industry group-ARM represents and supports a whole cluster of biotech and regenerative medicine companies, as well as academic research institutions, patient advocacy groups, foundations and translational research centers. Other types of organizations, such as Blue Cross/Blue Shield, are members. When ARM stands before Congress or federal agencies-or even the general public-it truly is the representative of the regenerative medicine industry.

TLSR: Regenerative medicine does need special advocacy because its models are so different from traditional biotech. How old is ARM?

GM: It's only four years old. It was founded in 2009, and it already has more than 140 members. In this very short time it has become a true representation of the field, which is remarkable.

TLSR: There's a glaring valuation gap in the regenerative medicine industry. With the exception of Australian company Mesoblast Ltd. (MSB:ASE; MBLTY:OTCPK), with its $1.65 billion ($1.65B) market cap, publicly traded cell technology companies have really remained in the microcap depths. Some are even penny stocks. I don't see pharma supporting regenerative medicine, and I blame the low valuations. We even saw a phase 3 program in critical limb ischemia get shut down recently for lack of funding and implicit inability to partner. Tell me what you think pharma's problem is with regenerative medicine, and with cell therapies in general.

GM: I take a more optimistic view of the industry. I think current valuations reflect a point in time for the industry. The industry is young and investors reward later-stage opportunities. Actually, the fact that there are companies such as Mesoblast, where valuations are reaching very impressive precommercialization levels, is a dynamic that bodes well for the future.

"The fact that there are companies where valuations are reaching very impressive precommercialization levels is a dynamic that bodes well for the future."

In addition to public valuations, another way to look at the industry is through the lens of what's been happening on the private side. In the last 12-18 months, there have been deals involving major private companies, such as Healthpoint Ltd. (acquired bySmith & Nephew [SNN:NYSE]) and Advanced BioHealing Inc. (acquired by Shire Plc [SHPGY:NASDAQ; SHP:LSE]), in which device and pharmaceutical companies have made sizable investments (of $1.5B collectively) in acquiring cell therapy companies-and not just acquiring them for high-dollar values, but in multiples that were competitive by any measure of pharma or device valuation.

I'm not trying to overplay where the industry is. It is still young, and it is still emerging. Very few companies are coming out of phase 3 and into the realm of being valued based on revenue and profit. But there is reason to be confident.

You said pharma wasn't supporting regenerative medicine. It wasn't long ago that pharma was taking a watch-and-wait mentality. The pharma companies were sending midlevel business development and licensing people to regenerative medicine meetings to assess the assets. Eventually that translated into investments. Today, companies such as Johnson & Johnson (JNJ:NYSE), Shire, Pfizer Inc. (PFE:NYSE),Roche Holding AG (RHHBY:OTCQX), Smith & Nephew, GE Healthcare unit of General Electric [GE:NYSE]), Sanofi SA (SNY:NYSE) with its Genzyme unit and Astellas Pharma Inc. (ALPMF:OTCPK)have all made notable, tangible investments in the field.

We are at the beginning. It is not a free-for-all, but there are trends toward an increased number of pharma companies that are committed. We are also seeing an increased number of phase 2 trials that will eventually translate into phase 3 trials.

As for your comment about a critical limb ischemia program being terminated, I see that as normal-a phenomenon seen every day in drug, device and biologic development. There will be winners and losers in this field. I suspect the attrition rates of clinical trials in regenerative medicine are comparable to those in biologics, devices and drugs. A minority of cell therapies ultimately reach the patient, but that's the same risk profile we see in other areas of the life sciences.

With all the clinical activity and early investment by a critical mass of pharma, we have the beginnings of an industry that's transforming itself. The winners, such as Mesoblast, which has a higher valuation point, are signs of a growing confidence in the industry.

TLSR: Geoff, Mesoblast is one of about 19 companies on my personal list of publicly traded cell technology companies. I think of it as an outlier. I'm thinking of other, much smaller companies that have comparable technologies and are in the $200 million ($200M) market cap range. The cell technology industry is probably more than 20 years old now. I'm thinking that Amgen Inc. (AMGN:NASDAQ), as a pioneer in biologics, had a much higher valuation than $200M by the time it was 20 years into its life as a public company. Biologics took off faster, and I believe the cell technology industry really is lagging from the point in time at which it began.

GM: People do like to draw the analogy, comparing the cell therapy industry to monoclonal antibodies. We look at what happened to Genentech (now a unit of Roche Holding AG) and Amgen. Directionally, they represent a very good analog, but the challenges of developing cell therapies between the 1990s and now have been more challenging and difficult.

The antibody analogy becomes very relevant when we look at the cell therapy industry and see a critical mass of clinical trials in phases 1 and 2, and even a few in phase 3, in very relevant clinical disease indications. Those therapies will not only change healthcare, but also will lead to commercial success.

"With all the clinical activity and early investment by a critical mass of pharma, we have the beginnings of an industry that's transforming itself."

The challenges that faced the industry in the 1990s led to false starts and delays. Manufacturing, procuring reimbursement codes and distribution logistics for living cell technologies all required unique approaches that were not well addressed in the early years. But now we have enough confidence to think a sizable portion of therapies will go on to commercial success. There are clinical trials in orthopedics, cardiology, soft tissue applications, and ocular, oncology and diabetes indications going on currently, and it's pretty clear that the technologies are in the process of changing the practice of medicine. With that comes the commercial success.

TLSR: Where is investment going today in the field of regenerative medicine?

GM: George Daley has made some insightful comments. He is director of the Stem Cell Transplantation Program at Children's Hospital Boston, and he's a founding member of the executive committee of the Harvard Stem Cell Institute, as well as past president of the International Society for Stem Cell Research. He is one of the top opinion leaders in the field of stem cell research. When I heard him speak at the World Stem Cell Summit last December, he was doing a strengths, weaknesses, opportunities and threats analysis of the field. He tried to address the trends from a biologically pragmatic point of view, and name therapeutic areas that should lead to successful product generation. Daley was saying, "Let's look at what is being researched and what will really change medical practice, at least in the midterm."

The first of the three therapeutic areas that Daley identified is the retinal application. A number of companies are doing very exciting work in treating blindness and different ophthalmology applications. This is an immunoprivileged area (an area that is less prone to immune reactions), and regenerative medicine can do very well in the space. The second area is spinal cord injury-a huge unmet medical need where a lot of good, solid research is being applied. The third area is dopaminergic neurons, another central nervous system application.

TLSR: Your firm, Organogenesis Inc., has had a lot of success with allogeneic (from the same species) materials. Given the obvious advantages of allogeneic cost of goods sold, do you see this industry migrating in that direction, away from autologous (using the patient's own cells or tissues) technologies?

GM: I do not. The simple way to view the science is to say that if an allogeneic therapy can work in lieu of an autologous therapy, it absolutely should be used, for the reason that you've specified. An allogeneic product can be mass-produced, industrialized and delivered to a clinic at a price point that is comparable to other healthcare modalities, and that is significantly more convenient than autologous therapies. The business model is understood and already integrated into medical practice. For every reason that you can imagine, if an allogeneic product can work, that's the route to go.

"It's pretty clear that the technologies are in the process of changing the practice of medicine. With that comes the commercial success."

But we know, primarily for immunological reasons, that there are a number of therapeutic applications for which an allogeneic approach may not lend itself. For those indications, an autologous approach would be necessary.

The one caution I would make about autologous technology is that the unmet need must be rather dramatic, simply because the cost will be higher and the convenience will be less. Unmet medical need and the willingness of payers to pay must be well understood prior to embarking on this technology.

TLSR: You've commented about immunogenicity being a potential problem with allogeneic therapies. You named retinal applications as being a wonderful ground for using allogeneic cells because it's a contained system and not exposed to the immune system. You could say the same about the spinal cord, as well as the brain, where clinical trials are being conducted in stem cell therapies for lysosomal storage disorders. Doesn't the problem of immunogenicity or immunotoxicity really behoove us to continue studies in embryonically derived stem cells, where we have a better chance of having an immunoprivileged donor cell?

GM: Yes, I think it behooves us to continue the research. The whole topic of immunomodulation is important for the field of regenerative medicine. The story has yet to be unraveled and truly quantified as to the immunomodulatory effects of a mesenchymal stem cell, and of an embryonic stem cell. Can certain differentiated cells that are less immunogenic play a role? How important is the persistence of these cells to delivering a therapeutic benefit? That is fundamental and needs to be resolved in the field.

What's interesting is that there are a number of strategies that can be employed to address the topic of immunology, ranging from going to an autologous model to trying to deliver the right cells in the right concentrations, thereby providing some type of dampening of the immune system. It is an important topic, and there's a lot that needs to be learned.

TLSR: Geoff, it's been a great pleasure, and I thank you for taking the time with us.

GM: Likewise. Thank you very much.

Geoff MacKay has served in his current leadership role at Organogenesis Inc. since December 2003. MacKay served in various leadership positions at Novartis AG, including vice president and business unit head of transplantation and immunology at Novartis Canada, vice president of tissue engineering in Novartis USA, head of global sales in immunology and transplantation based in Basel, Switzerland, and sales and marketing manager of Novartis Biotech Europe. MacKay has been involved in the emerging field of regenerative medicine for the last decade. He currently serves as chairman of the board of directors for the Massachusetts Biotechnology Council, and as chair of the Alliance for Regenerative Medicine.

Want to read more Life Sciences Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

DISCLOSURE:
1) George S. Mack conducted this interview for The Life Sciences Report and provides services to The Life Sciences Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Life Sciences Report: None. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment. Johnson & Johnson is not affiliated with Streetwise Reports.
3) Geoff Mackay: I or my family own shares of the following companies mentioned in this interview: Organogenesis Inc. I personally or my family am paid by the following companies mentioned in this interview: Organogenesis Inc. My company has a financial relationship with the following companies mentioned in this interview: Organogenesis Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise - The Life Sciences Report is Copyright © 2013 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part..

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

Participating companies provide the logos used in The Life Sciences Report. These logos are trademarks and are the property of the individual companies.

101 Second St., Suite 110
Petaluma, CA 94952

Tel.: (707) 981-8204
Fax: (707) 981-8998
Email: jluther@streetwisereports.com

Source: George S. Mack of The Life Sciences Report (4/11/13)

http://www.thelifesciencesreport.com/pub/na/15141

Markets are not efficient-at least not in the short term. WBB Securities President Stephen Brozak admits to frustration when he sees small-cap companies with valuations that are disengaged from market realities. But Brozak's experience as a biotech investor, banker and analyst has taught him to be patient with these disconnection syndromes, and he now delights in prospects offered by select bargain-basement opportunities. In this interview with The Life Sciences Report, Brozak touches on 10 names that have been flying far below the radars of most investors.

The Life Sciences Report: Steve, you have something you'd like to get off your mind. Tell me.

Steve Brozak: We are seeing a dislocation in the markets. Obviously, we're seeing all-time stock market highs in the Dow Jones averages, but the same is not true for biotechnology.

TLSR: Biotech has had a good run. But you still believe it is lagging as a group-or do you see specific instances that are obvious to you?

SB: I believe some truly innovative companies are not receiving their due. Three companies that I will mention today have gotten U.S. Food and Drug Administration (FDA) approvals, and have actually either seen their stocks stay the same or decline since those approvals. I find that to be absolutely counterintuitive and demonstrative of a broken system.

TLSR: Certainly, we've had this longstanding theme in biotech where it's always the cancer drugs that get attention from investors. Isn't that right?

SB: Yes, cancer gets the attention. But a lot of investor attention has been focused on the "ultraorphan" disease indications, where an exceedingly small population is affected. Yet because no single insurance company or single payer is significantly challenged, companies are able to generate enough revenue.

I think this model is one that, frankly, is going to become more and more problematic as the budget cutbacks hit us. We are operating in a sequestration environment where the new budget is going to be an unpleasant reality.

TLSR: Go ahead with your thoughts. If you can relate those to some of the companies you want to talk about, that would be great.

SB: I saw a slide at Johnson & Johnson's (JNJ:NYSE) last quarterly event that showed there will be trillions of dollars' worth of demand for healthcare, which is absolutely correct. The problem is, who is going to pay all those trillions of dollars? Under the current state of the medical arts, science and reimbursement, we don't have the money to pay for what we have, much less a growth in demand.

TLSR: Could you relate that to your investment thesis?

SB: One of my themes is a stem-cell reality. We are looking at an unfortunate demographic situation, with many serious disease indications that cannot be solved and can only be managed through palliative care or monitoring of patients. The sum total of these costs is prohibitive to our national healthcare system. What are the solutions to some of these problems? I can only think of the regenerative medicine space as a ubiquitous answer.

TLSR: Go ahead. Be a little more specific on that.

SB: I'll give you a couple of examples. Starting alphabetically, Aastrom Biosciences Inc. (ASTM:NASDAQ) has made a difficult but necessary financial decision. To gain approval for its patient-specific expanded stem cell technology less expensively and more quickly, the company will stop its development of ixmyelocel-T and its phase 3 REVIVE trial in critical limb ischemia. It will focus its resources on the treatment of another coronary vascular disease, dilated cardiomyopathy (DCM). Using U.S. orphan drug designation in the treatment of DCM, Aastrom recently initiated a phase 2b clinical trial in that indication. This change of direction could allow the company to more quickly gain approval to use ixmyelocel-T.

"We're seeing all-time stock market highs in the Dow Jones averages, but the same is not true for biotechnology."

Another one is Athersys Inc. (ATHX:NASDAQ), which is in a remarkable position in that it has a partnership with Pfizer Inc. (PFE:NYSE) for inflammatory bowel disease (IBD). It's now in a phase 2 trial with its MultiStem candidate (an allogeneic [using same species cells], single donor, multipotent, adult progenitor cell). Again, there are no satisfactory outcomes currently available for patients with IBD. Athersys is progressing down that road with a large partner that understands it will have to participate in developing this technology. The advantage to Athersys? It is partnered for just one indication, and if it sees the expected results it will be able to partner for other indications.

Ischemic stroke is another indication Athersys is looking at. That's a highly significant indication, because physicians have a short time period, or window of opportunity, in which they can help patients regain function. If not treated right away, disability problems are exacerbated, and stroke leads to outcomes that are, once again, dealt with in a palliative and watchful fashion, which is unaffordable in the current healthcare environment. This is a phase 2 program, and it's unpartnered.

TLSR: Steve, these cell technology companies have suffered mightily. Aastrom is down to a $31 million ($31M) market cap. Athersys has a $90M market cap. Why are these technologies unrecognized? My own feeling is that pharma hasn't embraced these kinds of companies because they don't fit its drug model. What do you think?

SB: I think you hit the nail right on the head. At first, the pharmaceutical industry was basically taken over by marketing people. Then the marketing people were hijacked by the financial people. As a result, you had a situation where products that were good were overmarketed. Now the consistent hallmark for all large pharmaceutical companies is that they pay out a dividend of 3-5%. Why is that number familiar? Because 3% happens to be what the 30-year Treasury bond is yielding right now, and the pharmas have become surrogates for Treasuries.

All the talking heads are telling investors that pharmaceutical companies are going to grow, grow, grow. So the investor says, "While I'm waiting, the pharmas pay me 3-5%." This is wrong-headed, because the pharmaceutical companies are losing their patent exclusivities. They have lived by the blockbuster product, and now they are dying by the loss of the blockbuster. Pharmaceutical companies are not good at understanding change. They want predictability, but science, if anything, is not predictable. Healthcare science is even less predictable.

TLSR: Given that big pharma is not a growth industry, the irony, as I see it, is that they are missing out. They have absolutely ignored the cell technology industry, even though it gives them an opportunity for real growth, whereas hardly anything else will. Ironic, no?

SB: The irony of all ironies is that the government is actually stepping in. The government understands that to continue this pill-a-day model is the equivalent of going back to Jurassic times. You can't do it. We have to think into the future.

That brings me to the next company. Cytori Therapeutics Inc. (CYTX:NASDAQ) has a government contract through the Biomedical Advanced Research and Development Authority (BARDA). The government has said it is interested in funding projects that can be categorized as dual use. In this case, BARDA has funded Cytori's treatment protocol for radiation burns, as well as the future purchase of product from Cytori. The company has the ability to use the same technology for conventional burns and wounds.

"We are looking at an unfortunate demographic situation, with many serious disease indications that cannot be solved and can only be managed. . .What are the solutions to some of these problems? I can only think of the regenerative medicine space as a ubiquitous answer."

In this situation, the government is spending money to develop a product that will be commercially viable, and not something that the agency will be stuck with until there's a nuclear accident-or something worse, like a nuclear attack. Because it is a platform technology, it's not just limited to one part of the body. It uses a patient's own stem cells to restore blood flow to an area that's been damaged or that's in need of assistance.

TLSR: Cytori's Celution System is the most modular patient-, physician-, and lab tech-friendly technology that I have seen in the stem cell industry. The Celution device can process and develop the patient's own cells from adipose tissue (body fat) into a dose of stem cells in one hour.

SB: That's correct. We talked earlier about irony in the stem cell industry. Here's another irony. Government contracts usually stipulate that if you can repeat in humans what you've done in animals, it will give you the contract. But this one says, if you can repeat in animals what you've done in humans, you've got a government contract.

TLSR: Are you trying to tell me that you think Cytori is going to be the first winner in the regenerative medicine field?

SB: I'm going to say that it is the first to have a commercial model that the government is betting on. That's because the company has already proved it. That's a difference.

TLSR: What's the next name you want to talk about?

SB: It's NeoStem Inc. (NBS:NYSA.A). NeoStem sent out a shareholder letter on March 19 saying that it had crossed the 50% enrollment mark on its PreSERVE-AMI phase 2 clinical trial with AMR-001 (autologous, bone marrow-derived, CD34+ enriched cells) in ST-segment elevation acute myocardial infarction (STEMI; heart attack). There are more than 90 patients in the trial now, and that is more than satisfactory. The cells are drawn from the patient's bone marrow, and then enriched for CD34+ cells, which are known for vascularizing potency. The cells have a three-day shelf life from completion of processing. They are then reinjected into the affected areas of the myocardium via the coronary artery associated with the ischemia (loss of blood flow). This takes place a week or more after a stent placement procedure. Safety looks good, and enrollment should be completed this year, with a six- to eight-month time lag for readout after the final patient is treated. You have a much better outcome for patients who are treated with CD34+ cells, which allow restoration of blood supply to the affected areas.

TLSR: Another company?

SB: The last company I'll mention in the cell area is BioTime Inc. (BTX:NYSE). This company has a set of subsidiaries, one of which is BioTime Acquisition Corp., which was spun off specifically to take on all ofGeron Corp.'s (GERN:NASDAQ) human embryonic stem cell assets. This includes Geron's phase 1 acute spinal cord injury clinical trial, with its oligodendrocyte progenitor cells. There is also a phase 1/2 study of Geron's autologous cellular immunotherapy program in acute myelogenous leukemia.

BioTime has several different companies, in oncology and other fields, which can be opportunistic given the fact that all of this science, to one degree or other, is interrelated. Since the company has access to capital, we see it as having more to come. It looks to be the presumptive heir to all of Geron's technology.

TLSR: You have some non-cell therapy companies you wanted to talk about. Go ahead with that.

SB: On March 13, Navidea Biopharmaceuticals Inc. (NAVB:NYSE) got approval for Lymphoseek (technetium Tc 99m tilmanocept), an injectable product to locate metastatic lesions in lymph nodes draining primary tumors. This new diagnostic will be introduced and sold through Cardinal Health Inc. (CAH:NYSE), which is the single largest distributor of isotope diagnostics in the U.S. It already has a price. It already has applied for reimbursement, which is pretty much automatic. The stock went down with the approval announcement. There is a disconnect here. This is a superior product, and Cardinal Health is vending it for indications in breast cancer and melanoma. Navidea also just announced Lymphoseek's ability to identify, with a high degree of specificity, sentinel lymph nodes in patients with head-and-neck cancers. This is an important outcome, with the potential to expand Lymphoseek's use beyond its current indications. It is possible for Lymphoseek to be used in other solid tumors, such as prostate or colorectal cancers. The company is now poised to change oncology staging options.

TLSR: Steve, metastasis kills. Primary site solid tumors can be resected, but nine out of 10 deaths from solid tumors occur because of metastasis. If this product does what you say, then it's extraordinary.

SB: Right. And it's true. This product could allow something no one has ever seen before: the ability to stage and treat all solid tumors in the body. It can work for prostate cancer, for lung cancer or for any solid tumor. Clinicians have the ability to figure out if a cancer has progressed beyond the primary site with a gamma detector. What is that worth? We're not talking about hundreds of thousands of patients. We're talking about millions of patients in the U.S. alone.

TLSR: How is Lymphoseek superior to competitor products?

SB: For the first time, doctors have the ability to see if the cancer has metastasized into the lymphatic system with a great degree of accuracy. This is the last shot at stopping disease progression. Lymphoseek was created specifically for this purpose. As a result, the suspension molecule is much smaller than its sulfur colloid competitors. As a result, it can travel through any lymphatic system, whereas sulfur colloid is too large. There's really no competition.

"Pharma has lived by the blockbuster product, and now it is dying by the loss of the blockbuster."

Another feature is that Lymphoseek is pH neutral, whereas current suspension formulas are highly acidic and cause discomfort and pain. Also, dosing has been standardized. The reality is that Lymphoseek is simpler for nuclear pharmacies to make. And guess what? If you use a regular sulfur colloid for node localization, you're not going to get paid for it. The hospital has to absorb that cost. If you use Lymphoseek, the hospital will be reimbursed.

TLSR: How many points did Navidea have to give away to Cardinal Health?

SB: That is the great thing for Navidea. The company negotiated this contract at a very early stage, and this is a true revenue-sharing model that is more favorable to Navidea than to Cardinal Health.

TLSR: Is there a commitment to promote the product?

SB: Absolutely. Cardinal Health has already begun the distribution and dissemination of information about the product.

TLSR: Go ahead with another stock.

SB: Alexza Pharmaceuticals Inc. (ALXA:NASDAQ) has a product, Adasuve (loxapine), for extreme agitation. It is well known, and the Europeans have used it for years and years. If a patient presents in an emergency room setting, Adasuve can provide instantaneous relief in the form of mild sedation because it is a rapid-acting inhalation product. Contrast that with an injection, which takes time. Patients need to be monitored during the time it takes for an injection to take effect so they don't harm themselves or someone else. This could take more than an hour. Adasuve has received FDA approval, and it works in minutes.

TLSR: Alexza has a $71M market cap. How large do you imagine this market to be?

SB: That's another beautiful part about this stock. Basically, the company had a Canadian partner that decided to pull out of the deal. Alexza has run the calculations, and this looks like it could earn a couple of hundred million dollars in the U.S. alone. That's just in the initial launch.

TLSR: Did you have another stock you would mention?

SB: I'll mention a small company called NuPathe Inc. (PATH:NASDAQ). It has a migraine product called Zecuity (sumatriptan iontophoretic transdermal system). Migraine sufferers are basically totally incapacitated. Zecuity is a patch that allows them to get very quick absorption without the side effects of dealing with migraine. This is an acute treatment. When this product got approval the stock went up a bit, but it is nowhere near where it should be.

TLSR: You've just given me three names with recently approved products. Tell me your point.

SB: Navidea, Alexza and NuPathe all have new products that are available today, and large pharma is missing in action. They want products to replace their pill-a-day blockbuster products for cardiac, for cholesterol, for diabetes, for whatever. That does not exist anymore.

TLSR: Steve, you and I spoke about Trius Therapeutics Inc. (TSRX:NASDAQ) the last time we talked. We're coming up, I believe, on a second phase 3 pivotal trial right now, measuring the efficacy of its tedizolid phosphate antibiotic product (for the treatment of acute bacterial skin and skin structure infections including those caused by methicillin-resistant Staphylococcus aureus). The first trial was very good. Did you have any thoughts on it? The stock is up 21% over the past four weeks in anticipation. What do you think?

SB: It obviously demonstrates the need for antibacterials. Trius has demonstrated the fact that its product works. It has demonstrated the fact that it is filling a void. The company is doing what it said it would in an environment where very few do that.

I would say that Cempra Inc. (CEMP:NASDAQ) is another. Its lead product in development is solithromycin, for the treatment of respiratory tract infections, including community-acquired bacterial pneumonia (CABP) and bacterial urethritis comprising untreatable strains of gonorrhea. Solithromycin is currently completing its phase 3 clinical trial for the treatment of CABP and is also a real-time example of filling the hole that has emerged in healthcare.

TLSR: Steve, I enjoyed speaking with you very much. Thank you.

SB: It was my pleasure, always.

Stephen Brozak, president of WBB Securities, is a top-ranked analyst in biotechnology according to the StarMine ranking system. He has been in the securities industry for more than 20 years, where he has held positions in sales, management, investment banking and research analysis. He has been intimately involved in providing research on a number of companies. Brozak holds a bachelor's degree and a master's degree in business administration from Columbia University, and is a retired lieutenant colonel in the United States Marine Corps.

Want to read more Life Sciences Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

DISCLOSURE:
1) George S. Mack conducted this interview for The Life Sciences Report and provides services to The Life Sciences Report as an employee or as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Life Sciences Report: Johnson & Johnson, Athersys Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment. Johnson & Johnson is not affiliated with Streetwise Reports.
3) Stephen Brozak: I or my family own shares of the following companies mentioned in this interview: Navidea Biopharmaceuticals Inc. I personally or my family am paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: WBB Securities has acted in a placement advisory role to Athersys Inc. in the last 12- months. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise - The Life Sciences Report is Copyright © 2013 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part..

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

Participating companies provide the logos used in The Life Sciences Report. These logos are trademarks and are the property of the individual companies.

101 Second St., Suite 110
Petaluma, CA 94952

Tel.: (707) 981-8204
Fax: (707) 981-8998
Email: jluther@streetwisereports.com

Source: George S. Mack of The Life Sciences Report (4/4/13)

http://www.thelifesciencesreport.com/pub/na/15125

When it comes to picking biotech stocks, does a buyside perspective matter more than a sellside? Not according to Zacks Investment Research Analyst Grant Zeng, who has straddled the divide. What really matters is research of uncompromised quality. In this interview with The Life Sciences Report, Zeng offers a primer on what he looks for in a biotech investment, and names companies with the potential for big returns.

The Life Sciences Report: Grant, you've been on both the buyside and the sellside. Today you're an analyst at Zacks, a noninvestment bank firm that does not have to solicit business from the companies on which it performs due diligence and research. Is there an advantage for investors in this research model?

Grant Zeng: Zacks Investment Research is an independent equity research firm. We don't provide investment banking and other related services to companies we cover. Investors can benefit from this kind of research model because we conduct independent due diligence and research.

But just because research is independent doesn't mean it's good. We conduct significant due diligence to maintain the highest quality small-cap universe. Events that may trigger publishing a research report or note include earnings, U.S. Securities and Exchange Commission filings and material events.

TLSR: Is your perspective altered by your experience as an equity analyst on the buyside, where you know your decisions will affect buy-and-sell decisions involving large-dollar and yuan amounts? Has your experience on the buyside been helpful in your process as an analyst?

GZ: This is a good question. At first glance, most people only see the difference between sellside analysts and buyside analysts. A buyside analyst performs research and analysis for his or her own company, and a sellside analyst performs research and analysis for outside investors.

"Just because research is independent doesn't mean it's good."

But, in essence, both buyside and sellside analysts are the same. What I mean is that, as an analyst, either buyside or sellside, the most important part of the job is to conduct your own research and analysis, and come up with your own conclusion-or valuation, in the case of company research. Whether you are responsible for your own company or outside investors, the quality of the research should not be compromised, although the format and the research method may be different for a sellside analyst versus a buyside analyst (and in most cases, they are).

My experience as a buyside analyst has been helpful in my process as an independent sellside analyst. Having worked for both buyside and sellside helps me look at research from different perspectives. Both experiences are great.

TLSR: You have a lot of micro- and small-cap companies, mostly under $200 million ($200M) in market cap, in your coverage. Since your firm does not make markets in stocks, and does not advise companies or provide investment banking services for them, how do you choose which names to follow? My impression is that you and your firm have a lot of latitude as to which stocks you chose. Is that true?

GZ: Yes. This actually boils down to our mission. Zacks Small-Cap Research coverage specifically focuses on small and micro-cap companies that are underfollowed or undervalued by Wall Street. As an analyst, I seek to identify and report on these companies, bringing to investors unique opportunities to gain insight on small-cap investments that are well positioned for future growth. My goal is to produce high-quality institutional-caliber research for the small-cap portfolio.

As an analyst at Zacks, I have a lot of latitude to choose what I think are underfollowed or undervalued biotech companies.

TLSR: How do you choose a new company to follow? Do you look for companies with high visibility to upcoming catalysts?

GZ: When I choose to cover a biotech company, I usually look at three things. First, I look at whether the company has a platform technology. If the company has a platform technology, it is easy to build a diversified pipeline. Second, I look at whether the company has that diversified pipeline. Usually platform and pipeline are highly related. Third, I look at balance sheet of the company. Financing is always a problem for small, development-stage biotechs.

Near-term catalysts are also important for biotech companies.

TLSR: I understand the Zacks philosophy of investing in small companies for the potential huge gain, well beyond 100%. Given that so many stocks in this class are driven by binary events, how do you mitigate the risk, especially given the fact that they are lower-liquidity shares? Let me ask another way: Can you mitigate the risk?

GZ: When it comes to investing in the biotech industry, especially in small-cap biotech companies, I remind investors to control or mitigate risks. The best way to mitigate risks is through diversification.

There are a few diversification possibilities for biotech investors. For example, you can invest in companies in different stages of development. You can also invest in different subgroups of biotech companies, such as therapeutics, diagnostics and medical devices. Even if you only invest in therapeutic biotech companies, you can choose different therapeutic areas, such as cardiovascular, cancer, diabetes, etc. Through diversification, risks will be mitigated greatly.

TLSR: Grant, could you discuss some of your ideas for investors?

GZ: Galena Biopharma Inc. (GALE:NASDAQ) is a biopharmaceutical company focused on the research and development of innovative immunotherapy for cancers. The company's lead cancer vaccine candidate is NeuVax (nelipepimut-S; E75 peptide plus granulocyte-macrophage colony-stimulating factor [GM-CSF]), which is in a phase 3 clinical trial in HER2 1+ and 2+ breast cancer patients in the adjuvant setting to prevent recurrence. The PRESENT study is a randomized, multicenter, multinational clinical trial that will enroll approximately 700 breast cancer patients. The trial design has been updated to include current National Comprehensive Cancer Network guidelines and recently received special protocol assessment concurrence from the U.S. Food and Drug Administration (FDA).

The PRESENT trial is based on the phase 1/2 SN-33 HER2-negative booster results. A total of 45 HER2-negative patients in the SN-33 trial received boosters including NeuVax (n=18) and a control (n=27). At landmarks of 24, 36 and 60 months, the NeuVax group achieved statistically significant disease-free survival (DFS) of 100%, 100% and 94.4%, respectively, versus 77.8%, 77.8% and 74.1% for control group.

The NeuVax phase 3 trial will be conducted in patients who are node-positive, have an HLA (human leukocyte antigen) status of A2/A3+, and have low or intermediate HER2 expression (sometimes referred to as HER2 negative). These patients are not eligible to receive Herceptin therapy, which is currently approved only for patients with high HER2, or 3+, expression.

Recently, Galena acquired U.S. rights to Abstral from Orexo AB. Abstral is a novel, rapidly disintegrating, sublingual (under the tongue), fast-acting formulation of fentanyl, a well-established opioid, and is indicated for the management of breakthrough cancer pain.

"Having worked for both buyside and sellside helps me look at research from different perspectives."

We think the Abstral acquisition is an important milestone in the development and growth course of the company. This acquisition has transformed Galena from a development biotech company into a commercial organization. Abstral diversifies and strengthens the pipeline, providing Galena with an FDA-approved product that will become a cornerstone of its commercial strategy and bring revenues in 2014. Those revenues will support the development of the company's pipeline.

The breakthrough pain market in the U.S. reached $400M in 2012 and is expected to grow at 3%. Market research has documented a substantial patient need for improved treatment of breakthrough cancer pain across oncology centers in the United States.

Abstral will be launched in Q4/13. Galena has identified its commercialization management team and expects to bring key personnel onboard shortly. The launch of Abstral will build relationships with future prescribers of NeuVax. Medical oncologists who manage tumor- and treatment-related pain predominantly prescribe TIRFs (transmucosal immediate-release fentanyl) for advanced breast cancer and other solid tumor patients, who represent the majority of those receiving prescriptions.

The launch of Abstral will accelerate revenue initiation to 2013, reaching cash-flow positive in 18-24 months, and reduce overall company cash burn through the launch of NeuVax. The acquisition of Abstral diversifies and deepens the breadth, depth and pace of the company pipeline, moving Galena toward becoming a mid-cap oncology company, not just a cancer immunotherapy company.

TLSR: What is the next milestone?

GZ: We are looking for two major milestones in the next 12 months. The first is the launch of Abstral in Q4/13, and the Q4/13 and Q1/14 sales numbers. Another important milestone is the update on the phase 3 trial for NeuVax. The interim analysis could happen in 2014.

TLSR: If NeuVax becomes a reality as a routine follow-up immunization, how much could this company be worth ultimately, provided it does not get taken out?

GZ: NeuVax represents a new class of breast cancer therapy: immunotherapy. Galena intends to develop NeuVax for the treatment of node-positive breast cancer. To differentiate NeuVax from Herceptin, we consider the following:

• NeuVax has a different mechanism of action compared to Herceptin. Herceptin is a HER2 monoclonal antibody, while NeuVax is a vaccine targeting HER2.
• NeuVax targets early-stage cancer patients with low to intermediate HER2 expression, while Herceptin targets breast cancer patients with high HER2 expression;
• Low to intermediate HER2 expression is a significant medical need not addressed by current therapies.

We believe NeuVax could be a meaningful alternative for the treatment of breast cancer. According to the Centers for Disease Control and Prevention, in the U.S. alone, approximately 202,964 individuals are diagnosed with breast cancer each year. Of these patients, approximately 20,000 (about 10%) will be eligible for NeuVax treatment. This is a huge market for NeuVax, which can reach a blockbuster status easily.

TLSR: Is there another company you like?

GZ: I cover NeoGenomics Laboratories (NEO:NASDAQ), because I like the diagnostics business. NeoGenomics is a laboratory testing services provider specifically focused on high-revenue, high-complexity cancer genetics testing services. The company operates a network of cancer-focused laboratories whose mission is to improve patient care through exceptional diagnostic, prognostic and predictive genetic testing services.

The company's network currently offers five types of testing services: cytogenetics, fluorescence in-situ hybridization (FISH), flow cytometry, immunohistochemistry, and molecular testing.

NeoGenomics is targeting the large clinical lab-testing market, which has been growing quickly in recent years due to advancements in genomics and proteomics (protein) research. The market continues to grow dramatically due to the rapid growth of personalized medicine.

This small but focused diagnostic company holds numerous competitive advantages over its competitors. We are especially impressed by its industry-leading turnaround times, unique tech-only business model, state-of-the-art lab information system and extensive client education programs, all of which are key to attracting clients.

Financial performance has been solid in the last five years, and the outlook is very strong for the next five. Top-line will grow from $43.5M in 2011 to $110M in 2015, a compound average growth rate (CAGR) of 36%. At the same time, the company has achieved operating leverage with reduced selling, general and administrative (SG&A) expenses as a percentage of total revenue. The company will turn profitable in Q1/13 and earnings per share (EPS) will grow to $0.18 in 2015.

NeoGenomics' growth strategy has been well executed in the past, and we have a high confidence in management's ability to lead the company to the next level of growth in the next five years.

TLSR: This small company has smallish revenues. The Medicare technical component grandfather clause expired last summer. Would you briefly explain what that means and what affect it has had on the company? Has management been able to contain the damage?

GZ: The Medicare technical component (TC) grandfather clause expired on June 30, 2012. NeoGenomics is now required to bill hospitals for the technical component of certain tests performed on behalf of Medicare inpatients and outpatients, whereas previously the company was allowed to bill Medicare directly for such services if they were provided to hospitals that were "grandfathered" under the regulations. About 80% of NeoGenomics' lab tests are billed off the physician fee schedule, with the remainder billed off the clinical lab fee schedule. Lab tests billed off the physician fee schedule usually have two separable billing components: the technical component, consisting of sample treatment and testing, and the professional component, for interpretation of the test results.

We think company management has done a great job of minimizing the negative impact of the TC grandfather clause expiration. This has been evidenced by the strong financial achievements made in Q3/12 and Q4/12, after the TC clause expiration.

"My goal is to produce high-quality institutional-caliber research for the small-cap portfolio."

As a result of the expiration, average price per test in Q3/12 and Q4/12 declined 12% and 15% respectively, compared to Q3/11 and Q4/11. However, despite the negative impact, total revenue in Q3/12 and Q4/12 still increased 26% and 16% year over year, respectively. These gains were achieved by 42% and 35% increases in test volume in Q3/12 and Q4/12, respectively. Both revenue and test volume growth were achieved when the company redirected the focus of its sales force to prepare clients for the expiration of the clause, rather than on acquiring new clients.

NeoGenomics also continued to make substantial improvements in lab productivity and operating efficiency in the last quarter of 2012, and came very close to returning to quarterly profitability. Lab productivity increased by 15%, and adjusted earnings before interest, tax, depreciation and amortization deductions (EBITDA) grew by 36% in Q4/12, over last year's fourth quarter. The improvements were also significant compared with Q3/12, as the company reduced its net loss by $800,000 ($800K), with only a $700K increase in revenue.

With this distraction now behind it, the company has returned its full focus to growth and performance in 2013. NeoGenomics expects to overcome the impact from this regulatory change within a few quarters through aggressive cost savings, productivity improvements, new product introductions and continued growth in each of its core laboratories.

TLSR: Grant, would you mention some other companies that you like?

GZ: Atossa Genetics Inc. (ATOS:NASDAQ) is a medical diagnostics company focused on the prevention of breast cancer through the development and commercialization of diagnostic tests that can detect precursors to breast cancer, and through the research, development and ultimate commercialization of treatments for precancerous lesions.

Atossa's diagnostic tests consist of patented medical devices cleared by the FDA that can collect fluid samples (nipple aspirate fluid; NAF) from the breast milk ducts, where more than 85% of breast cancers arise. These samples are processed at the company's wholly owned National Reference Laboratory for Breast Health, which has been certified pursuant to the Clinical Laboratory Improvement Amendments (CLIA). CLIA certification is legally required for laboratories to receive reimbursement from federal or state medical benefit programs, like Medicare and Medicaid, and is a practical requirement for most third-party insurance benefit programs.

Atossa's lab examines the specimens by microscopy for the presence of normal, premalignant or malignant changes as determined by cytopathology and biomarkers that distinguish "usual" ductal hyperplasia, a benign condition, from atypical ductal hyperplasia (ADH), which may lead to cancer. These cytopathological results provide patients and physicians with information about the care path that should be followed, depending on the individual risk of future cancer as determined by the results.

Additionally, Atossa is conducting research on the treatment of precancerous cells by using its patented and FDA-cleared microcatheters to deliver, directly into the milk ducts, pharmaceutical formulations to treat these lesions. By using this localized delivery method, patients receive high concentrations of the drugs at the site of the lesions, promoting efficacy while limiting systemic exposure, which has the potential to lower the overall toxicity of treatment.

Atossa is currently marketing two diagnostic tests and plans to offer two additional tests in 2013. The company launched the ForeCYTE and ArgusCYTE tests in December 2011. The ForeCYTE Test provides personalized information about the 10-year and lifetime risk of breast cancer for women between ages 18 and 65. The test involves collecting a specimen of NAF using the company's patented, FDA-cleared Mammary Aspirate Specimen Cytology Test (MASCT) System, which received 510(k) clearance from the FDA in 2003.

"If a company has a platform technology, it is easy to build a diversified pipeline."

The ArgusCYTE Test provides information to help inform breast cancer treatment options and to monitor potential recurrence. It involves collecting a blood specimen from a patient using the company's patented, 510(k)-exempt blood collection tube and submitting it to Atossa's laboratory. The test can monitor breast cancer distant recurrence by analyzing the blood sample for the presence of circulating tumor cells, which can then be analyzed to determine the expression of estrogen receptor/progesterone receptor and human epidermal growth factor receptor 2 (HER2) in those cells, a predictor of the cancer's sensitivity to existing treatment options.

Atossa intends to launch two additional breast health tests in 2013. The FullCYTE Test is designed to assess individual breast ducts for precancerous changes in women previously identified to be at high risk for breast cancer. The NextCYTE Test is in the prevalidation phase and is designed to profile breast cancer specimens for prediction of treatment outcomes and distant recurrence in women newly diagnosed with breast cancer.

Like NeoGenomics, Atossa also holds numerous patents, approved or pending, and has built a strong portfolio that provides long-term growth potential. Atossa has an appropriate growth strategy in place. Recent developments within the company have made us believe this strategy will be well executed, and we have a high confidence in management's ability to lead Atossa to the next level of growth in the next five years.

We think revenue growth will accelerate in the coming years thanks to the company's focused marketing strategy and continued offerings of new products and services. We model the top line growing from $2.94M in 2013 to $53.5M in 2018, an impressive CAGR of 79%. We think Atossa will become profitable in 2016, with EPS of $0.05 that will grow to $0.62 in 2018.

Based on the company's strong fundamentals, we think its shares are undervalued. The downside risk is low at this point and upside potential is high.

TLSR: Grant, it's interesting that you follow several RNA interference (RNAi)/antisense companies. I tend to think of any technology that prevents or modifies protein synthesis as an antisense platform, but from your perspective, are there meaningful differences between RNAi and antisense?

GZ: Both antisense and RNAi are RNA therapeutics, but there are some differences between the two.

RNAi (including small interfering [siRNA] and microRNA) are short, double-stranded nucleic acid molecules that mediate RNAi and interfere with the process of producing proteins inside cells. Antisense RNAs are small, chemically modified single strands of DNA that interfere with messenger RNA (mRNA). These drugs (oligonucleotides) are engineered in a sequence that is exactly opposite (hence, anti) to the coding (sense) sequence of mRNA. Upon binding with the mRNA, a duplex is formed. This duplex inhibits the production of the intended protein.

The Nobel Prize-winning discovery of RNA interference marked a revolution in biology, a breakthrough in understanding how genes are turned on and off in cells, a completely new way to approach drug discovery and development. RNAi is a natural process of gene silencing. By harnessing the natural biological process of RNAi in human cells, the creation of a major new class of medicines, known as RNAi therapeutics, is on the horizon. RNAi therapeutics target the "root" genetic cause of diseases by potently silencing specific messenger RNA, thereby preventing the disease-causing proteins from being made.

TLSR: Would you discuss a company in this space?

GZ: I like Tekmira Pharmaceuticals Inc. (TKMR:NASDAQ; TKM:TSX). Tekmira is one of the pioneers and leaders in the field of RNAi therapeutics. We are optimistic about the company's lipid nanoparticle (LNP) RNAi delivery technology, which enables systemic delivery of RNAi drug candidates. RNAi is promising, but is challenged by systemic delivery and distribution into diseased areas in humans. Tekmira's LNP platform technology has great potential to achieve this goal.

Tekmira's pipeline targets multiple indications including cancer, infection, alcohol dependence and other indications that hold great market potential. The company has advanced its lead cancer drug candidate, TKM-PLK1, into a phase 1 clinical trial using its LNP delivery technology. A phase 2 study is expected to begin in H2/13.

The company's TKM-Ebola product is sponsored by U.S. government under the FDA-accelerated "Animal Rule" development plan, which enables a company to get FDA marketing approval based on animal studies provided the studies show a product will likely be efficacious in humans. This will shorten the development timeline greatly. A phase 1 safety trial will be initiated in H2/13. TKM-Ebola could provide significant cash flow to the company in the next one or two years.

Two other candidates, TKM-ALDH2 and Wee1/CSN5, target alcohol dependence and oncology, respectively. Tekmira is conducting preclinical work to further evaluate these earlier-stage programs, and could bring them into clinic soon.

"The best way to mitigate risks is through diversification."

Partnership is integral to Tekmira's growth strategy. The company has established partnerships both with the U.S. government and biotech/pharmaceutical companies. Major partners include Merck & Co. Inc. (MRK:NYSE), Bristol-Myers Squibb Co. (BMY:NYSE),Alnylam Pharmaceuticals Inc. (ALNY:NASDAQ) and Talon Therapeutics Inc. (TLON:OTCBB) These partnerships not only provide nondilutive funding for the company, but also validate its LNP technology and management's commitment to advancing RNAi therapeutics.

Significant clinical advances enabled by Tekmira's LNP technology have been made in Alnylam's pipeline. Alnylam already reported positive phase 1 data for ALN-TTR02 (for treatment of transthyretin amyloidosis), will report phase 2 data this year, and plans to initiate a phase 3 trial in late 2013. Alnylam also reported positive phase 1 data from ALN-VSP (for treatment of liver cancer) and ALN-PCS (for treatment of high cholesterol). All these data further validate the LNP technology.

Tekmira has a very strong balance sheet. The company's current cash balance should run through at least 2016. Investors don't need to worry about the dilution of their ownerships in the next few years. With this strong balance sheet, Tekmira will be focused on its long-term growth strategy, not worrying about financing. Future license fees, milestone payments and royalties from Marqibo (the Talon Therapeutics partnership; vincristine sulfate liposome injection for treatment of adult relapsed leukemia) will provide further nondilutive financing.

We have noticed the recent run of RNAi companies such as Alnylam, as well as Isis Pharmaceuticals Inc. (ISIS:NASDAQ), and Sarepta Therapeutics (SRPT:NASDAQ), which indicates investors are optimistic about the prospect of RNAi therapeutics. We think Tekmira's shares are undervalued at the current market price, based on the company's strong fundamentals and compared to its peers-especially when we consider the recent great runs for other RNAi companies.

TLSR: Protein synthesis is the central dogma of biology, and you've mentioned RNAi/antisense companies that address that phenomenon. I realize that most disease is polygenic, meaning involvement of more than one gene, but since any single gene can be neutralized, doesn't that make RNAi/antisense potentially the most powerful technology medicine has ever known? Wouldn't these platforms be the Holy Grail if there ever was one?

GZ: Antisense and siRNA may offer some advantages over conventional therapies. The antisense complex can be synthesized chemically in a lab and then introduced into the cell. Once introduced, antisense can target virtually any protein synthesized by the body. This is a significant advantage over small molecule or antibody drug candidates that target only specific classes of proteins. With knowledge of the sequenced human genome, scientists should be able to develop antisense compounds for each and every gene and mRNA.

Additionally, the antisense identification and subsequent production process is more straightforward than for the traditional small molecule or antibody drug discovery platform. Scientists only need to identify the specific gene worth testing, and then synthesize the antisense oligonucleotide. This offers a significant time and cost-of-discovery advantage.

Although RNAi therapeutics is newer to the pharmaceutical industry than antisense, the structures are similar, with siRNA being a double-stranded nucleic acid complex compared to the single-stranded antisense oligonucleotide. As a result, the above-mentioned advantages of antisense over conventional therapies are also expected to apply to siRNA.

Antisense and siRNA are two of the most promising fields of targeted therapy. Development of antisense and RNAi therapeutics, however, has been limited by the lack of a suitable method to deliver these drugs to diseased cells, with high uptake and without causing toxicity. But great progress in RNA delivery has been made recently by companies including Tekmira and Bio-Path Holdings.

TLSR: Are there any other companies you'd like to talk about?

GZ: Northwest Biotherapeutics Inc. (NWBO:OTC) is a clinical-stage biotechnology company focused on discovery, development and commercialization of immunotherapy products to treat cancers. The company holds two technology platforms: dendritic cell (DC)-based cancer vaccines (DCVax), and monoclonal antibodies for cancer therapeutics. The company's current focus is on DCVax programs.

Northwest's DCVax platform technology makes use of the same immune cells as Dendreon Corp.'s (DNDN:NASDAQ) prostate cancer vaccine Provenge (sipuleucel-T). DCVax uses a patient's own dendritic cells. The DCs are extracted and loaded with tumor antigens, thereby creating a personalized therapeutic vaccine. Injection of these cells back into the patient initiates a potent immune response against cancer cells, resulting in delayed time to disease progression and prolonged survival.

The company's DCVax technology holds competitive advantages over its competitors, including the low cost of manufacturing, ease of administration, a high concentration of activated dendritic cells and fewer side effects.

The key value of Northwest Biotherapeutics relies on its late-stage cancer vaccine candidate, DCVax-L, for glioblastoma multiforme (GBM) patients. DCVax-L for brain cancer is currently in a 312-patient global phase 3 trial. The U.S. arm of the trial is enrolling patients now, and the Europe arm will start to enroll soon. The company anticipates completing enrollment by Q1 or early Q2 of next year. This is faster or more efficient than relevant comparison trials with immune therapies for the same brain cancer.

Currently, two chemotherapeutic agents (including one targeted therapy) approved by the FDA are frequently used for the treatment of glioblastoma, in combination with radiation therapy. They are Temodar (temozolomide) from Merck for newly diagnosed GBM and Avastin (bevacizumab) from Roche/Genentech for recurred GBM.

There are unmet medical needs for the treatment of glioblastoma that DCVax-L may be able to address in a unique way. DCVax-L is specifically designed to target glioblastoma cells by activating the patient's own immune system. So far, data from DCVax-L are encouraging compared to marketed products and products under development.

"The creation of a major new class of medicines, known as RNAi therapeutics, is on the horizon."

The glioblastoma market is a multibillion-dollar business. Worldwide sales of Temodar reached $1 billion ($1B) in 2009. If DCVax-L ultimately reaches the market, it will command a huge market share of the GBM market in our view. Peak sales could reach $1B. This market potential means a lot to a small biotech company like Northwest, even if it turns out to be a few hundred million dollars in sales. DCVax-L for brain cancer could be the second cancer vaccine to reach the market after Provenge.

Great progress has been made in the past few months in terms of clinical trials, business development and balance-sheet strengthening. Current valuation is attractive and upside potential is high at current price level in our view.

The last company I will discuss is Pressure BioSciences Inc. (PBIO:NASDAQ), a research products and services provider. The company operates in a rather large but underserved market, with a current focus on sample preparation. The research products and services market is rapidly growing, with a large and immediate need for better technology. We expect this will create a huge opportunity for Pressure BioSciences to grow its business in the coming years.

We are impressed and optimistic with the company's patented, novel, enabling platform technology: pressure cycling technology (PCT). The PCT Sample Preparation System (PCT SPS) has competitive advantages over existing technologies in the sample preparation market. Based upon the PCT platform, Pressure BioSciences has established a broad product portfolio. The instruments and consumables that form its PCT Sample Preparation System are now recognized by many research labs due to the company's focused marketing efforts. We believe uptake of the PCT SPS will accelerate in the coming years.

However, Pressure BioSciences is one of the most undervalued biotech companies in our view. Our call is based on two major factors: Financial results and business development are improving, and valuation is very attractive.

Pressure BioSciences recently reported record product sales for Q3/12. Revenue from sales was $297,867, compared to $217,734 for the same period in 2011-a 37% increase. We are especially happy to see increased sales of consumables for the quarter. Sales of PCT-based consumables generated revenue of approximately $28K for the three months ended Sept. 30, 2012, compared to approximately $21K for the same period in 2011, an increase of 33%. We expect the sales of consumables will continue to grow in the coming quarters. We think this growth is very important to the company's long-term sustainable growth. Consumables are a recurring revenue source for the company, with higher margins, and are associated with the installation of PCT equipment. When more equipment is installed, more consumables will be used. The growth of installed equipment will eventually stabilize, but the use of consumables will increase each quarter as the equipment base becomes larger. Although revenue from consumables currently accounts for only a small portion of PCT product sales (about 10%), this number will become larger and make a meaningful contribution to the top line.

In terms of valuation, we think Pressure BioSciences' shares are deeply undervalued based on the company's fundamentals. Currently, the company trades around $0.30 per share, with a market cap of about $3M. We understand that the market discounts the value of the company because it has a limited revenue base and has been losing money since its inception. We also understand that the company has a relatively weak balance sheet, and further financing will be needed soon.

However, when we look at the industry in detail, we recognize that this is a company with huge opportunities. We are optimistic about its prospects. With a rapidly growing market worldwide, combined with its unique technology and broad range of product offerings, Pressure BioSciences is well positioned to boost its top line and bottom line in the coming years.

TLSR: Grant, thanks for your time and insight.

GZ: It was a pleasure.

Grant Zeng has more than 10 years professional experience in equity research and analysis. He is currently a senior biotech analyst with Zacks Investment Research Inc., and has been with Zacks since March 2006. Before joining Zacks, Zeng worked for TheStreet.com as a biotech analyst from 2005-2006. From September 2001 to December 2003, Zeng worked for China Pacific Insurance Co. as an equity/fund analyst. Zeng was a healthcare equity analyst with Young & Partners LLC from August 2000 to September 2001. Zeng also has teaching and research experience in pharmaceutical science. Zeng obtained his master's of business administration with a major in finance in 2000 from McMaster University, Canada. He also holds a master's degree in biochemistry from the University of Western Ontario, Canada, and earned a master's degree in pharmacology and bachelor's degree in medicine from Second Military Medical University in China. Zeng is a Chartered Financial Analyst (CFA).

Want to read more Life Sciences Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

DISCLOSURE:
1) George S. Mack conducted this interview for The Life Sciences Report and provides services to The Life Sciences Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: Isis Pharmaceuticals.
2) The following companies mentioned in the interview are sponsors of The Life Sciences Report:Galena Biopharma Inc., NeoGenomics Laboratories, Merck & Co. Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment. Merck & Co. Inc. is not affiliated with Streetwise Reports.
3) Grant Zeng: I or my family own shares of the following companies mentioned in this interview: None.I personally or my family am paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise - The Life Sciences Report is Copyright © 2013 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part..

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

Participating companies provide the logos used in The Life Sciences Report. These logos are trademarks and are the property of the individual companies.

101 Second St., Suite 110
Petaluma, CA 94952

Tel.: (707) 981-8204
Fax: (707) 981-8998
Email: jluther@streetwisereports.com