SciClone pharmaceuticals Inc. is small-cap biotech with a pretty unique business model. This firm is based in California with some experienced western-born and –trained executives, but its only product, ZADAXIN is almost exclusively sold in China. It’s profitable, with a solid balance sheet and an interesting pipeline. I’ll do an analysis to see if this can be a good investment opportunity.
Latest Financial Results
SciClone’s sole product is ZADAXIN, an immune enhancer used for the treatment of hepatitis B (HBV) and hepatitis C (HCV). Its 2009 sale was $72.4 million with a compounded annual growth rate of ~30% in the last 4 years. Last year it made $11.9 million or $0.25 per share which gives it a P/E of ~15 as of 3/19/10. The projected revenue for 2010 is ~$83.5 million and EPS ~0.33. The growth seems to slow down a bit, but still pretty healthy. The company had ~$31 million in cash and investments and no significant debt at the end of last year with a book value (NASDAQ:BV) of 1.2. Based on these numbers, I think its stock price is fairly valued at current level. The question is whether there is any catalyst may move its stock price substantially higher.
Pipeline and Growth Potential
SCV-07 is a peptide inhibitor of STAT-3 signaling which is believed to have immuno-modulation activity. A Phase 2 trial for severe oral mucositis (OM) in cancer patients undergone chemoradiation therapy is ongoing with topline results expected in the next couple of months. Another Phase 2 trial for HCV is expected in the second half of 2010.
OM is the painful inflammation and ulceration of the mucous membrane in one’s mouth, and it happens to ~10% of cancer patients. But in head and neck cancer patients receiving radiotherapy, the incidence can be >80%. Current solutions include frequent mouth cleansing, rinsing with special mouth wash. One FDA-approved treatment that is expected to be launched this year is MuGard, made by Access Pharmaceuticals, Inc (Pending:ACCP). MuGard is a viscous, mucoadhesive rinse which provides a protective coating to the oral mucosa. In clinical trials it has been shown to be effective in ~40% of patients. We’ll have to see how SCV-07 will perform in the upcoming Phase II trial.
Another of SciClone’s interesting trials is the DC bead for liver cancer in China. DC bead is an in-licensed drug-coated embolic agent (microscopic beads used to block blood vessels), which can block the blood flow to tumors and deliver a chemotherapy drug, Doxorubicin at the same time. Liver cancer is one of the most prevalent cancers in China; if this therapy works it would have great market potential. However, SciClone did not provide details on the design of the current trial nor any results from prior trials. The decision on the regulatory approval of this agent in China is expected by the end of this year.
The management has expressed their continued focus on the Chinese pharmaceutical market which is projected to grow faster than the rest of the world. This of course is also fueled by their success of ZADAXIN. I do agree with the strategy to aggressively seeking near-term commercial opportunities in China, but the apparent lack of shareholder transparency on some of their activities is troublesome.
Opportunities and Risks
In summary, SCLN is currently fairly valued but with significant upside potential. Even without any positive data from upcoming clinical trials or new product approval, the profitability of ZADAXIN can carry the company in years ahead, so downside risk is limited.
Disclosure: No position at time of writing. I will wait for OM Phase II trial result announcement to make decision.