Following The Smart Money: The Small Cap Biotech Investments Of Randal J. Kirk

by: StockMatusow


One of the most tried and true forms of picking the right kind of developmental biotech investment is following those who have success in investing in them.

The most successful small cap biotech investors understand that those with a top track record of success tend to repeat this same pattern of success over and over.

Randal J. Kirk has a solid record of successful investments in developmental biotech companies. Today, we will look at some of his current investments, and offer commentary on them.

Many might not be familiar with who Randal J. Kirk is, but he is an influential man in the small cap biotech investment world. He got his start in business in the early 1980's and is now Chairman and Chief Executive Officer (NYSE:CEO) of Intrexon (XON). In 1983, Kirk founded General Injectables and Vaccines (GIV). GIV is a privately held company that essentially acts as a next day supplier of medical products for various outlets. In 1998, Kirk and his ownership team sold GIV to Henry Schein, Inc. for approximately $65M.

Aferwards, Kirk founded New River Pharmaceuticals Inc, and took the company public in 2004. Not long after taking the company public, New River received Food and Drug Admininstration (FDA) approval for Vyvanse, an attention deficit disorder treatment, in 2007. Not long after this approval, Kirk sold the company and his 50% stake to Shire plc for $2.6B.

In 1999, Kirk turned his attention to venture capitalism, and founded Third Security, LLC, which invests in start-up developmental biotech companies. It's through Third Security LLC that Kirk currently invests in small cap developmental companies.

One of Kirk's most successful investments over the last year has been Halozyme (HALO). In 2013, Halozyme was trading around $5, and less than a year later the stock currently trades around $14, which represents well over a 200% gain. Much of the buzz and potential with Halozyme is around its proprietary Enhaze technology.

Enhaze technology consists of a recombinant enzyme called Hylenex (rHuPH20). It enables better absorption of existing drugs into the body subcutaneously.

Halozyme is developing PEGPH20 (NYSE:PEG), which is a PEGylated recombinant human hyaluronidase form of Hylenex in combination with gemcitabine (chemotherapy) for the treatment of patients with stage IV metastatic pancreatic cancer. Positive results were released at ASCO in June of last year pertaining to the Phase Ib trial studying PEGPH20/gemcitabine.

We are most excited about PEG as its potential is virtually limitless in our opinion. If successful, PEG can treat cancers that are currently considered untreatable, and provide the hope to patients diagnosed with such cancers that their diagnosis is not an automatic death sentence.

PEG is designed to target cancers that contain high levels of hyaluronan (NASDAQ:HA), such as for an example, Pancreatic cancer. Hyaluronan obstructs the blood vessels in a tumor which makes nearly impossible for current treatments to be delivered into these tumors. In simpler terms, Halozyme believes it will show in clinical testing that PEG opens up these obstructed blood vessels which will allow treatments and therapies to target what are now untreatable cancerous tumors.

Kirk has gained a lot of positive attention from his investment in Halozyme, as Third Security LLC owns 19,791,286, with Kirk owning 3,480,000 shares directly, which represents over 20% ownership in Halozyme. We think Kirk's investment in Halozyme will pay off in huge way if PEG ultimately proves to be successful. However, we feel it's a good possibility the company will be acquired long before the final verdict on PEG materializes.

Intrexon, the company where Kirk is Chairman of the board and CEO, has seen a stock increase from $17.52 to $38.50 year over year, and currently trades near $27.

Intrexon specializes in the field of synthetic biology. Synthetic biology focuses on synthesizing life on a cellular basis, and seeks to use this synthesis to potentially discover new ways to benefit society as a whole.

Such examples of this include DNA sequencing, fabrication of genes, and gene modeling. Intrexon's platform in part, aims to repair/replace defective genes with functioning genes to more effectively treat and potentially cure a broad range of diseases.

Intrexon's top developmental technology is called RheoSwitch. RheoSwitch is a gene switch activated by a small molecule ligand which can be used to regulate the timing, location, and concentration of gene expression with potential applications in human, animal, and plant systems. The RheoSwitch technology is currently in phase 1/2 clinical trials for melanoma and breast cancer.

In Layman's terms, RheoSwitch is designed to more effectively time and deliver small molecules, ions, and/or proteins when and where needed (Ligand administration). RheoSwitch could allow drug developers and physicians the ability to control the levels and timing of these small molecules, ions, and/or proteins in certain drugs and therapies more accurately. Basically, RheoSwitch aims to help make existing drugs and therapies more precise, effective, and safer.

If proven successful in clinical trials, RheoSwitch has the potential to be a big money maker for the company.

Third Security LLC owns 62,196,272 shares of Intrexon, representing the number one holding for Kirk's company, and nearly 65% ownership of Intrexon. Intrexon has multiple partnerships with other companies that Kirk holds through Third Security, some of them mentioned here.

Intrexon is certainly engaging in very interesting and cutting edge technology with high potential. With 62M shares held by Kirk's Third Security, if in fact the Intrexon's platform finds success, Kirk will be hitting yet another stock jackpot.

Synthetic Biologics Inc. (SYN) is a company Kirk's Third Security also holds a large position in with an important data release coming in April of this year. The company is scheduled to present this week at the 26th Annual ROTH Conference on Tuesday, March 11, 2014.

The top line data release will be from Synthetic's evaluation of Trimesta (oral estriol) in combination with Copaxone (glatiramer acetate injection) in a randomized, double-blind, placebo-controlled Phase II clinical trial for the treatment of relapsing-remitting Multiple Sclerosis (NYSE:MS) in women. Synthetics holds the patent license to the Trimesta/Copaxone combination.

We found an interesting write up that seems make a connection between women who use oral contraceptives (birth control pills) for an extended period of time and the possible onset of MS symptoms, and even a higher risk for those who stop taking the pills. This is interesting because birth control pills use estradiol and estrone, along with progesterone, yet contain very little estriol -- all of these are different forms of the hormone estrogen. Estriol has been said to give relief to women from MS symptoms while pregnant.

We think this bodes well for Synthetic's Phase II trial mentioned above to produce positive results as estriol accounts for 60 to 80% of circulating estrogen, which is what these women might lack after discontinuing their use of birth control. MS is a rare disease, and birth control pills have not been shown to be conclusively connected to the onset of MS, but studies show it could be.

Synthetic is also developing a beta-lactamase enzyme (SYN-004) to target the prevention of Clostridium difficile (C. difficile or C. diff) infections.

The company aims to show that when co-administered with certain intravenous beta-lactam antibiotics, SYN-004 can degrade the antibiotic that is excreted in the gastrointestinal (NYSE:GI) tract. Additionally, the company believes that SYN-004 will be able to degrade a broader spectrum of beta-lactam antibiotics, including both penicillin's and cephalosporin's.

In 2012, 15 million Americans were administered beta-lactam antibiotics. This bodes well for companies developing a drug like SYN-004, as President Obama is proposing to double spending on these types of drugs in the future.

Synthetics, with a market cap of around $150M, is the only company we can find that is developing a C. difficile drug with a market cap under $500M.

Kirk's Third Security LLC owns 12,300,768 shares of Synthetic, which represents nearly 25% of the company. It's also interesting to note that Michael Dell's affiliate investment adviser firm MSDC Management, LP, owns 2,675,000 shares in Synthetics.

Synthetics could pay off nicely for Kirk and Dell's affiliate investment firm in time, especially if the near-term data release shows to be successful in April, and it's our opinion that the data will be positive.

Kirk also owns a large position in Ziopharm Oncology, Inc. (ZIOP). Ziopharm is employing novel gene expression and control technology to deliver DNA for the treatment of cancer. Its technology platform employs Intrexon Corporation's RheoSwitch Therapeutic System platform to turn on and off, and modulate gene expression at the cancer site in order to improve the therapeutic index.

Last March, the company experienced a significant setback when its lead drug Palifosfamide, failed to show any statistically significant improvement in progression free survival in soft tissue sarcoma. However, Ziopharm seems to be back on track with its Ad-RTS-IL-12, which is a novel DNA-based therapeutic candidate that is being evaluated with the oral activator veledimex, in patients with advanced melanoma.

In December of last year, Ziopharm reported positive interim results from the ongoing Phase 1/2 melanoma study which showed good safety and tolerability. Additionally, in December of last year Ziopharm initiated a Phase 1 study of Ad-RTS-IL-12 in subjects with recurrent or progressive glioblastoma or grade III malignant glioma (brain cancer).

Fellow Seeking Alpha contributor "Chemistfrog" explains this treatment in an article from June, 2013;

Ad-RTS IL-12, employs the use of an adenoviral vector to deliver into patients' cells the IL-12 DNA plasmid instructing the cells to produce the IL-12 cytokine.

Interleukin-12 is a protein (cytokine) known to trigger an immune response to cancer.

Cyotines are very important in the immune system as they modulate the balance between humoral and cell-based immune responses, and they regulate the maturation, growth, and responsiveness of particular cell populations.

Interestingly enough, Ziopharm licenses Ad-RTS IL-12 from Intrexon, Kirk's largest investment to date. If Ad-RTS IL-12 ultimately proves to be a success, Kirk will be rolling in the money in a big way.

Kirk's Third Security LLC owns 17,815,708 shares of Ziopharm, which represents a little over 26% of the company.

Fibrocell Science, Inc. (FCSC) is another company Kirk and his company owns a good amount of shares in. Fibrocell's flagship product is LAVIV, a personalized and FDA approved aesthetic cell therapy for the improvement of smile line wrinkles in adults.

The company is also engaging in various clinical and pre-clinical programs which include treatments for restrictive burn scars, vocal cord scars, and acne scars.

Fibrocell's platform includes using a patient's own skin cells in order to produce collagen lost through trauma or natural aging process. The company also develops Fibrocell Science Autologous Crème, a cell transplantation skin care cream.

Randal Kirk seems to do a nice job leveraging his assets in a way that is beneficial to all of the companies he has interest in. Fabrocell is partnered with Intrexon Corporation, where as previously mentioned, Kirk is Chairman and CEO. In January of this year, this relationship was expanded in order to develop a treatment for Ehlers-Danlos syndrome-hypermobility type (EDS-HT), a rare genetic disorder resulting in weakened connective tissue.

Fibrocell and Intrexon will endeavor to engineer autologous fibroblast cells genetically corrected to produce tenascin-X (TN-X), a protein that is deficient in the connective tissue of a subset of EDS-HT patients. Patients with EDS-HT often experience significant musculoskeletal complications, including frequent joint dislocations, subluxations and early onset osteoarthritis.

Fibroblast is a type of cell that synthesizes the extracellular matrix and collagen, and are the most common cells in connective tissue.

In Layman's terms, Fibroblast synthesizes a reaction outside a damaged cell, activating structural and biochemical support outside the plasma membranes, causing the cell to repair itself after injury.

Kirk's Third Security LLC owns 14,219,837 of Fibrocell's stock, or about $80 million worth. Important clinical results from an ongoing Phase II trial in the burn contracture setting are expected in the first quarter of 2015. In addition, the Phase II trial in the vocal cord scarring setting is also expected to release top-line data in Q1, 2015

We can see Kirk appears to invest in companies with potential cutting edge technology. His investment in Intrexon seems to be supportive of the other companies mentioned here that he has also invested in.

We like to follow successful money, and Randall Kirk has proven himself over time as being a successful investor in these types of companies, similar to how the Baker Brothers LLC has had top success in the developmental biotech space.

Technology always advances, and we believe the companies we mention here have the potential for major break-thru in this advancement -- obviously, so does Randall Kirk.

Disclosure: I am long SYN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.