Biosante: Tiny Biotech Could Skyrocket with Estrogen Replacement Gel

Includes: BDY, BPA, NVAX
by: Andrew Vaino

An insightful reader emailed me (which I highly encourage!) last fall suggesting I look further into Biosante (BPA), a small company devoted to improving drug delivery. This is an excellent example of a missed opportunity by me, as the stock is up more than 50% since then.

Biosante is a tiny (according to their most recent 10-K they have fourteen employees) company working on transdermal delivery of hormones. In December of last year, they received FDA approval to market Elestrin, an estradiol gel designed to be rapidly absorbed through the skin. It is meant to be applied daily to the arms, shoulders, abdomen, or thighs. A gel or cream is less invasive than a patch that needs to be worn continuously.

In a Phase 3 study, Elestrin demonstrated significant decreases in incidence and severity of hot flashes in menopausal women, but at a substantially lower dosing level of estradiol. Lower estradiol levels can decrease undesired side-effects in hormone replacement therapy. Elestrin will be marketed by Bradley Pharmaceuticals (BDY). A launch is expected in mid-2007. Bradley Pharmaceuticals has experience selling specialty pharmaceuticals, so this is a good way to market their product.
In addition, Biosante recently announced they had begun a Phase 3 clinical trial of a similar product, to deliver testosterone, to treat female sexual dysfunction [FSD]. There is precedent in the scientific literature that administering testosterone indeed treats FSD. They also announced positive preclinical results on delivery of a vaccine to prevent bird flu. While both these products have potential (I’m not overly impressed by preclinical data), I think the main value-driver of this company is Elestrin.

As an aside, there are 493 literature references to clinical trials for FSD on “Pub Med” (a website that searches the medical literature) compared to 1,121 for erectile dysfunction in men.

In an article in The Motley Fool, Brian Lawler questioned just how much of the estrogen market Elestrin will actually capture. This is a critical issue. Novavax (NASDAQ:NVAX) sells Estrasorb, also a transdermal estradiol delivery system, and has not gained any real traction in the market.

Novavax published data from a Phase 3 study in the journal Menopause. The lowest daily dose of Estrasorb was 8.6 milligrams of estradiol. By contrast, according to Phase 3 clinical data, dosing of Elestrin was found to be effective between 12.5 and 64 micrograms. For readers less conversant in the metric system, there are 1000 micrograms in a milligram. That is, the amount of estradiol dosed with Elestrin is a tiny fraction of that dosed in Estrasorb. Given there are known health risks associated with estradiol, the ability to give a significantly lower dose, I believe, makes for a superior product that should gain market share.

Current U.S. estrogen therapy sales are estimated at $1.3B annually. Transdermal delivery accounts for about $250M, so it’s definitely a big potential market. According to the U.S. Census Bureau, total U.S. population should still hit almost 400M by 2050, and, the median age of that population will be older. As estrogen therapies are targeted at 50+ women (also according to the U.S. Census there are more 50+ women than men) the potential market is increasing.

Now, Biosante’s balance sheet is troublesome. As part of their deal with Bradley they are to receive $10M within the year. In addition, terms of the deal call for milestone payments and royalties. Triggers for sale-base milestones, which can reach $30M, have not been disclosed.

While I would prefer more transparency in Biosante’s deal with Bradley, I do think they have a good product in a growing market. As always, proof will be in the execution and this certainly is not risk-free. This is a nanocap stock with a small (<20M shares) float and will be subject to volatility. While numbers like $1.3B are pie-in-the-sky, this is a small company. Even capturing 5-10% of the estrogen replacement market will send the stock skyrocketing. (Be careful on the entry, however. The stock is showing some signs of a retracement.)


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UPDATE: (submitted by author, February 28, 2007)

In comparing Elestrin to Novavax’ (NVAX) Estrasorb I wrote “the amount of estradiol dosed with Elestrin is a tiny fraction of that dosed in Estrasorb.” In fact, the amount of estradiol dosed using Elestrin is 0.52 milligrams at the low dose and 0.75 milligrams at the high dose. 8.6 milligrams of estradiol is dosed with Estrasorb. I had erroneously quoted the amounts of estradiol actually absorbed. The doses of Elestrin provide 12.5 and 37.5 micrograms of bioavailable estradiol, respectively, while Estrasorb provides 50 micrograms. While Elestrin does result in a smaller dose of estradiol than Estrasorb, use of ‘tiny’ may have been misleading. This was not my intention, and I apologize for any confusion.

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