3 Small Cap Biotech Companies With Future Potential

Includes: ANIP, ATRS, SVRA
by: Spencer Knight

As the general market carries downward momentum due to signs of a slowing national and world economy, many investors are wondering where to place their money. One way investors can keep a portfolio in the green is investing in companies that have great potential during the economic slowdown. Three companies that have a very good chance of moving up in the next 10-12 months are Adventrx Pharmaceuticals (ANX), BioSante Pharmaceuticals (BPAX) and Antares Pharmaceuticals (AIS).

These three companies are good long term investments for three reasons. First, all three companies have FDA action dates during the fourth quarter of 2011 and the first half of 2012. Secondly, these companies should be releasing data from clinical trials of new drugs during that same time frame; and as many small cap investors know, strong data can cause big jumps in the stock price. Lastly, due to the small market value of these companies, a buyout can easily come from any of the major healthcare firms.

Adventrx Pharmaceuticals

Adventrx has no products on the market, however, the company does have three late stage candidates that could bring share price moving news later this year. The first drug is Exelbine (ANX-530). Exelbine has been designed to treat non small cell lung cancer and advanced metastatic breast cancer. Exelbine was not developed to outperform the current drug, vinorelbine; however, it was developed to cause less side effects, and more specifically, less adverse reactions to the injected area of the body. Exelbine is currently being reviewed by the FDA with an action date set for September 1, 2011.

According to Adventrx's most recent 10-K (page 4) filed with the FDA, Exelbine data is looking strong enough to support an approval. However, even with approval, the long term market share may not be that much since Exelbine is the same as the current drug. Nevertheless, Adventrx had this to say about the current NDA:

Our November 2010 Exelbine NDA included data from one clinical bioequivalence study designed to assess the pharmacokinetic equivalence of Exelbine and Navelbine, the reference drug for Exelbine, as well as 12 months of site-specific stability data from our intended commercial manufacturer to support expiration dating, which fulfilled a request communicated to us by the FDA following our prior submission of the Exelbine NDA in December 2009.

As stated above, the FDA refused to file the Exelbine NDA in December 2009 due to a chemistry, manufacturing and controls ((NYSE:CMC)) issue. Fortunately for investors, Adventrx had already began the site specific stability trials; which led to the November 2010 resubmission. The results of the site specific stability tests met the endpoints necessary for approval from the FDA. Along with the site specific study, Exelbine matched the bioequivalence of Navelbine (vinorelbine); which is good because it shows the drugs are equal. However, from an investor's standpoint, Exelbine proving to be better than Navelbine would have been an added bonus.

As I hinted at previously, the drugs being equal may not sound promising; however, investors must remember the objective of the clinical trial was to show equivalence to Navelbine. With the drug showing equivalence, the only question left is whether or not Exelbine causes less reactions to the skin; since this will determine the amount of market share, if any, Exelbine can take from Navelbine. As the trials show, Exelbine does cause less adverse reactions when compared to Navelbine. Also, it must be noted Navelbine reacted exactly as the label states throughout the trials.

More good news for Adventrx investors is a late 2011 meeting with the FDA to discuss pivotal phase three trials of ANX-188. ANX-188 was added to Adventrx pipeline via the recent acquisition of SynthRx. ANX-188 is being developed to prevent blood clotting and keep the flow of blood constant in children with acute crisis sickle cell disease; which is more specifically known as vaso-occlusive crisis. Furthermore, Adventrx has hinted at the fact that ANX-188 could possibly be used for other diseases such as stroke and hemorrhagic stroke.

Granted, these studies are well down the line as Exelbine and ANX-188 would need to be approved in order for Adventrx to fund more clinical trials. Moreover, the meeting with the FDA will give Adventrx a chance to set up a protocol for the next phase three trial that will hopefully, for investors' sake, lead to an approval in late 2013.

From an investor's standpoint, the company is currently going nowhere, except for the recent bump in share price due to brokerage initiations, and most likely will not go anywhere until the fourth quarter of this year. Therefore, investors need to due diligence and ask if this is a good buying opportunity, or if it will be better to simply wait until the end of the third quarter. I will not make that choice for investors. I will say I believe the company has a bright future, even with this gloomy statement from page 34 of the 10-K:

We currently have no sales or marketing capability and our failure to acquire or develop these and related capabilities internally or contract with third parties to perform these activities successfully could delay and/or limit our ability to generate revenues in the event one or more of our product candidates obtains regulatory approval.

I believe Adventrx has a bright future because the pipeline is very strong; even with a bioequivalence mishap regarding ANX-514 in May 2009. Even with this hiccup, Adventrx is taking every step to solve the problem and hopefully reach the endpoints needed for approval. This same diligence taken with ANX-514 is the reason why Exelbine, as well as ANX-188, have a very good chance of being approved. Currently, just as many small cap healthcare companies, Adventrx is relying on the approval of Exelbine to produce more cash flow for the company.

If Exelbine is approved in September, the chances for ANX-188 will improve, as well as a chance that a major healthcare company could offer a substantial partnership; or a complete buyout. What may be stopping a large company from making an offer right now is the fact that Exelbine is the same drug as Navelbine, therefore if Exelbine does not provide less reactions than Navelbine, a CRL could be delivered; or Exelbine may not bring in any worthwhile revenue.

Biosante Pharmaceuticals

Biosante is a company that is focused on women's sexual health. According to President and CEO Stephen Simes "the market for women's sexual health is well over $1 billion in the U.S. alone." This is important for Biosante because the lead product candidate, Libigel, has been developed for women with hyperactive sexual desire disorder ((HSDD)). HSDD basically means that a women lacks the desire for sexual activities; which can lead to excess stress and other problems. One important fact about Libigel is that the drug will be the first drug of its kind on the market if approved. Granted, Libigel may not be approved until the second quarter of 2013 at the earliest, but investors can be confident that Libigel will be the only drug used for HSDD.

The trials for Libigel were very promising. Currently, phase three trials are underway, but phase two trials showed a 238% increase in sexual events, when compared to placebo, with no serious adverse effects. The phase three trial is developed to test the safety of the drug, specifically breast cancer and cardiovascular events that could come from the drug. The safety of the drug is more important than efficacy in this case because their is no current drug to compare it to. Therefore, if Libigel can show strong safety results in the long term phase three trial, the FDA should have no problem approving Libigel; assuming the manufacturing facility passes the pre approval screening.

More recently, enrollment for Libigel's pivotal long term phase three trial was halted based upon 90% predictive probability that the drug will meet the safety endpoints needed for approval. Enrollment was stopped because the independent research committee in charge found 0.58% cases (22 people) of cardiovascular events and 0.24% cases (9 people) of breast cancer arise during the first part of the phase three trial. One point to note is that Biosante has yet to be informed as to whether the adverse effects were from the Libigel arm or the placebo arm of the study.

Nevertheless, both percentages were less than expected; which is why enrollment into the study was halted after 3,307 subjects. However, an additional 250 women were added to the study to bring the total to 3,557. Despite the enrollment being complete, the study will continue until every subject has been involved for 12 months; which will give a more clear picture as to how these cases of cardiovascular events and breast cancer develop. However the independent group concluded that enough women have a 90% chance of reaching at least one of the required endpoints.

For investors, Libigel gives Biosante a strong long term product that will keep the share price fluctuating up and down as investors and traders keep interested in the company. On the other hand, since the drug still has about 11 months of trials to be completed, it would not surprise me to see Biosante forgotten by many traders. However, investors will be in for several updates as the study progresses. These updates will give the share price quite the jolt if the numbers are impressive.

Usually, I am not too fond of stopping a plan early when it comes to clinical trials, however, in this case I am not as concerned due to the positive statements from the independent research committee. Also, the current PDUFA for Bio t-Gel on November 14, 2011 will be something for investors to watch as Biosante has been promised royalties based upon the performance of the drug; which means approval will cause traders to jump in on the company. These two drugs are strong 2011- 2012 prospects that could give Biosante's share price a ride.

Antares Pharmaceuticals

Antares is a small cap company that is focused upon self injection products that reduce adverse reactions; which leads to more patients wanting to use the prescribed drug. As many small cap healthcare companies, the share price has fluctuated more or less between the same price for a long time. Antares has been facing stiff resistance at the 2.00 level since the Summer of 2007; not counting the extreme drop in 2008 which made the 2.00 level seem impossible to be reached. Of the three companies mentioned, Antares is the best play in my mind if an investor has the urge to take an early position on any of these stocks mentioned.

There are three main reasons for the assumption that Antares is the best bet of the three companies listed. First, Deerfield Capital recently raised their stake in Antares to 9.59%. This increase in stake leads me to believe Deerfield expects, or knows for a fact something big is going to happen at Antares before 2011 is over. Whether it be a buyout, good news from the current Vibex MTX trials, or good news from the FDA regarding Anturol.

Secondly, according to Antares' recent investor presentation, Anturol will have the ability to reach a market that is over $2 billion. This means Anturol can turn Antares into a completely different company. Even if Anturol only receives the same market share as Pfizer's (PFE) Toviaz, Anturol will continue to add more cash to the company to expand marketing capabilities. Anturol is very promising as the most recent trials met the required endpoints to prevent urinary incontinence; which means the drug allowed subjects to control their urination episodes. The second part of the phase three trials showed, according to Adventrx, that long term safety should support an approval come the December 8, 2011 PDUFA date.

The final key for Antares is the recent initiation of trials for Vibex MTX. The Vibex MTX injection system currently being studied will be used for rheumatoid arthritis; which affects about 1% of the worldwide population. However, since the disease is autoimmune and the current oral drugs for the disease are intolerable to many patients, investors should be expecting premium pricing if approved. Also, according to Antares, physicians would much rather prescribe the injectable form of methotrexate; which is the drug used to treat rheumatoid arthritis. With the recent initiation of clinical trials for this version of Vibex MTX, Antares is optimistically hoping to get the drug to market sometime in 2013.

Just as the other two companies, Antares is a long term holding because there will be no share price moving news anytime soon. Unless, as mentioned above, the company faces a buyout offer. One thing Antares also has going for the company is a current cash flow of just over $13 million. This gives Antares an advantage of being able to thoroughly conduct clinical trials to be sure the drugs being tested will not fail when put in front of the FDA.

Moving forward from here, I am expecting Adventrx, Biosante and Antares to see successful gains over the next year or two. After that period it is difficult to tell how the drugs will be taken up by the market. This assumption is based upon the idea that good news and approvals following a reasonable timeline will come from the FDA; and it must be noted that this kind of assumption should not be a reason to invest in a company.

Of these drugs the one that causes the most problems in my opinion is Libigel. Biosante and Antares have stakes in Libigel, therefore the drug will be great news for both companies. The problem I see with Libigel is the side effects discovered in the beginning of the phase three trial. The longer term study will give me a better understanding as to whether or not the breast cancer cases are serious. Also, the problems seen with ANX-514 are very concerning. Luckily for investors the worst news is far beyond the horizon and ANX-514 may not even reach a point in which that news is publicly released.

Based upon the possible market for the pipeline's of the respected companies, investors will need to set apart a long term portion of their portfolio in order to fully capture the premiums that could come over the coming years. Another good strategy to take on these companies is a short option betting on the fact that these companies will receive no news anytime soon; which will inevitably lead to a drawn out loss in share price. As always, do due diligence on these companies, as I did not discuss entire pipelines and current products the companies are producing.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.