The Dream Team Of Speculative Biopharm

by: Michael J. Ray

Recently I was asked by a colleague, who wanted to invest in speculative biopharm, how he should start. I referred him to a recent article, “Gambling With Speculative Healthcare Stocks” where I told him the best way was to hold a basket of these high risk/high reward companies to spread the risk and increase your chances of making and outsized gain. The concept of making a basket of stocks was easy to grasp, but what to put into the basket was the real question for my colleague. He stated that there were just too many companies to choose from and not enough time to analyze them all. This is a common problem but it is not an excuse to skip the required research that must be done. Finally, after much pleading, he convinced me to give up my “Dream Team” of stocks I would hold in the basket. Now before continuing, if you are not interested in sport analogies and would rather have hardcore technical analysis and lots of number crunching then this is not the article for you.

To understand what my colleague was asking, one needs to understand how he defined the term “Dream Team.” Being a sports fanatic he was referring to the 1992 United States men's Olympic basketball team that carried the nickname. This team literally crushed all opponents they competed against and easily won the gold medal with little effort. The question was how to make a “Dream Team” of speculative healthcare stocks that would correlate to my colleague’s request. This proved to be a very hard decision but finally in the end I came up with my starting lineup. To keep it interesting, and something a bit different for the reader, I assigned a company to a position held by the original starting lineup of the 1992 Olympic team. I fully understand that there is no correlation between stocks and professional basketball players, but the idea in itself was most entertaining and easy to understand for those who don’t closely follow speculative biopharm companies.

Larry Bird

Larry Bird, small forward, was one of the most dangerous players as his main talent (threat) was that he could shoot the ball accurately just about anywhere on the perimeter. He could also play inside the paint as needed, but it was his perimeter shooting that was his claim to fame. With this in mind, the company that would best fit this position would be Keryx Biopharmaceuticals, Inc. (KERX). Much like Larry’s perimeter shooting, KERX’s claim to fame will depend on one major drug. That drug is Perifosine, which is an oral anti-cancer drug that has investors very excited. The drug is designed to treat advanced colorectal cancer, but also is being tested on other forms of cancer as well. Perifosine was derived from a commercial license agreement in 2002 with Zentaris AG, which is a wholly owned subsidiary of AEterna Zentaris Inc. It won’t be long before investors start to receive news as one of the Phase 3 trials dealing with the colorectal cancer aspect are set to have its primary completion date by December of 2011. The study is set to be completed by February of 2012.

Recently KERX received word from the independent Data Safety Monitoring Board that the company should carry on through the Phase 3 study that will cover 465 patients with advanced colorectal cancer. Needless to say, that is very good news and shows that the studies seem to be on track. The reasons investors are so interested in this stock is that according to the American Cancer Society, colorectal cancer is the third most common form of cancer diagnosed in the United States. It is estimated that over 141,000 people will be diagnosed with some form of colorectal cancer in the United States, with over 49,000 patients dying from colorectal cancer in 2011. If KERX can get approval and get their drug to market, it should be a big hit. If that was not enough, Perifosine also has a second Phase 3 study dealing with multiple myelomas and its primary completion date is September 2012 and a study completion date of October 2012. In addition to these ongoing Phase 3 studies, the KERX is also exploring the drug in Phase 1 and 2 clinical development trials for several other tumor types. If the drug does get approved for usage in cancers beyond just colorectal, the market for the drug could easily expand on a huge order of magnitude.

Waiting in the wings is their less known drug Zerenex. This drug is an oral compound that is used to treat end stage renal disease. The drug is also in a Phase 3 study with the FDA and the company is working with the Japanese under a partnership to complete the trial. While this drug, if approved, will provide some good revenue number, it will be Perifosine that will be the big winner.


The risk for Larry Bird’s game was always if he was hitting his perimeter shots for the night. If he was on target then success was assured, if not then it was going to be a long night. The risks for KERX are much the same. Really only having one major product means that the future success of KERX will all depend if Perifosine is going to hit the target in its Phase 3 studies. If so then success will also be assured, if not then KERX will be benched.

Magic Johnson

Magic Johnson was the starting point guard who brought his experience and many skills to play. His talents lay in his multiple abilities to pass, drive the lane, and shoot from the perimeter. He was the player who worked behind the scenes who made things happen on the court. Our company that would best fit this position is Antares Pharma (AIS). Like Magic, AIS is a company working behind the scenes with multiple products and an impressive pipeline. AIS is a company in the very early stages of transitioning from an R & D company to one which will be commercializing their products. The company currently has a very unique a business line that focuses on self injection technologies. AIS has licensed one of its reusable needle-free injection device for use with human growth hormone (“hGH”) to Teva Pharmaceutical Industries, Ltd. (NYSE:TEVA), Ferring Pharmaceuticals BV, and JCR Pharmaceuticals Co., Ltd. with Teva and Ferring being the company’s two primary customers. So far it is these injection technologies that have kept the company going while they plan for bigger things. Total revenues for the three and six-month periods ended June 30, 2011 were $3,542,873 and $7,112,420, respectively, compared to revenues for the same prior-year periods of $3,050,987 and $6,415,073. A vast portion of this revenue was derived from the injection tech side of the house.

Much like Magic Johnson, AIS also has other tricks up their sleeves. The company’s other catalyst is the topical gel-based products that will hopefully be coming online soon. The first product will be the company's gel- based product Anturol, for overactive bladders, which is expected to get the final nod from the FDA sometime by the end of 2011. Here is where the explosive growth for the company will occur as 33 million adults in the United States suffering from overactive bladders, and that makes for a market that exceeds $1.8 billion. Seeing the writing on the wall, Watson Pharmaceuticals announced an exclusive licensing agreement to commercialize AIS’s topical gel in the U.S. and Canada. Now, like the name of the basketball player we are comparing to, the “Magic” of this agreement is buried within Watson’s existing business model. Watson currently has an overactive bladder product called Gelnique which produces about $50-60 million in sales for the company. If Anturol is deemed to be the superior product, it should replace Gelnique in the lineup and give AIS an instant boost. This boost will come in the form of Watson having over 200 reps on the street, the elimination of competition from Gelnquie, and an immediate royalty stream on the revenue which is being currently produced by Gennique.

Needless to say, there is much more in store for the AIS investors. Next will come their product LibiGel which is used in the treatment of female sexual dysfunction. AIS has entered into an agreement with BioSante (BPAX) for development of this product. Under the terms of the agreement, BioSante is responsible for all development activities for LibiGel and Antares has retained international commercialization rights to LibiGel in significant territories including the European Union and Japan. If this product does turn out to be the “Viagra for women”, one can only imagine what kind of cash flow might be generated. To round out the offerings, AIS also has two more gel products which are Elestrin for menopause and NestraGel for contraception.


With so many potential avenues for success, it is easy to see the comparison to Magic Johnson’s style on the court. Even if one or two products were to outright fail the FDA approval process, the company still has enough other possibilities to capitalize on. Of course any failure in the major products will obviously be a setback for the company and its stock price in the meantime.

Patrick Ewing

Patrick Ewing was the big man who would dominate as the team’s center. His one best talent was the ability to post up under the basket and take the ball to the hoop. Our company that best fits this position is Oncothyreon Inc. (ONTY). Much like Ewing, ONTY currently has one major play in their hands with the drug Stimuvax. Stimuvax is a therapeutic vaccine designed to stimulate an individual's immune system to recognize cancer cells and control their growth in order to increase the survival of patients. The vaccine is thought to work by stimulating a T-cell. ONTY has partnered with Merck KGaA of Darmstadt, Germany, who is developing Stimuvax under a license agreement. There are two Phase III trials of Stimuvax underway, and interim results are due by the end of this year.

The most compelling event thus far has dealt with the 2009 clinical data relating to long-term treatment with Stimuvax. The study involved 16 patients who received treatment with Stimuvax between 2 and 8.2 years as part of the Phase IIb trial in patients with Stage IIIb and Stage IV non-small-cell lung cancer. The reported results were that 10 of the 16 patients were alive without evidence of disease progression, of whom eight continued to receive therapy with Stimuvax after 6.3 to 8.2 years.

Besides Stimuvax the company has two other drugs in the pipeline. One is ONT-10 which is a therapeutic vaccine designed to direct an individual's immune system to identify and destroy cancer cells. This drug is in preclinical trials so it will not help the bottom line for the company for many years to come. The other drug is PX-866 which is another cancer drug. This drug has multiple Phase 2 trials going but will not be complete anytime soon. This means Stimuvax will be the main focus for the company. So ONTY will be depending heavily on the success of the drug much like Ewing depended solely on being able to dominate in the paint.

In 2011 the company raised $43 million at a public offering of 11.5 million shares of stock at $4 per share. As of June 30, 2011, the company incurred a net loss of $41.1 million for the six months ended June 30, 2011, compared to a net loss of $5.1 million for the same period in 2010. The increase in net loss was primarily due to the increase in fair value of warrant liability, which was primarily attributable to the increase in the price of their common stock.


The risks here are pretty easy to spot. With Stimuvax being the only drug anywhere close to final approval, the success of the company is heavily dependent on success of the drug. ONTY has no significant revenue streams and a pretty healthy cash burn rate. As of June 30, 2011 the company has $66.4 million of cash and short term investments on account with an $11.8 million burn rate for the same period. Any failure with Stimuvax could easily put the company into a very strapped cash position making shareholders a bit nervous of the outcome.

Charles Barkley

Charles Barkley was one of those unique players who could be very competitive playing the post position as well as on the perimeter. His unique abilities made him a threat on many levels to opposing teams. The company I would assign to this position is Æterna Zentaris Inc. (AEZS). This company is a Canadian late-stage oncology drug development company currently investigating potential treatments for various cancers including colorectal, multiple myeloma, endometrial, ovarian, and prostate/bladder cancer. At this point I am sure some readers might call foul as AEZS is also closely related to KERX in the fact that they both are highly exposed to the drug Perifosine. While KERX has been licensed to promote the drug for North America, AEZS has licensed the drug to Yakult Honsha (OTC:YKLTF) for Japan and to Handok for Korea. After that Æterna Zentaris holds the rest of the world rights. In my defense all I can say is that currently I want my Dream Team to have a higher exposure to Perifosine if and when it is proven to work.

In the meantime, the company already has one product on the market which is Cetrotide. This drug is administered to women to prevent premature ovulation in order to increase fertility success rate. So far the revenues for the company are derived primarily from sales and royalties from Cetrotide which amounted to $6.1 million and $13.2 million for the three-month and six-month periods ended June 30, respectively, as compared to $5.2 million and $10.9 million for the same periods in 2010. This is a nice small revenue stream but by itself will not lead the company’s stock price much higher. For that AEZS will need to gets its pipeline put into play. Ignoring Perifosine, AEZS has a fairly deep pipeline of possible drug candidates. The most advanced in development so far is AEZS-130 which is drug that stimulates the secretion of growth hormone. Following the successful Phase 3 trial results for AEZS-130, for which orphan-drug status had been granted by the FDA in 2007, the Company expects to file a new drug application (NDA) in 2012.

Waiting in the wings for AEZS is a plethora of other potential candidates. The company’s next best potential product will be AEZS-108 which is their cancer treatment product. AEZS has multiple trials in place which is testing AEZS-108 on a wide variety of cancers including ovarian, endometrial, and gynecological. AEZS-108 has been granted orphan-drug designation by the FDA for ovarian cancer. If that was not enough, AEZS-108 is also being investigated in Phase 1/2 trials in prostate and bladder cancer. Needless to say, this product is still early in its development but if proven to work it should be a major success story for the company as they own the worldwide rights. Besides this, the company has nine other possible products sitting in preclinical or phase 1 process which could further the company’s cause.


The company’s only cash generating product, Cetrotide, is not generating nearly enough cash flow to cover expenses. That being the case, the major focus is being placed upon Perifosine as it will have the most bang for the buck in the shortest time frame. Any failure by that product will be viewed as a major setback as the company will now have to wait for the other drugs to make their way through the pipeline. Cash, cash equivalents and short-term investment totaled $49.6 million as at June 30, 2011. Research and development costs, net of tax credits and grants were $5.6 million for the three-month period ended June 30, 2011, as compared to $5.4 million for the same period in 2010. The company does have some breathing room for its cash burn rate but in the end it needs a major score soon to solidify its position.

Michael Jordan

Michael Jordan was the other guard and was by far the most dynamic player on the team. This individual could do it all and changed the way the game was played for generations to come. Trying to attach a company to this position was tough and after much deliberation I went with Advanced Cell Technology (ACTC.OB). I am sure this choice will receive lots of criticism, but before passing judgment just yet let me justify my position. ACTC is a small biotechnology company that specializes in the field of regenerative medicine with the development of cellular therapies based on stem cell technologies (both adult and human embryonic). Regenerative medicine is the new undiscovered future of the healthcare industry, as Michael Jordan at the time was trail blazing, and changing the way basketball was played and viewed. ACTC will try to open this field via two Phase 1/2 clinical trials for Stargardt's macular dystrophy and dry age-related macular degeneration (dry AMD) using retinal pigment epithelial cells derived from human embryonic stem cells (hESCs). The initial dosing has been completed with a relatively small injection (50,000 cells) and early indications are that the patients tolerated the surgical procedures well. The primary objective of these studies is to assess the safety and tolerability of these stem cells, but clinical research and animal studies suggest that even this small dose might have measurable improvement in the patient’s sight. This study in itself is very exciting in that macular degeneration is an awful condition that has very limited treatment possibilities. Of course the $30 billion market with relatively no competition in the macular degeneration field also is something to sit up and take notice of.

If that was all that ACTC was bringing to the table, then the comparison with Jordan would fall flat on its face. Jordan has so many talents and skills, so ACTC better have some pretty big catalysts in place to fill those shoes, and thankfully they do. ACTC will leverage off their single-cell blastomere technique which is their patented and first-ever proven alternative method for successful stem cell generation without harm to the embryo.

One catalyst the company is focused on advancing is its Phase II-approved Myoblast autologous adult stem cell therapy for the treatment of chronic heart failure advanced cardiac disease, myocardial infarction, and ischemia. Congestive heart failure (CHF) is a progressive disease that affects around 5.8 million Americans, according to the American Heart Association (AHA), and an estimated 21 million people worldwide. The current treatment options for advanced heart failure are limited at best. It consists of left ventricular assist devices or a wholesale cardiac transplant. Unfortunately only a limited number of patients with severe heart failure are ever considered for cardiac transplantation. There is a significant unmet need here for new treatment options that obviously must go well beyond what current medicine has to offer. ACTC might hold the answer as their treatment is revolutionary as it will help the heart regenerate itself through the use of stem cells. Advanced Cell has successfully completed four Phase 1 safety trials with 40 patients and has met with some success. ACTC is now cleared by the FDA to commence with a Phase 2 clinical trial, which hasr 80 CHF late-stage patients who have no access to heart transplant treatment.

Add to this we must consider ACT’s Hemangioblast (HG) program for the treatment of blood and cardiovascular diseases is currently in preclinical development. The company is developing this program in partnership with CHA Biotech of Korea. To boil it down, this therapy is focused on stem cells capable of differentiating into both hematopoietic (blood cell-forming) and angiogenic (blood vessel endothelium-forming) cells. The end result is that ACTC could have potential therapeutic applications for the repair of vascular tissue and could be a promising treatment option for a variety of diseases including cardiovascular diseases, diabetes and stroke. Promising preclinical data was completed on animal models of both myocardial infarction (50% reduction in mortality rate) and hind limb ischemia, with restoration of blood flow to near normal levels. Another test demonstrated that when injected into animals with retinal damage due to diabetes or lack of adequate blood flow to the retina, the stem cells homed to the site of injury and showed robust reparative function of the entire damaged vasculature within 24-48 hours. If all that is not exciting enough, consider that this technology could also be used to produce a potentially unlimited source of platelets for transfusion.


I think I have justified my position of why ACTC should be compared to Jordan, but I am sure there will be many who do not agree. With so much potential, I believe it is not hard to make the connection. That being said, there are some substantial risks associated with ACTC, but what it comes down to in the end is if the science will actually work or not. The company’s future will be won or lost based upon the current macular degeneration trials which will be the gateway for the other programs. A failure will be such a setback that it might be hard to revive the company from such a blow. This company best exemplifies the high risk versus the high reward component of biotech investing.

In conclusion, make no mistake that this “Dream Team” concept is purely subjective. A different investor will certainly come to different conclusions on what companies should be in the lineup. Now don’t think for a minute that I believe that one can make the above comparisons of stocks to players as a viable investment thesis. In this instance though, it was a unique way to present some investment ideas. Hopefully this article simply inspires investors and readers to further investigate some of these companies and hopefully presents the information in a manner that is different from the same old boring style.

Disclosure: I am long AIS, KERX, ACTC.OB.