GOOD and BAD Biotechs: One year later
Towards the end of 2008 I attempted to establish some rules for success in small cap biotech investment, with the caveat that the best rule was really not to invest in those companies at all. The post delineating those rules is here . I subsequently attempted to identify several GOOD companies and BAD companies with an investing horizon of one year. I am now returning to re-examine those predictions and determine whether two years of self-education in these stocks paid any dividends, so to speak. And now, without further ado …
RXI Pharmaceuticals (RXII), BAD at 7.25. In December 2008 I wrote “RXI’s M.O. would appear to be remaining quietly in preclinical mode and spending as little cash as possible. Of course even a slow burn will extinguish cash reserves eventually, and with only 12M in the kitty RXI seems headed for dilution and a death spiral even before they get their first clinical trial going.” Over the last year the share price was volatile, waxing and waning but only briefly clearing my 7.25 entry point. After a spike in May, the trajectory was nearly straight downward to a bottom at 1.8, helped along by the inevitable dilutive financing. The stock has now climbed back to 4.58 and a 74M market cap without apparent catalysts, and no clinical trials have yet been initiated. Buyout speculation? Who knows. But I’m getting my red thumb ready again. On RXI, I’m giving myself an A.
Osiris Therapeutics (OSIR), BAD at 19. Last December I blogged “There is no track record for success of stem cell therapies. The most likely outcome is that the trials will fail and Genzyme will walk away with minor damage.” A pumper troll calling itself kasper187 responded “Wow i'd love to spit on you bro. No track record? Are you retarted (sic). Every patient responded in 28 days with Crohn's Disease. GVHD is already approved in emergency Cases. Do your research man.” Um, thanks Kasper. The February high was 20.5. The stock then lost a third of its value in March when the phase III trial of Prochymal in Crohn’s was terminated due to a negative interim futility test. After creeping back up to 14, the share price was halved again in September with complete failure of both phase III trials of Prochymal in GVHD. Kasper, were you one of the lucky insiders who got a heads up on the negative data when the share price dropped 20% three days before the trial results were officially released? I didn’t think so. Something tells me your brokerage account is looking a little ghostly these days, Kasper. The low was 5.68 and the share price is back up to 7.14. It appears that the company will likely attempt to continue down the data-mining pathway, trumping subset data for liver and GI GVHD as well as the pediatric population. Since we know that data-mining never works with the FDA and rarely leads to a subsequent successful phase III trial, judicious players may want to loosen up their red thumbs again. Once again, an A for me on Osiris.
Cougar Biotechnology (CGRB), BAD at 24.2. In May J&J bought out Cougar at $43, almost double what I considered an excessive price for the stock. As I’ve mentioned elsewhere, this was a buyout that surprised a lot of people considering that their anti-cancer agent abiraterone is a complete toss up. To the best of my knowledge, J&J hasn’t yet released any phase III data for abiraterone. If you listened to me you missed out on a near-double, so I’ll give myself a D on Cougar. If abiraterone ends up being successful for J&J, I’d revise my grade to an F.
Opko Health (OPK), BAD at 1.55 – things were going well for my negative prediction on Opko in March after the company announced termination of the phase III trial of bevasirinib in wet AMD due to lack of efficacy. The share price was as low as 0.6, then more than quadrupled over the next six months for no reason that I am able to identify except possibly for their leap onto the influenza vaccine bandwagon. They’ve continued to dilute their stock and the market cap is now an absurd 464M despite their low share price. Although the current share price is higher than it was when I rated them BAD, I still think it was a good idea to stay away from Opko then as well as now. I’m grading my call a C.
MITI (Micromet), BAD at 4.1 – in 2008 I wrote “Slow pipeline progress and an increasing cash burn resulted in a recent large dilutive financing, a cycle which will likely continue in 2009.” In fact, the company completed an 80M dilutive financing in August, which is possibly the largest I’ve ever seen in small cap biotech. In true counterintuitive fashion the share price never blinked at the dilution, rising from a low of 2.44 in March to over 8 in September before bouncing down and up to the current level. As far as I can determine, the only pipeline catalyst was moderately encouraging topline results for the phase II trial of blinatumomab. A phase III trial isn’t even a gleam in the CEO’s eye yet. Dilution has brought the market cap to an obscene 459M, up from 165M when I dissed them. I think you see where I’m going here – Micromet is more overvalued than ever. Invest at your own risk. But in terms of my one year projection, I only get a grade of C as the stock dropped but then rebounded in dramatic fashion.
This ended up being a much more long-winded post than I planned, just like the original post it is based on
. So I’ll have to continue my report card in a day or two for the 10 or 15 of you who care. Happy new year to everyone