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Small cap biotech: The BAD (part I)



December 01, 2008 – Comments (4) | RELATED TICKERS: CGRB , OSIR , OPK

Here's where things get nasty and Yahoo pumper trolls start to froth. I've decided to pick ten Bad biotech companies I believe will ultimately fail, based on my experience with Ugliness. It's actually rather difficult to find these companies now as so many have already failed in the last two years. This is not a recommendation to short or even to red thumb, as several may outperform in the short or mid-term based on momentum and false optimism. Later this month I'll choose ten Good biotechs I think will be successful in the long term. If you disagree and find my analysis woeful, please keep it to yourself and do not try to convert my blog into a Yahoo message board. The nice thing about CAPS is that everyone gets to make their picks and everyone can see how accurate they are. That way, you don't have to argue with anyone. When their score is low, you can just ignore them, which is what everyone else does. And by blogging my picks I'm raising the stakes on myself even higher. I'm putting a year horizon on my Bad and Good picks. In shorter time periods it becomes almost impossible to overcome stochastic factors. And longer term accuracy? Well, who wants to be proven right after they die? So after a year I'll re-examine this month's picks and determine whether I should keep rating biotech or switch to reviewing movies on IMDB. 


RXI Pharmaceuticals (RXII): There’s an old saying that going something like this. What’s the white stuff in bird sh-t? Answer: more bird sh-t. Well, if CytRx is bird sh-t, then its RNAi spinoff/subsidiary RXI could be the white stuff. The difference of course is that CytRx has dropped to a market cap of 34M after failure of their “molecular chaperones”, while RXI still trades at 100M. I’m not smart or motivated enough to figure out exactly how spinning off the RNAi business benefited CytRx, except to look at it as some kind of a Hail Mary lateral as a phalanx of outsized tacklers approached. Keep in mind that RNAi is a new technology with no track record of clinical applicability. 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. RXI Pharmaceuticals, BAD at 7.25.


Osiris Therapeutics (OSIR): The lofty 600M valuation of Osiris depends on two things: a partnership with Genzyme and optimism for success of clinical trials of stem cells in GVHD. Of course, as we have learned from our Uglies, partnerships cannot make treatments work. 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. Osiris has a long long way to fall. Osiris Pharmaceuticals, BAD at 19.


Cougar Biotechnology (CGRB): I’m mystified as to why Cougar trades at 500M with a single cancer compound in phase III trials that will likely not be completed for years, and only enough cash to sustain them for 6 quarters at their current burn rate. I’m also inherently suspicious of biotechs that don’t discover their own pipeline candidates. Did someone else really hand them the cure for cancer? Cougar Biotechnology, BAD at 24.2.


Opko Health (OPK): At a share price of 1.55, a casual observer could be forgiven for thinking that Opko is a cheap stock with potential. But with a huge 200M share float and corresponding market cap over 300M, Opko is actually more expensive than Orexigen at 9 or Momenta at 8. The lead compound is an siRNA in a phase III trial of unclear duration and cash is quickly vaporizing. The genius behind the company’s inception is Philip Frost, whose monkey shines with Protalix and other companies are well-described elsewhere. Opko Health, BAD at 1.55.


MITI (Micromet): Slow pipeline progress and an increasing cash burn resulted in a recent large dilutive financing, a cycle which will likely continue in 2009. This biotech with a dubious justification for its existence and no track record of success has so far managed to avoid the descent into the penny realm which has plagued many similar companies. There’s no reason to believe their good fortune will continue through 2009 with no positive catalysts on the horizon. Micromet, BAD at 4.1.

4 Comments – Post Your Own

#1) On December 01, 2008 at 8:52 AM, chk999 (99.96) wrote:

Great blog topic. I look forward to the article on the good biotechs.

Chris - knows nothing about this industry, but is greedy

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#2) On December 01, 2008 at 10:36 AM, ikkyu2 (98.22) wrote:

I only count 5 Bad Biotechs.  Are there another 5 coming?

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#3) On December 01, 2008 at 9:57 PM, kasper187 (< 20) wrote:

Wow i'd love to spit on you bro.

(Osir) Is a top performer. Market down 600 points and Osiris still in the green..

 No track record? Are you retarted. Every patient responded in 28 days with Crohn's Disease. GVHD is already approved in emergency Cases.

Do your research man.

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#4) On December 02, 2008 at 2:37 AM, DemonDoug (31.42) wrote:

kasper, good info on Osiris.  zz, i'd love to hear your response.  The rest definitely look like dogs.

Also, I find it ironic that a life science company would name itself after a God of the Dead/underworld lol.

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