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Small cap biotech: The BAD (part II)



December 02, 2008 – Comments (5) | RELATED TICKERS: DNDNQ , IDIX.DL , CADX.DL

This is the second part of my list of ten Bad biotech companies that I believe will become Ugly biotech companies in the near future. It’s truly amazing how many companies have already made that journey in 2007 and 2008, and how few new biotechs have gone public. I hope we’re seeing a paradigm shift where biotech will no longer be an easy place for fly-by-night operators to collect hefty executive salaries and options while blowing endless smoke about hopeless pipelines. The seemingly endless ability of these companies to finance themselves with debt and dilution may have come to an end for the foreseeable future. I saved some of my more controversial choices for the end.


Cadence Pharmaceuticals (CADX): The main driver for this stock is the prospect for FDA approval of Acetavance intravenous acetaminophen for pain and fever. The fever data is fine, but I’m not seeing commercial success. We already have a version of acetaminophen that doesn’t need to be swallowed. It’s called a suppository. In terms of pain relief the picture appears grim to me. In 1/08 the share price dropped 50% when Acetavance didn’t outperform placebo for pain relief in a phase III trial. The company then decided they would file their NDA based on another study in 2005 where apparently the results were better, and claims the FDA is cheering them every step of the way. Another phase III study of pain relief with results expected at any moment (Study 304) is now supposedly irrelevant to the NDA. Makes you wonder why they didn’t just file their NDA in 2005. The idea of the FDA approving a pain drug whose two most recent phase III trials were failures is so laughable I almost can’t bear to think about it. Finally, Cadence has a partnership with a penny biotech on some antibiotic goo to put on central lines. The timing of topline data release for the goo keeps getting pushed back for odd reasons, and the penny biotech is in death throes. Cadence Pharmaceuticals, BAD at 6.


NPS Pharmaceuticals (NPSP): Peeking out from under a mountain of debt, NPS is attempting to come up with a new drug to market. All their revenues from their one approved drug appear to be devoted to paying interest on debt. Unfortunately, their lead compound Gattex for malabsorption essentially failed a phase III trial in 2007. Of course, the company backtracked on their original trial design and spun themselves a little silver lining to justify a new phase III trial. Promised for most of 2008, this new phase III has just been initiated. The company has cash to survive (and pay executive salaries) for another two years so this is more likely to be a 2010 bankruptcy. NPS Pharmaceuticals, BAD at 6.1.


Idenix Pharmaceuticals (IDIX) – this has been my biggest point deficit in CAPS for a year, but I have no intention of ever closing this pick. Idenix has a track record of failure in the highly competitive field of hepatitis. Valopicitabine for hepatitis C was only marginally effective in trials, and development was dropped after liver enzyme elevations were noted. Tyzeka for hepatitis B was approved but not a commercial success, and the company apparently is no longer involved with its marketing. With these failures the share price dropped from the 10 range into the 2’s in late 2007 and still appeared overpriced with only early stage compounds in the pipeline. In 1/08 the stock doubled for no apparent reason and eventually rose to the 8 range helped along by some positive phase I data for their new NNRTI for HIV. NNRTI’s seem to be a favorite for baby biotechs with high profile failures seeking comebacks – see Ardea. In terms of Idenix’s efforts, I look at their unsuccessful history versus that of an HIV franchise like Gilead. HIV and hepatitis seem to be great areas for baby biotechs to get press and upward pressure on their stocks, but not so hot for drug approvals and commercial success. Idenix Pharmaceuticals, BAD at 6.


Synta Pharmaceuticals (SNTA) – at this point Synta is a pure play on the success of elesclomol, which is in a phase III trial for melanoma with topline data expected in early 2009. Besides the inherent difficulty of getting positive results against a truly evil cancer like melanoma, the positive phase II data for elesclomol was controversial due to the control group being sicker at the outset of the trial. In the current darkness for baby biotech, failure of the phase III trial will likely send Synta below 0.5. Synta Pharmaceuticals, BAD at 4.4.


Dendreon Corporation (DNDN) – ooh, I’m going to get it for this one. But this blog isn’t afraid of controversy. The bottom line is that I don’t think Provenge works. I base this on the failure of every other cancer vaccine biotech in the last two years, as well as the contortions Dendreon has made to wring statistical significance from pooled phase III trials. They also have an irritating habit of encouraging speculation about ulterior motives of FDA panelists and various other conspiracy theories. The interim data from IMPACT, again, was marginal and not predictive of any particular result. My assessment depends mainly on the empirical behavior of similar companies in the last two years. Dendreon Corporation, BAD at 4.5.

5 Comments – Post Your Own

#1) On December 02, 2008 at 4:59 PM, DemonDoug (31.42) wrote:

Regarding Dendreon - you are right, you are going to get it, and from me.

Regarding contortions, they changed one end point - from time to progression to total survival.  The time to progression was actually better in the experimental group, but it wasn't statistically significant because of the relatively small numbers of subjects.  As far as conspiracies, well, whether it's conspiracy or incompetence, the FDA has approved less drugs in the past 8 years than they have in a very long time.  Provenge should have been approved last year.  There was a 13-4 vote in favor of it from a panel of experts; and then the FDA shut it down.  A week later, another drug from another company (gilead? amgen? can't remember) had a vote in favor by one, like 4-3 or 3-2, and that one got approved.  You can't tell me that politics doesn't play a part.  The holy grail in cancer treatment, as I understand it, is survival, and the bottom line is that Provenge increases lifespan.

Also, something that happens and you mentioned with another drug in this post (Valopicitabine), Provenge has shown no signs of side effects.

Look, here's the thing: it could be very well that the IMPACT study fails to meet it's primary end point.  But what if it doesn't?  There is a significant chance it will reach that endpoint, plus, there will be huge political pressure from both investors and patients, and likely oncologists, and while the Bush administration doesn't care about prostate cancer, you can bet your ass that the Obama administration will not turn deaf to these pleas.

I also expect Obama to staff the FDA with much more competent people, and more drugs to be approved over the next 4 years.  (Likely more drugs in the next 4 years than in the previous 8 total.)

So the bottom line is the red-thumbing or shorting DNDN might be profitable, but it could easily swing the other way.  Personally, I own shares of DNDN but I'm not  making a call up or down on it right now in CAPS.

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#2) On December 02, 2008 at 9:22 PM, pdhale (< 20) wrote:

I think it's interesting that talking heads feel they're bright enough to have an opinion about whether a cancer treatment works. You also blow off the idea of a FDA conspiracy against Provenge. Well, hears my response to both points (Your lack of competance to judge and the possibility of a conspiracy within the FDA)

The panel of experts voted 17-0 that Provenge was safe and 13-4 that it was effective.

End of story.

OBTW, two of the dissenting votes would not have been allowed to vote if their conflicts of interest had been revealed, so the effectiveness vote should have been 13-2. And I wonder why the FDA remains silent as to why they denied approval.

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#3) On December 04, 2008 at 2:39 PM, DemonDoug (31.42) wrote:

pdhale, I can give you an answer to that:

The FDA is at the same time incompetent and dishonest.  Seems to be endemic within government these days (see: every single freakin bailout ever)

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#4) On December 06, 2008 at 8:22 PM, esymoni (< 20) wrote:

You know nothing about NPSP and the pipeline of drugs.  Actually NPV with current drugs is well over $4.  and the so called interest payments are not interest payments, but principle and interest payments.  But if you did any research at all you would know this.  It is a shame people like you can spout BS and make it seem like gospel when you have no idea of what you are talking about.


You fail to mention the partner list and the co development with Nycomed.  But again based on your total lack of information on your blog, I would guess nothing more from you.

Please at least do a little research before you spout your BS.

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#5) On February 08, 2009 at 6:44 AM, GorillaGorilla (< 20) wrote:

Hmmm... given that INDX has now licenced the HIV drug to Glaxo.... seems a more interesting company.

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