Small cap biotech: The BAD (part II)
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.