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Small cap biotech: The GOOD (part II)



December 22, 2008 – Comments (10) | RELATED TICKERS: CVTX.DL , LGND , VPHM.DL

 I've been remiss in keeping up with my good biotechs, and I've been punished by seeing 2 or 3 jump up almost 50% as I procrastinated recommending them. I found three which haven't gained that much in the last two weeks to get me to the halfway point of the theme.


CV Therapeutics (CVTX): CV has been flying under the radar since losing most of its market cap in 2006 due to pessimism about the commercial future of their anti-anginal drug Ranexa. But I’d like to submit a string of numbers: 15,18,21,22,25,30. That’s not next week’s lotto winner. Those are the last 6 quarters of Ranexa revenues, in millions. Furthermore, that nice steady increase all occurred before recent EMEA approval of Ranexa, FDA approval of Ranexa as a first-line anti-anginal, FDA approval of expanded Ranexa labeling as an anti-arrhythmic and anti-diabetic agent, and the initiation of an aggressive marketing campaign. I haven’t seen guidance for 2009 Ranexa revenues, but my own uneducated guess is 150-180M. Additional CV positives are FDA approval of the imaging agent Lexiscan and the immediate sale of 50% of US royalty rights for 175M, and a licensing deal for Ranexa in Europe that includes 70M up front. My main concern about CV is their significant debt and negative shareholder’s equity, which I believe are mitigated by the recent substantial deals which have not yet been recorded on the balance sheets. The current share price is virtually the same as the beginning of 2007 when Ranexa was weak and Lexiscan was a wild card. CV Therapeutics, GOOD at 9.1.


Ligand Pharmaceuticals (LGND): Ligand stock has been on a fairly steady downward decline over the last two years, but appears to have reversed that trend since FDA approval of the ITP drug Promacta in 11/08. Earlier this year the share price was at 3.6 after a positive advisory panel vote before eroding to as low as 1.27 prior to approval. Needless to say, 1.27 would have been a nice entry point but I feel that the stock could potentially return to the double digit figures last seen at the beginning of 2007. Promacta is already licensed to Glaxo, who appear to be positioning themselves for aggressive marketing of the drug. An additional potential short-term positive catalyst is the PDUFA for Fablyn for osteoporosis, which is licensed to Pfizer, in 1/09. As with Promacta, the FDA posted rather negative briefing documents which were followed by a positive advisory panel vote. Déjà vu, anyone? Other NDAs are planned in 2009, and the company recently invigorated its pipeline with the purchase of Pharmacopoeia at a bargain basement price. Numerous positive developments for Ligand this year in the face of overwhelming downward pressure on the share price. Ligand Pharmaceuticals, GOOD at 2.6.


ViroPharma (VPHM): Like Ligand, part of the buying opportunity for Viropharma may have already passed. The stock was a spectacular buy under 10 with the broad market instability in October, although no one could be excused for not wanting to buy any small cap biotech stock at that time. And in fact, ViroPharma still appears to have a lot of upside potential at its current price. Their bedrock business is the c.diff antibiotic Vancocin which has outsold analyst estimates with no immediate threat of generic competition. The most positive development of the year was the acquisition of Lev and subsequent approval of Cinryze for prophylaxis of hereditary angioedema. The company plans to market Cinryze at $4000 a dose on a schedule of 90 doses a year, and a target population of 1000-2500 patients. That would provide annual revenues of 400-1000M. Think the insurance companies won’t pay? Check out a drug called Soliris, a company called Alexion, and the revenues and stock price of a company called Alexion. The wild card is topline phase III data for Marabivir to treat CMV in transplant patients, expected in Q1 2009. I might defer buying the stock now pending the Marabavir data, and then jump in with a disproportionate drop if the data was negative. Regardless, I think after a year the stock will be substantially higher once Cinryze revenues begin to hit the books. ViroPharma, GOOD at 12.9.

10 Comments – Post Your Own

#1) On December 22, 2008 at 3:41 PM, EnigmaDude (57.11) wrote:

Thanks for your detailed summaries. I have been watching VPHM for a while and thinking of buying for my RL portfolio.

btw - What is your opinion of SQNM?

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#2) On December 22, 2008 at 7:34 PM, zzlangerhans (99.75) wrote:

For more on Sequenom, see my outperform pitch. My last post was going to be about genomic diagnostic companies until Sequenom did a near double last week, reducing the value of a GOOD call. Sequenom will be a great investment for a rebound if the overall market tanks again, but for right now not so much.

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#3) On January 05, 2009 at 12:11 PM, FleaBagger (27.47) wrote:

Any thoughts on when these biotechs might start flying on the radar?

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#4) On January 15, 2009 at 11:47 PM, wholder (< 20) wrote:

I read your rec regarding the put/call spread play on ITMN.  Very nice idea. 

As a rule I never, ever touch biotech stocks.  But sold a Jan call because I couldn't believe I could get 25%.  I don't have much skin in the game (that last call was more for entertainment purposes -- okay, yes, it was gambling).  But now you've got me curiosity going. 

 I have no intention of holding this stock long term.  But if I bought a Feb. $7.50 call (now going for $3.90), I could wait for expiration if the Feb tests went well. Or buy back the call if the tests didn't go well and dumping the stock.  This assumes the stock doesn't plummet lower than $5.30.  How much does a stock like this fall, when it falls?

 As I said, I have absolutely no understanding of how biotechs work.  So am I reducing my risk, or still gambling?

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#5) On January 27, 2009 at 11:32 AM, GorillaGorilla (< 20) wrote:

Cheers ZZ.... I've learnt' a lot from your postings. Even bought CVTX a few weeks ago...... I'm not complaining.... ;)



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#6) On January 27, 2009 at 11:59 AM, FleaBagger (27.47) wrote:

My last comment sounds pretty asinine now. I had already bought CVTX around 10. I'm new to the biotech scene, and bought only on your rec, so I sold for 16.xx just now. Not bad for less than a month! Thanks!

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#7) On January 28, 2009 at 5:32 AM, GorillaGorilla (< 20) wrote:


 I was looking at OPTR, one of you green thumb caps, and I like the fact that the drug is more effective and more specific to CDI infections.The only thing I couldn't have a guess at was how likely FDA was going to give approval. Can you tell me about the similar phase III trials you talk about? Which ones would you consider it to be the same as? Any anti-biotic? Or just, say, Vancocin?

"My policy is to invest in biotechs awaiting phase III results when previous similar phase III trials were positive."


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#8) On February 07, 2009 at 11:17 PM, zzlangerhans (99.75) wrote:

I hadn't realized there were more replies. I've stopped blogging about good biotechs as I think the entire small cap market is in for a downward correction after recent gains in the face of steadily worsening economic indicators. My holdings are now weighted towards short ETF's, a position I plan to increase dramatically if market gains continue in the early part of the week. I haven't had much reason to go back and look at my old blog entries either.

I'm glad for anyone who scored with CVTX, especially if I was part of the reason. Buyouts have helped me out enormously, saving me from many negative scores as corporate rationality overrode the stochastic behavior of retail and institutional investors. Ironically, I held no shares. I was waiting for a dip below 8 to buy, which of course never came. I think selling at 16 was very smart as there is a good chance CV will refuse the deal and sink back to the 12 level or even lower.

Wille, I hope you sold those calls. Intermune is living on borrowed time. If I had owned shares and knew the pirfenidone data before it came out, I would have sold ahead of the data release. The jump in the share price seems idiotic to me. If the data had been worse your call would have been worthless. Biotechs can go down from 10 to below 1 in a day on bad news - see outfits like Sonus and Northfield.

Regarding Optimer, the FDA requires two phase III trials for most pharmaceuticals prior to approval, and presumably expects both trials to be positive. A second phase III trial of OPT-80 is in progress, although the company has mentioned at least once that enrollment has been slow, and I have not seen any projections for timing of topline results. However, there is no reason to expect results substantially different from the first phase III trial which were excellent, especially in historical comparison to Vancocin. Optimer is on track to become one of my top-performing picks, although I can't classify them as a GOOD biotech as they have no track record of success beyond phase III trials.

I'll be back blogging about GOOD biotechs again once my anticipated correction has occurred and I don't have to be worried about being embarrassed by 50% haircuts in my picks within a week of making them. 

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#9) On February 11, 2009 at 5:17 PM, GorillaGorilla (< 20) wrote:

Excellent. Thank you very illuminating..

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#10) On March 13, 2009 at 11:11 AM, FSaucy (99.34) wrote:

I appreciate your detailed insight and have oodles of questions about ViroPharma.

With Vancocin HCl being their only real revenue source, what do you make of the recent tank in VPHM price in the wake of Maribavir phase 3 failure?  They do still have a NTCD pipeline, but is there any promise there?  Is Vancocin HCl running out of revenue steam in the near future?

How much of the market cap before the Maribavir phase 3 announcement priced in the hopes and dreams for Maribavir?  Was it really accounting for over 50% of their perceived value?  Is the Lev acquisition worth anything other than $500M in lovely intangibles?  It seems my gut is telling me we're undervalued at $4/share even knowing there is 0% hope for Maribavir.

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