The accompanying table profiles the 13 companies mentioned in this article and statistics for all 113 companies [ click here for a link to the entire index ] with market caps between $25M-$150M, which are included in the new ETF Innovators [ETFI] Micro-Cap Bio-Pharma Index as a complement to the ETFI Emerging Bio-Pharma Index of companies with market caps between $150M-$1.5B.
The Micro-Cap Bio-Pharma Index was hit especially hard over the past year, posting a decline over 41% while the Emerging Bio-Pharma Index fared somewhat better with a 30% loss. Over the past year, benchmark healthcare ETFs posted losses of about 19% each for iShares Nasdaq Biotech (IBB) and PowerShares Dynamic Pharma (PJP) versus steeper declines of 30% for the Healthcare Sector SPDR (XLV) and 43% for an overall measure of micro-cap companies, the iShares Russell Micro-Cap Index (IWC).
Two companies included in this index have pending FDA decisions which will likely have major impacts on the stock prices, including Acusphere (ACUS) – for cardiac imaging agent Imagify and Labopharm (DDSS) – for both once-daily tramadol (already marketed outside the U.S.) and rapid-onset trazodone as new formulations of existing drugs. Meanwhile, BioDelivery Sciences (BDSI) remains on track for a FDA resubmission before year-end, which contains a Risk Evaluation and Mitigation Strategy for its lead product candidate Onsolis (BEMA Fentanyl) with an expected Class II review designation and six month review.
However, even FDA or EMEA approval does not guarantee a higher stock price as several companies in the index have either U.S. or European approved drugs on the market with significant share price declines over the past year, including InSite Vision (ISV) – AzaSite, Javelin Pharma (JAV) – Dyloject, DepoMed (DEPO) – Glumetza, Adolor (ADLR) – Entereg, Akorn (AKRX) – Akten, Trimeris (TRMS) – Fuzeon, and BioSante Pharma (BPAX) – Elestrin.
All hope is not lost for companies in the Micro-Cap Bio-Pharma Index despite an average loss of 41% and challenging conditions to raise cash to fund R&D, as several buyouts over the past year have resulted in premiums exceeding 100%, including under-the-radar names such as:
1.) SGX Pharma was acquired for $64M cash by Eli Lilly (LLY) for its cancer drug discovery platform
2.) Kosan Biosciences was acquired by Bristol-Myers (BMY) for its cancer drug pipeline
3.) Barrier Therapeutics was acquired by privately-held Stiefel Labs
4.) Pfizer's (PFE) $164M cash buyout of cancer drug developer Coley Pharma
5.) The most recent and extreme example includes GlaxoSmithKline's (GSK) $57M buyout of Genelabs (GNLB) at a 400%-plus premium.
I have written recently about three companies with good prospects – Achillion Pharma (ACHN) for its two lead HCV drugs about to enter clinical studies, BioSante Pharma (BPAX) on the prospects for LibiGel as the female Viagra (being evaluated in three separate Phase 3 studies), and Cytori Therapeutics (CYTX) as a regenerative medicine innovator with its Celution System already in use in Asia and Europe.
I also like the prospects for Discovery Labs (DSCO) to get approval for Surfaxin in mid-April, although the Class II review designation by the FDA has sent the stock reeling. However, insiders are still buying DSCO with 155,000 shares purchased in November at $0.90-$1.32 per share.
Saving what I believe is the best opportunity for last, the previous time that InSite Vision (ISV) traded close to its current stock price, the Company was on the ropes for survival with no products on the market and a dwindling cash reserve. Fast forward by about five years and ISV is once again trading around the same low levels despite the following six factors in its favor:
1.) an approved anti-infective eye drop ( AzaSite ) (1% azithromycin ophthalmic solution) marketed by Inspire Pharma (ISPH) – which is conducting Phase 4 (post-market) clinical studies while working on better insurance coverage and increased prescriber awareness to expand the sales of AzaSite – posting 3Q08 prescription volume growth of 20% from the year-ago period
2.) a late-stage pipeline with a combination steroid + anti-infective eye drop (AzaSite Plus) in pivotal Phase 3 studies to support a new drug application with the FDA – results are expected in the first study during 1Q09 with an additional trial due to start in the near-term
3.) a sustained-release topical drug delivery technology platform (DuraSite) for more convenient, less frequent dosing regimens to increase patient compliance – would you rather use an eye drop that is effective with once or twice daily dosing versus one that requires administration every 4 hours?
4.) an anti-infective ear drop (AzaSite Otic) + a higher concentration anti-infective eye drop (AzaSite Xtra) in the pipeline – with the latter being developed for international markets such as Europe
5.) a recent proxy contest won by PTV Sciences to overhaul and streamline the Company's management and Board, including an ongoing search for a new CEO, including recently announced restructuring plans which will reduce the workforce by about 35%, save about $2M per year in operating expenses, and result in a one-time charge of about $450,000 during 4Q08
6.) a well-timed $60M debt financing completed earlier in the year, which is secured by AzaSite royalties to advance the Company's pipeline and remove the risk of insolvency (cash and equivalents were $45.7M at the end of 3Q08) – completed at an opportune time early in the year as credit and equity market conditions have deteriorated markedly since that time
Given the positive factors outlined above and with ISV losing about two-thirds of its market value in the past year through the end of November (versus an average loss of 41% for the Micro-Cap Bio-Pharma Index of 113 companies ), I think now is a good time to be buying shares and have done so for myself. In addition, AzaSite Plus looms as a near-term catalyst in the form of pivotal Phase 3 results and the potential for upfront cash in a licensing deal – likely coming in at north of the $13M and $19M paid by Inspire upfront and upon FDA approval, respectively, in the AzaSite licensing deal of early 2007.
$2.43 (12/02/08)
