Big-Indication Small Biotechs: Value Waiting to be Realized

Posted On October 15, 2010 | by AllenCaron

Something heard regularly from investors in the biotech and pharma world is that they want to find companies working on big indications that are underserved  (an “indication” is a disease or condition that could be helped in some way by a drug). 

In order to look for the kind of dark horses that might give a buyer a 10-bagger, you have to find a company looking at an indication that afflicts gazillions of people AND it has to be one that no one has found a satisfactory answer for.  Either that or the company could, in some cases, be looking at an outside-the-box answer that could displace current drugs or tests.

What might be an interesting big indication that is currently underserved?  Well, the biggest one right now is probably malaria, but the Bill & Melinda Gates Foundation is seeding cash around the world looking for a cure or a paliative or a vaccine, so one could assume that there will be a whole subclass of malaria companies in the very near future.  Here is the Gates Foundation’s website section on malaria:  http://www.gatesfoundation.org/topics/Pages/malaria.aspx .  And they will get media attention from the giddyup.

Child with dengue fever bleeding in eye cavities

If you look for the same kind of indication but exclude malaria, you might come across dengue fever.  WHO says that 2.5 billion people are at risk of dengue (rhymes with Bengay) fever, which is one of the most painful viral diseases known, and one that can kill easily.  It is colloquially known as Breakbone Fever, due to the extreme pain it causes.  Here is a story about an outbreak in Brazil earlier this year: http://www.fiercevaccines.com/story/brazilian-dengue-outbreak-highlights-vaccine-need/2008-04-10?utm_medium=nl&utm_source=internal.

Two smallish companies, Fort Collins CO-based Inviragen (http://www.inviragen.com), a vaccine-oriented biotech focused in large part on tropical diseases and supported by some biotech investor biggies, is teamed with Golden CO-based privately held PharmaJet (http://www.pharmajet.com/) to deliver a needle-less vaccine for dengue fever.  And they have received some government assistance: http://www.fiercebiotech.com/press-releases/inviragen-and-pharmajet-receive-15-5-million-niaid-contract-develop-needle-free-dengu.

There are many underserved indications, though, and perhaps most are fairly everyday diseases and conditions that have been stubbornly resistant to diagnosis and/or treatment.  Most men know that prostate cancer, for instance, is difficult to diagnose based on the most common test (PSA), which is notoriously capable of both false negatives and false positives.  The same is true of ovarian cancer, where the “gold standard” of diagnosis is a notoriously inexact and borderline useless test referred to as CA125.

Early detection is the only real edge in cancer, and an emerging small company in Australia, Melbourne-based Healthlinx Ltd* (http://www.healthlinx.com.au) , could be a company to watch.  Their OvPlex(TM) diagnostic panel seems to be the only early detection test for ovarian cancer.  Healthlinx shares trade in Australia under the ticker HTX, and there is no US symbol at present, but given Healthlinx’s statements about an impending announcement of a US partner, it’s probably safe to assume that there will be an ADR in the near future.  HTX shares are trading at AUD$0.07 per share, with a market cap of about AUD$11 million, and fairly decent volume of about 200,000 shares per day.   Interestingly, HTX has an early-detection prostate cancer test barreling down the pipeline.  OvPlex is already approved and being sold in Australia, the UK and Singapore, and has a distributor ready to go in Israel.  

Recent FDA approval of an ovarian cancer test by Austin TX-based Vermillion Inc (Nasdaq: VRML; http://www.vermillion.com/) has upgraded the tools available as well, with Vermillion’s FDA and CE-cleared OVA1 test is  billed as triage test or a late-stage test, to help an oncologist decide what kinds of treatment to pursue.  VRML is trading at $5.18, with a market cap of about $56 million, on volume of about 115,000 shares a day.  VRML is also pursuing a test for Peripheral Artery Disease (PAD), another big indication that may be underserved.

No doubt there are many companies working on big indications that are underserved, and there’s no way to be thorough in an article like this one, but another one to look at is another small early-stage Australian company, Sydney-based QRxPharma (ASX: QRX and Pink Sheets: QRXPY; http://www.qrxpharma.com/), which is pursuing possibly the largest indication in the world — pain relief (estimated at $7 billion annually in the US alone).  Their lead product is MoxDuo(R) IR, a patent-protected and potent mix of oxycodone and morphine with a surprisingly small panel of side-effects, and an almost negligible rate of withdrawal problems compared to other opioids.  MoxDuo is in Phase 3 clinicals at present, and has sailed through most of its trials, possibly because its constituent drugs are so well-known and understood by regulators and the medical community.  QRX trades pretty well in Australia, with a current price of AUD$0.89, market cap of about AUD$18 million, and daily volume averaging 66,000 shares.  The ADR traded on the Pink Sheets trades lackadaisically, tracking the ASX values, although the ADR has 5 shares in each ADR, so the current price is US$4.51.

Taking another big right turn, a little Knoxville TN-based company, Provectus Pharmaceuticals* (OTCBB: PVCT; http://www.pvct.com), has a huge pipeline of drugs for an amazing variety of indications, but their lead drug is intended to treat melanoma, the fast-moving and deadly skin cancer that is in many cases a de facto short-term death sentence.  The company has an almost messianic belief in their drugs’ efficacy and safety, but its led drug is still in Phase 2 tests with end-stage melanoma patients (data is to be presented at a big melanoma conference on November 4, 2010).  Provectus shares are trading at about $0.95 for a market cap of about $75 million on average volume of about 180,000 shares.  The market has remained skeptical about Provectus because it has pursued a range of drugs that are outside the mainstream of biotech research — but that could make it a diamond in the rough as it presents its Phase 2 results and inevitably heads into Phase 3 of the results are good.

Stockholm is home to a bunch of biotechs, including Swedish Orphan Biovitrum (which is the diametric opposite of what this article is about, since they look for drugs for rare diseases and conditions).  But one interesting and perhaps overlooked biotech is Diamyd Medical AB (OMX: DIAM B and OTCQX: DMYDY; http://www.diamyd.com/) , which is pursuing a CURE for Type 1 diabetes 9the autoimmune variety) with a vaccine to prevent and/or cure it.  Most diabetes companies are involved in treatments for diabetes, many concentrating on new and better ways to deliver insulin.  Dr Elisabeth Lindner, Diamyd’s scientist CEO, believes that the end of the beginning has already passed for Diamyd and that a new era in the company’s campaign to wipe out Type 1 diabetes has begun.  As if to underscore that, Johnson & Johnson has become a heavy investor in Diamyd.  Shares are trading at about $20.00, near the year-high of $22.00, with a market cap of about $580 million.  OMX trading is robust and OTCQX trading is somnolent. 

There it is, a shallow dent in the fertile soil of big-indication biotechs.  We’ll try to bring you more of them in the near future. 

*Allen & Caron, publisher of this blog, has done project work for Healthlinx, and some years back worked with Provectus.

One Response to “Big-Indication Small Biotechs: Value Waiting to be Realized”

  1. Financings of the Fortnight Ponders Haircuts and Waves Its Freak Flag High | Oncology Blog
    October 22nd, 2010 at 8:51 pm

    […] Big-Indication Small Biotechs: Value Waiting to be Realized … […]

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