Investor: San Francisco Now a ‘Target-rich’ Environment for Biotech M&As

Gene J. is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The next generation of biotech stars in therapeutics and diagnostics is now poised to emerge from the San Francisco area, and one high-profile investor has taken to calling the city by the bay a “target-rich” environment for new healthcare M&As.

Three conferences held in San Francisco earlier this month showcased the new talent, including the Biotech Showcase 2013, OneMedForum SF 2013, and the J.P. Morgan 31st Annual Healthcare Conference.

"San Francisco was undeniably a target-rich environment for a company like ours, that helps brilliant innovators develop and commercialize their best ideas," said Patrick Brown, CEO of Rainbow Coral Corp., based in Nokomis, Fla. "The triple bill on the bay gave us a prime opportunity to review the deal flow of new therapeutics and diagnostics currently being readied for the marketplace.”

New deal flow expected

Brown said his investor colleagues returned home from California recently with a “thick stack” of biotechnology business proposals to pursue. “We'll begin narrowing down our options to move forward with the most promising of these biotech developers this week,” said Brown, whose company is “dedicated to developing new medical and research technology innovations to compete alongside well-established, brand name companies such as Amgen Cell Therapeutics, and Abbott Laboratories.”

Let’s see how the stated challenge companies for Rainbow are faring now, and then look a bit, briefly, at the future possible competitors:

  • Drugmaker Amgen (NASDAQ: AMGN) this week reported a surprising 16 percent drop in fourth-quarter profit, due primarily to higher costs for production, marketing, and R&D. That offset higher sales for many of its biologic medicines. The results disappointed some on Wall Street.  The world's largest biotech company, located in Thousand Oaks, Calif., reported net income was $788 million, or $1.01 per share, for the three months ended Dec. 31. That was down significantly from $934 million, or $1.08 per share, a year ago. However, excluding these one-time expenses, net income would have been $1.40 per share. That's 4 cents less than analysts expected, according to researcher FactSet. The maker of anemia treatments Aranesp and Epogen said revenue rose 11 percent to $4.42 billion, which beat analysts’ expectations. I recommend this company’s stock as a buy.
  • Cell Therapeutics (NASDAQ: CTIC) earlier this month announced that the company has initiated clinical trial sites and began enrolling patients in a Phase 3 clinical trial, known as PERSIST-1 or PAC325, for pacritinib, CTI's investigational JAK2 inhibitor, which is being evaluated for the treatment of patients with myelofibrosis, a blood-related disorder.  The trial is expected to enroll 270 patients and will evaluate the safety and efficacy of pacritinib compared to the best available therapy, excluding JAK inhibitors, in patients with myelofibrosis.  Pacritinib is a selective oral JAK2 inhibitor that demonstrated meaningful clinical benefits and good tolerability in myelofibrosis patients in Phase 2 clinical trials, without apparent drug-related thrombocytopenia or anemia.  Myelofibrosis patients will be placed in the PERSIST-1 trial without exclusion for low platelet counts. I also recommend this stock as a buy.
  • Excluding foreign exchange, worldwide sales for Abbott Laboratories (NYSE: ABT) increased 5.6 percent, according to yesterday’s quarterly report. Sales increased 4.4 percent, including an unfavorable 1.2 percent effect of forex. On Jan. 1, 2013, Abbott completed the launch of AbbVie, a new research-based biopharmaceutical company. Abbott launched a number of new products in 2012, positioning the company for future growth. Innovations include the launch of its Absorb bioresorbable vascular scaffold; next-generation drug-eluting stent, XIENCE Xpedition; 80 launches across its nutrition business; new tests in diagnostics; as well as several new product and geographic expansion initiatives in established pharmaceuticals, diabetes care and vision care. "In 2012, we achieved a significant milestone in Abbott's 125-year history with the creation of AbbVie while delivering another year of strong results," said Miles D. White, chairman and chief executive officer, Abbott. "Abbott’s mix of diversified healthcare businesses and pipeline is favorably aligned with key healthcare and emerging market trends and well positioned to deliver top-tier growth in 2013." I see ABT as a safe buy and hold investment.

Somewhere over the rainbow

How does Rainbow’s threatened new competition stack up? It’s going to be a heavy lift, but many of these companies look quite promising and could be blockbusters in the future.  Among Rainbow’s prospects:

-- A possible joint venture between Rainbow Biosciences, a division of Rainbow Coral, and Amarantus Bioscience, developers of many thrilling new diagnostic tools and therapies for neurological diseases, including Parkinson's disease. Amarantus recently announced highly promising results in clinical animal trials of its cutting-edge Parkinson's therapeutic, known as MANF, an acronym for the company’s patented therapeutic protein Mesencephalic Astrocyte-derived Neurotrophic Factor. The Journal of Biological Chemistry on Jan. 16 published an article by Amarantus researchers, entitled, Mesencephalic astrocyte-derived neurotrophic factor (MANF) secretion and cell surface binding are modulated by KDEL receptors. “As we learn more about its biological functions, we believe the company is likely to find additional avenues to commercially exploit MANF’s breakthrough biology,” says Gerald E. Commissiong, President & CEO of Amarantus, based in Sunnyvale, Calif., “and bring new meaningful treatments to patients in a variety of indications, including orphan indications.”

--Privately held, San Francisco-based FibroGen this week announced the start of the first clinical study in the Phase 3 clinical development program of FG-4592/ASP1517, an orally administered small molecule, for the treatment of anemia associated with chronic kidney disease (“CKD”). This new therapeutic agent will treat patients not on dialysis and on dialysis. The new molecule “has the potential to offer CKD patients a more convenient oral therapy for anemia, one that is effective without intravenous (IV) iron supplementation,” says Thomas B. Neff, president and CEO of FibroGen., “and that provides the additional benefits of cholesterol reduction and reduction in hypertension, which may have importance relative to the current standard of care in CKD management.”

Keep an eye out for a future IPO from FibroGen, or an M&A for Amarantus Bioscience and Rainbow. These companies are definitely comers in the healthcare world!

 --Gene J. Koprowski is the author of Nanotechnology in Medicine: Emerging Applications (Momentum Press, 2012), and is an Emmy nominated science and technology reporter for FoxNews.com. He has covered the technology industry since 1988.


GKoprowski has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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