4 Biotech Gems with Long-Term Bullish Potential
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By George S. Mack, The Life Sciences Report
For more than 22 years WBB Securities Founder and Managing Partner Stephen Brozak has been in the securities business where he has done everything from sales and management to investment banking and performing as a sellside analyst. Armed with an MBA from Columbia University and his experience as retired Lieutenant Colonel from the U.S. Marine Corps, Brozak is goal-driven with an insatiable curiosity about disease and drug development. He and his team have assembled a loose syndicate of self-employed brokers who take WBB's boutique research capabilities to investors. "We are able to screen down to a smaller number of candidates that we write research on and do banking with," he said when I called him for an interview with The Life Sciences Report. "It's a tremendous universe of healthcare companies, and we can bring it down to a manageable number."
Brozak loves the concept of personalized/targeted medicine, and to that end he is following Celldex Therapeutics Inc. (NASDAQ: CLDX), which is a developing CDX-110 (rindopepimut) for glioblastoma multiforme (GBM) and is now in phase 3 studies. The drug targets brain tumors that express EGFRvIII, a mutation of epidermal growth factor receptor (EGFR), which occurs in 60–70% of patients with GBM. "EGFRvIII is not expressed in healthy brains, which makes it a good target," he said. "So the idea is that if you have that marker, then the product will work much, much better in that subset of patients than it will in a general population of GBM patients."
Brozak brings up Omeros Corp. (NASDAQ: OMER), which reported highly favorable results in mid-March from its phase 3 trial of 405 patients with its lead candidate OMS302 in patients undergoing intraocular lens replacement (ILR) surgery. The trial met its primary endpoint of maintenance of intraoperative pupil dilation with an unusual statistical significance score of p<0.00001 which represents clear superiority to the placebo control arm of the study. Brozak refers to the results as "stellar" and tells me the market for this product is significant. This year, 3.6 million (3.6M) ILR procedures will be done in the U.S., and 20M are expected worldwide with an annual growth rate of 3–4%. One reason Brozak likes the company is that OMS302 is a proprietary combination of an anti-inflammatory and a dilating agent that have been used in ophthalmologic surgery for more than 15 years. That sounds like a de-risked opportunity. He rates the company a Strong Buy with a $20 target price.
Brozak is also rating cell technology company BioTime Inc. (NYSEMKT: BTX) a Strong Buy. He believes stem cell technologies offer the broadest possible potential for the future health care demographic problems. With Geron Corp (NASDAQ: GERN) vacating the human embryonic stem cell (hESC) market, BioTime has become the de facto leader in hESC R&D. That combined with novel cancer diagnostic potential of its PanC-Dx technology has heightened the company's value significantly. Brozak is valuing the company's stem and progenitor cell business for sale to researchers at $200M by itself and the GMP (good manufacturing practice) cell segment at $150M. His target price is $8.
Brozak is not averse to getting involved with small cap companies on an active basis. "We sat down with Navidea Biopharmaceuticals Inc. (formerly Neoprobe Corp.) and got an investor to fund it fully through a phase 2/phase 3 study," he said. "The company's market cap was $15M, and we had to figure out a way for an investor to put $16M into it. It was such an important science, and we had the data there, and we just had to figure it out. I think it took us 18 months to actually craft the transaction, and it worked out for advancement of the company, its science and the investor." The company's technology is a dye targeting system called Lymphoseek that can assist surgeons to see disseminated tumor cells during procedures. In fact, it's like a map the physician can see detail and dissect out diseased tissue. Its importance lies in both detection of disease while sparing tissue that may not be affected.
For Brozak it's not all about small caps and below, and he's all right with changing his mind periodically. Cyberonics Inc. (NASDAQ: CYBX) has a $1B market cap and markets an implantable neuromodulation system to stimulate the vagus nerve (cranial nerve X) to treat refractory epilepsy patients, and the company is now moving forward in depression and is in the process of evaluating vagus nerve stimulation in chronic heart failure. "We started (Cyberonics) with a Sell recommendation and then went to a Sell Short after we listened to a presentation that we were not that enthusiastic about. It just did not meet our standards," he said. But, "We now have it rated Strong Buy."
Author George S. Mack personally and/or his family own shares of the following companies mentioned in this interview: None.
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