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Oct 21, 2013

Stock Watch: Five Firms with Potential

Biotech investor highlights developmental biopharmas he thinks can deliver long-term.

Stock Watch: Five Firms with Potential

These five stocks could potentially bring back three to 10 times the return of investment over time. [© Lane Erickson - Fotolia.com]

  • Antares Pharma (ATRS)

    Antares Pharma focuses on developing and commercializing self-administered parenteral pharmaceutical products and technologies. Antares received approval from the FDA yesterday for Ortrexup, a product for the delivery of methotrexate using Medi-Jet technology for the treatment of rheumatoid arthritis, polyarticular-course juvenile rheumatoid arthritis, and psoriasis.

    “Ortrexup seems to be misunderstood by many biotech writers, and perhaps most by one I have a great deal of respect for,” biotech/drug stock columnist Adam Feuerstein has said.

    Adam states in his most recent article on Antares:

  • If you believe Antares' sales pitch—the convenience of Otrexup (patients can self-inject at home) will convince doctors to increase their use of injectable methotrexate (MTX) for treating rheumatoid arthritis patients. If oral methotrexate is no longer effective, some patients might try Otrexup.

  • The above seems to be a misunderstanding of what Otrexup is. First off, patients currently can self-dose MTX at home, but using a "classic" needle. This causes certain issues for patients who suffer from rheumatoid arthritis (RA). Many patients with RA suffer from bent fingers and hands that causes them trouble using a classic needle, making it harder to self-dose. Otrexup makes it much easier, as it is designed to do so. Also, Adam is mistaken about oral MTX in that Otrexup is not designed to replace oral MTX, but supplement it. Many patients need a much higher dose of MTX to gain an effective level of treatment. Too much oral MTX can be very toxic on the stomach and liver. Since Otrexup is subcutaneous (injected), this bypasses the liver and stomach, allowing for more of the drug to enter the system, while being safer at higher doses.

    Biologics are used in conjunction with lower dose levels of oral MTX in order to achieve the desired effective results. However, biologics are very expensive—this is why Antares considers Otrexup a "prebiologic."

    Adam feels insurance companies will not support Otrexup, but I feel otherwise, because it will be more cost effective. Doctors can now prescribe the easier to use Otrexup product, along with oral MTX to reach an effective dose to treat patients with RA, at a fraction of the cost of a combo oral MTX and biologic, notwithstanding that some patients will no longer need to receive an injected dose at the doctor's office, which should help with patient backlog.

    Adam goes on to state:

  • Don't expect Otrexup sales to roar out of the starting gate. This is a me-too drug, perhaps a bit more convenient. Rheumatologists and insurance companies aren't likely to embrace Otrexup.

  • I do tend to agree that the drug will not "roar out of the gate," but once doctors fully understand what I explained above, I do expect the device to do very well, perhaps reaching peak sales of $200 million if marketed correctly. Otrexup, for the reasons I mention is not a "me-too" device, but rather a "hey, I'm easier to use than a standard needle for both patients and care givers, plus I'm biodegradable, so I'm easier on the environment."

    Antares is also developing Vibex QST, a quick shot testosterone self-injector. Vibex-QST is designed to offer a once-a-week subcutaneous injection solution for those suffering from low testosterone (Low-T). Antares is seeking to prove in clinical trials that Vibex-QST will offer better efficacy and cost effectiveness in comparison to Low-T gel solutions, which are applied on a daily basis. If Antares is successful with Vibex-QST, this product can be a monetary "blockbuster" for the company within five years.

    Additionally, as brought to my attention by long-time Antares investor, "lokodude" (Lokodaug on Yahoo boards) the company holds patents to, and is developing the following products:

    • Ovaleap pen (Follitropin alfa)—Pat # 8376993 - "Multiple Dosage injector"
    • Valebo (Teriparatide)—Pat # 8376993 - "Multiple Dosage injector"
    • Lonquex (Lipegfilgrastim)—US 20130018354 - "Cammed ram Assembly" injector
    • Alazmia-Balugrastim—US 20130018354 - "Cammed ram Assembly" injector
    • Granix (tbo-filgrastim)—US 20130018354 -"Cammed ram Assembly" injector

    In addition to these patents, Antares has a patent for scopolamine, which is a tropane alkaloid drug with muscarinic antagonist effects. In other words, the drug is designed to potentially treat depression.

    While it's too early to say what Antares will do specifically with its scopolamine patent, it will be interesting to watch how the company proceeds in time. We believe that Antares is a safer long-term investment, which could also be acquired in the short term due to its connection with Pfizer (PFE).

  • AcelRx (ACRX)

    AcelRx is focused on the development and commercialization of innovative therapies for the treatment of acute and breakthrough pain. Its lead product, ARX-01 (Zalviso), is designed to address intravenous (IV) PCA problems, which can cause harm following surgery. This includes side effects of the invasive IV route for morphine delivery and inherent potential programming and delivery errors associated with the complexity of infusion pumps.

    The post-operative pain market in the United States, Europe, and Japan has been growing steadily over the last few years and is expected to reach $6.5 billion by 2018. Acelrx' NanoTab® tech could potentially grab a significant piece of this market.

    ARX-01 has the potential to address many of the key disadvantages of IV PCA, which also include:

    • Reducing the incidence of drug-related side effects,
    • Eliminating the risk of IV PCA-related infections, reducing analgesic gaps and enhancing mobility, and
    • Eliminating the risk of pump programming errors.

    Three Phase III trials have been completed rendering positive results. Top-line data from the final pivotal trial treating pain after knee or hip surgery was released in May.

    Phase III data was impressive in several ways. Patients experienced better, longer lasting, and more complete pain relief after orthopedic surgery. Additionally, nurses reported that it was much easier to use the NanoTab system. Traditional IV PCA is known for its confusing administering program, and patient deaths have even resulted in a small percentage of cases.

    According to PropThink's December 2012 article, the post-operative pain market is a multi-billion dollar opportunity, and we agree. With a current market cap of $343.69 million, we strongly feel AcelRx is very undervalued here and makes for a nice entry point for both a short-term trade and a longer-term speculation investment.

  • Conclusion

    Our best overall pick is Halozyme, because of its mainly de-risked status, royalty revenue stream from potential billion dollar products, and its 100% proprietary ownership of PEGPH20, which could end up being a huge blockbuster solution for hard-to-treat cancers such as pancreatic cancer.

    Our safest pick is Antares Pharma, as we feel it's a good bet the company can become a full-fledged pharma within five years, and because the company deals mostly in medical devices rather than experimental drugs. We think of Antares as a potential Boston Scientific (BSX) in the making.

    Our riskiest pick is Acadia, because there is a chance its latest Phase III could fail. Although we feel this chance is small, a failure with pimavanserin would devastate the stock price, but success could mean a four-bagger or more from its current price level.

    Sarepta is our "breakthrough" pick as any treatment that can help young boys live a more normal life with DMD is a potential Nobel Prize winner. Sarepta has the best chance to literally change the lives of many young boys who suffer from this disease for the better. We think any company with this potential is worth a serious look from investors and especially philanthropist investors.

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