When There Is Blood In The Streets – Buy Biotech

History has shown again and again that times like these represent a huge long term buying opportunity. This may be particularly true for the biotech segment that, despite weathering the storm better than other segments, has had its share of price declines. During the past several weeks, great biotech stocks, from small early stage companies to fully commercialized companies have been thrown out of portfolios like bad auction rate securities, but the truth is that the value proposition of most of these biotechs did not change at all, and is not likely to change as a result of market conditions. This is why current prices create the best opportunity to get into the biotech segment since 2002.

In the past, the pharmaceutical segment served as a safe haven at times like these, based on the notion that drug sales, especially those for the treatment of serious illnesses, remain unaffected by recession. Unfortunately, most pharmaceutical companies are in the midst of an innovation crisis, where their traditional blockbusters are gradually being cannibalized by generic competition, so the next couple of years will be very challenging for them, recession or no recession. Consequently, investors may want to look for growth in the relatively new entrants to the field – biotech companies. 

 

Biotech companies can be divided into two groups, each has its own merits and pitfalls.

The first group includes fully commercialized companies with a healthy balance sheet and cash generating products. These include all the big biotech companies such as Genentech (DNA), Amgen (AMGN) and Gilead (GILD). Because these companies can be found in every typical portfolio, they all got hit pretty badly from the recent sell-off due to indiscriminate panic selling. Nevertheless, the impact of an anticipated recession will have on these companies, who are selling drugs that address diseases such as cancer and AIDS, will be marginal.

 

The second group consists of smaller, development stage companies, with no commercially available drugs and several cash consuming development programs. The good news is that fundamentally, these companies have nothing to do with the global economy because they are not selling anything. The bad news is that they have to constantly find resources to finance the costly development of their drug candidates. Thus, the most important implication a market crisis has on this kind of companies is that it makes cash-raising almost impossible.

This is why investors should invest only in development-stage biotechs which have found a way around this problem. Some companies can generate cash from licensing their technology or intellectual property, some, like Array (ARRY) and Poniard (PARD) arranged a line of credit, some, like Seattle Genetics (SGEN), were smart enough to do a secondary offering under good market conditions, some, like Exelixis (EXEL) and Immunogen (IMGN), licensed some of their products and have someone else paying for the development. 

Bearing in mind that in the foreseeable future, licensing of technology and products will be the preferred way of getting cash, it would particularly be wise to pay attention to companies with unpartnered assets that are generating robust data in clinical trials as well as to platform companies that can license their technology on a non-exclusive basis. Evidently, when small companies have one way of raising cash blocked, it might reduce their leverage position in the alternative route of partnering. However, thanks to the pressure traditional pharmaceutical companies are currently under, they are starved for new promising candidates, which means that a good drug candidate still has tremendous value in the eyes of big pharmas. A good example for such a promising candidate is Rigel (RIGL) Pharmaceutical’s R788 that showed impressive results in treating rheumatoid arthritis, a disease with a market size exceeding $ 10 billion. Another good example for that may be Arqule’s (ARQL) ARQ-197, which already demonstrated its potential in a wide array of cancers and has a blockbuster potential.      

 

In order to put this approach to the test, I asked Pontifax’s Ran Nussbaum his help in building a virtual portfolio of promising biotech stocks. This portfolio is not intended for short term trading, but for long term investment of at least several years. Although we do not expect active trading in this portfolio, from time to time there may be changes as additional stocks will be added and existing holdings may be sold. Any future changes can be made only when markets are closed. On a more cautionary note, regardless of the attractiveness of all of these companies, all the inherent risks associated with biotech remain, including long time to market and statistically low success rates.

                                        Biotech Portfolio as of October 9th 2008

 

 

Investing in microRNA – Beware of Hype, Follow The Money

The momentum in the microRNA (miRNA) field is continuing to build, as evidence that links this group of important genes to multiple diseases, from Alzheimer to diabetes, is constantly mounting. The adoption of miRNAs is further accelerated by the technological advancements in RNA-based therapies. Because miRNAs are not expressed as proteins but as RNA, the most sensible way to target them is using small RNA technologies from the likes of Isis (ISIS) and Alnylam (ALNY). These technologies have come a long way in recent years, and are now expected to form the basis for a new generation of drugs. Although miRNAs gained wide recognition only recently, the combination of a fresh pool of unexplored genes which are implicated in so many medical conditions together with the maturing technology to manipulate their activity creates a huge untapped market.

 

So far, 2008 has been particularly fertile, with several exciting events taking place during recent months. Continue reading

Rosetta Genomics – Mining Gold Out of Junk (Part II)

  

On the previous article , I discussed the importance of microRNAs (miRNAs) and the great attention they have been receiving in the scientific industry. With every day that goes by, miRNAs gain more momentum and their cardinal role in biology is constantly being elucidated. Due to their importance and presence in such a wide range of creatures and medical conditions, from plants to humans, from cancer to women’s health, miRNA are making the migration from a scientific sensation to a huge commercial opportunity. This is great news for a company focused purely on miRNA such as Rosetta Genomics (ROSG), as after years of wandering alone in the desert, it may find itself at the heart of one of the hottest segments in the pharmaceutical industry.

 

The rationale behind miRNA-based drugs and diagnostics is straight forward. miRNAs are a group of genes which are involved in almost every biological process, as they control over a third of our genome. This central role makes them obvious “druggable” targets, which can be manipulated in order to treat diseases. Their central role might also make them ideal bio-markers for early-detection and diagnosis purposes, due to several advantages that will be described later on. The key in commercializing miRNA-based products is finding the relevant ones which are associated with a specific medical condition. The process starts by looking at the miRNA profile of healthy cells and compare it to that of cells with the particular condition or disease. The miRNAs that may serve as diagnostic markers or drug targets are those which have a different expression profile in the particular condition compared to normal cells.

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Rosetta Genomics – Mining Gold Out of Junk (Part I)

 

Rosetta Genomics (ROSG) represents one of the most exciting revolutions in biology in recent decades. The company is a pioneer in the field of microRNAs (miRNAs), a group of recently discovered genes that may serve as a novel class of diagnostic markers and drug targets. Unlike “traditional” genes we were familiar with, miRNA genes are not expressed as proteins, but as small RNA fragments that regulate the expression of many proteins. Rosetta Genomics’ impressive pipeline, unparalleled discovery capabilities and intellectual property make it one of the most exciting biotech companies out there.

The field of miRNA have captured the scientific community’s attention only in recent years, and is expected to become an important field in the drug development industry. The ultimate proof for how hot miRNAs are is the increase in the number of published scientific articles that focus on this new gene family. Using the Pubmed database, I looked for articles that contain the term “miRNA” in their title or abstract. There were only 38 such articles in 2003 but the number increased more than fourteen-fold in 2007. Even more striking is the diverse list of medical areas in which miRNAs are investigated, from oncology to cardiovascular diseases, from tissue engineering to women’s health.

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