Drugs for rare disease
Very hard to develop
Lucrative per dose
Very hard to develop
Lucrative per dose
Showing posts with label pharmaceuticals. Show all posts
Showing posts with label pharmaceuticals. Show all posts
Tuesday, February 02, 2016
Soligenix And Rare Diseases
Soligenix (ticker SNGX) pursues several treatments for rare diseases and other critical problems. It is always intriguing to watch new drugs develop in the hope they can make life easier for pain sufferers. The management team has the requisite background in drug development to make this company worthy of serious analysis.
The company's SGX942 drug for oral mucositis is one of their leading products. Research for the oral mucositis treatment market from 2014 showed a significant number of competitors with treatments in their development pipelines. The Oral Cancer Foundation notes that Amifostine and palifermin are currently used in limited treatment of OM's effects. The National Cancer Institute's most recent coverage of OM also mentions Amifostine and palifermin. Amifostine is widely available from a subsidiary of AstraZeneca. The NCBI PubMed cites research on how clinical trials have established Amifostine's cost savings potential. A drug that beats Amifostine must generate mean per patient supportive care costs savings of at least $1472 (based on the cost difference in that PubMed article) if Medicare and health insurance reimbursement mechanisms are to find such an alternative compelling.
Several US government research agreements support Soligenix's development of biodefense products. Using federal research funds is a good move if it keeps the rest of an enterprise moving toward its larger business goals. The government's defense needs typically include drug stockpiles for emergency use. These stockpiles are not frequently consumed and typically need replenishment only when batches expire. Investors should note that the small government market and its infrequent demand will limit a drug maker's quality of earnings.
I reviewed Soligenix's most recent 10-Q filing dated November 12, 2015. The company had cash on hand of US$4M on September 30 that year. Their quarterly net income of almost $2.8M was largely due to a positive change in the fair value of their warrant liability. They continued to incur losses from operations of almost -$1.3M, although that is an improvement from the comparable 2014 quarter's loss from operations of over -$5.1M. Soligenix's success at raising non-dilutive funding keeps it in the game until its drugs can find large markets.
The good news for Soligenix is that it has many product options that have advanced through several trial phases. The risks for any drug company include some of the health care sector's structural problems I identified as ultimate lessons from the JP Morgan Healthcare Conference in 2016. Headwinds facing the health care sector can affect every company's valuation. Insurance affordability and the solvency of payment intermediaries can challenge companies like Soligenix that do everything they can to be successful.
Full disclosure: No position in SNGX at this time.
The company's SGX942 drug for oral mucositis is one of their leading products. Research for the oral mucositis treatment market from 2014 showed a significant number of competitors with treatments in their development pipelines. The Oral Cancer Foundation notes that Amifostine and palifermin are currently used in limited treatment of OM's effects. The National Cancer Institute's most recent coverage of OM also mentions Amifostine and palifermin. Amifostine is widely available from a subsidiary of AstraZeneca. The NCBI PubMed cites research on how clinical trials have established Amifostine's cost savings potential. A drug that beats Amifostine must generate mean per patient supportive care costs savings of at least $1472 (based on the cost difference in that PubMed article) if Medicare and health insurance reimbursement mechanisms are to find such an alternative compelling.
Several US government research agreements support Soligenix's development of biodefense products. Using federal research funds is a good move if it keeps the rest of an enterprise moving toward its larger business goals. The government's defense needs typically include drug stockpiles for emergency use. These stockpiles are not frequently consumed and typically need replenishment only when batches expire. Investors should note that the small government market and its infrequent demand will limit a drug maker's quality of earnings.
I reviewed Soligenix's most recent 10-Q filing dated November 12, 2015. The company had cash on hand of US$4M on September 30 that year. Their quarterly net income of almost $2.8M was largely due to a positive change in the fair value of their warrant liability. They continued to incur losses from operations of almost -$1.3M, although that is an improvement from the comparable 2014 quarter's loss from operations of over -$5.1M. Soligenix's success at raising non-dilutive funding keeps it in the game until its drugs can find large markets.
The good news for Soligenix is that it has many product options that have advanced through several trial phases. The risks for any drug company include some of the health care sector's structural problems I identified as ultimate lessons from the JP Morgan Healthcare Conference in 2016. Headwinds facing the health care sector can affect every company's valuation. Insurance affordability and the solvency of payment intermediaries can challenge companies like Soligenix that do everything they can to be successful.
Full disclosure: No position in SNGX at this time.
Saturday, January 30, 2016
Financial Sarcasm Roundup for 01/30/16
Saturday is supposed to be a slow news day, but it's never too slow for sarcasm.
The US economy probably slowed down in Q4 2015. Business surveys from the private sector are probably more reliable than government figures. Federal agencies have been monkeying around with their methodologies for too long under political pressure to report rosy results. Voters get fed up with ruling elites when official results don't square with daily life. The next administration can do a lot to restore Americans' confidence in government just by reporting honest numbers.
The Zika virus is boosting a few life science stocks. Curing disease is a good reason to invest in drug makers. Day trading a stock with the expectation that disasters will pump a quick profit is immoral, not to mention just plain stupid. There is no assurance that the UN WHO or any other powerful body will hand these companies a contract. Greed and wishful thinking drive dumb investor reactions to headline dangers. There is no drug to cure stupidity.
Hedge funds misjudged the yen. The BOJ invalidated a whole bunch of investment philosophies overnight. I've said before that currency positions are useful mainly as hedges for cash reserves, not pure-play bets. Hedge funds are running out of ideas if they think betting big on a currency is innovative. George Soros made a big currency bet once against the British pound and it worked once. There is no law that says it must keep working. People running hedge funds can work as janitors after the yen bankrupts them.
Xerox is splitting itself. Carl Icahn wins again. I've always admired the guy because he forces companies to do right by their shareholders. He would probably make an excellent US Treasury secretary if Donald Trump wins the presidential election. I would like to see some corporate raiders and deal-makers break up some of the US government's less efficient agencies. Privatizing Social Security and Medicare could work like an insurance company spin-off. I wouldn't buy those split stocks because I've read the Bowles-Simpson reports on those entities' eventual insolvency, but some mutual fund manager is dumb enough to go for it.
Most writers would sign off by saying they hope everyone else's Saturday is going well. I'm not like most writers. I don't care about how your Saturday is going. My Saturdays are the definition of awesome.
The US economy probably slowed down in Q4 2015. Business surveys from the private sector are probably more reliable than government figures. Federal agencies have been monkeying around with their methodologies for too long under political pressure to report rosy results. Voters get fed up with ruling elites when official results don't square with daily life. The next administration can do a lot to restore Americans' confidence in government just by reporting honest numbers.
The Zika virus is boosting a few life science stocks. Curing disease is a good reason to invest in drug makers. Day trading a stock with the expectation that disasters will pump a quick profit is immoral, not to mention just plain stupid. There is no assurance that the UN WHO or any other powerful body will hand these companies a contract. Greed and wishful thinking drive dumb investor reactions to headline dangers. There is no drug to cure stupidity.
Hedge funds misjudged the yen. The BOJ invalidated a whole bunch of investment philosophies overnight. I've said before that currency positions are useful mainly as hedges for cash reserves, not pure-play bets. Hedge funds are running out of ideas if they think betting big on a currency is innovative. George Soros made a big currency bet once against the British pound and it worked once. There is no law that says it must keep working. People running hedge funds can work as janitors after the yen bankrupts them.
Xerox is splitting itself. Carl Icahn wins again. I've always admired the guy because he forces companies to do right by their shareholders. He would probably make an excellent US Treasury secretary if Donald Trump wins the presidential election. I would like to see some corporate raiders and deal-makers break up some of the US government's less efficient agencies. Privatizing Social Security and Medicare could work like an insurance company spin-off. I wouldn't buy those split stocks because I've read the Bowles-Simpson reports on those entities' eventual insolvency, but some mutual fund manager is dumb enough to go for it.
Most writers would sign off by saying they hope everyone else's Saturday is going well. I'm not like most writers. I don't care about how your Saturday is going. My Saturdays are the definition of awesome.
Thursday, January 14, 2016
Non-Dilutive Funding Summits Offer Free Insights
I attend as many local finance events as possible. The week's JP Morgan Healthcare Conference 2016 brought out lots of supporting events to keep me busy. I attended the FreeMind 11th Annual Non-Dilutive Funding Summit because I need to know how startups can raise money without giving up eventual riches. I have no badge selfie this time so you'll just have to imagine me there. The speakers were tailored for a life science audience given JPM's presence this week. I'll share my own thoughts below based on what I learned.
The federal government's SBIR and STTR programs are big funders of projects that meet the government's program requirements. The Milken Institute's report “Estimating Long-term Economic Returns of NIH on Output in the Biosciences” shows how the NIH's non-dilutive funding has tremendous leverage on future funding and economic output. I don't know why some federal agencies cluster their awards in certain parts of the fiscal calendar. Maybe they just don't get enough interested applicants for a regular award cycle, or maybe they just procrastinate. It's good to know that small businesses owned by private investment funds are eligible for SBIR/STTR funding.
The US government is not necessarily the ideal target market for most pharma startups. The government's niche drug needs for low-volume doses do not offer the same scalability of a high-ROI commercial market. Furthermore, I suspect that the government's need to stockpile even large doses of drugs for emergency use requires only periodic replenishment every few years as stocks expire. Contracts for definite delivery of definite quantities do not offer private companies the same quality of earnings as regular sales through commercial channels. Startups targeting a government or military customer should use that non-dilutive funding to enable penetration of a larger commercial market if their solution has more than one application. Realistic startups will not get rich on DOD's need for bio/chem war countermeasures, but will instead recognize the useful partnership and validation that comes with DOD research funding.
I am pleasantly surprised to learn that FDA priority review vouchers can be sold in private transactions. Netting a few hundred million dollars for a voucher is a sweet deal. Perusing the FDA's Center for Drug Evaluation and Research (CDER) Small Business and Industry Assistance (SBIA) webpages reveals a whole bunch of tax credits and other incentives for drug developers addressing special situations. Here's a legal path to riches in drugs, kids. Stay away from the ghetto street dealers, earn your MD or PhD, and get Uncle Sam to fund your commercial drug lab.
The NIH's NIAID funds Phase I efforts and helps companies find a transition partner for Phase II. Centers of Excellence for Translational Research (CETR) are NIAID's academic research partners offering subject matter expertise for medical tech under review. The Bayh-Dole Act's procedures for determining exceptional circumstances (DEC) apply to tech transfer in the life sciences, just as they do to other government tech commercialization efforts. Small companies can use Bayh-Dole's leverage in a DEC to get funding if they commit to accelerating a technology's development.
Salespeople know that more frequent contact in highly targeted campaigns gets better results. Raising capital is a lot like selling a product. I will not listen to self-proclaimed experts who sell exorbitantly priced marketing solutions. Cheap or free marketing efforts are best. Scientists who have never left an academic research lab need a business partner who can sell. Just ask the Google founders. Startups staying in stealth mode longer than needed miss out on publicity and fundraising that they need to accelerate. The stealth aficionados need to get out more to see that tech ideas are more common than execution ability.
I want to see good definitions of the clinical research phases that describe the value-added things entrepreneurs can do before Phase I. Some private funders in venture philanthropy break down pre-Phase I tasks in different ways. Entrepreneurs need those things so they can leave stealth mode quickly. They also need good data on unmet needs in medical conditions to guide assessments of viable markets. I found some basic unmet needs descriptions of Parkinson's disease and multiple sclerosis with a Google search. The truth is out there.
It's really great to see the NIH National Cancer Institute's SBIR program offer an I-Corps pilot program. The popular biotech forums like BIO Innovation Zone and AdvaMed's MedTech Showcase are the kinds of places where life science researchers cam meet entrepreneurs. Once they start hanging out together, they can start commercializing government research and jump into I-Corps training. They can start by exploring NIBIB's Biomedical Technology Resource Centers (BTRCs) for data at the BTR Portal that supports a technology's commercial prospects.
Greedy business people can forget about buying influence with the US government. The interest of a powerful government patron means nothing at all in funding tech. Government program managers must follow rigorous guidelines and scientific evaluation criteria when awarding grants and research contracts. Contact with a senior government official may get a private company some feedback on the government's procurement interests, and nothing else. I have to laugh at companies like Theranos who stuff their advisory boards with prestigious former government people. Lobbying for influence is a waste of money.
The Milken Institute / FasterCures report "Fixes in Financing" from April 2012 is a much better guide to funding success than what any retired political hack could offer. It would be more useful for a life sciences startup to have an advisory board of grant experts, government contracting experts, and NIH subject matter expert reviewers than some Theranos-type board of clueless celebrities. Startups should also read NCBI's 2013 article "Estimating Return on Investment in Translational Research: Methods and Protocols" to appreciate how some government funding reviews incorporate ROI calculations into awards.
It's worth noting that SBIRs can have slightly less stringent requirements than STTRs. The SBIRs can also have broader objectives in socioeconomic development and keeping the industrial base warm. Government managers may just offer SBIR grants to generate some random innovation even if the result doesn't completely meet a procurement requirement.
I suspect that private companies seeking non-dilutive capital may have no clue how to describe a minimum viable product (MVP) using technology readiness levels (TRLs). I want any startup in my private equity portfolio to use those TRL milestones when they submit SBIR/STTR applications or develop cooperative research and development agreement (CRADAs).
Non-dilutive funding saves small company founders from giving away ownership too early in the life of their big idea. Only private industry can do large-scale manufacturing and distribution, so late-stage companies will have to seek dilutive funding for final commercialization. Taking the free money up front from government agencies and non-profit venture philanthropists is always a smart move.
The federal government's SBIR and STTR programs are big funders of projects that meet the government's program requirements. The Milken Institute's report “Estimating Long-term Economic Returns of NIH on Output in the Biosciences” shows how the NIH's non-dilutive funding has tremendous leverage on future funding and economic output. I don't know why some federal agencies cluster their awards in certain parts of the fiscal calendar. Maybe they just don't get enough interested applicants for a regular award cycle, or maybe they just procrastinate. It's good to know that small businesses owned by private investment funds are eligible for SBIR/STTR funding.
The US government is not necessarily the ideal target market for most pharma startups. The government's niche drug needs for low-volume doses do not offer the same scalability of a high-ROI commercial market. Furthermore, I suspect that the government's need to stockpile even large doses of drugs for emergency use requires only periodic replenishment every few years as stocks expire. Contracts for definite delivery of definite quantities do not offer private companies the same quality of earnings as regular sales through commercial channels. Startups targeting a government or military customer should use that non-dilutive funding to enable penetration of a larger commercial market if their solution has more than one application. Realistic startups will not get rich on DOD's need for bio/chem war countermeasures, but will instead recognize the useful partnership and validation that comes with DOD research funding.
I am pleasantly surprised to learn that FDA priority review vouchers can be sold in private transactions. Netting a few hundred million dollars for a voucher is a sweet deal. Perusing the FDA's Center for Drug Evaluation and Research (CDER) Small Business and Industry Assistance (SBIA) webpages reveals a whole bunch of tax credits and other incentives for drug developers addressing special situations. Here's a legal path to riches in drugs, kids. Stay away from the ghetto street dealers, earn your MD or PhD, and get Uncle Sam to fund your commercial drug lab.
The NIH's NIAID funds Phase I efforts and helps companies find a transition partner for Phase II. Centers of Excellence for Translational Research (CETR) are NIAID's academic research partners offering subject matter expertise for medical tech under review. The Bayh-Dole Act's procedures for determining exceptional circumstances (DEC) apply to tech transfer in the life sciences, just as they do to other government tech commercialization efforts. Small companies can use Bayh-Dole's leverage in a DEC to get funding if they commit to accelerating a technology's development.
Salespeople know that more frequent contact in highly targeted campaigns gets better results. Raising capital is a lot like selling a product. I will not listen to self-proclaimed experts who sell exorbitantly priced marketing solutions. Cheap or free marketing efforts are best. Scientists who have never left an academic research lab need a business partner who can sell. Just ask the Google founders. Startups staying in stealth mode longer than needed miss out on publicity and fundraising that they need to accelerate. The stealth aficionados need to get out more to see that tech ideas are more common than execution ability.
I want to see good definitions of the clinical research phases that describe the value-added things entrepreneurs can do before Phase I. Some private funders in venture philanthropy break down pre-Phase I tasks in different ways. Entrepreneurs need those things so they can leave stealth mode quickly. They also need good data on unmet needs in medical conditions to guide assessments of viable markets. I found some basic unmet needs descriptions of Parkinson's disease and multiple sclerosis with a Google search. The truth is out there.
It's really great to see the NIH National Cancer Institute's SBIR program offer an I-Corps pilot program. The popular biotech forums like BIO Innovation Zone and AdvaMed's MedTech Showcase are the kinds of places where life science researchers cam meet entrepreneurs. Once they start hanging out together, they can start commercializing government research and jump into I-Corps training. They can start by exploring NIBIB's Biomedical Technology Resource Centers (BTRCs) for data at the BTR Portal that supports a technology's commercial prospects.
Greedy business people can forget about buying influence with the US government. The interest of a powerful government patron means nothing at all in funding tech. Government program managers must follow rigorous guidelines and scientific evaluation criteria when awarding grants and research contracts. Contact with a senior government official may get a private company some feedback on the government's procurement interests, and nothing else. I have to laugh at companies like Theranos who stuff their advisory boards with prestigious former government people. Lobbying for influence is a waste of money.
The Milken Institute / FasterCures report "Fixes in Financing" from April 2012 is a much better guide to funding success than what any retired political hack could offer. It would be more useful for a life sciences startup to have an advisory board of grant experts, government contracting experts, and NIH subject matter expert reviewers than some Theranos-type board of clueless celebrities. Startups should also read NCBI's 2013 article "Estimating Return on Investment in Translational Research: Methods and Protocols" to appreciate how some government funding reviews incorporate ROI calculations into awards.
It's worth noting that SBIRs can have slightly less stringent requirements than STTRs. The SBIRs can also have broader objectives in socioeconomic development and keeping the industrial base warm. Government managers may just offer SBIR grants to generate some random innovation even if the result doesn't completely meet a procurement requirement.
I suspect that private companies seeking non-dilutive capital may have no clue how to describe a minimum viable product (MVP) using technology readiness levels (TRLs). I want any startup in my private equity portfolio to use those TRL milestones when they submit SBIR/STTR applications or develop cooperative research and development agreement (CRADAs).
Non-dilutive funding saves small company founders from giving away ownership too early in the life of their big idea. Only private industry can do large-scale manufacturing and distribution, so late-stage companies will have to seek dilutive funding for final commercialization. Taking the free money up front from government agencies and non-profit venture philanthropists is always a smart move.
Monday, December 28, 2015
BioPharmX Losing Even More Money in 2015
BioPharmX (ticker BPMX) is another small pharmaceutical company with big plans to shake up drug delivery in dermatology and women's health. Plans are one thing, operations are another. Talented management teams are supposed to translate strategic plans into operational success.
The company's management backgrounds make me wonder whether the right people are in the right positions. The current CEO and president both have very diverse backgrounds helping other tech-related companies, but growing a young drug company demands years of drug-specific focus. Their SVP for marketing has worked in plenty of sectors except drugs. I am used to seeing such oddly diverse backgrounds in small-cap mining companies that have trouble developing a viable project, but it is disappointing to see such a mix in a drug company.
Their primary products, according to the company's website, are a topical antibiotic for acne and an iodine tablet for treating fibrocystic breast condition. Knowing the market opportunity should matter for investors. IBISWorld's market research report from February 2015 puts the size of the acne treatment market at $644M, with up to 50M Americans afflicted. GMR Data puts the market size higher at $3.1B for the same population. Divide the market size by the number of patients to get an average annual spend per person. MPR lists the leading anti-acne formulations and their doses. The many treatments available make for a saturated market. Fibrocystic breast condition is a mildly discomforting condition, according to searches with WebMD and the Mayo Clinic. The condition is so inconsequential it typically doesn't even require treatment unless a cyst becomes a marker for cancer.
BioPharmX's BPX01 anti-acne treatment is still in its clinical stage, so it's impossible to know its retail price point in a market crowded with generics. The company's BPX03 for breast pain must compete directly with very cheap OTC pain relievers. New drugs treating common symptoms already covered by cheap treatments are usually redundant unless they offer massive improvements.
Read the 10-Q dated December 15, 2015. BioPharmX had US$2.2M in cash on hand on October 31 and a net loss of -$11M for the prior nine months. The company must raise significant new capital frequently just to survive with that kind of burn rate, so investors can expect continued dilution. The stock market reacted to the company's December 14 "breakthrough" announcement, and then drove the share price back down in the weeks since then. The press release describing the BPX01 research results doesn't reveal much useful information.
BioPharmX had a very unprofitable 2015 even after ramping up SGA expenses. They also lost money in the prior two years. A drug company whose ability to deliver a quality product is largely unknown must rely on some compelling "story" of unmet market needs and past management successes. The BioPharmX story needs a better second chapter.
Full disclosure: No position in BPMX at this time.
The company's management backgrounds make me wonder whether the right people are in the right positions. The current CEO and president both have very diverse backgrounds helping other tech-related companies, but growing a young drug company demands years of drug-specific focus. Their SVP for marketing has worked in plenty of sectors except drugs. I am used to seeing such oddly diverse backgrounds in small-cap mining companies that have trouble developing a viable project, but it is disappointing to see such a mix in a drug company.
Their primary products, according to the company's website, are a topical antibiotic for acne and an iodine tablet for treating fibrocystic breast condition. Knowing the market opportunity should matter for investors. IBISWorld's market research report from February 2015 puts the size of the acne treatment market at $644M, with up to 50M Americans afflicted. GMR Data puts the market size higher at $3.1B for the same population. Divide the market size by the number of patients to get an average annual spend per person. MPR lists the leading anti-acne formulations and their doses. The many treatments available make for a saturated market. Fibrocystic breast condition is a mildly discomforting condition, according to searches with WebMD and the Mayo Clinic. The condition is so inconsequential it typically doesn't even require treatment unless a cyst becomes a marker for cancer.
BioPharmX's BPX01 anti-acne treatment is still in its clinical stage, so it's impossible to know its retail price point in a market crowded with generics. The company's BPX03 for breast pain must compete directly with very cheap OTC pain relievers. New drugs treating common symptoms already covered by cheap treatments are usually redundant unless they offer massive improvements.
Read the 10-Q dated December 15, 2015. BioPharmX had US$2.2M in cash on hand on October 31 and a net loss of -$11M for the prior nine months. The company must raise significant new capital frequently just to survive with that kind of burn rate, so investors can expect continued dilution. The stock market reacted to the company's December 14 "breakthrough" announcement, and then drove the share price back down in the weeks since then. The press release describing the BPX01 research results doesn't reveal much useful information.
BioPharmX had a very unprofitable 2015 even after ramping up SGA expenses. They also lost money in the prior two years. A drug company whose ability to deliver a quality product is largely unknown must rely on some compelling "story" of unmet market needs and past management successes. The BioPharmX story needs a better second chapter.
Full disclosure: No position in BPMX at this time.
Sunday, December 27, 2015
Figuring Out Aoxing Pharmaceutical's Future
Aoxing Pharmaceutical (ticker AXN) is one of those Chinese drug companies that wanted a US stock market listing. Such listings are a smart move if a thriving foreign company wants to raise capital here or expand operations beyond its home country. Either option will now face an uphill climb after some December news items about the company.
The company's CFO announced his resignation on December 4, 2015. That is not always a bad sign for a company aiming for a new growth phase, but consider some context. The resignation follows a report on December 2 that Pommerantz LLP is investigating alleged claims of Securities Exchange Act violations, and a December 3 report that Bronstein, Gewirtz & Grossman is also investigating Aoxing. It's hard to tell whether the allegations are substantial or simply a routine investor argument with management. Growing companies can experience these events in isolation, but investigations preceding a key resignation are a concern. Investors deserve an explanation but the company's web page reveals no news releases as of today responding to the law firms' allegations.
At first glance, Aoxing's profit margin of 22.83% and operating margin of 35.8% should indicate health. These measures don't square with the company's five-year average ROA of -18.68% and five-year average ROE of -50.75%. Aoxing's 2015 financial results show a sudden reversal of fortune after net losses in 2013 and 2014. Significantly higher gross revenue helped in 2015, in spite of persistently rising total liabilities and several negative changes in operating cash flows. Aoxing's SEC 10-Q filing dated November 13, 2015 notes in its MD+A how a shift in sales strategy from a third-party agent network to direct sales drove revenue growth. The strategy's reliance on independent direct sales will face challenges as China's drug distribution market changes.
Reviewing English-language reports on China's drug market reveals reasons to be concerned about any young Chinese drug company's ability to grow. AT Kearney's "China's Pharmaceutical Distribution: Poised for Change" reveals a fragmented distribution market and poor supply chain visibility. The US FDA's country director for China testified in 2014 about how hard US drug regulators are working to ensure Chinese drug exports meet US standards. Aoxing's future success in distribution will depend very much on securing healthy relationships with the three or four Chinese companies that will likely absorb much of the country's drug distribution network during consolidation.
Pharmaceutical companies with strong IP portfolios can tolerate high debt/equity leverage because their drug patents are supposed to be money makers. Aoxing's leverage will test US markets' tolerance if the company cannot sustain its net income improvement into 2016. The market is already showing its concern as the price of AXN fell from US$2.20 on June 8 to $0.92 on December 24. The company cannot blame this share price disappointment entirely on China's currency devaluation. Investors have a right to wonder how Aoxing responds to its US legal critics and China's changing drug distribution landscape.
Full disclosure: No position in AXN at this time.
The company's CFO announced his resignation on December 4, 2015. That is not always a bad sign for a company aiming for a new growth phase, but consider some context. The resignation follows a report on December 2 that Pommerantz LLP is investigating alleged claims of Securities Exchange Act violations, and a December 3 report that Bronstein, Gewirtz & Grossman is also investigating Aoxing. It's hard to tell whether the allegations are substantial or simply a routine investor argument with management. Growing companies can experience these events in isolation, but investigations preceding a key resignation are a concern. Investors deserve an explanation but the company's web page reveals no news releases as of today responding to the law firms' allegations.
At first glance, Aoxing's profit margin of 22.83% and operating margin of 35.8% should indicate health. These measures don't square with the company's five-year average ROA of -18.68% and five-year average ROE of -50.75%. Aoxing's 2015 financial results show a sudden reversal of fortune after net losses in 2013 and 2014. Significantly higher gross revenue helped in 2015, in spite of persistently rising total liabilities and several negative changes in operating cash flows. Aoxing's SEC 10-Q filing dated November 13, 2015 notes in its MD+A how a shift in sales strategy from a third-party agent network to direct sales drove revenue growth. The strategy's reliance on independent direct sales will face challenges as China's drug distribution market changes.
Reviewing English-language reports on China's drug market reveals reasons to be concerned about any young Chinese drug company's ability to grow. AT Kearney's "China's Pharmaceutical Distribution: Poised for Change" reveals a fragmented distribution market and poor supply chain visibility. The US FDA's country director for China testified in 2014 about how hard US drug regulators are working to ensure Chinese drug exports meet US standards. Aoxing's future success in distribution will depend very much on securing healthy relationships with the three or four Chinese companies that will likely absorb much of the country's drug distribution network during consolidation.
Pharmaceutical companies with strong IP portfolios can tolerate high debt/equity leverage because their drug patents are supposed to be money makers. Aoxing's leverage will test US markets' tolerance if the company cannot sustain its net income improvement into 2016. The market is already showing its concern as the price of AXN fell from US$2.20 on June 8 to $0.92 on December 24. The company cannot blame this share price disappointment entirely on China's currency devaluation. Investors have a right to wonder how Aoxing responds to its US legal critics and China's changing drug distribution landscape.
Full disclosure: No position in AXN at this time.
Monday, October 05, 2015
The Haiku of Finance for 10/05/15
Long lead time in lab
Biohack the drug process
Treatment at warp speed
Biohack the drug process
Treatment at warp speed
Tuesday, September 22, 2015
Wednesday, March 18, 2015
The Haiku of Finance for 03/18/15
Long pharma pipeline
Phase Two cannot take too long
Funders lose patience
Phase Two cannot take too long
Funders lose patience
Galectin Therapeutics (GALT) Misfired In 2014
Galectin Therapeutics (GALT) just cannot catch a break these days. They announced a Q4 loss this week, just a day after a law firm announced an investigation of the management team's investor relations program. It's fair to wonder what went wrong.
One of the company's drugs is GR-MD-02, a treatment for nonalcoholic steatohepatitis (NASH) with advanced fibrosis. The possible reversibility of fibrosis tempts drug makers to develop treatments. Alcoholics everywhere will rejoice when their liver problems are solved. Non-alcoholics will be even happier with a solution for fatty buildups that inflame livers. Chronic kidney disease (CKD) and end-stage renal disease (ESRD) are related ailments. The size of the market for fibrosis treatment can be approximated from CDC data on CKD and ESRD, and Medicare pays for a decent slice of the ESRD treatment market. In other words, a fibrosis treatment would reap financial rewards.
Here's a run-down of Galectin's select metrics from Reuters. The company's ROA, ROI, and ROE are all disastrous over both the short term and long term. Galectin's destruction of investor capital is evident in over three years of progressively negative retained earnings. The GR-MD-02 drug has been under development at least since 2009, according to research papers Galectin cites on its website. More than half a decade is sufficient to show satisfactory Phase 2 trial results, and yet Galectin is just now beginning Phase 2 for GR-MD-02. Efficiency is not this company's strong suit.
There is no turnaround in sight. Galectin will spend more years burning cash until it gets test results, if ever. I cannot be certain whether its drug pipeline will ever reach an addressable market for liver disease patients comparable to the CKD or ESRD markets.
Full disclosure: No position in GALT at this time.
One of the company's drugs is GR-MD-02, a treatment for nonalcoholic steatohepatitis (NASH) with advanced fibrosis. The possible reversibility of fibrosis tempts drug makers to develop treatments. Alcoholics everywhere will rejoice when their liver problems are solved. Non-alcoholics will be even happier with a solution for fatty buildups that inflame livers. Chronic kidney disease (CKD) and end-stage renal disease (ESRD) are related ailments. The size of the market for fibrosis treatment can be approximated from CDC data on CKD and ESRD, and Medicare pays for a decent slice of the ESRD treatment market. In other words, a fibrosis treatment would reap financial rewards.
Here's a run-down of Galectin's select metrics from Reuters. The company's ROA, ROI, and ROE are all disastrous over both the short term and long term. Galectin's destruction of investor capital is evident in over three years of progressively negative retained earnings. The GR-MD-02 drug has been under development at least since 2009, according to research papers Galectin cites on its website. More than half a decade is sufficient to show satisfactory Phase 2 trial results, and yet Galectin is just now beginning Phase 2 for GR-MD-02. Efficiency is not this company's strong suit.
There is no turnaround in sight. Galectin will spend more years burning cash until it gets test results, if ever. I cannot be certain whether its drug pipeline will ever reach an addressable market for liver disease patients comparable to the CKD or ESRD markets.
Full disclosure: No position in GALT at this time.
Monday, December 08, 2014
The Haiku of Finance for 12/08/14
Big Pharma pipeline
Long time to research new drug
Billion dollar path
Long time to research new drug
Billion dollar path
Wednesday, August 13, 2014
Access Pharmaceuticals Needs Access to Earnings
Access Pharmaceuticals (ACCP) seeks to bring nanopolymers into drug delivery. Introducing polymer nanocomposites (PNCs) theoretically enhances the ability of a drug to interact with the body's natural chemical systems. A small number of polymer-drug conjugates are under development but this pharma sector is still maturing.
The company's MuGard product attempts to treat oral mucositis symptoms in cancer patients. Existing treatments for these symptoms are relatively cheap, including milk of magnesia and bland saline rinses. Those common household treatments are probably not subject to insurance reimbursement if patients can mix them at home. MuGard will have to compete at a very low price point to appeal to over-the-counter buyers. It is not clear to me whether a nanoengineered drug is cheaper than a saline solution. If MuGard can't compete on price, it needs to be a heck of a lot more effective than benzocaine, kaopectate, benzydamine, and other such compounds that aren't homemade. They do have other drugs in the pipeline, so MuGard isn't their only bet.
The Access management team has one person with clear experience in the pharma sector. It is not clear from their bios whether any of them have experience taking a small drug company from inception through trials to full FDA-approved marketability. Prior entrepreneurial experience in a team is a risk-reduction mechanism that too many small drug companies ignore. Investors need to see the full story of how a team succeeded in similar ventures.
Examining financial statements shows us how well a company executes its business plan. Read their 10-Q dated May 12, 2014. Their cash on hand was just under $300K, and with a net loss of almost $1.6M in that quarter they will have to continue to raise significant amounts of money just to keep the lights on. They will need at least $10M this year to pay their current liabilities; that's tough to raise with little or no revenue. Raising it through equity means further dilution for existing shareholders. That would be a tough pill to swallow with the share price currently under one dollar.
The ticker symbol Access uses has a trading history back to 1980, according to Yahoo Finance. Anyone who would have invested in this ticker prior to about January 2014 would have seen their stake get clobbered by now. I do not invest in companies with unclear product pricing advantages, minimal revenues, and looming liabilities. Access Pharmaceuticals will not have access to my portfolio.
Full disclosure: No position in ACCP at this time.
The company's MuGard product attempts to treat oral mucositis symptoms in cancer patients. Existing treatments for these symptoms are relatively cheap, including milk of magnesia and bland saline rinses. Those common household treatments are probably not subject to insurance reimbursement if patients can mix them at home. MuGard will have to compete at a very low price point to appeal to over-the-counter buyers. It is not clear to me whether a nanoengineered drug is cheaper than a saline solution. If MuGard can't compete on price, it needs to be a heck of a lot more effective than benzocaine, kaopectate, benzydamine, and other such compounds that aren't homemade. They do have other drugs in the pipeline, so MuGard isn't their only bet.
The Access management team has one person with clear experience in the pharma sector. It is not clear from their bios whether any of them have experience taking a small drug company from inception through trials to full FDA-approved marketability. Prior entrepreneurial experience in a team is a risk-reduction mechanism that too many small drug companies ignore. Investors need to see the full story of how a team succeeded in similar ventures.
Examining financial statements shows us how well a company executes its business plan. Read their 10-Q dated May 12, 2014. Their cash on hand was just under $300K, and with a net loss of almost $1.6M in that quarter they will have to continue to raise significant amounts of money just to keep the lights on. They will need at least $10M this year to pay their current liabilities; that's tough to raise with little or no revenue. Raising it through equity means further dilution for existing shareholders. That would be a tough pill to swallow with the share price currently under one dollar.
The ticker symbol Access uses has a trading history back to 1980, according to Yahoo Finance. Anyone who would have invested in this ticker prior to about January 2014 would have seen their stake get clobbered by now. I do not invest in companies with unclear product pricing advantages, minimal revenues, and looming liabilities. Access Pharmaceuticals will not have access to my portfolio.
Full disclosure: No position in ACCP at this time.
Tuesday, February 11, 2014
Basic Thinking In Life Sciences Transactions
I spent some time perusing a few materials I picked up at the JP Morgan 32nd Annual Healthcare Conference last month in San Francisco. Understanding the life science sector is not high on my priorities list. Checking out hot single women, for example, is a much higher priority. I noted a few things unique to deal flow in the sector that deserve a mention.
Some investment banks present a range of possible deal structures to a corporate client looking to sell. My impression of contingent price purchase payments that are tied to specific milestones is that they reflect events that drive share prices higher. FDA approvals for medical devices and successful drug trials spring to mind.
I listen to plenty of investor relations pitches from small-cap drug companies trying to get through Phase 2 trials. I now suspect a lot of them would be better off if a Big Pharma player came along and gathered them into rollup transactions. This would achieve economies of scale in capex for research even if the acquired targets outsourced a lot to CROs. The single-drug small caps that don't get acquired have very slim chances of succeeding on their own. If they don't make it, some kind of distressed acquisition or Section 363 sale probably awaits if they're lucky enough to get DIP financing.
Plenty of law firms have published white papers on freedom-to-operate (FTO) studies they perform as part of a client's IP strategy. I still think these kinds of tactics are little more than full employment programs for attorneys. Life science startups can do their own patent searches cheaply. I think startups should search the World Intellectual Property Organization (WIPO) before hiring a potentially expensive attorney for an IP strategy. Free research at the start can save money by forgoing unneeded expenses.
If my career had taken a different turn after graduate school, I may very well have become fluent in these kinds of investment banking transactions. It was not meant to be, as investment banks would not consider my resume because of my non-elite background. The investment bankers I've met personally just sneer at me and tell me to get lost. I'm not an investment banker or attorney, so don't ask me how to structure any transactions. I don't handle mergers, spinoffs, divestitures, distressed sales, or any other such deals. I am a mere spectator to corporate finance action in life sciences. Any arbitrage opportunities from announced transactions in publicly traded firms are always available to every other retail investor watching this sector. I buy and sell things that are right for me.
Some investment banks present a range of possible deal structures to a corporate client looking to sell. My impression of contingent price purchase payments that are tied to specific milestones is that they reflect events that drive share prices higher. FDA approvals for medical devices and successful drug trials spring to mind.
I listen to plenty of investor relations pitches from small-cap drug companies trying to get through Phase 2 trials. I now suspect a lot of them would be better off if a Big Pharma player came along and gathered them into rollup transactions. This would achieve economies of scale in capex for research even if the acquired targets outsourced a lot to CROs. The single-drug small caps that don't get acquired have very slim chances of succeeding on their own. If they don't make it, some kind of distressed acquisition or Section 363 sale probably awaits if they're lucky enough to get DIP financing.
Plenty of law firms have published white papers on freedom-to-operate (FTO) studies they perform as part of a client's IP strategy. I still think these kinds of tactics are little more than full employment programs for attorneys. Life science startups can do their own patent searches cheaply. I think startups should search the World Intellectual Property Organization (WIPO) before hiring a potentially expensive attorney for an IP strategy. Free research at the start can save money by forgoing unneeded expenses.
If my career had taken a different turn after graduate school, I may very well have become fluent in these kinds of investment banking transactions. It was not meant to be, as investment banks would not consider my resume because of my non-elite background. The investment bankers I've met personally just sneer at me and tell me to get lost. I'm not an investment banker or attorney, so don't ask me how to structure any transactions. I don't handle mergers, spinoffs, divestitures, distressed sales, or any other such deals. I am a mere spectator to corporate finance action in life sciences. Any arbitrage opportunities from announced transactions in publicly traded firms are always available to every other retail investor watching this sector. I buy and sell things that are right for me.
Saturday, January 18, 2014
Stellar Biotechnologies Makes KLH Applications
Stellar Biotechnologies (KLH.V / SBOTF) makes targeted therapeutics from keyhole limpet hemocyanin (KLH). This protein is cultivated from mollusks called keyhole limpets in some kind of aquaculture. The CEO is a scientist who invented the extraction method this company uses, and he formerly ran an aquaculture company. I can't think of a more appropriate combination of scientific and business backgrounds.
I am impressed that a single source of protein enables multiple products in vaccine carriers and test kits. Vaccine carriers typically have cold change storage requirements, so it will be interesting to know the shelf life of a KLH-based product. I am further intrigued that this business model does not depend on the success of one specific vaccine because the basic protein can be adapted to the needs of multiple vaccines.
Stellar's success depends on executing licensing agreements rather than clinical trials. I searched SEDAR for their financial statements because I didn't see anything useful in EDGAR. Their annual statement for the year ending August 31, 2013 showed almost US$7.9M in cash on hand, and annual losses of almost -US14.9M. They still have to raise significant amounts of money because their increasingly negative retained earnings shows them going farther in the hole every year since 2011.
I think their technology holds promise, but they need to execute some licenses. Negligible revenue for a company that has been publicly traded for almost four years makes me wonder whether vaccine makers are getting Stellar's value proposition. BTW, other companies (such as biosyn) also market KLH products. Stellar must show the market some major clients to prove it has something worthwhile.
Full disclosure: No position in Stellar Biotechnologies at this time.
I am impressed that a single source of protein enables multiple products in vaccine carriers and test kits. Vaccine carriers typically have cold change storage requirements, so it will be interesting to know the shelf life of a KLH-based product. I am further intrigued that this business model does not depend on the success of one specific vaccine because the basic protein can be adapted to the needs of multiple vaccines.
Stellar's success depends on executing licensing agreements rather than clinical trials. I searched SEDAR for their financial statements because I didn't see anything useful in EDGAR. Their annual statement for the year ending August 31, 2013 showed almost US$7.9M in cash on hand, and annual losses of almost -US14.9M. They still have to raise significant amounts of money because their increasingly negative retained earnings shows them going farther in the hole every year since 2011.
I think their technology holds promise, but they need to execute some licenses. Negligible revenue for a company that has been publicly traded for almost four years makes me wonder whether vaccine makers are getting Stellar's value proposition. BTW, other companies (such as biosyn) also market KLH products. Stellar must show the market some major clients to prove it has something worthwhile.
Full disclosure: No position in Stellar Biotechnologies at this time.
Friday, January 17, 2014
Mast Therapeutics Moving MST-188 To Phase 3 Trials
Mast Therapeutics (MSTX) has continued to make progress since the last time I checked them out in February 2013. I need to clarify one hurdle they must surpass to be competitive. I had mentioned the per-pill dosage cost in my last article as a comparable price point of a competing product. Their drug MST-188 is injectable as an acute treatment, so comparing it to pills would not be an apples-to-apples analogy.
It's good that they're trying to apply MST-188 to other ailments besides sickle cell anemia. This potentially gives them fallback options if the Phase 3 trials for sickle-cell patients are not productive. Oh BTW, they still have a page on ANX-514 but I don't see any recent developments with that drug.
Note their 10-Q for November 4, 2013. Their expenses for the MST-188 clinical studies are increasing. Their SGA expenses are increasing even though they're not selling anything. I did mention in my last blog post on this company that they would need a lot more cash to conduct their trials. They priced an SPO in June 2014 but I do not see a follow-up press release on when they closed the fundraising round. I will continue to check up on Mast Therapeutics as it moves forward.
Full disclosure: No position in MSTX at this time.
Sunday, July 07, 2013
Tonix Pharmaceuticals (TNXP) Fighting Fibro
Tonix Pharmaceuticals (TNXP) thinks it has a drug that can treat fibromyalgia. TNX-102 is an oral tablet that delivers cyclobenzaprine. NIH's page on cyclobenzeprine notes that its commercial names are Amrix and Flexeril, both prescribed short-term to treat muscle spams. The regulatory pathway through the FDA's "pain division" is known thanks to work by competitors. FDA approval for chronic therapy in fibro patients means longer exposures to possible side effects.
The most impressive factor in this company's story right now is the background of their management team. Dr. Seth Lederman has extensive experience in immunology and pharmaceuticals. Other key people on the team have decades of experience with leading drug developers.
The market for fibro drug treatment is quite large. Decision Resources estimates the fibro pain management drug market will grow to US$1.8B in 2018, with the caveat that the entry of a generic version of pregabalin (brand name Lyrica from Pfizer) will drop that figure to US$1.4B immediately thereafter. Tonix's real competition for TNX-102, assuming it passes all FDA hurdles, is therefore a low-priced generic. Pfizer has been milking Lyrica for all it is worth after winning patent exclusivity in 2012, and will continue to do so especially if it can treat epilepsy.
Tonix does have other drugs in its development pipeline. Investors should watch the company's news releases for progress with its FDA studies. It would be relevant to know whether TNX-102 is more effective at suppressing fibro symptoms than pregabalin, with fewer side effects, at lower costs. Two out of those three would give it a marketable case against a generic.
Full disclosure: No position in TNXP or other companies mentioned at this time.
The most impressive factor in this company's story right now is the background of their management team. Dr. Seth Lederman has extensive experience in immunology and pharmaceuticals. Other key people on the team have decades of experience with leading drug developers.
The market for fibro drug treatment is quite large. Decision Resources estimates the fibro pain management drug market will grow to US$1.8B in 2018, with the caveat that the entry of a generic version of pregabalin (brand name Lyrica from Pfizer) will drop that figure to US$1.4B immediately thereafter. Tonix's real competition for TNX-102, assuming it passes all FDA hurdles, is therefore a low-priced generic. Pfizer has been milking Lyrica for all it is worth after winning patent exclusivity in 2012, and will continue to do so especially if it can treat epilepsy.
Tonix does have other drugs in its development pipeline. Investors should watch the company's news releases for progress with its FDA studies. It would be relevant to know whether TNX-102 is more effective at suppressing fibro symptoms than pregabalin, with fewer side effects, at lower costs. Two out of those three would give it a marketable case against a generic.
Full disclosure: No position in TNXP or other companies mentioned at this time.
Friday, June 07, 2013
Verastem (VSTM) and Anti-Cancer Drugs
Verastem (VSTM) believes its drugs can destroy cancer stem cells that are notoriously resistant to chemotherapy. Scientists have been on a quest for years to find drugs that are effective on cancer stem cells. Anti-psychotic drugs recently showed promise in fighting stem cells. Nanomed treatments may be the next big thing. This is clearly a hot area for research, so Verastem needs to stand out from the crowd.
I am extremely impressed with the management team's qualifications. They probably have the best bench strength of any small pharma company I've seen in recent years simply because their key people have led life science companies that were acquired. This means they clearly know how to deliver products that Big Pharma finds valuable. The single best risk-management technique for any young company is the presence of serial entrepreneurs in the executive team.
Their main drugs are in Phase 1 studies. I'm not scientifically qualified to evaluate their characteristics, so I can only comment on their market potential for treating ailments like mesothelioma. Eli Lilly's Premextred (brand name Alimta) treats mesothelioma and had over US$1B in sales in 2012. Verastem's drugs need to be more effective than Alimta to dent those sales, so we'll have to wait for the trial data. Any Big Pharma company that wants to take some market share way from Eli Lilly should take a serious look at Verastem.
Verastem's 10-Q for May 9, 2013 said they have over $28M in cash on March 31. Their quarterly loss was -US$9M, so they can expect to raise more capital by the end of the year (unless they start tapping into their US$38M in short-term investments). Verastem is too risky for my portfolio at his time but I am optimistic that their talented management can deliver meaningful results.
Full disclosure: No position in VSTM or other companies mentioned at this time.
I am extremely impressed with the management team's qualifications. They probably have the best bench strength of any small pharma company I've seen in recent years simply because their key people have led life science companies that were acquired. This means they clearly know how to deliver products that Big Pharma finds valuable. The single best risk-management technique for any young company is the presence of serial entrepreneurs in the executive team.
Their main drugs are in Phase 1 studies. I'm not scientifically qualified to evaluate their characteristics, so I can only comment on their market potential for treating ailments like mesothelioma. Eli Lilly's Premextred (brand name Alimta) treats mesothelioma and had over US$1B in sales in 2012. Verastem's drugs need to be more effective than Alimta to dent those sales, so we'll have to wait for the trial data. Any Big Pharma company that wants to take some market share way from Eli Lilly should take a serious look at Verastem.
Verastem's 10-Q for May 9, 2013 said they have over $28M in cash on March 31. Their quarterly loss was -US$9M, so they can expect to raise more capital by the end of the year (unless they start tapping into their US$38M in short-term investments). Verastem is too risky for my portfolio at his time but I am optimistic that their talented management can deliver meaningful results.
Full disclosure: No position in VSTM or other companies mentioned at this time.
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