Expert Financial Analysis and Reporting

Introduction

I am beginning a new approach in my writing on biotechnology companies. As those who have followed my writing may appreciate, I try to do in-depth research reports on companies and most of my investment ideas are long term. I do not have a trading focus and try to not get overly caught up in near term price fluctuations as long as I remain confident that my long term thesis remains valid.

Despite my non-trading approach, I recognize that there is a need to provide timely comments on late breaking news and sometimes on price fluctuations. I will try to do so in this and subsequent weekly reports that focus on recent events, generally occurring within the last week. I will also highlight upcoming catalysts for stocks. I will concentrate on companies that I actively follow, but I may also write on companies that I am only monitoring.

This recent week has been incredibly active as most of the small biotechs that I deal with are reporting earnings and holding conference calls that update their outlooks

 

A.P. Pharma (APPA, $0.44) Management Change is Catalyst to Buy the Stock

The Board has brought in a new management team with Barry Quart, formerly of Ardea being named CEO. I think this is a catalyst for buying the stock. See my recent blog.

 

InSite Vision (INSV, $0.31) An Overlooked Company with Two Promising Drug Candidates and a Big Upcoming Catalyst

This will be an exciting year for InSite as there will be some pivotal clinical trials on its two key drugs in development, AzaSite Plus and BromSite. Management focused on this during the May 7^th conference call. BromSite has successfully completed its first phase III trial and the probability for approval in late 2014 is very high. If AzaSite Plus wins in the DOUBle phase III trial, it would be the first drug approved for blepharitis and would be a homerun opportunity. Topline results from DOUBle will be available in late 2Q, 2013. I am not as confident on AzaSite Plus as I am on BromSite; I have my fingers crossed.

I think that the economic opportunity for BromSite is not well reflected in the current stock price as most of the focus is on AzaSite Plus in DOUBle. I believe that the potential for BromSite justifies much of the current stock price. If this is correct, investors have a free option on the possibility of success for AzaSite Plus in DOUBle and as I previously said, this would be a homerun opportunity. This is the basis for my buy on the stock. See my recent blog.

 

Cytokinetics (CYTK, $1.09) Stock Weakness Doesn't Portend Negative Change in Fundamentals

The stock has had some down days on heavy volume. There was no announcement from the Company that would account for the weakness. A few spot checks with Wall Street sources produced no insight into why the stock was trading down. The next major data point is the probable release of ATOMIC-HF data in June or July. I continue with my Buy recommendation. See my recent report.

 

Transcept (TSPT, $3.51) Throwing in the Towel on Intermezzo

I was wrong on the Intermezzo launch. It has failed. I am selling my position and moving on. See my recent blog.

 

Neuralstem (CUR, $1.30) Important Update on ALS Efficacy Data Could Occur in Next Few Months

I issued a major update on the Company. Sometime within the next five months, there will be a major catalyst for the stock as investigators are expected to publish a paper that will provide a summary of the efficacy of its neural stem cells in the phase I ALS trial. This should occur sometime before the American Neurological Association Meeting in October. I think the data will be positive and lead to strength in the stock.

Clinical trial programs using Neuralstem's neural stem cells will be ramping sharply in 2H, 2013. CUR will soon be starting a phase II trial in ALS in the US and a phase I trial in chronic spinal cord injury, also in the US. Pending the signing of a partnership, a phase I/II trial in ALS in Mexico could start in 2H, 2013. Neuralstem will also be starting a phase I trial in phase I trial in ischemic stroke patients in China and a partner will be starting a trial
in acute spinal cord injury in South Korea. There are going to be lots of interesting data readouts in 2014. See my recent in-depth report.

 

ImmunoCellular Therapeutics (IMUC, $2.40) Marching Toward Topline Data for ICT-107 in Late 2013

The only important catalyst for ImmunoCellular this year will be the reporting of topline data on the phase II trial of ICT-107 in glioblastoma multiforme. As I explain in recent blog, if the trial is successful, ICT-107 will likely be advanced into a phase III trial and have the potential for approval sometime in the 2016 to 2017 timeframe.

I think ICT-107 hitting the primary endpoint of an increase of 8.0 months increase in median overall survival would be a spectacular success that could lead to a doubling or more in the stock price. I think that even in the event that it does not hit on this primary endpoint, but shows a strong trend
toward an increase in overall survival that it could still be quite positive for the stock if it can allow the Company to design a phase III trial. See my recent blog.

 

Cadence Pharmaceuticals (CADX, $6.61) Ofirmev Launch is Strong; Trial with Exela Could Begin Soon

No one can question that the Ofirmev launch is a major success. The remaining uncertainty is the patent litigation with Exela; the trial date is scheduled for May 20. A favorable settlement with Exela, which I am expecting, could give the stock a nice boost. See my recent blog.

 

Northwest Biotherapeutics (NWBO, $3.56) Pipeline is Expanding with DC Vax

I wrote an extensive update in which I reiterated my buy recommendation. I also discussed DC Vax Direct, phase III enrollment status of DC Vax-L, compassionate use status of DC Vax-L in Europe and the financial situation. See my full report.

 

Repligen (RGEN, $9.08) Moving Nearer My Price Target, But This is a Buy and Hold Stock

The Company reported a solid quarter and re-iterated its guidance for 2013. You might want to check my two latest reports for a detailed update. This is one of the best fundamental stories that I have come across in terms the quality and predictability of the business. It is nearing my price target of $10.40 to $13.00 for 2014, but this is definitely a buy and hold stock.

 

Trius (TSRX, $7.02) Steady as She Goes; I Am a Buyer

There was no striking new news following the release of 1Q, 2013 results. It is still expected that the NDA for tedizolid will be filed in 2H, 2013. The phase III trial in pneumonia will start in 2H, 2013 using the same 200 mg dose used in the skin infections phase III trials. Trius anticipates filing an IND on its second drug in development, Gyrase-B, in 2H, 2013 and the phase I is expected to begin in 1Q, 2014.

The Company ended 1Q, 2013 with $84 million of cash. Its historical burn rate when doing the skin infection trials was about $10 million per quarter. Management has put the Company in a position of strength as it talks with potential partners for tedizolid.

 

Dendreon (DNDN, $3.99) Company is Facing a World of Problems; I'm On the Sidelines

First quarter Provenge sales came in at $67.6 million, down 17% from 4Q, 2012. Management had cautioned previously that the quarter would be weak, but stated that 1Q, 2013 sales were still below plan. The most important cause is competition from Johnson & Johnson's (JNJ) Zytiga and Medivation's (MDVN) Xtandi. Management expects strong 2H sales and is guiding that full year sales of Provenge will be still increase over the $322 million of 2012, but didn't specify how much.

At current levels of spending on the business, management believes it can break even at $100 million of sales in a quarter or $400 million per year. The Company is burning through cash at about $50 to $60 million per quarter at a Provenge sales level of $70 to$80 million. If sales don't improve or the Company does not go through a major restructuring, it could burn through its $331 million of cash in six quarters or so. It also has over $500 million of long term debt overhanging.

Management is hopeful of a European approval late this year. However, the uncertainty seen in the US on just where Provenge fits in the treatment of metastatic prostate cancer and the perceived high price of Provenge that hindered its US launch could delay regulatory approval and will certainly create issues in seeking pricing approval.

Most of these issues are well known and are reflected in the stock price, but I am not willing to step in at this price level. I think it trades sideways for the next two quarters or so.

 

Discovery Laboratories (DSCO, $1.52) Surfaxin PDUFA Date Likely in Early October

In reporting first quarter results, DSCO says it can resubmit the Surfaxin NDA by early June. The FDA then has four months to review, which would result in a PDUFA date of early October. The FDA could make a decision sooner, but it seldom does.

Management confirmed that the phase II trial of Aerosurf will begin in 4Q, 2013.

DSCO ended 1Q, 2013 with $26.4 million of cash. It anticipates a burn rate of $10 million in 2Q, 2013, but gave no guidance for the remainder of the year. Let's assume the burn rate is $10 million in both 3Q and 4Q, 2013. Upon first commercial sale of Surfaxin, Deerfield will advance another $20 million; this would occur in 4Q, 2013 if Surfaxin is approved in October. Assuming Surfaxin approval, no new financing and no partnering milestones, DSCO would end the year with $16.4 million of cash. In the case that Surfaxin is not approved, the Company would run out of cash in 4Q, 2013. I think there is a very high probability of approval, but given DSCO's history it is never over until it's over.

I think the stock is cheap and attractive at this level, but it probably won't do much until the FDA acts. Approval could produce a mild bounce, but investors will immediately anticipate a financing. This is likely to put a damper on the stock price until the financing is finalized. I have maintained my position in the stock and will continue to do so.

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