Biotech stages a "strong comeback" Part 2

Jennifer Schonberger | Jul 25, 2008 9:27am EDT | Comment

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(Part two of a two part series)

Dr. Fariba Ghodsian, chief investment officer of DAFNA Capital, looks for biotech companies that offer a differentiated advantage for a drug – ones that offer a unique product, or a different way to deliver a drug. If the drug is a me-too — i.e. many other companies have a similar drug — then the company is not attractive. She also examines the company’s market potential and its chances for success. “Obviously the market size of the drug is important,” Ghodsian notes. “But sometimes companies can thrive very well in very limited markets.”

She says the market should be an attractive one where the disease is difficult enough that the insurance companies would be willing to pay a high premium. She points to Genzyme (Nasdaq:GENZ) as an example of that. The biotech company made a billion dollar drug out of orphan diseases by tacking on a high price.

It goes without saying that the drug must also demonstrate a favorable safety and efficacy profile to warrant approval, while management is key to get the drug to market.

Ghodsian also examines if the company has the financial resources to go forward. “Often time’s biotech companies raise too little money, or are sometimes shortsighted when it comes to financing and I think that bites them in the end,” she said. “So a company that is well financed particularly in this market is important.”

Most of the companies in Ghodsian’s universe are not profitable. Some of the companies she invests in are very late stage, while some are more in clinical development. Among specific stocks she favors include, Isis Pharmaceuticals (Nasdaq:ISIS), Rigel Pharmaceuticals (Nasdaq:RIGL) and Pozen (Nasdaq:POZN).

Isis Pharmaceuticals is in the business of RNA-based drug discovery and development. Ghodsian finds this to be a unique company because it has a very broad base technology in antisense, which in essence is a way to block genes. “What we really like about Isis is that they have proved that the technology works,” Ghodsian said. “We like the company both for their specific drugs and for their broad technology platform.”

The company has a potential blockbuster drug for the reduction of blood lipids. “It has shown exceptionally strong clinical activity in patients, even those who have very high LDL levels on maximum Statin pills,” Ghodsian said. Isis has a partnership with Genzyme, with which they are taking the drug to phase three clinical trial.

The small cap also has other drugs in development for diabetes, multiple sclerosis and cancer, both alone and in partnership with large pharmaceutical companies, enabling them to use the technology in a diversified manner.

The one “hiccup” that Isis has encountered is that while the FDA has allowed them to pursue a LDL-lowering trial for the more limited homozygous patients, the agency has requested that Isis and Genzyme perform an outcome trial in a broader high cholesterol patient population. This trial should demonstrate that the drug reduces mortality or cardiovascular outcomes (heart attacks). This in part requires more patients and a longer duration for drug testing, delaying the drug’s launch for the broader market. “So they got hurt somewhat by this conservatism of the FDA, but we think the drug is an amazing drug and has shown impressive clinical activity,” Ghodsian said.

Rigel Pharmaceuticals, another company she favors, has an oral drug for rheumatoid arthritis. Specifically, its drug, a SYK inhibitor, has shown activity across the board for several diseases such as rheumatoid arthritis, ITP (immune thrombocytopenia purpura) and Lymphoma.

Improvements so far shown in phase II trials for rheumatoid arthritis has been similar or better than billion dollar TNF drugs such as Enbrel and Humira. “So far the activity has been very strong and the fact that the drug is an oral drug is a major advantage,” Ghodsian said. “This has attracted a number of pharmaceutical companies that are currently trying to partner with Rigel for further development of this drug.”

Lastly, Pozen possesses technology for combining drugs and the small cap just received approval for its first drug, Treximet — a drug for treating migraines — in collaboration with Glaxo Smith Kline.

“I think people have almost written off success of Treximet because of concerns about the generic competition coming in six months,” Ghodsian said. “But what people seem to forget about the company is that they have another drug in phase III clinical development, which could be a billion-dollar drug.” That drug, which has been developed in collaboration with AstraZeneca, is a combination of proton pump inhibitor and naproxen, which stops intestinal bleeding.