(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 . . .

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