Biotech Stock Mailbag: Generex

Would anyone believe me if I said I was going to predict 100% odds that Silenor would be approved? Probably not. Well, then suffice to say that I was fairly agnostic about Silenor's approval chances, but I'm definitely leaning bearish on the drug's market potential.

Silenor, a very low dose of the old and generically available anti-depressant doxepin, enters the insomnia market at a time of increased competition, especially from low-cost generics. Silenor has not been deemed a controlled drug substance by the U.S. Drug Enforcement Agency because it doesn't have abuse potential. The drug may also cause fewer next-day residual effects. Whether these attributes are enough for Silenor to find a niche in the insomnia market is not clear.

Somaxon only has about $4 million in the bank once it pays $1 million to its licensor for Silenor. The company has no sales force, no partner ready to market Silenor.

Once the speculation and momentum in Somaxon shares fades, the real work on finding a place for Silenor in the insomnia market will begin. That's going to be a difficult challenge.

Reader David M. is a Silenor skeptic: "Yet, another case of FDA approval plus creative verbiage leading people to believe Silenor is actually something new. Touting the drug as not a controlled substance and won't have the usual problems (addiction potential, next day sleepiness etc) associated with other hypnotics is kind of a joke. Even if it did, the dose is so small that it likely wouldn't. And tonight, doctors all over the world can prescribe 10mg doxepin generic for 20 cents a piece. This is a product line not a valid business model in my opinion."

He's probably right. The problem for shorts, however, is that finding Somaxon shares to borrow is extremely tough. And the few shares that are available are expensive, with borrow rates over 30%, according to a couple of hedge fund investors who went looking today after Silenor's approval.

The availability of Somaxon shares will loosen up if/when the company sells stock to raise much-needed capital.

Via Twitter, @xiefrank asks, "Sepracor was bought for billions of dollars, so why not Somaxon?"

True, Sepracor, marketer of the insomnia drug Lunesta, was acquired by Japanese drug maker Dainippon Sumitomo Pharma for $2.6 billion in September 2009.

Yet Lunesta sales were already falling at the time of the deal. Dainippon bought Sepracor because the firm wanted to have a U.S. commercial presence so that it could start selling its drugs in the U.S., including a schizophrenia drug nearing FDA filing. Sepracor provided Dainippon an established U.S. salesforce and a pipeline of other experimental drugs.

Can I rule out entirely the possibility that Somaxon and its insomnia drug are acquired in the near future? A trader friend and I debated this question Thursday afternoon. I think an acquisition, even a partnership, is unlikely. My trader friend thinks there are no shortages of dumb companies out there willing to make a deal for any approved drug.

We bet $10 (to be used to buy a six-pack of our favorite beer) on whether Somaxon lands a partner by Nov. 1.

-- Reported by Adam Feuerstein in Boston.

Follow Adam Feuerstein on Twitter.

>To order reprints of this article, click here: Reprints