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TheStreet Open House

Biotech Mailbag: BIO CEO Wrap

Stock quotes in this article: RNN, NYMX, MNKD, YMI, MDVN, CTIC, SOMX

BOSTON ( TheStreet) -- Let's devote this week's column to the BIO CEO conference and address simmering controversies involving Rexahn Pharmaceuticals (RNN), MannKind (MNKD) and Nymox Pharmaceutical (NYMX).

Controversy first. "Kantzler" called me out on my most recent bearish column on Rexahn, saying I intentionally omitted any mention of the company's partnership with Teva (TEVA).

"Your failure to mention the Teva investment is, to me, a significant indicator of bias you imply on the part of others. Regardless of how funds may be applied, an Israeli pharmaceutical putting up the funds it did is as solid an endorsement as one could hope for. Unlike most justifications, the Teva investment is money put where your mouth is. While all small, research biotechs are a gamble, a significant player in the game has seen Rexahn's cards and likes the odds, making this gamble less hair raising than many others."

I strongly disagree. Teva spends about $1 billion a year on research and development. All in, the Israeli pharmaceutical company invested roughly $8 million in Rexahn in order to fund the preclinical development of a single cancer drug candidate. That means Teva allocated eight-tenths of 1% of its entire annual R&D budget to the Rexahn cancer drug known as RX-3117 -- a completely insignificant figure.

I'm even tipping the scale in favor of the Rexahnians because Teva's investment actually came in separate $4 million tranches over two years, so as a percentage of total annual R&D spend, Teva's "partnership" with Rexahn is even smaller.

Under the terms of the agreement, Rexahn must use the money received from Teva to fund the preclinical work necessary to advance the drug to the point at which permission can be sought from regulators to proceed to human clinical trials. In other words, RX-3117 can hardly be called an experimental cancer drug because it's still being tested in the lab.

Let's be clear: Teva has not endorsed, licensed or invested in any of Rexahn's more advanced drugs -- Serdaxin, Zoraxel or Archexin. Moreover, to call Teva's investment in RX-311 a "solid endorsement" is laughable. The only thing Teva is doing is funding some lab work.

And Rexahn can't even get that RX-311 lab work done on time. The company was supposed to have RX-3117 ready for human clinical trials in 2010, but the company recently pushed that goal into 2011, according to Rexahn's quarterly filings with the Securities and Exchange Commission. The same SEC documents also explain how Teva paid less money to Rexahn than previously agreed upon under the original RX-3117 agreement.

Here's a helpful hint: Stop using press releases as your primary source of due diligence. Press releases are fungible documents that companies rely on to disseminate a sanitized and largely optimistic version of events. A press release is a piece of propaganda -- plain and simple.

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