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Biotech Stock Mailbag: MannKind, Osiris, BioCryst, Vical, Amarin

Dermagraft was approved in 2001 and only generates about $100 million-plus in annual sales. Apligraf sales are about the same. If you want to be highly optimistic and generous, assume Osiris is successful in obtaining Medicare reimbursement and bring in $50 million in annual peak sales of Grafix. That would be a remarkable achievement for Osiris given the company's poor commercial track record. A miracle, even.

Unfortunately, $50 million in revenue doesn't in any way justify a market value of $650 million.

The more likely scenario: Grafix flames out commercially just like Osiris' stem-cell therapy Prochymal has flopped. Remember Prochymal? Mills barely mentions the product anymore because more than a year after approval in Canada and New Zealand, sales are zero and attempts to file for U.S. approval have gone nowhere. Soon enough, Mills will also cease his over-exuberant Grafix spiels, to be replaced by the next stock-promoting scheme.

Moving on, Pelion has more of a lengthy comment than a question regarding BioCryst Pharmaceuticals (BCRX - Get Report) and the market value ascribed to the early-stage hereditary angioedema (HAE) drug development program. I generally agree with him.

His take:

In this bubble environment we've seen stocks go wild on phase I data and even pre-clinical. In general I know you agree when stocks surge on phase I data it is seldom warranted but in some cases it is. Certain diseases are predictive of positive results at an early stage. Best example I can recall is Hep C when PSI-7977 phase 1 data came out and Pharmasset went thru the roof and never looked back.

On the other hand, oncology companies that go up often come crashing down on phase I data.

Biocryst is the latest example of a phase I trial propelling a stock and may make an interesting case study. The unrealistic positive sentiment in biotech is also a factor but Biocryst's stock price zoomed from $2 to $5 per share (July 18 - 24); its market cap increasing from $106 million to a high of $206 million based primarily on phase one pre-proof of concept data for their orphan drug indication HAE. [Note: Biocryst's market cap is now $310 million.] In a less frothy climate, the market may have yawned but with the orphan drug sector hot, Biocryst went flying. It is an excessive reaction, in my opinion, when its HAE program still has to go through ph IIa, IIB and ph III studies.

But is HAE a disease where early data is predictive?

I don't know, but my gut says no. The early data may have validated plasma kallikrein as a drug target for HAE but the study was done on healthy patients. Not until Biocryst conducts ph IIB and III trials on patients with HAE can we learn to what extent BCX461 can reduce attack frequency.

Whether or not Biocryst is over-valued today is a subjective argument and shorting biotech stocks on valuation, particularly in this market environment, is silly bordering on suicidal.

With so little data, making a judgment call on BCX4161 in HAE is difficult. BCX4161 is a pill, so that's a potential advantage over Viropharma's (VPHM) injectable Cinryze, but then, the pharmacokinetics of BCX4161 aren't exactly ideal. Right now, the drug must be dosed three times a day just to achieve therapeutic blood levels. Is a three-times-a-day pill really more convenient than an infusion every four days? I'm not sure, particularly if bad things happen to patients who fall out of compliance with that strict pill-taking regimen.

We'll know a lot more about BCX4161 after the next study -- the first in real HAE patients -- is completed.

Neeraj K. writes:

I love your articles, and was wondering about your thoughts on Amarin (AMRN). I read your article in early June, and am aware the stock is rising given some opinions that the FDA will come down with a favorable ruling. Do you disagree with said opinion? I'm curious as an investor, but also as a son with a parent currently taking Amarin's offerings. Any insight you could offer would be greatly appreciated, and I look forward to reading more of your work in the future.

You may have missed this if you don't follow me on Twitter, but here was my last thought on Amarin:

The stock offering in early July, which priced at $5.60 per share, was a profitable exit point for shorts, as I mentioned in this article. I have spoken to a few Amarin shorts who cashed out soon after this deal was announced. Victory, moving on, they said.

If Amarin fits the pattern of other biotech stocks, we should see a run-up into the October FDA panel. It sorta looked like Amarin was going to rally earlier this month, but the buying fizzled. Perhaps we'll see a stronger rally in September when summer vacations end.

I'm still negative on the FDA panel outcome, believing experts will want to see cardiovascular outcomes data from the REDUCE-IT study before Vascepa "Anchor" is approved.

-- Reported by Adam Feuerstein in Boston.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.
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