Feuerstein's Biotech-Stock Mailbag
Welcome back to the Biotech Mailbag, the lazy Labor Day edition. I hope everyone had a great summer. This week, I'll tackle two companies:
Isis Pharmaceuticals
(ISIS)
and
Nastech Pharmaceuticals
(NSTK)
.
Jeff G. writes: "What do you think about Isis Pharmaceuticals? It seems that they are in position to collect royalties on many RNAi drugs in development, as well as having several very promising drugs in their own pipeline. In addition, their Ibis division has a very promising biologics detector."
The skeptic in me says this is a company that's been trying to develop "antisense" drugs for years, with very little success. One drug made it to market, but it was a commercial flop. Everything else has failed, sometimes spectacularly.
The Isis track record isn't pretty, so why throw good money after bad?
But the optimist in me sees it a bit differently. Isis' long history of failure is just that -- in the past. The company has ditched antisense technology platform 1.0 in favor of version 2.0 -- which is delivering intriguing and potentially lucrative results.
Antisense might still be a relatively unproven -- and risky -- technology, but investors looking to make a small bet on its eventual success need to consider Isis for its deep pipeline of solo and partnered drugs.
You can't discuss Isis today without focusing on ISIS 301012, the company's cholesterol-lowering drug. The drug (let's call it '012 for short) is an injectable antisense drug that reduces the production of a protein, ApoB100, responsible for the transport of LDL, or bad cholesterol, through the bloodstream.
Last March, Isis presented a slug of clinical data from some small phase II studies that showed '012 to be a remarkably effective cholesterol-lowering agent -- on par with or better, in some cases, than blockbuster statins like
Pfizer's
(PFE) - Get Report
Lipitor.
The company is focusing development efforts for '012 in two areas: first, as a treatment for patients with familial hypercholesterolemia, or FH. This is a relatively rare genetic disorder that causes people to suffer from very high cholesterol levels and early onset of heart disease.
Second, and more importantly, Isis is testing '012 as a drug for people at high risk for heart disease who cannot control their high cholesterol with current statin therapy. This is a much bigger commercial market opportunity, with '012 potentially used alone or in combination with statins.
On its last conference call, Isis said it plans to start a pivotal study of '012 in FH patients before the end of the year, pending discussions and sign-off from the Food and Drug Administration. The company hopes that a single trial in this orphan (small) patient population will be sufficient for approval.
Later this year, Isis is also expected to present additional phase II data on '012 in FH patients, plus some early data on the combination of '012 with statins in patients with routine high cholesterol.
Isis intends to sign a partnership for '012, especially since developing the drug for patients with routine high cholesterol will require big clinical studies and lots of marketing dollars. The company says it expects to sign and announce a partnership for '012 in the first half of next year.
Switching back to my skeptical side, the development of '012 is no slam dunk. For starters, the data presented so far have come from very small phase II studies that haven't dosed patients for very long. High cholesterol is a chronic condition, so it will be important to see longer-term data before declaring '012 a winner.
And then there are toxicity issues: Patients taking '012 have reported elevated liver enzymes, which can be a precursor to liver damage. Now, most of the liver toxicity seen so far with '012 has come at the highest tested dose, which Isis is no longer using. But that doesn't mean the drug is free and clear from any safety concerns. There was at least a hint of potential liver toxicity with lower doses of the drug, too.
Statins are well known to cause elevated liver enzymes in some cases, and that hasn't stopped the drugs from bringing in nearly $20 billion in sales per year, collectively. With that perspective, worries over '012 and liver toxicity may be overblown, but then, liver toxicity can be a hard thing to handicap.
And let's not forget that '012 is an injectable drug that will try to enter a high cholesterol market dominated by easy-to-take pills. Convincing people to endure a weekly shot in order to lower their cholesterol -- no matter how high it may be -- could be a difficult marketing challenge.
I've spent a lot of time discussing Isis, but haven't completely addressed all of Jeff's question. Isis controls a large patent estate on antisense and RNAi technology, so it does stand to benefit from other companies operating in the area. The best recent example was the $26.5 million that flowed into Isis' coffers from the partnership struck between
Alnylam Pharmaceuticals
(ALNY) - Get Report
and
Roche
.
Lastly, Isis operates a side business -- Ibis -- that sells a machine capable of detecting various pathogens, viruses and other nasty bits. While I don't think this is the main investment focus of the company (right now, that's '012), Ibis is a nice bit of diversification.
Jimmy T. emails again to thank me for
discussing
Viropharma
(VPHM)
a couple of weeks ago, but he wants to know if I'm avoiding commenting on Nastech Pharmaceuticals because it's been a stock touted by Jim Cramer.
"It's imperative to let shareholders know that the hype in autism, obesity and RNAi is way overdone and the competitors are more advanced and have a better probability than Nastech does," Jimmy writes. "Yes, Jim Cramer helped his followers make $5 in stock price, but the injustice has been done because it's remote they are successful in those areas. Please clarify!"
I love Jim Cramer, but I'm not afraid of him. He likes Nastech because the company is trying to develop drugs in three very lucrative markets -- obesity, diabetes and autism. The company also has a foot in the RNAi field, which is very hot these days. With a market cap of around $350 million, a big advance in any of its projects should push the stock higher.
I'm not so crazy about Nastech for many of the same reasons that Jim likes it. Nastech is a small company with an as-yet unproven technology platform to allow for the nasal administration of large-molecule drugs. (These are drugs that normally require injections.)
Diversification is usually a good thing, especially in biotech where the failure rate is so high. What I worry about with Nastech, however, is that the company's R&D resources are spread too thin. I'd rather see a young company focus on one or two drug programs, especially if it's working with technology that hasn't been validated with approved drugs.
I'd feel much more comfortable with Nastech when there is more progress made on its obesity, diabetes and autism programs. Diabetes and autism are still in phase I trials, although phase II studies could begin next year. Data from these trials will go a long way toward validating the approach Nastech is taking.
As for Nastech's intranasal obesity drug, let's not forget that this was a program partnered with
Merck
(MRK) - Get Report
until the drug giant gave up on it in March 2006. Nastech decided to soldier on solo, but Merck's decision to drop an obesity drug (a potential blockbuster) should be a big concern to any investor.
Nastech does have a more advanced drug candidate -- an intranasal formulation of parathyroid hormone (PTH) to treat osteoporosis. This drug is essentially an intranasal version of
Eli Lilly's
(LLY) - Get Report
injectable PTH drug, Forteo.
Nastech partnered with
Procter & Gamble
(PG) - Get Report
to develop intranasal PTH, but the program has been somewhat slow moving as P&G chose to conduct more phase II studies before moving ahead with a phase III trial.
I'd also note that the osteoporosis drug market is crowded and getting more so, and includes competitors developing other nasal or inhaled PTH. How this affects the efforts by Nastech and P&G remain to be seen.
To its credit, I don't see Nastech standing out there trying to hype its pipeline, so I don't agree with Jimmy's accusation. Yes, the company recently held a "Webinar" to detail its very early (preclinical) research efforts into RNAi, but I'll let that slide, given all the recent excitement in the area.
My fundamental problem with Nastech -- and the reason I'm not in total agreement with Jim Cramer here -- is simply that I'd like to see more clinical data and more progress on the company's ambitious (and potentially lucrative) projects before I'd consider myself a believer.
I'm not there yet, but that doesn't mean I won't be in the future.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider Nastech Pharmaceuticals to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;
to send him an email.