Biotech stocks typically follow a discernible pattern. As a company's drug advances through the testing pipeline, the stock rises. Simply put, the further along in the process, the lower the risk that something will go wrong to derail a drug's prospects.

By that logic, shares of Trimeris ( TRMS) should be steadily rising. The company's two HIV drugs are proving to be quite effective, but its stock is roughly flat with year-ago levels. Importantly, the $511 million value of the company's products ($622 million market capitalization less approximately $111 million in cash) discounts the blockbuster nature of the company's drugs.

Trimeris' drugs, T-20 and T-1249, are geared toward patients that have developed resistance to current HIV therapies, a fast-growing problem that affects 30% to 50% of HIV patients taking antiretroviral drugs, according to one set of statistics. A more recent study of HIV patients in the U.S. undertaken by fellow biotech firm ViroLogic ( VLGC) found that number to be closer to 78%.

For now, T-20 is the drug in the spotlight, as it's further along in the regulatory process than T-1249. T-20 is known as an HIV fusion inhibitor, which treats HIV infection by preventing the virus from entering cells. In contrast, current drugs focus on preventing HIV replication after the virus infects cells. Recent Phase II trials suggest that the addition of T-20 to a standard antiretroviral regimen was both helpful and well-tolerated. Phase III trials are under way.

Analyst Dennis Harp of Deutsche Banc Alex. Brown estimates that T-20 could be prescribed for up to 10% of all HIV cases. His team also polled three dozen physicians at a medical meeting and found that they "indicated uniform belief that T-20 represents a major breakthrough for the treatment of HIV."

Trimeris has partnered with drug giant Roche ( RHHBY) to manufacture and market the drug. The two companies will split sales 50-50. Roche's plant is gearing up now to crank out the drug in volume once it gets Food and Drug Administration approval. The companies expect to get fast-track approval from the FDA later this year and have T-20 on the market in the middle of 2003.

How Much Is It Worth?

Valuing a biotech stock can be quite tricky, of course, but Trimeris has strong buy ratings from five analysts. Deutsche Banc and Lehman Brothers say the stock can rise some 75% to the $70 range. They arrive at that target by discounting back projected future cash flows. With the drug not even on the market yet, we think it's hard to accurately project future profit levels. But we do know that the company's market value is small in comparison to the potential market opportunity.

We have also done well in the past with biotechs experiencing significant insider buying. Genta ( GNTA), Antigenics ( AGEN) and Genzyme Transgenics ( GZTC) were all closed out on InsiderInsights' Recommended List over the past few months for solid profits.

In firms and industries that don't lend themselves well to traditional fundamental analysis, though, the fact that those closest to the business are investing themselves can be an important piece of investment intelligence.

Such is the case at Trimeris. After falling from $70 to $25 in early 2001, numerous insiders began to buy the stock again. Seven insiders purchased just over $2 million worth of Trimeris for between $28.63 and $44.50 during the past year on the open market and via private placements. No money was lent to insiders for any of these transactions, according to a Trimeris spokesperson. And Baker Biotech, a biotech fund that already has large holdings in Trimeris, has also been a heavy buyer of late. Baker and Baker-related entities have purchased $44.3 million worth of shares over the past year.

Trades by Trimeris director Richard Crout were particularly interesting given his good track record of trading TRMS. He was a purchaser in late 1999 and early 2000 when the stock was in the mid-$40 range and below. He then sold heavily in July 2000 when the stock soared above $70. Crout then became a buyer again in the first half of 2001, when shares were once more in the mid-$40 range.

Trimeris will be releasing efficacy data for its HIV drugs in a series of upcoming conferences, including the international AIDS conference in Barcelona in July. Soon thereafter, the company hopes to formally file for approval with the FDA.

The timing for betting those announcements will boost Trimeris looks especially good now, as the share price is once again near the bottom of the $30 to $50 trading range it's been in since April 2001, even while the company's products have jumped through more hoops toward regulatory approval.
Jonathan Moreland is director of research and publisher of the weekly publication InsiderInsights and founder of the Web site InsiderInsights.com. At the time of publication, Moreland had no position in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, Moreland invites you to send comments on his column to jonathan@insiderinsights.com.

TheStreet.com and Moreland are parties to a joint marketing agreement relating to InsiderInsights, a weekly newsletter written and owned by Moreland. Under the agreement, TheStreet.com provides marketing services, including promotion of InsiderInsights on TheStreet.com's Web properties and in his columns that appear on those properties. In exchange for these services, Moreland shares with TheStreet.com a portion of the revenue generated by subscriptions to InsiderInsights resulting from those marketing efforts.

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