12:00 AM
Aug 13, 2007
 |  BioCentury  |  Finance

Ebb & Flow

A pair of high-profile setbacks among two of Germany's late-stage biotech companies has left the country's biotech industry with only a handful of Phase III products. Thus, investors are starting to view the German landscape as a Phase II play. The good news is that at least seven companies have Phase II products, including therapeutics that address large markets such as insomnia, rheumatoid arthritis and cancer.

The first major summer setback came in June, when Paion (FSE:PA8) plunged E6.26 (64%) to E3.54 on June 1 on news that its desmoteplase missed the primary endpoint in a Phase III trial to treat acute ischemic stroke.Then in July, GPC Biotech (FSE:GPC; GPCB) lost more than two-thirds of its market cap following the release of bearish FDA briefing documents and a negative FDA panel for the company's Orplatna satraplatin to treat prostate cancer.

Given the sudden dearth of late-stage investment opportunities, Adamant Biomedical Investments portfolio manager Nick Draeger told Ebb & Flow that "there's not a heck of a lot in Germany at the moment" (see "Potential Phase III Leadership").

Indeed, investors seem to have soured on the German therapeutic developers, as the basket of companies is down about 8% since July 20. Backing out Paion and GPC, the group of German therapeutic stories is still down 5% on average. In contrast, the BioCentury 100 Index is flat over that time.

Nevertheless, Draeger isn't abandoning the region, and said his firm has positions in Evotec (FSE:EVT) and Wilex (FSE:WL6).

EVT's lead compound is EVT 201, a GABA A receptor agonist in Phase II testing for insomnia. Data from a trial in elderly patients with chronic insomnia are expected by 4Q07 or 1Q08.

"Sleep is a huge market but involves a very complicated development process," noted Draeger. "You have to run trials in populations such as elderly patients, depressed patients or obese people with sleep apnea. Evotec shouldn't consider doing it all by themselves, they should get to proof-of-concept and then license."

Kai Bruening of Deka Investment thinks EVT's compound "is the most promising among public German companies." He doesn't own EVT shares, but said he might seek to enter the stock if EVT goes back to the market for money.

Wilex is one of the few German biotechs with a late-stage story - the company expects to report data from a Phase III trial of its Rencarex antibody to treat renal cancer by year end.

"I think there will be a focus on Wilex to be the flagship for German biotech," said Draeger. "The problem is that once your money is in, it stays in because there's not much liquidity in the stock."

A new flower

Nektar (NKTR) added $0.71 to $8.85 last week as investors welcomed two pieces of news that didn't remind them of partner Pfizer's lackluster sales of Exubera inhaled insulin. Last Monday, NKTR announced a deal with Bayer (FSE:BAY; BAY) to develop and commercialize the biotech's NKTR-061 inhaled amikacin, which is in Phase IIb testing to treat Gram-negative pneumonias.

NKTR will receive $50 million up front and is...

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