BioCentury's websites will be down for upgrades starting at 9 p.m. PDT on Monday, August 26. We expect the downtime to last no more than 6 hours, and we apologize for any inconvenience.

12:00 AM
 | 
Apr 02, 2012
 |  BioCentury  |  Finance

Thinking small again

Biotech 2Q12 buyside picks: Smaller caps, 1Q performers, European names

Buysiders shied away from small and micro-cap stocks over the last few years as poor performance and inadequate financing plagued these groups. But many investors now see them as undervalued. These include winners from last quarter, ASCO-related cancer companies and European value names.

This is the first time investors have expressed so much enthusiasm for smaller cap plays since the biotech bull market in the summer of 2009.

Regardless of market cap, buysiders continue to like many of the bets that made them money last quarter in indications such as HCV, obesity and prostate cancer.

Micro-caps march on

A few cancer companies that moved from the micro-cap space (less than $200 million) to the small cap range ($200-$499 million) last quarter continue to be favorites this quarter.

Chief among these is Threshold Pharmaceuticals Inc., which was the top performer among micro-caps in 1Q12, with a gain of 621%. Threshold finished the quarter with a market cap of $453 million, up from $60 million at year end.

In February, the biotech announced a partnership with Merck KGaA for lead candidate TH-302. This was quickly followed by Phase IIb data in which TH-302 plus gemcitabine met the primary endpoint of median progression-free survival (PFS) vs. gemcitabine alone in advanced pancreatic cancer (5.6 vs. 3.6 months, p=0.005) (see BioCentury, Feb. 27).

"It was progression-free survival data, not overall survival data. But you would think that it de-risks the program," said Tom Brakel of Federated Investors. "We think these types of stories are quite appealing. It has shown efficacy and that it's reasonably safe."

He added: "It's all a question of how much risk you are willing to take," he said.

TH-302 is a hypoxia-activated prodrug (HAP) of the DNA alkylator bromoisophosphoramide mustard (Br-IPM). The compound is in Phase III testing in combination with doxorubicin vs. doxorubicin alone in soft tissue sarcoma. Overall survival (OS) and PFS are primary endpoints, with interim data in early 2013.

By YE12, Threshold also expects top-line Phase I/II data for TH-302 to treat multiple myeloma, as well as Phase I/II data in combination with Pfizer Inc.'s Sutent sunitinib in patients with renal cell carcinoma (RCC), gastrointestinal stromal tumors (GIST) or pancreatic neuroendocrine tumors.

Behzad Aghazadeh of venBio sees more potential upside for Threshold, despite last quarter's gains. "It's still a remarkable price; it's not a very expensive company," he said. "This is a hugely under-owned asset."

International Biotechnology Trust's David Pinniger also has small cap cancer plays among his picks: Celldex Therapeutics Inc. and Array BioPharma Inc. Both climbed above the $200 million threshold last quarter, with gains of 96% and 58%, respectively.

Array, which raised $60 million in a follow-on last quarter, also is a pick for Sven Borho of OrbiMed Advisors. The company has nine programs in Phase II testing, seven of which are funded by partners. During the remainder of this year, it expects to report data from five Phase II trials and two Phase I trials.

Celldex raised a $46.5 million follow-on last quarter. Its rindopepimut is in Phase III testing for newly diagnosed, EGFR variant III (EGFRvIII)-positive glioblastoma. Rindopepimut is a vaccine targeting epidermal growth factor (EGF) receptor (EGFR) variant III (EGFRvIII).

The company will present top-line Phase IIb EMERGE data for its glembatumumab vedotin (CDX-011) to treat advanced, refractory or resistant GPNMB-expressing breast cancer at the American Society of Clinical Oncology (ASCO) meeting June 1-5 in Chicago. The candidate is a human mAb against glycoprotein NMB (GPNMB) linked to the tubulin inhibitor monomethyl auristatin E (MMAE).

Celldex also has a pair of Phase I candidates that use the company's Antigen Presenting Cell (APC) Targeting Technology to treat cancer.

"If APC targeting works, this is not a $300 million name - it's a $1 billion name," said Pinniger.

Celldex also is an ASCO pick for Selena Chaisson of Bailard, who will be watching companies with "targeted therapies and super-targeted therapies. If you can show 50% response rate in a subset of a subset of patients, you can get premium pricing. And you get a lot of price appreciation in names that can do that," she said.

Chaisson added: "We're back in one of those times when there are a lot of new products in micro-cap oncology. It goes in waves,...

Read the full 3577 word article

User Sign in

Trial Subscription

Get a 4-week free trial subscription to BioCentury

Article Purchase

$150 USD
More Info >