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Finding new and exciting Biotech companies that target novel mechanisms is like trying to find a needle in a haystack. Sure there are many companies working on cutting edge science, but investing in those companies to reap the rewards of their work is a very dangerous game. More often than not, companies fail because the mechanism does not pan out, the compound(s) do not have pharmacokinetics (get into the body or last very long in the body), or an adverse event happens that knocks years off a development timeline. In addition, the stock can be manipulated by market makers so investors don't know which way is up. I approach investing in biotechs as a long term prospect. I continue to like our current portfolio of biotech companies (join in chat for many of those plays), and we continually add/subtract shares and sell/buy options on the vacillations of the market to reduce our cost basis. I believe our virtual biotech portfolio is well positioned with many companies that have upside potential.
I am starting to dive into the pipelines of a few companies that went IPO last year, and there is one sticks out at me, Endocyte.
Endocyte (ECYT) has six programs in various stages of clinical trials. The company was founded in 1996, has no marketed products, but boasts a pipeline of cancer/inflammatory disease candidates with companion diagnostics.
First, understanding what the company's drugs do is important, then diving into the pipeline will make some sense.
Folate (water soluble Vitamin B9) is needed for DNA synthesis, DNA repair, and DNA methylation as well as to act as a co-factor in biological reactions. In essence, it helps cells grow and multiply. Now, scientists (chemists) are good at manipulating and mimicking biological systems, and Endocyte has drugs that incorporate folate with vinca akloids attached to them (called a 'Trojan Horse' process). The folate-drug complex binds to the folate receptor (FR) that is over-expressed on the cell surface of many cancers and is subsequently taken into the cell (endocytosis). Molecules as diverse as small radiodiagnostic imaging agents to large DNA plasmid formulations have successfully been delivered inside FR-positive cells and tissues. Endocyte has one type of folate-drug delivery system for different cancer types.
Endocyte's lead drug is EC145 which targets the folate receptor positive cancers including many solid tumors (ovarian, non-small cell lung, breast, colorectal, kidney, endometrial and other cancers). EC20 is a companion imaging agent used to identify which patients will benefit the most from treatment with EC145. In December, the company announced that the imaging agent worked very well in selecting patients, but the overall survival results from a Phase II trial (PRECEDENT trial) of EC145 for ovarian cancer were inconclusive. The company's stock dropped 60%, but the clinical trial was not powered to make it look good (on another note, if the trial looked good, the stock would not be in the basement).
What interests me is two fold. First, vinca alkaloids work in cancer (Google it!), and this company has a technology that is deserves some recognition. These mechanisms/targets take years to develop, and thus when the compounds have a failure, I like to take a fresh look at them. This company's stock is one where I think we can do a little bottom fishing. The second reason for liking them is that one of their key stakeholders bought 395,600 shares on Jan. 11 (Sanderling Venture Partners). Will this work in ovarian cancer? I don't know, but someone thinks the company is worth adding to their portfolio. As I noted above, vinca alkaloids are used in a variety of cancer types, and if the company uses its technology to move things in other types of cancer, then they could have a chance and reward patient investors. They will not be the next Amgen or Genentech, but that is not what we are looking for here! How about buying a few hundred shares and selling a few June 2012 $2.50 puts for $0.40 or better for a starter position. If they get filled, then we sell a few calls.
Another company I have been watching is AVEO Pharmaceuticals (AVEO). Aveo has an orally bioavailable multi-targeted kinase inhibitor called tivozanib (partnered with Astellas). The compound is in multiple clinical trials for various cancers, but what really hits it home is most of its activity appears to be via the VEGF receptors.
Vascular endothelial growth factor (VEGF) is a signal protein produced by cells that stimulates vasculogenesis and angiogenesis. VEGF aids to restore the oxygen supply to tissues when blood circulation is inadequate. One big seller of VEGF inhibition is Avastin (Roche)! Avastin binds to VEGF A (there are at least 4 different VEGF's, maybe more), and it is well known that Avastin does not work well as a monotherapy. Hitting multiple mechanisms is where drugs have a better chance to work in cancer, and thus Pfizer has a small molecule inhibitor, Sunitinib (Sutent) that hits several kinases, including VEGF receptors. Other compounds in the family include lapatinib (Tykerb), sorafenib (Nexavar), axitinib, and pazopanib. (Some of these therapies target VEGF receptors rather than the VEGFs.).
Ohad Hammer has a nice summary on AVEO's top line data so I don't want to rehash it here. I also find comment section enlightening on how different people interpret clinical data. Overall, I think AVEO has a chance at filling a niche, as Ohad notes, but in the short time, they are not going go break the bank. I like being very conservative here and buying 100 shares and selling the July $15/12.50 call/put combo for $3.90 or better. Again, we know it works….it is just will the FDA give them the nod to market the drug and then how will they position it in a competitive field.
