Biotech4cast Weekly Stock Digest March 4th

Columbia Laboratories – No Approval for You!
This week Columbia Laboratories (CBRX) received a complete response letter from the FDA and therefore will not be able to market their treatment for preterm birth in women with short uterine cervical length. This outcome was expected as the Biotech4cast Editor rating for Likelihood of success was 1/2 star (the lowest rating possible). The stock price moved relatively little on the days surrounding the event. The biggest CBRX stock price swings occured in January 2012 when an FDA Advisory Committee for Reproductive Health Drugs did not recommend approval. The CBRX stock lost more than half its value following the AdComm event. The FDA usually follows the advisory committee’s recommendation and this was case with CBRX. While panel members generally agreed that progesterone vaginal gel 8% is safe, the panel stated that more information is needed to support approval. Columbia Laboratories announced layoffs this week and Watson Pharmaceuticals has already taken over the NDA on February 10, 2012. CBRX shares will most likely bounce along under one dollar for the foreseeable future.

Advance Cell Technologies Wants to do a Reverse Stock Split – Buyer Beware
Advanced Cell Technologies (ACTC.OB) is a developmental stage biotech company conducting early stage clinical trials to test embryonic stem cells for the treament of Stargardt’s macular dystrophy and dry age-related macular degeneration. These two diseases lead to blindness and the potential commercial value for a treatment is measured in the billions of dollars. The market value of ACTC is about $175 million at 10 cents a share. The company’s share price recently doubled to 20 cents a share when the company reported in the medical journal The Lancet that patients treated with a small dose of stem cells reported no adverse side effects and there was some suggestion that the treatment may work.

However, it will take many more patients going through clinical trials at higher doses with years of follow-up to determine the safety and effectiveness of the treatment. Even the hint of a cure for blindness is enough to send the share price skyrocketing. As additional patients progress through the clinincal trials in the U.S. and Europe the stock price will gyrate. Advanced Cell Technologies provides a good risk/reward scenario for long term risk tolerant investors. However, there are sure to be short term clinical and financial set backs.

One such setback came to light this week when ACTC announced plans for a reverse stock split. The shares trade around ten cents a share. Reverse stocks splits most often do not benefit shareholders as the value of the company usually decreases after the split even though there is a corresponding increase of share price with a decrease in shares outstanding.  It is our view that a reverse stock split will be a short to medium term drag on the market capitalization of the ACTC. Gary Rabin, CEO of ACTC has said publicly that reverse splits usually do not create value and a ACTC reverse split will only be done from a position of strength. Why then is ACTC moving forward with a reverse split at this time?

Many mutual funds and hedge funds are prevented from investing in penny stocks listed on Over-The-Counter Bulletin Board. This website has more information on the risks of penny stock investing. Listing on a major exchange will likely result in more investors and opportunities for ACTC to raise outside capital. The company is need of a cash to keep operations going and a wider shareholder base including more institutional investors will benefit ACTC in the long term. However, short term the reverse split will be a drag on the value of the company. Many more months will pass before there is another clinical update. Therefore, the reverse stock split will mostly likely be done without any major catalysts to propel the shares higher. A joint venture or other type of capital raise could take place in the next several months. The reverse stock split may facilitate capital raising. A joint venture may create shareholder value but not enough to offset the short term effects of the reverse split. Investors are encourage to wait for the reverse split to take place and as the share price moves lower pick up shares in anticipation of the next clinical update.

Three Upcoming PDUFA Dates This Week
Astex Pharmaceuticals (ASTX) is scheduled to hear from the FDA on March 6th, news will most likely not be good for ASTX. Early February 2012 an FDA Oncologic Drugs Advisory Committee voted 10 to 3 with one person abstaining that data in the supplemental new Drug Application for DACOGEN to treat acute myeloid leukemia in the elderly did not support a favorable benefit-risk profile. Astex Pharmaceuticals is a small profitable biotech company that receives royalties from large pharma partners. The company also has over $1 per share in cash. As of March 2nd the shares traded at $1.82. Investors should take any further weakness in share price as a good entry point to buy a profitable biotech company.

Discovery Laboratories (DSCO) also has a PDUFA date of March 6th for SURFAXIN (lucinactant) for the prevention of Respiratory Distress Syndrome (RDS) in premature infants. This will be the 5th time that the drug is up for approval. The company’s presentations make it seem like they have satisfied the FDA’s concerns with the latest submission, but it makes you wonder why DSCO and the FDA are dancing to the same song so many times. The company did just receive FDA approval for their Afectair technology in February 2012 so the stock has been moving higher lately, up over 100% since the beginning of the year. Biotech4cast gives SURFAXIN 3 stars or better than a 50/50 chance of being approved.

NeurogesX is seeking approval for Qutenza, a 30-minute application for the treatment of neuropathic pain associated with HIV-Peripheral Neuropathy. Qutenza is currently FDA approved as a 60-minute application for the management of neuropathic pain associated with postherpetic neuralgia. This is a six month priority review which is usually a good sign because a six month review can mean that the FDA realizes the urgency to get a treatment on the market. Furthermore, the treatment is already in use for another indication another sign that approval may be more likely. However, an FDA advisory committee in early February voted 12-0 against recommending Qutenza for approval, saying that the company failed to provide enough evidence the product works. NeurogesX’s share price is near an all time low after such a decisive no vote. The prospects for NeurogesX looks grim as the company will likely continue to loss money.