Tuesday, October 23, 2007

Biotechnology Insights: Anesiva Goes Commercial

It has been a busy couple of weeks for me. I've thought of doing blog entries on Biogen-Idec (BIIB), AMD, and Gilead (GILD), but have not found the time. I still have one more installment in my Picking a Biotechnology stock series (but I went ahead and bought Gilead). But I think the most interesting, untold story is about Anesiva.

I would not know about Anesiva (ANSV) except that I invested in a stock called Corgentech a few years ago. At the time Corgentech was having problems with it drug development program, but had a great deal of cash left over from its stock offerings of more optimistic times. A different company, focused on pain drugs and funded by venture capitalists, was looking for a stock listing and more cash for its development plans. The two companies merged and the new company was called Anesiva. This was in 2006.

Anesiva's most advanced therapy was for reducing the pain a blood draws. It was actually a simple idea: take a well-known safe and effective drug, lidocaine. Make it into a fine powder and put it in a single-use device that uses a puff of gas to embed the powder in the skin in a circular patch. Within about 1 minute the skin is numbed. The patient feels little or no pain when blood is drawn or an IV needle is inserted. The treatment is now called Zingo.

Back then most analysts dismissed Anesiva with the belief that it would not get approval for Zingo from the FDA. They argued that even clinical studies proved Zingo to be safe and effective, the FDA just was not keen on pain killers. They pointed to a record of failure of other pain drugs to be approved by the FDA. I think the real problem for the major brokerage-connected analysts was that Anesiva did not do an IPO, so no one prestigious had got the fees that induce Wall Street to hype companies to investors.

The Phase III studies of Zingo came in with impressive results. The first studies were done for the "pediatric market," which is to say for children. National health guidelines have been adopted to reduce pain and anxiety for children in medical settings. The FDA not only approved Zingo for children; it approved it early. Even Anesiva seemed surprised.

And the stock price is, yes, down. As far as I know, no major brokerage house recommends Anesiva stock. The consensus now: no one is going to pay $15 to save their child from pain, and even if the parents would, the HMO's won't.

But HMO's are only careful with money, not stupid. Time is money, and getting kids to accept procedures without a struggle saves staff time. It also means happier customers.

Anesiva is working to get high-volume production of Zingo units underway. They have a sales staff that is working on getting hospitals to adopt the therapy. There is a group of pediatric nurses that is tired of being seen by children a harbingers of pain. The nurses are advocating for widespread use of Zingo for children.

Commercial sales of Zingo probably won't start until Q2 2008, and like all ramps, may get off to a slow start. Meanwhile the Zingo Phase III trial for adults has been completed with good results. It will take a while for Anesiva to submit the data to the FDA, but approval for use with adults should come in 2008. In this kind of situation we have what is called a label-expansion. All the FDA needs to do is say that what can be given to children can be given to adults.

Just based on the Zingo story, Anesiva is a very undervalued stock. But there is another drug in the pipeline. It is called Adlea and it is used for surgical pain. Basically, Adlea is sprinkled in the affected area during surgery. It appears to relieve pain for 6 to 8 weeks after that. I am guessing that eventually it will become a standard surgical procedure. Because of the way the FDA works, you can't just ask for approval for surgery in general. Anesiva has been trying it out on a variety of procedures, notably knee surgery and bunion surgery. The great thing about Adlea is that is can reduce the need for full-body opioid painkillers. I think the FDA likes that idea.

Nothing is guaranteed in the stock market, but Anesiva is a pretty good bet. Even if the big brokerage houses delay a long time before recommending it, in the next two years sales are highly likely to ramp up and away.

As always, there are all kinds of risks, including the possible failure of doctors to adopt a new therapy. Anesiva, like any stock, should only be held a part of a portfolio balanced for risk.

Again, most sell-side analysts don't like Anesiva. Every time they have been proven wrong, they just find another reason to not like it. That is the main reason the stock price is such a bargain now.

More data:

Anesiva corporate Web site

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