Inovio (INO) is a micro-cap biotechnology company that is developing innovative vaccines and delivery systems. It has a market capitalization, today, of $71 million and the stock price closed at $0.51. (versus 52wk High/Low $0.90/$0.37; volatility is high)
Inovio's vaccines are aimed at difficult to treat viruses that typically exist in multiple strains. This means a specific traditional vaccine has to be developed to protect people from each strain. That takes times, and a new strain can emerge and infect a global population faster than a traditional vaccine can be developed. Inovio's SynCon vaccines are believed to provide cross-protection against multiple strains.
Results have been coming in on a regular basis from trials. In September Inovio announced an open-label Phase I study of its universal H1N1 influenza vaccine provoked immune responses "against some of the most prevalent strains of H1N! influenza from the past 100 years."
One veterinary subsidiary of Inovio reported its improved LifeTide DNA plasmid therapy for pigs to produces more piglets per litter, with higher birth weights, and at a lower dosage than the original version. A separate subsidiary in New Zealand received regulatory permission to market the therapy in October.
Also in October results from a VGX-3100 vaccine trial for HPV (human papillomavirus) showed 100% of 18 patients in the trial showed antigen-specific antibody response, while 78% showed T-cell responses. A phase II trial now underway will determine if the immune responses are able to reverse disease progression to cervical cancer.
In pre-clinical trials Inovio demonstrated that its electroporation technique for introducing its vaccines to skin using minimal invasion "induces robust cellular and humoral immune responses."
November was a busy month. First Inovio Hepatitis B (HPV) vaccine demonstrated the potential to clear HBV from the liver in mice in a pre-clinical trial. Another preclinical study showed T-cell immune response in Cytomegalovirus (CMV).
On December 6th positive Phase II interim results were reported in the leukemia trial. This could lead to treating CML (chronic myelogenous leukemia) with a vaccine. The results are from just 8 patients, with 14 patients currently enrolled and a total of 31 to be studied in the full trial. In addition to showing the vaccine to be safe. Patients received six does of two DNA vaccines at four week intervals. Tests showed T cells and leukemia antibodies were generated. Note, however, no data was released as to whether the patients responded to the therapy by delays in progression or the other usual indicators. In addition to CML, some of the patients to be enrolled will be suffering from AML (acute myeloid leukemia, a more common variety than CML).
Most recently, on December 10th interim Phase I results for H1N1 flu vaccine given to elderly patients were announced. 50 patients were in the trial, with two sets of 20 receiving the vaccine on differing schedules and 10 control subjects who received the traditional seasonal flu vaccine. Immune responses registered at 40% for the Inovio vaccine, double the rate of 20% responding to the traditional vaccine. It was previously known that elderly patients tend to not gain immunity from standard flu vaccines.
What is innovative about Inovio vaccines? They are DNA vaccines. Traditional vaccines consist of weakened or dead viruses or their protein coatings. DNA vaccines need to be inserted into cells (instead of into the bloodstream), but once there can trigger both antibody and T-cell immune responses. To insert the vaccines into cells Inovio uses an electroporation device it developed and has successfully tested. Inovio, in fact, resulted from the merger of a vaccine company and an electroporation developer.
It is important to note that all of the new data is from early-stage trials. To receive FDA approval for commercial sales of a therapy typically two successful Phase III trials are required. Inovio Pharmaceuticals is a developmental stage company with all the risks and uncertainties inherent in that status.
In addition to the recent news, Inovio has a Hepatitis C vaccine in a Phase II trial, and an HIV vaccine in Phase I. It has more cancer vaccine candidates: prostate in preclinical, and a breast/lung/prostate cancer trial in Phase I.
Despite the risk of failure common to all new biotechnology, I believe Inovio is more likely than not to be worth far more in a few years than it is now. Inovio has many shots on goal. Only one vaccine would need to be approved by the FDA to make Inovio a highly-valuable company.
Another risk for investors is that Inovio is likely to need to raise cash to complete its program of demonstrating the effectiveness of its vaccines, and to commercialize them. However, as of the end of Q3, Inovio had $15 million in cash, and some of the trials are being conducted, or paid for, by partners.
Disclaimer: I am long INO. I will not trade INO for 7 days following the publication of this article.
Keep diversified! You should also take a good close look at inovio.com and SEC documents before risking your capital.
Showing posts with label DNA. Show all posts
Showing posts with label DNA. Show all posts
Monday, December 17, 2012
Monday, June 18, 2012
Inovio Prospects
Inovio (INO) is a micro-cap biotechnology company that is developing innovative vaccines and delivery systems. It has a market capitalization, today, of $56 million and a stock price of $0.42 (52wk High/Low $0.94/$0.35). Its therapies would need a successful Phase III trial enabling FDA approval before being commercialized, and the most advanced therapy is only in Phase II, which means it may be years before it turns a profit.
So why own Inovio? A lot of money has gone into developing its products. Paid-in capital is $257.8 million. Results from some early, Phase I, trials are encouraging. The thing to do, in this situation, is to look at the technology and make an estimate as to whether or not it can be commercialized. Also consider how much more capital might need to be raised, resulting in dilution of current stock, in order to achieve that crucial first product commercialization.
Inovio's vaccines are aimed at difficult to treat viruses that typically exist in multiple strains. This means a specific traditional vaccine has to be developed to protect people from each strain. That takes times, and a new strain can emerge and infect a global population faster than a traditional vaccine can be developed. Inovio's SynCon vaccines are believed to provide cross-protection against multiple strains.
Inovio has a Hepatitis C vaccine in a Phase II trial, and HIV, Avian Influenza, and Universal Flu vaccines in Phase I. It has 2 pre-clinical viral vaccine candidates. It also has cancer vaccine candidates: cervical dysplasia in Phase II, leukemia in Phase II, prostate in preclinical, and a breast/lung/prostate cancer trial in Phase I.
There is major outside recognition and even funding for Inovio's vaccines. Partners include (it varies by vaccine) Merck, ChronTech, the National Institute of Health, the University of Southampton and the University of Pennsylvania.
What is innovative about Inovio vaccines? They are DNA vaccines. Traditional vaccines consist of weakened or dead viruses or their protein coatings. DNA vaccines need to be inserted into cells (instead of into the bloodstream), but once there can trigger both antibody and T-cell immune responses. To insert the vaccines into cells Inovio uses an electroporation device it developed and has successfully tested. Inovio, in fact, resulted from the merger of a vaccine company and an electroporation developer.
In its latest results, in May, Inovio announced Universal Avian Flu vaccine generated protective antibody responses against six H5N1 avian flu strains in a Phase I trial.
So this is exciting technology. But most therapies drop out after Phase II trials, and many that show good Phase II data fail for some reason in the larger, usually double-blind, Phase III trials. At best it is a low process. Is Inovio equipped to go the whole hog?
On March 31, 2012 Inovio had almost $26 million in cash and short term investments. It generated a GAAP net loss of over $8 million in the quarter, although cash use was less at near $5.5 million. So with the current cash available Inovio could run for about 5 quarters, not enough to get any final Phase III data, much less an FDA approval.This is despite much of the development being paid for by outside grants or third parties.
Financing could come in several forms, but they all amount to dilution. Inovio could partner with a larger firm, possibly Merck. It could sell stock or bonds, but the market has been leery of unproven biotechnology deals these last few years. Or Inovio could simply be bought by a larger pharmaceutical company, which is a likely scenario if its market capitalization stays low even if it gets further proof of concept.
The near future value of Inovio all depends on what Inovio can prove in the next 3 quarters. But on the whole, there is room for dilution, if it is based on more good data. If their DNA vaccine platform does succeed, there is no reason the company would not be worth in the hundreds of millions, or more. Raising money from investors to allow Inovio to prove itself would be good for everyone, including current investors.
Despite the obvious risk of failure common to all new biotechnology, I believe Inovio is more likely than not to be worth far more in a few years than it is now. Still, it is only for investors who can handle a high degree of risk.
Disclaimer: I took an initial, small but long, position in Inovio in May. I won't trade it for the next week, but I expect to accumulate more if future trial results are positive.
Keep diversified! You should also take a good close look at inovio.com and SEC documents before risking your capital.
So why own Inovio? A lot of money has gone into developing its products. Paid-in capital is $257.8 million. Results from some early, Phase I, trials are encouraging. The thing to do, in this situation, is to look at the technology and make an estimate as to whether or not it can be commercialized. Also consider how much more capital might need to be raised, resulting in dilution of current stock, in order to achieve that crucial first product commercialization.
Inovio's vaccines are aimed at difficult to treat viruses that typically exist in multiple strains. This means a specific traditional vaccine has to be developed to protect people from each strain. That takes times, and a new strain can emerge and infect a global population faster than a traditional vaccine can be developed. Inovio's SynCon vaccines are believed to provide cross-protection against multiple strains.
Inovio has a Hepatitis C vaccine in a Phase II trial, and HIV, Avian Influenza, and Universal Flu vaccines in Phase I. It has 2 pre-clinical viral vaccine candidates. It also has cancer vaccine candidates: cervical dysplasia in Phase II, leukemia in Phase II, prostate in preclinical, and a breast/lung/prostate cancer trial in Phase I.
There is major outside recognition and even funding for Inovio's vaccines. Partners include (it varies by vaccine) Merck, ChronTech, the National Institute of Health, the University of Southampton and the University of Pennsylvania.
What is innovative about Inovio vaccines? They are DNA vaccines. Traditional vaccines consist of weakened or dead viruses or their protein coatings. DNA vaccines need to be inserted into cells (instead of into the bloodstream), but once there can trigger both antibody and T-cell immune responses. To insert the vaccines into cells Inovio uses an electroporation device it developed and has successfully tested. Inovio, in fact, resulted from the merger of a vaccine company and an electroporation developer.
In its latest results, in May, Inovio announced Universal Avian Flu vaccine generated protective antibody responses against six H5N1 avian flu strains in a Phase I trial.
So this is exciting technology. But most therapies drop out after Phase II trials, and many that show good Phase II data fail for some reason in the larger, usually double-blind, Phase III trials. At best it is a low process. Is Inovio equipped to go the whole hog?
On March 31, 2012 Inovio had almost $26 million in cash and short term investments. It generated a GAAP net loss of over $8 million in the quarter, although cash use was less at near $5.5 million. So with the current cash available Inovio could run for about 5 quarters, not enough to get any final Phase III data, much less an FDA approval.This is despite much of the development being paid for by outside grants or third parties.
Financing could come in several forms, but they all amount to dilution. Inovio could partner with a larger firm, possibly Merck. It could sell stock or bonds, but the market has been leery of unproven biotechnology deals these last few years. Or Inovio could simply be bought by a larger pharmaceutical company, which is a likely scenario if its market capitalization stays low even if it gets further proof of concept.
The near future value of Inovio all depends on what Inovio can prove in the next 3 quarters. But on the whole, there is room for dilution, if it is based on more good data. If their DNA vaccine platform does succeed, there is no reason the company would not be worth in the hundreds of millions, or more. Raising money from investors to allow Inovio to prove itself would be good for everyone, including current investors.
Despite the obvious risk of failure common to all new biotechnology, I believe Inovio is more likely than not to be worth far more in a few years than it is now. Still, it is only for investors who can handle a high degree of risk.
Disclaimer: I took an initial, small but long, position in Inovio in May. I won't trade it for the next week, but I expect to accumulate more if future trial results are positive.
Keep diversified! You should also take a good close look at inovio.com and SEC documents before risking your capital.
Tuesday, July 15, 2008
Genentech Pipeline and Analyst Conference Summary
I listened the the Genentech (symbol: DNA) Q2 2008 analyst conference yesterday in order to write my summary of the event. In fact I listened to most of it twice. I don't own Genentech stock. I currently own ANSV, DNDN, BIIB, GILD, and CELG among the biotechnology companies. I prefer simpler stories, in particular where one or two relatively new drugs are apt to make a company's fortune. But after listening to the presentation and looking at the slideshow, I am thinking about putting the July cash designated to be converted into undervalued stocks into DNA. Short term I don't expect much from it, but in the coming decade I suspect we are all going to wish we had a position in Genentech.
Why? Because of the enourmous breadth of Genentech's pipeline. Just mentioning all of the trials taking place right now requires a document pages long. There are trials to extend the labels of blockbuster drugs like Avastin. There are trials for hitting cancers earlier or later than is currently recommended, and for hitting different varieties. There are trials of a variety of new drugs for cancer and other indications. There are whole new bits of science that are in preclinical trials (they are not yet being tested on human beings).
Of course, even a successful company like Genentech will have failures. The failure rate for drug candidates is very high, though by the time a drug makes it to Phase III its chances are getting reasonable enough for investors to bet on. Genentech announced both failures and successes already this year. When you try so many drugs for so many different diseases, that is what you will get.
Remarkably, Genentech is solidly profitable despite the heavy investment in drug development. GAAP earnings were $0.73 per share in the quarter just reported. At this moment it is up, trading for $79 per share. That gives it a current (not trailing) PE of 27, which sounds high in this current market where growing companies sometimes have current PEs in the 10 to 15 range. But compared to the past, this is not a high PE for DNA. Just the growth trend lines in its current drug line up could justify today's price.
Look at the summary of trials and pipeline developments on pages 13 through 41 of the slideshow. There are risks, certainly, but on the whole I believe some remarkable profits are going to be generated in this next decade from the winners in the pipeline.
Why? Because of the enourmous breadth of Genentech's pipeline. Just mentioning all of the trials taking place right now requires a document pages long. There are trials to extend the labels of blockbuster drugs like Avastin. There are trials for hitting cancers earlier or later than is currently recommended, and for hitting different varieties. There are trials of a variety of new drugs for cancer and other indications. There are whole new bits of science that are in preclinical trials (they are not yet being tested on human beings).
Of course, even a successful company like Genentech will have failures. The failure rate for drug candidates is very high, though by the time a drug makes it to Phase III its chances are getting reasonable enough for investors to bet on. Genentech announced both failures and successes already this year. When you try so many drugs for so many different diseases, that is what you will get.
Remarkably, Genentech is solidly profitable despite the heavy investment in drug development. GAAP earnings were $0.73 per share in the quarter just reported. At this moment it is up, trading for $79 per share. That gives it a current (not trailing) PE of 27, which sounds high in this current market where growing companies sometimes have current PEs in the 10 to 15 range. But compared to the past, this is not a high PE for DNA. Just the growth trend lines in its current drug line up could justify today's price.
Look at the summary of trials and pipeline developments on pages 13 through 41 of the slideshow. There are risks, certainly, but on the whole I believe some remarkable profits are going to be generated in this next decade from the winners in the pipeline.
Thursday, February 28, 2008
Biotechnology February: Genentech Avastin Decision
I'll read just about any biotechnology news that comes my way, but I pay the most attention to Amgen (AMGN), Anesiva (ANSV), Biogen-Idec (BIIB), Celgene (CELG), Genentech (DNA), Dendreon (DNDN), Gilead (GILD), and Onyx Pharmaceuticals (ONXX). I am gradually building a biotech portfolio and currently own Anesiva, Biogen-Idec, Celgene, Dendreon, and Gilead. I always take notes and post summaries of these companies' quarterly analyst conferences, which you can access through my analyst conference summary page.
For this blog I thought I'd try something a bit different today. Stock prices are mostly determined by an individual company's performance. Nevertheless, there is news that can impact an entire industry, like changes in how much national governments are willing to pay for drugs. There are also times when an event changes the competitive landscape, as when a notably better treatment is introduced for a disease.
This month we have some surprising news on the FDA drug approval front. "Accelerated" approval was granted to Genentech for "Avastin® (bevacizumab), in combination with paclitaxel chemotherapy, for the treatment of patients who have not received chemotherapy for their metastatic HER2-negative breast cancer." Lets just call it a breast cancer approval for now.
The reason this is not a run-of-the-mill approval is two-fold. First, the FDA advisory panel had recommended against the approval by a 5 to 4 vote back in December 2007. The data was deemed insufficient to establish a favorable risk/benefit analysis for the use of Avastin.
I don't have statistics on it, but the FDA has tended to have a higher bar than its advisory panels. So a vote to disallow a drug that was recommended by a panel would not be as big of a surprise. For instance, Dendreon's Provenge for prostate cancer was recommended by a panel but then denied pending further study ("given an approvable letter", is the lingo).
The FDA had already given Avastin for breast cancer an approvable letter back in August 2007 [See press release]. So this current round was a re-submission. And what probably made the difference was additional data from additional trials, and the possibility of getting good data from ongoing trails. data by the FDA will be required for the accelerated approval to be converted into a full approval. "As a part of our commitment to fully evaluate Avastin in breast cancer, Genentech will also submit data to the FDA from three additional randomized trials that are either ongoing or planned." And if the data is unconvincing, the FDA can pull the tentative, accelerated approval.
So all that is interesting, but the real news is that this decision appears to mark a change in FDA policy. A lowering of the bar for cancer drugs.
In the past the gold standard for treatments has been the extension of patients' lives. Or more coldly, increasing the time until death. Improving the quality of life is another plus. Any side effects are weighed against the benefits. Avastin for breast cancer does not appear to prolong patient's lives, nor does it provide for a better quality of life. Instead, Avastin was demonstrated to slow the growth of tumors. You might think that would cause patients to live longer, but in the case of Avastin any lengthening of life has not been shown to be statistically significant in the clinical trials.
There is an argument that if something shrinks or slows the growth of cancers, it has a place beside other therapies. Clearly the FDA bought that argument.
A lot of drugs will be reviewed to see if they might meet this new criteria. Until some are put forward, we won't know whether Avastin for metastatic HER2-negative breast cancer is an exception to the rule, or the new rule.
It is possible that the FDA is reacting to negative publicity on the Provenge decision. A lot of prostate cancer patients want to try Provenge and have been pressuring Congress to get that opportunity sooner rather than later.
It is not easy being the FDA. People want you to make the right decision all the time, but what is right is open to dispute. Drugs go on the market that later prove to have unforeseen side effects and everyone wants the FDA to tighten up on approvals. But desperate patients want to grasp at any hope provided to them by the drug companies. Given how complicated medical science is, even though I many disagree with the FDA on a particular decision, I think they are doing a good job overall.
For this blog I thought I'd try something a bit different today. Stock prices are mostly determined by an individual company's performance. Nevertheless, there is news that can impact an entire industry, like changes in how much national governments are willing to pay for drugs. There are also times when an event changes the competitive landscape, as when a notably better treatment is introduced for a disease.
This month we have some surprising news on the FDA drug approval front. "Accelerated" approval was granted to Genentech for "Avastin® (bevacizumab), in combination with paclitaxel chemotherapy, for the treatment of patients who have not received chemotherapy for their metastatic HER2-negative breast cancer." Lets just call it a breast cancer approval for now.
The reason this is not a run-of-the-mill approval is two-fold. First, the FDA advisory panel had recommended against the approval by a 5 to 4 vote back in December 2007. The data was deemed insufficient to establish a favorable risk/benefit analysis for the use of Avastin.
I don't have statistics on it, but the FDA has tended to have a higher bar than its advisory panels. So a vote to disallow a drug that was recommended by a panel would not be as big of a surprise. For instance, Dendreon's Provenge for prostate cancer was recommended by a panel but then denied pending further study ("given an approvable letter", is the lingo).
The FDA had already given Avastin for breast cancer an approvable letter back in August 2007 [See press release]. So this current round was a re-submission. And what probably made the difference was additional data from additional trials, and the possibility of getting good data from ongoing trails. data by the FDA will be required for the accelerated approval to be converted into a full approval. "As a part of our commitment to fully evaluate Avastin in breast cancer, Genentech will also submit data to the FDA from three additional randomized trials that are either ongoing or planned." And if the data is unconvincing, the FDA can pull the tentative, accelerated approval.
So all that is interesting, but the real news is that this decision appears to mark a change in FDA policy. A lowering of the bar for cancer drugs.
In the past the gold standard for treatments has been the extension of patients' lives. Or more coldly, increasing the time until death. Improving the quality of life is another plus. Any side effects are weighed against the benefits. Avastin for breast cancer does not appear to prolong patient's lives, nor does it provide for a better quality of life. Instead, Avastin was demonstrated to slow the growth of tumors. You might think that would cause patients to live longer, but in the case of Avastin any lengthening of life has not been shown to be statistically significant in the clinical trials.
There is an argument that if something shrinks or slows the growth of cancers, it has a place beside other therapies. Clearly the FDA bought that argument.
A lot of drugs will be reviewed to see if they might meet this new criteria. Until some are put forward, we won't know whether Avastin for metastatic HER2-negative breast cancer is an exception to the rule, or the new rule.
It is possible that the FDA is reacting to negative publicity on the Provenge decision. A lot of prostate cancer patients want to try Provenge and have been pressuring Congress to get that opportunity sooner rather than later.
It is not easy being the FDA. People want you to make the right decision all the time, but what is right is open to dispute. Drugs go on the market that later prove to have unforeseen side effects and everyone wants the FDA to tighten up on approvals. But desperate patients want to grasp at any hope provided to them by the drug companies. Given how complicated medical science is, even though I many disagree with the FDA on a particular decision, I think they are doing a good job overall.
Monday, January 14, 2008
Genentech (DNA) Stalls, Points to Pipeline
Genentech (DNA) tried to put a positive face on its 4th quarter of 2007 today in its press release and analyst conference, mainly by pointing to full 2007 numbers. Most companies would envy those numbers, but for Genetech the point to slowing revenue and profit growth. Comparisons between Q4 2007 and Q2006 are positive but the growth is minimal. Worse still, net income (GAAP basis) has declined slightly for two quarters in a row now.
This, and the bad news on Zetia today, illustrate the downside to investing in biotechnology companies, even relatively big, successful ones like Genentech. Sales of most of Zenentech's drugs have stalled for one reason or another. Of Genentech's top selling drugs only Avastin showed strong growth from Q4 2006 to Q4 2007, at 23% growth. Two drugs, Lucentis and Nutropin, showed declines.
The big hope is that the FDA will approve Avastin for breast cancer in February, but management was careful to say that while approval is possible, further study may be requested as well.
For more detailed notes on today's conference, see my Genentech January 14, 2008 analyst conference summary. For past summaries and other useful links see my Genentech main page.
On the other hand, Genentech is spending an astonishing amount of money on R&D and still turning in profits. Management says it is looking at the long run. They have 20 molecules they are testing for various indications. Plus many of their currently approved drugs are being tested for expanded indications. The long run looks bright; the question is: how much do you want to pay now to participate in the long run?
What with the current liquidity squeeze I'd say now is a good time for a long term investor to buy Genentech stock. Priced at $70.64 per share at the end of today, it had a PE ratio of 24.7(per NASDAQ, which usually uses non-GAAP numbers). That is cheap for what is usually a growth stock.
The dilemma is, wait for the Avastin breast cancer decision, or plunge in? If the decision is a go, the stock will pop a bit. If they require more study, there will be some sinking.
And if the liquidity crisis worsens, like most stocks Genentech will probably go down. On the other hand (hey, I coulda been an economist), if the Fed cuts interest rates sufficiently later this month, the liquidity squeeze could evaporate and those of us with "actual cash money" (as Faulkner's characters used to say) could find ourselves chasing after stock prices rushing back to normal.
Also useful: www.genentech.com
This, and the bad news on Zetia today, illustrate the downside to investing in biotechnology companies, even relatively big, successful ones like Genentech. Sales of most of Zenentech's drugs have stalled for one reason or another. Of Genentech's top selling drugs only Avastin showed strong growth from Q4 2006 to Q4 2007, at 23% growth. Two drugs, Lucentis and Nutropin, showed declines.
The big hope is that the FDA will approve Avastin for breast cancer in February, but management was careful to say that while approval is possible, further study may be requested as well.
For more detailed notes on today's conference, see my Genentech January 14, 2008 analyst conference summary. For past summaries and other useful links see my Genentech main page.
On the other hand, Genentech is spending an astonishing amount of money on R&D and still turning in profits. Management says it is looking at the long run. They have 20 molecules they are testing for various indications. Plus many of their currently approved drugs are being tested for expanded indications. The long run looks bright; the question is: how much do you want to pay now to participate in the long run?
What with the current liquidity squeeze I'd say now is a good time for a long term investor to buy Genentech stock. Priced at $70.64 per share at the end of today, it had a PE ratio of 24.7(per NASDAQ, which usually uses non-GAAP numbers). That is cheap for what is usually a growth stock.
The dilemma is, wait for the Avastin breast cancer decision, or plunge in? If the decision is a go, the stock will pop a bit. If they require more study, there will be some sinking.
And if the liquidity crisis worsens, like most stocks Genentech will probably go down. On the other hand (hey, I coulda been an economist), if the Fed cuts interest rates sufficiently later this month, the liquidity squeeze could evaporate and those of us with "actual cash money" (as Faulkner's characters used to say) could find ourselves chasing after stock prices rushing back to normal.
Also useful: www.genentech.com
Thursday, July 12, 2007
Genetech's Pipeline
Genetech (DNA) blew past most people's expectations with its Q2 2007 report on July 11th. Pundits feared that a need to add a warning about possible allergic reactions to Xolair, combined with the results of a study saying that a lower dosage of Lucentis may be as effective as the recommended dose, would take the wind out of Genetech's sales. But Xolair sales grew from $111 million in Q1 to $120 million in Q2, and Lucentis sales were only off to $209 million from $211 million in Q1. Overall revenues were up 7% sequentially and an amazing 37% from Q2 2006.
There have also been questions about whether growth can continue without a stronger pipeline. Note that today Genentech's P/E ratio was 33 (per Nasdaq); while typically a company growing revenues at 37% per year would have a higher PE ratio, it still assumes growth will be strong over the next few years. Biotech pipelines are the stuff of long waits: from the beginning of a Phase III trial to first revenues (presuming the drug does not bomb out, which many do) can take years (3 is about the minimum). As to drugs entering Phase I trials, you are looking closer to a decade out.
Genentech, however, has some successful drugs that can generate more revenue through label expansion. Companies often seek very narrow indications for approval, especially of cancer drugs. You don't get approval for "breast cancer;" you get approved for some very narrow subtype of breast cancer, or lung or liver or whatever form of cancer. But once you have that, if it looks like your drug is more broadly applicable, you go back and do trials on closely related indications. In Genentech's case it is seeking label expansion for Herceptin, which is currently approved for "metastatic breast cancer in HER2 overexpressed tumors; as part of a treatment regimen containing doxorubicin, cyclophosphamide, and paclitaxel, for the adjuvant treatment of patients with HER2-positive, node-positive breast cancer." It has completed Phase III trials and has applied to the FDA for approval in "in adjuvant HER2-positive breast cancer," which means in a less specific regimen than the current label. In another Phase III study it was combined with Avastin; and other varieties of Herceptin Phase III studies have been initiated.
Genetech is awaiting FDA action on its submission for Rituxan for Rheumatoid Arthritis (RA) and is preparing a submission for Avastin for first-line metastatic renal cancer and first-line metastatic breast cancer (first line means used as a first therapy; second line means using after a different therapy has failed to halt the progress of the disease). Rituxan already had $582 million in sales in Q2 for the indications it is already approved for.
Such is the size of Genentech's pipeline that this article could become quite a hefty volume if I discussed each pipeline drug in even minimal detail. So instead I will point to a different category: drugs that are not yet generating money for Genentech. These drugs can be anywhere in the clinical trial timeline from Phase I to Phase III. Keep in mind that each phase can take years; ten years from the beginning of a Phase I trial to approval by the FDA is not unusual. Also the field narrows as you go through trial sets; as a general rule you might want four or five candidates entering Phase I to get a single approved, marketable drug.
At the top of the list, in Phase III, we have Ocrelizumab, an anti-CD20 humanized monoclonal antibody. What that means is they are hoping to cure diseases caused by the human immune system attacking the human body. Phase III trials in rheumatoid arthritis have started and Phase III trials in lupus nephritis, systemic lupus erythematosus and relapsing remitting multiple sclerosis (yep, that is what the President had in West Wing) are planned.
At the base of the pyramid we have a slew of Phase I candidates. There's a bunch more anti-CD20 drugs. There are drugs for solid tumors, myelomas and lymphomas, anti-IFN apha for lupus, a variety of cancer therapies with strange designations, PARP inhibitor for malignant melanoma, and a systemic Hedgehog antagonist (Hedgehog is ... well, another time).
The picture I am painting here looks like this to me: a varied and in-depth pipeline covering the spectrum from Phase I to Phase III. Lots of earning potential just from adding to the labels of current successes.
So I think the PE ratio of 30 is a bargain. Genentech management plans to continue to invest heavily in R&D. They are also not shy about buying a drug from another company when they think it has potential. They kept saying they are looking for drugs that will be first in class (the first approved for a disease) or best in class (better than anything already on the market).
I don't own Genentech, but covering the company makes me want to buy some stock. Before you make any decision I suggest, at minimum, you read my summary of the Q2 2007 analyst conference that took place July 11th.
More data:
Genentech Investor relations page
Genentech pipeline page
My Biotechnology Investor Research Help page
There have also been questions about whether growth can continue without a stronger pipeline. Note that today Genentech's P/E ratio was 33 (per Nasdaq); while typically a company growing revenues at 37% per year would have a higher PE ratio, it still assumes growth will be strong over the next few years. Biotech pipelines are the stuff of long waits: from the beginning of a Phase III trial to first revenues (presuming the drug does not bomb out, which many do) can take years (3 is about the minimum). As to drugs entering Phase I trials, you are looking closer to a decade out.
Genentech, however, has some successful drugs that can generate more revenue through label expansion. Companies often seek very narrow indications for approval, especially of cancer drugs. You don't get approval for "breast cancer;" you get approved for some very narrow subtype of breast cancer, or lung or liver or whatever form of cancer. But once you have that, if it looks like your drug is more broadly applicable, you go back and do trials on closely related indications. In Genentech's case it is seeking label expansion for Herceptin, which is currently approved for "metastatic breast cancer in HER2 overexpressed tumors; as part of a treatment regimen containing doxorubicin, cyclophosphamide, and paclitaxel, for the adjuvant treatment of patients with HER2-positive, node-positive breast cancer." It has completed Phase III trials and has applied to the FDA for approval in "in adjuvant HER2-positive breast cancer," which means in a less specific regimen than the current label. In another Phase III study it was combined with Avastin; and other varieties of Herceptin Phase III studies have been initiated.
Genetech is awaiting FDA action on its submission for Rituxan for Rheumatoid Arthritis (RA) and is preparing a submission for Avastin for first-line metastatic renal cancer and first-line metastatic breast cancer (first line means used as a first therapy; second line means using after a different therapy has failed to halt the progress of the disease). Rituxan already had $582 million in sales in Q2 for the indications it is already approved for.
Such is the size of Genentech's pipeline that this article could become quite a hefty volume if I discussed each pipeline drug in even minimal detail. So instead I will point to a different category: drugs that are not yet generating money for Genentech. These drugs can be anywhere in the clinical trial timeline from Phase I to Phase III. Keep in mind that each phase can take years; ten years from the beginning of a Phase I trial to approval by the FDA is not unusual. Also the field narrows as you go through trial sets; as a general rule you might want four or five candidates entering Phase I to get a single approved, marketable drug.
At the top of the list, in Phase III, we have Ocrelizumab, an anti-CD20 humanized monoclonal antibody. What that means is they are hoping to cure diseases caused by the human immune system attacking the human body. Phase III trials in rheumatoid arthritis have started and Phase III trials in lupus nephritis, systemic lupus erythematosus and relapsing remitting multiple sclerosis (yep, that is what the President had in West Wing) are planned.
At the base of the pyramid we have a slew of Phase I candidates. There's a bunch more anti-CD20 drugs. There are drugs for solid tumors, myelomas and lymphomas, anti-IFN apha for lupus, a variety of cancer therapies with strange designations, PARP inhibitor for malignant melanoma, and a systemic Hedgehog antagonist (Hedgehog is ... well, another time).
The picture I am painting here looks like this to me: a varied and in-depth pipeline covering the spectrum from Phase I to Phase III. Lots of earning potential just from adding to the labels of current successes.
So I think the PE ratio of 30 is a bargain. Genentech management plans to continue to invest heavily in R&D. They are also not shy about buying a drug from another company when they think it has potential. They kept saying they are looking for drugs that will be first in class (the first approved for a disease) or best in class (better than anything already on the market).
I don't own Genentech, but covering the company makes me want to buy some stock. Before you make any decision I suggest, at minimum, you read my summary of the Q2 2007 analyst conference that took place July 11th.
More data:
Genentech Investor relations page
Genentech pipeline page
My Biotechnology Investor Research Help page
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