The 2016 Small-Cap Biotech Watchlist Debuts At The Biotech Showcase

Next among Goldstein's picks is Array BioPharma Inc. (ARRY:NASDAQ), "where expectations are low for its MEK inhibitor program for binimetinib." However, the analyst noted, "clinical risk is low and the company has a differentiating feature, having just announced a positive result in a pivotal study for NRAS melanoma. If approved, binimetinib will be the only MEK inhibitor for both BRAF and NRAS melanomas."

Goldstein's last company of interest is FlexPharma (FLKS:NASDAQ), which she said "is unique among development companies because of its pursuit of both consumer and pharmaceutical applications."

The company's consumer product will begin to roll out this year "in a very targeted fashion to the athletic endurance market for exercise-induced muscle cramps," Goldstein said. Because Flex plans "such a small rollout, expectations are appropriately modest." On the pharmaceutical side, "the company has translated its extract-based liquid to a chemically synthesized molecule, and will be exploring muscle cramping and spasticity as indications. The original formulation, which is an extract-based liquid, is currently in a nocturnal leg cramp study, which is a sizable and underestimated market on its own, in our view."

Mike King's selections begin with Karyopharm Therapeutics Inc. (KPTI:NASDAQ), whose stock has taken a beating. "The market cap now is in the high $200s, and the company holds a bit over $200M in cash. So you're looking at a technology value of about $50–75M, which I think is incredibly inexpensive. The two factors I particularly favor are a) the management team, and b) the drugs in development. The CEO, Michael Kauffman, was one of the members of the team that developed Velcade (bortezomib). He was also largely responsible for the successful development of Kyprolis (carfilzomib). Michael is an estimable drug developer and a real bulldog.

"One of the biggest issues affecting sentiment in 2016, the panelists agreed, will be drug pricing."

"The lead program is called Selinexor. It blocks a unique cellular target called XPO1. Basically, the drug will put fingers in the dike of the cell's nucleus to prevent the oncogenes—the genes that suppress cancer—from getting out of the nucleus. When the genes are trapped back in the nucleus, the cell undergoes the appropriate cell death pattern, rather than continuing to advance as would an out-of-control cancer cell. The company will have data readouts this year in acute myelogenous leukemia (AML) and multiple myeloma. Toward the end of this year/early next year, it will have readouts in diffuse lung T-cell lymphoma and something called Richter's transformation. It will have updates on data at the annual American Society of Clinical Oncology meeting for solid tumors. I think this company is tracking exceptionally well.

King also discussed WAVE Life Sciences Ltd. (WVE:NASDAQ). "I refer to the company as a mash-up between Alnylam Pharmaceuticals Inc. (ALNY:NASDAQ), which is a leader in RNA interference, and Isis, now Ionis Pharmaceuticals Inc. (IONS:NASDAQ), which is a leader in antisense," he said.

The science required a bit of explanation. "Briefly, molecules can assume different conformations—a right-handed molecule and a left-handed molecule. Depending on how your molecule is synthesized and manufactured, you can have mixtures or you can have pure versions of these isomers. Wave has brought similar chemistry to the problem of oligonucleotides. When you string together bases to create a, let's say, 19 or 20-mer oligonucleotide, they can have different conformations, so your mixture of molecules can range in the hundreds of thousands. The example the company likes to use is Ionis' mipomersen, which has 500,000+ different molecules in the mixture.

"What WAVE can do is synthesize a single pure isomer. That enables a business strategy that allows it to either be first in class or best in class in terms of a fast follower. It won't be doing very much this year, but toward the end of 2016/early 2017, the company will have its first investigational new drug applications (IND) for programs like Duchenne muscular dystrophy, Huntington's disease and a rare skin autoimmune condition.

Finally, King brought Pieris Pharmaceuticals Inc. (PIRS:NASDAQ) to the table. Pieris "has a ~$100M market cap and ~$50M in cash. Its major technology is based on the understanding of human proteins called lipocalins, which are used as carrier proteins for other things. Pieris has been able to take these lipocalins and engineer them to give them druglike properties." The product is known as "anticalins."

Pieris "has developed a number of clinical programs in hematology, directed against hepcidin in anemia, and in asthma," King continued. "The one compound that's burgeoning is in the immuno-oncology space with a target known as CD137. Pieris is trying to engineer an agonist for the T cell with a targeted agent like Herceptin to bring together the properties of inhibiting growth of a tumor cell plus activating the immune system.

"With this kind of valuation, you could lose all your money in this name, but some of the companies developing platforms with drug-like properties can be very successful—tenbagger types of winners. That's what I'm looking for from Pieris."

"To keep the industry going forward, the presidential candidates need to understand that incentives for innovation should be retained."

King added two other companies to the Watchlist. Akebia Therapeutics Inc.'s (AKBA:NASDAQ) key asset is vadadustat, a stabilizer of the hypoxia inducible factor (HIF) family member HIF-2 alpha for the treatment of anemia associated with chronic kidney disease and end-stage renal disease (ESRD). Milestones in 2016 include a possible partnership for marketing vadadustat in Europe, and initiation of Phase 3 trials for the treatment of ESRD. Agenus Inc. (AGEN:NASDAQ) "has a broad portfolio of immune checkpoint modulators, a great scientific platform, and partnerships for several of its clinical and preclinical therapies. Heat shock protein vaccines for glioblastoma multiforme and use in combination therapies are in Phase 2, and "investors can expect one or more clinical candidates to be declared in 2016," King said.

King is also a fan of FlexPharma, noting that the company's "proprietary sports beverage. . .could be Gatorade- or Red Bull-like in its market potential."

George Zavoico's contributions begin with Abeona Therapeutics Inc. (ABEO:NASDAQ), with a market cap of ~$95M.

"This is a gene therapy company focused on ultraorphan diseases. It has an adeno-associated virus vector carrying the normal gene that crosses the blood-brain barrier and is targeting Sanfilippo syndrome type IIIA and type IIIB. Kids are diagnosed with Sanfilippo syndrome at a very early age, and it's pretty much fatal before they've reached 20 years of age. The company will probably start clinical trials in this quarter."

Reflecting on the challenges Abeona faces, Zavoico observed that "gene therapy has been very interesting, disappointing, and, sometimes, also rewarding. To mitigate that risk, and one of the aspects I like about Abeona, is that it has a second technology called salt diafiltration, for processing blood plasma to isolate plasma proteins, like factor VIII, factor IX, and alpha-1 antitrypsin, for protein replacement therapy. This process is much milder on the plasma, and the cost of goods and yield is much better than methods currently used by most plasma protein isolation companies. This is a $14 billion ($14B) market. If Abeona can get two of its products—the alpha-1 antitrypsin and intravenous immunoglobulin (IVIG) for immune disorders—through bioequivalent studies this year, it might be able to launch them in 2017."

Abeona's key milestones this year are the start of the gene therapy trials and bioequivalence studies for the protein replacement products, both leading up to market launch sometime in the next few years."

Zavoico also likes Asterias Biotherapeutics Inc. (AST:NYSE.MKT), a $110M-market cap company.

"This is basically a cell therapy company with a gene therapy component. It is going after two indications. One is an unmet clinical need—complete cervical spinal cord injury with complete sensory and motor loss. The cells Asterias is producing are differentiated and functional oligodendrocytes, called AST-OPC1, which are injected into the spinal cord. A trial is currently underway; its first dosing cohort has been completed. The company just moved from the 2 million (2M) to the 10M-cell injection level, and with the 10M-cell level, it expects to see some benefit. It's an open-label trial, so we expect to see reports on safety and efficacy from the first cohort starting sometime in Q2/16.

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Disclosure:

1) Tracy Salcedo compiled ...

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