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

"Asterias also has an autologous cell therapy product for AML, called AST-VAC1, which is further along in development. This is going through final design and process development in preparation for a Phase 2 trial projected to start in early 2017. This trial is based on surprisingly durable responses the company saw in an earlier, exploratory Phase 2 trial in AML."

Pain Therapeutics Inc. (PTIE:NASDAQ), a $77M-market cap company, makes Zavoico's list as well.

"It's going after the $2.5B OxyContin (oxycodone, extended release) franchise for chronic pain. OxyContin is a first-generation, opioid abuse-deterrent product with some deficiencies. It's still abused. Second-generation, potentially superior abuse-deterrent technologies have now emerged, and Pain Therapeutics has developed one of these into a product called Remoxy, which also contains oxycodone. It is expecting to file a new drug application (NDA) filing soon. We expect a six-month review period by the FDA, so approval is possible by year-end."

"Positive themes for 2016 include mergers and acquisitions, a favorable regulatory environment, and a number of high-quality private companies are poised for initial public offerings."

Again, given this is a small company, Zavoico said that "even if it gets a fraction of the market, it would be a pretty big deal. Downside risk is that Purdue Pharma (private), which markets OxyContin, is highly protective of its market. We'll see how that plays out when the NDA for Remoxy is filed, or if and when it is approved, after what I expect will be a six-month review; so it's likely before the end of the year. Pain Therapeutics also has a second product, a topical patch called Fenrock, which contains an opioid called fentanyl, in another abuse-deterrent formulation. That's going through final formulation studies. Once those studies are complete, the company expects to file an investigational new drug application (IND) that would enable it to begin bioequivalence studies, possibly early next year."

Finally, Zavoico named Peregrine Pharmaceuticals Inc. (PPHM:NASDAQ), a $215M market cap company, to the Watchlist.

"By now everyone has heard of the immune checkpoint inhibitors targeting CTLA-4 and PD-1 for treating certain cancers, and we'll probably have a PD-L1 inhibitor on the market soon as well. But this is just the tip of the iceberg, as a dozen or more immune checkpoints have now been identified and targeted for drug discovery and development." Zavoico said. "While most of these are just beginning Phase 1 trials, what is little appreciated is that Peregrine Pharmaceuticals has an immune checkpoint inhibitor, called bavituximab, already in a Phase 3 trial for non-small cell lung cancer (NSCLC).

"Bavituximab targets phosphatidylserine (PS), a key cell membrane phospholipid with powerful immunosuppressive properties when expressed on the surface of tumor cells. PS has only recently been recognized as an important immune checkpoint," Zavoico continued, noting final results of the Phase 3 trial are expected by year-end, with two interim looks during the year. He also said Peregrine has commenced, or is planning to commence, Phase 2 and 2/3 trials of bavituximab in combination with other drugs, including other immune checkpoint inhibitors, in NSCLC, HER2-negative and triple negative breast cancer.

Ram Selvaraju's list begins with CorMedix Inc. (CRMD:NYSE.MKT), with a Buy rating and a price target of $6.50/share.

"This company is currently trading at an enterprise value below $50M, but has a Phase 3 program with a next-generation drug candidate aimed at dealing with catheter infections in the hospital setting. The active ingredient is taurolidine, which is well known to be resistance-evading in nature. This is one of the few programs that deals conclusively with multidrug-resistant bacterial infections. In the hospital, that's a significant issue. The company's Phase 3 program is currently ongoing and should reach an interim analysis point later this year."

Next up is Oramed Pharmaceuticals Inc. (ORMP:NASDAQ), "which is developing an orally bioavailable form of insulin, as well as an orally bioavailable form of exenatide, which is a member of the GLP-1 agonist subclass.

"Oramed recently inked a China licensing deal with total milestones of $50M." Selvaraju explained. "It is well capitalized for at least the next two years. It will report data from a Phase 2b trial from its oral insulin product, ORMD-0801, in April or May of this year. If those data are positive, and given this is an orally bioavailable form of insulin and is risk mitigated, it should be a transformative event for the company. Positive data could spark acquisition interest from any number of large diabetes players, including the usual suspects, Sanofi SA (SNY:NYSE), Novo Nordisk (NVO:NYSE)and AstraZeneca Plc (AZN:NYSE).

Sorrento Therapeutics Inc. (SRNE:NASDAQ) is Selvaraju's call in the immuno-oncology space.

"The company has a sub-$400M market cap right now, is relatively well capitalized, and has a very diversified portfolio of technology platforms. It has a portfolio of biosimilar candidates, which it reported baseline data from earlier this week. These candidates may, in fact, be positioned as bio betters. They include a competitor to Xolair (omalizumab; for allergic asthma and chronic idiopathic urticaria), a competitor to Simulect (basiliximab; an immunosuppressant used following organ transplantation) and a competitor to Remicade (infliximab; an immunosuppressant used in different types of arthritis and inflammatory bowel diseases).

"In addition, in the immuno-oncology space, I believe that Sorrento has an advantage because it is focusing on the natural killer cell-focused methodology, which involves the use of a proprietary cell line that's being developed in collaboration with Patrick Soon-Shiong's company, NantKwest Inc. [NK:NASDAQ]). I believe the key to sustainable development in the immuno-oncology space is the development and emergence of allogeneic therapy versus autologous therapy."

Sorrento also has "a multitude of antibody-based platforms, including intracellular antibodies, that it is developing in collaboration with the City of Hope," Selvaraju said, adding these "are very interesting because they have activity inside the cell as well as on cell surface targets.

Finally, Selvaraju gave a "shout out" to Synergy Pharmaceuticals Inc. (SGYP:NASDAQ).

"It is a week or two away from filing its NDA on plecanatide in chronic constipation. I also anticipate Phase 3 data from two irritable bowel syndrome with constipation (IBS-C) trials later this year.

"The stock has been significantly beaten down. It now trades where it was trading prior to reporting the Phase 3 data in chronic constipation. The mechanism of action is shared with Ironwood Pharmaceuticals Inc.'s (IRWD:NASDAQ) linaclotide, which has already topped $450M in sales for 2015. Ironwood believes that linaclotide will be a $1B drug by 2020. It's an emerging class in the gastrointestinal tract space.

Selvaraju also highlighted Evoke Pharma Inc. (EVOK:NASDAQ), an emerging specialty pharmaceuticals firm developing an intranasal formulation of metoclopramide, designated EVK-001, for the treatment of diabetic gastroparesis.

"We like Evoke's prospects relative to its extremely low market cap of only $25M, particularly given the significant unmet need in diabetic gastroparesis—a paralytic condition of the upper gastrointestinal (GI) tract in diabetic patients that can result in severely impaired swallowing and GI tract motility, along with nausea and regurgitation," Selvaraju said. "Evoke's lead candidate, metoclopramide, has been used to treat gastroparesis for decades, and is currently the only FDA-approved treatment for this condition. The firm's candidate is formulated for intranasal delivery, which should result in enhanced efficacy based on improved central bioavailability targeting the necessary receptors in the brain. Evoke should report data from a pivotal Phase 3 trial later this year. If positive, this should enable the company to file for approval in the U.S. via the 505(b)(2) pathway. We believe peak sales of EVK-001 could exceed $400M, given the 1.6M individuals currently living in the U.S. with diabetic gastroparesis."

Reni Benjamin's selections round out the 2016 Small-Cap Biotech Watchlist.

"My Top Pick is ADMA Biologics Inc. (ADMA:NASDAQ) in the IVIG space. This is arguably a crowded space, but this company has a differentiated product. We already have the data in hand—the data look solid—to get approval. That approval should come in Q3/16 with a potential for sales beginning at the end of Q4/16. While there's no guarantee that an approval will result in an increase in the share price, we believe the stock has been beaten down and that, at current levels, there is significant upside.

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Disclosure:

1) Tracy Salcedo compiled ...

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