Wedbush Morgan Biotech Analyst Sees Access To Capital Increasing Again For Small Cap Firms

• On 10:56 am EDT, Tuesday October 20, 2009

67 WALL STREET, New York - October 20, 2009 - The Wall Street Transcript has just published its Biotechnology Report offering a timely review of the sector to serious investors and industry executives. This 70 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Heightened M&A Activity - Trend Toward Orphan Disease Drug Development - Generic Drug Competition - Current Length Of FDA Approval Process - Ownership Ego Preventing Shareholder Returns - IPO And Secondary Offering Window Opening - Big Pharma R&D Pipeline - Decreased Clinical Development Risk - Impact Of Health Care Reform - Convergence Of Large-Cap Biotech And Pharmaceutical Companies - Easier Credit For Small Cap Biotech Companies - Developments In Cancer Chemotherapeutics - Gene Delivery Technology

Companies include: ADVENTRX (ANX); Abbott Labs (ABT); Advaxis (ADVX); Amedisys (AMED); Amgen (AMGN); Amylin Pharmaceuticals (AMLN); Antares Pharma (AIS); BioDelivery Sciences (BDSI); Biogen Idec (BIIB); Biomarin (BMRN); Boston Scientific (BSX); Bristol Myers (BMY); CVS Caremark (CVS); Celgene (CELG); Cerner (CRN); Cerus (CERS); Coke (KO); CombiMatrix (CBMX); Coventry Health Care (CVH); DARA (DARA); Eisai (ESALY); Eli Lilly (LLY); GenVec (GNVC); Gilead (GILD); GlaxoSmithKline (GSK); Health Management Associates (HMA); Human Genome Sciences (HGSI); Inspire Pharmaceuticals (ISPH); Intellect Neurosciences (ILNS.OB); InterMune (ITMN); International Stem Cell (ISCO.OB); Javelin Pharmaceuticals (JAV); Johnson & Johnson (JNJ); Keryx Biopharmaceuticals (KERX); Kraft (KFT); MAP Pharmaceuticals (MAPP); Medco (MHS); Merck (MRK); Merit Medical (MMSI); Novartis (NVS); Novelos (NVLT.OB); Novo Nordisk (NVO); Nutrisystem (NTRI); OSI Pharmaceutical (OSIP); Orexigen (OREX); Pepsi (PEP); Pfizer (PFE); Rite Aid (RAD); Schering-Plough (SGP); Takeda (TKPHF); Teva Pharmaceuticals (TEVA); Viropro (VPRO.PK); Walgreens (WAG); Wyeth (WYE); XOMA (XOMA); ZIOPHARM (ZIOP).

In the following brief excerpt from just one of the 17 in depth interviews in the 70 page report, an industry expert discusses the outlook for the sector and for investors.

Dr. Liana Moussatos, Ph.D., Vice President, Equity Research, Emerging Pharmaceuticals, joined Wedbush Morgan Securities, Inc., from Pacific Growth Equities, where she was a Senior Research Analyst. Prior to that she came from UBS Global Asset Management, where she was Director and Portfolio Manager of the UBS Global Biotech Funds for about five years. Previously, Dr. Moussatos was with Bristol-Myers Squibb, where she was a Manager in University and Government Licensing, External Science and Technology, and she also worked with Sloan-Kettering Cancer Institute in the Office of Industrial Affairs and the National Cancer Institute in the Office of Technology Development. Dr. Moussatos received her B.S. in Entomology, and her M.S. in zoology and biochemistry from Clemson University. She received her Ph.D. in plant pathology from the University of California, Davis, and completed a postdoctoral research fellowship in cellular and molecular physiology at the Yale School of Medicine.

TWST: Would you give us an overview of the sector?

Dr. Moussatos: With the economic crunch, no financings occurred for a long time in the biotech sector, especially with the small, earlier-stage companies or even later-stage companies. If they needed cash, they were out of luck. There was some creative financing, such as committed equity financing. Debt was difficult to obtain. This situation triggered M&A with larger companies who had a lot of cash, acquiring smaller companies or reverse mergers into a cash shell. We are still seeing a lot of M&A-type activities. What we're seeing big pharma go after is either some kind of technology platform that could be applied across all disease types or something in late-stage clinical development that passed Phase III. In order to get a drug approved by the FDA, it has to be tested preclinically first in the lab and then animals. If it passes preclinical testing, an investigational new drug application or IND is submitted to the FDA to get permission to start testing in humans. There are three phases of trials. The first phase tests drug safety; it may be tested in normal human volunteers first with a variety of doses that seemed reasonably safe in animals. If it passes that, then the next question to ask is "Does it work in a particular disease that it worked in animal models, based on the scientific mechanism?" And that's Phase II. That's when patients with a particular disease are tested with the drug in to see if it has a beneficial effect on the patients to somehow either ameliorate symptoms or ideally would modify the disease. If it passes Phase II, if the company is public, that's usually when stock value starts to increase because that is one of the biggest hurdles. Most drugs fail when tested in human diseases. There are many reasons why, and a lot of companies end up doing multiple Phase IIs because maybe they didn't get the dosing right or maybe they needed to isolate a subset of patients in a particular disease. Phase II is the stage where they figure things out. So if they can get it to work in Phase II, the next stage is Phase III, and those can be big and expensive trials - really expensive - and you see a lot of partnerships happen at that point, where a larger company will come in who wants to commercialize the drug and likes the Phase II data, and they'll pay for the Phase III. It depends on what the smaller company wants to do because they have the intellectual property rights. If it passes Phase III, then all the data, even preclinical, is gathered in a new drug application which is filed with the FDA, and it usually takes about 10 months to review it and decide whether this drug should be approved for commercialization in the U.S. If the drug passes Phase III, that usually moves the stock. If the FDA approves the drug, that also can move the stock, especially if investors weren't sure about the drug, for example, if the data was borderline. Then the company launches the drug, and then analysts will monitor the drug sales or prescription trends, or something else if it's possible to do that.

TWST: You mentioned credit tightening, and Big Pharma certainly has had some difficulties as well. Are fewer small-cap companies emerging now because of those problems?

Dr. Moussatos: There were virtually no IPOs for a couple of years. Now we're starting to see a few come out. Wedbush has just filed two health care IPOs, Anthera and Omeros, and there is another one out too. We've also recently seen some follow-on offerings in the last few months. I think investors are starting to feel comfortable in investing in the sector again.

TWST: You talked about M&A and creative financing. What other trends are you seeing in the sector?

Dr. Moussatos: We have seen international investment. Because the currency has been favoring the yen, a lot of the Japanese companies are coming in and doing deals or acquiring companies. You will see international companies come in if they have some cash.

TWST: Are small companies carrying the technology through to production, or is the trend to sell or out-license at some point during the clinical process?

Dr. Moussatos: The normal trend is if the disease is an orphan disease, which means it has 200,000 patients or less, or they are targeting some kind of medical condition where there are only specialized centers and you would not need a big sales force, then the smaller companies might build their own sales force. But if it's for a cholesterol drug or a diabetes drug, that's too big for a small company to market on their own. Additionally, the FDA in the last year and a half or so has raised the bar, especially for diabetes drugs because some of the ones on the market had cardiovascular issues and patients died from them. So the FDA raised the bar and made it necessary to do bigger and more expensive studies. Now it takes a large company with deep pockets in order to run a Phase III trial on a new diabetes drug now. As a result, you will see partnering - small companies can't really take care of all the primary-care providers for those kind of big markets.

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