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3 biotechs in the West Nile spotlight
Another summertime outbreak could focus investor attention on the companies working to combat this disease -- and on their other promising products.
By Michael Brush
Its summertime, and the livin is easy. Unfortunately, so are you -- an easy target for mosquitoes and the West Nile virus they can carry.
As tragic and frightening as this virus is for hundreds of victims and their families each year, there are a couple of reassuring things to keep in mind about this dreaded disease, which can kill victims by making their brains swell.- As much as mosquitoes munch on us all summer, the chances are slim that any of us will actually get the virus. In a country of 290 million people, there were 9,862 confirmed cases and 264 deaths last year, primarily in Colorado, Nebraska, Texas and South Dakota.
- Several companies are working on promising vaccines and cures, as well as better ways to screen the public blood supply for the virus.
First, the bad news
We'll look at those companies in a moment with an eye to investing. But first, some bad news.- West Nile may hit much harder this year, as it appears to be spreading to new states, including California, says Ray Parsons of MosquitoZone.com. Already, the state has reported 10 cases in 2004, and we arent even in the peak mosquito season of July and August. California reported just three cases through all of last year, according to the Centers for Disease Control.
- The disease may be much more widespread than the numbers suggest. Some experts think for every confirmed case of West Nile, which first showed up in the United States in a dead bird in the Bronx Zoo in 1999, there are several hundred unreported cases. Many people have West Nile virus and dont know it, since the symptoms mimic those of the flu.
- Next, theres a chance this may be the year that the mosquito-borne virus starts to spread down through Mexico and Central America and through Europe. (One possible case was reported in France last year, so it looks like it is already on that continent.)
Leaders in the West Nile fight
As the summer heats up and more reports of West Nile virus come in, the media are likely to whip the public into a frenzy. That may bring more attention to the companies developing cures and screening tools, and how well those projects are coming along. That could bring more investors to those names.
To get a jump on the crowd, we X-rayed the biotech sector to find companies that have promising product pipelines and other businesses that have enough potential to make them worth thinking about as investments. Here is the short list.
Gen-Probe makes the test
San Diego-based Gen-Probe (GPRO, news, msgs), which dominates the market for blood testing, has lots of moving parts. It gets a big piece of revenue from tests run by doctors to check patients for sexually transmitted diseases, for example.
But clearly another big piece of the story is a screen the company developed in a hurry last year to test the nations blood supply for West Nile virus, says Pacific Growth Equities analyst Adam Chazan.
Not yet officially approved by the Food and Drug Administration (FDA), the test is used anyway because West Nile is such a risk. The screen came out last June. By the end of 2003, it had detected 900 cases of infected blood in millions of samples. Gen Probes nucleic acid tests can pick up signs of a virus earlier than other tests because they look for the genetic evidence of a virus, not just signs that a victims immune system is responding to it.
Gen-Probe will file for FDA approval of this test early next year, and that could take another year or more. Once it does, the company can start charging more than twice the $3-$5 per test it now receives to cover costs. (Blood banks dont have to pay that much per donor, because blood is typically tested in pooled donations of 16 to keep costs down.)
Even before more revenue comes on line from the West Nile test, Gen-Probe should start seeing healthy sales growth from a system it recently developed to help labs run blood tests more efficiently -- called TIGRIS. TIGRIS can run 500 samples in an eight-hour day and 1,000 samples in a 13-hour day, so it is revolutionary in terms of its productivity, says Michael Watts, who handles investor relations for Gen-Probe. Over the next few years, another test called Ultrio -- which checks for HIV, hepatitis C and hepatitis B at the same time -- should start bringing in significant revenue.
The company is also developing a more accurate test for prostate cancer, which works by detecting a gene produced by cancerous tissue, known as the PCA3 gene. The test is 75% accurate. The current prostate-specific antigen (PSA) test is right only 25% of the time, which leads to way too many false positives.
As an investor, you may be tempted to look at Gen-Probes marketing partner Chiron (CHIR, news, msgs), because it takes a 50% share of sales of several Gen-Probe products. But as a play on developments in blood testing, Gen-Probe is the way to go. While Chirons vaccine and blood-testing divisions are growing nicely, it has a sluggish biopharmaceuticals business (40% of sales) that weighs down the company as a whole.
Acambis working on a vaccine
Based in England but with a big presence in Cambridge, Mass., Acambis (ACAM, news, msgs) made news a few years back when it won the contract to supply the U.S. government with an emergency stockpile of smallpox vaccine.
Now Acambis hopes to use its cash base of about $2 per share to develop a pipeline of vaccines against other diseases -- including West Nile virus. (The company trades for about $12.50 per share as an American Depositary Receipt.)
Of all the companies working on a vaccine that protects against West Nile virus, Acambis is the furthest along. It may have one on the market in 2007 or 2008. In May, the company released early Phase 1 trial data showing that a small sample of 15 participants taking the vaccine produced antibodies against West Nile. The full Phase 1 trial should be wrapped up in the first half of next year.
In addition to its ChimeriVax vaccine for West Nile, the company is working on vaccines for other mosquito-borne viruses like yellow fever, dengue fever and Japanese Encephalitis. The company -- and Wall Street analysts -- estimate the market for the West Nile vaccine alone could be worth anywhere from $200 million to $400 million per year.
Meanwhile, the company is poised for another big government contract win, a follow-up contract worth up to $900 million to supply a second smallpox vaccine to the U.S. government. This one would be designed to be a bit weaker so it can be used by people with poor immune systems, or by pregnant women. The contract, funded by Project BioShield in the United States, may be awarded next year. Acambis may have to split it with a competitor.
AVI BioPharma: The dark horse
AVI BioPharma (AVII, news, msgs) looks like the dark horse in the race to find a cure for West Nile virus. After all, its a $2 stock, down from $7 just over a year ago. But it just might surprise everyone and come through. The companys problem: It relies on a drug-development approach thats been all but discredited in the eyes of investors.
Thats because AVI BioPharma uses whats known as antisense technology as a platform to develop therapies. This approach is supposed to work by blocking the key genes that allow viruses or diseases to develop.
Unfortunately, antisense technology has been discredited by a series of spectacular disasters among AVI BioPharmas competitors. Most recently, Genta (GNTA, news, msgs) announced a setback with this technology earlier this year, sending its shares spiraling to $2 from $16 in a matter of weeks.
AVI BioPharma Chief Executive Denis Burger, however, is sticking to his guns. He insists his company is different. We use an entirely different chemistry that avoids the issues of toxicity that plague all the other chemistries, says Burger. There is huge potential with this technology. In short, the approach used by competitors meant dosage levels had to be so high, they had harsh side effects.
If AVI BioPharma can find a sponsor soon to support more studies on its potential West Nile virus cure, it might be able to show the cure works by the end of this year, says Burger. The company also has plans to advance potential cures in the works for hepatitis C and dengue virus.
But its biggest potential winner could be a cure for restinosis, or the reclosing of an artery after it has been opened by balloon angioplasty. The potential drug, known as Resten-NG, does this by blocking a gene responsible for producing plaque in arteries after an angioplasty. Burger thinks his companys cure for restinosis may come to market by the end of next year. Announcements of partnerships for the development of any of these drugs, perhaps in the coming months, could serve as a catalyst for the stock well before anything comes to market. Sell-side analysts, meanwhile, caution that the need to tap the capital markets along the way could water down the value of existing shares.
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