Mast Therapeutics, Inc. (MSTX)

[pnnymn]

ADENTRX set to move in on GlaxoSmithKline's lucrative oncology drug


12:41 PM ET, January 4, 2010


Jan 04, 2010 (BAYSTREET NEWSWIRE via COMTEX) -- Like most companies in the sector, ADENTRX (US:ANX) decided to follow the golden rule of biotech finance on Monday: "Raise money when you can."

Despite great news about the filing of their highly anticipated New Drug Application for ANX-530, most investors react to these types of financings in a very bearish fashion (fearing dilution in the worst possible way), I watched shares get beat up pretty badly during the morning part of Monday's session. Still, my former life as an investment advisor taught me that these types of situations often present terrific buying opportunities. I went through the ADVENTRX corporate presentation and wanted to share a few observations with fellow biotech investors. I do apologize ahead of time if I am rehashing prior due diligence, but I want readers to understand that I do have experience following companies who blazed the trail of creating improved equivalent ethical pharmaceutical products. Many of them quickly became multi-billion dollar companies.

There are also many cases were companies have made these kinds of maneuvers with lower profit margin drugs and this path, too, has been very profitable while offering much risk.

The fact that ANX has decided to do this with Oncology products is, in my honest opinion, simply brilliant.

Oncology products offer much higher profit margins and lower managed care hurdles, but ADVENTRX has a proven model to follow and I am happy to elaborate.

First of all, we have to talk about why ADVENTRX can do this.

It's important to understand that the company has developed a unique proprietary emulsion technology to reformulate approved drugs and lower side effects.

In simple terms by improving how a dose is delivered once its in the body you can change the way the body reacts to that drug. A very simple analogy here would be giving someone 3 shots of whisky immediately vs. mixing 3 shots of whisky with a bottle of 7 up and drinking it slowly.

You have changed the way the potent alcohol was delivered to the body (less burning in the mouth etc) but the alcohol still went down the esophagus and into the blood stream. Mission accomplished.

One of the things that makes ADVENTRX such an interesting play, and no doubt one of the reasons why billionaire Carl Icahn and other funds and money managers have purchased so many shares of the company is that even though ANX is an early stage oncology company, it doesn't carry the same risk as other early stage companies. The reason is simple. They have a lower-risk regulatory path.

The type of FDA approval ADVENTRX is seeking is based on a single pharmacokinetic study. The only endpoint is bio-equivalence and that gives the approval process much shorter time lines, lower clinical study costs and lower risk of failure.

Perhaps the one negative with this type of scenario is that the company will not be marketing major new breakthrough like Avastin with no competition, so the stock's upside may be less than if you stumbled across Genetech at this point in their development.

If you're willing to accept that, the upside with ADVENTRX is still tremendous, especially since ANX already has a product on the launching pad: ANX 530 Vinorelbine (Navelbine) Emulsion.

The problem with the current form of GlaxoSmithKline's (US:GSK) Navelbine is that the injection site reaction is 30%.

Understand that Oncology products are notorious for side effects. In most oncology treatment protocols, side effects or toxicity are one of the top reasons patients are not able to complete drug treatment and get the full potential life saving benefit from the treatment.

The company's presentation shows clearly that ANX-530 had considerably less ear vein histopathological toxicity in preclinical trials- an 89 % reduction in injection site reactions. This is highly statistically significant and should bode well with the FDA review committee.

Also in development at ADVENTRX is ANX-514 Docetaxel (Taxotere) emulsion detergent free formulation. Again an easier, softer delivery system designed to reduce hypersensitivity reactions associated with detergents.

The pharmacokinetic study was finished , bio-equivalence not observed. Higher levels during administration were observed but smoothed out during the time curve.

My personal opinion is that if you can deliver more of the drug with less side effects you have potential for better efficacy.

That's always an oncologists first thought: "How far can I push this drug?"

It wasn't a major factor in this bio-equivalent study and no clinical studies will follow to prove this point. If left out here with an approved drug it will be a positive in my opinion. An FDA meeting is planned.

ADVENTRX has already partnered for South Korea and ANX-514 could also have the benefit of reducing the need of high dose steroids in patients. Unfortunately, high dose steroids are a necessary evil in many current oncology treatments and their risk/reward benefits present a delicate balance. Reducing or eliminating them would be a huge advantage for ANX-514.

Another benefit may be less interruption in the treatment therapy schedule. Again, if you can't take the drug your overall survival and relapse free survival rates suffer.

There is also a strong possibility that we may see less nursing time spent managing adverse events with ANX-514. Do you have any idea how much a speciality oncologist nurse gets paid? Do you know how much of their time is spent managing adverse events?

Simple answer to both questions: Too much.

Another advantage should be the use of standard tubing sets. Again, more money, time and headaches saved.

ANX's Docetaxel story gets even better.

The current composition patent expires in 2010 but the last taxotere formulation patent goes until 2013. The molecule is scheduled to becomes free in May 2010, then ADVENTRX gets a brand name product to share for 3 1/2 years.

That's a $3 billion dollar existing market potential.

The company could also potentially get a patent until 2027!

ANX-530 has a $200 million, unpromoted existing market and demand is still growing. ANX-530's patent claim should go until 2025.

Is ADVENTRX going down some dark uncharted alley? Absolutely not.

The path has already been cleared by a couple of current product reformulations.

Abraxane a detergent free formulation , approval based on improvement in response not overall survival studies, reduced hypersensitivity reactions lower rates of neutropenia and faster infusion rates.

Prior to generic entrants in 2001 Taxol sold $1.8 billion dollars, Abraxane sold $335 million dollars in 2008- nearly 40% of the taxane market share in this metastatic breast cancer pie.

Aloxi was the fourth drug in its class for chemotherapy induced nausea and vomiting. Still, Aloxi gained the market share lead in only 2 years.

Finally, most small bio techs are desperate for cash.

In late September, 2009 Adventrx had $3.2 million dollars in cash. By October 2009 Adventrx raised $6 million.

Today, the company announced today that it has signed agreements to purchase shares of its Series E convertible preferred stock pursuant to a registered direct offering to institutional investors, representing gross proceeds to ADVENTRX of approximately $19 million dollars.

In a huge tell about how the company is feeling about their chances, ADVENTRX says it plans to use the net proceeds from the offering to fund activities relating to the commercial launch of ANX-530, including acquiring or developing sales, marketing and distribution capabilities and the associated regulatory compliance infrastructure, and to continue the development of ANX-514 in the United States.

Compared to most biotechs with this much upside, ADVENTRX has a relatively low number of outstanding shares and a very small market cap.

They have no debt and at now least 24 months of cash on hand.

Also, ADVENTRX's costs do not include typical high dollar expensive clinical studies. ANX's clinical studies are understandably much, much lower.

In short, ANX is taking high profit drugs, improving delivery and presenting investors with a tremendous buying opportunity.

I believe this is a very solid company with an excellent chance of price share appreciation both in the very short and long term. Mike Burns is a former investment advisor with First Albany and Smith Barney. He now works in the pharmaceutical industry and is a contributor to BioMedReports. Disclosure: Long ANX

Copyright 2010 BAYSTREET NEWSWIRE
http://cxa.marketwatch.com/tsx/en/market/article.aspx?guid=http://system.marketwatch.com/newscloud/docguid/{D96DBEC5-6F21-47A6-9168-FCBDC07993BB}