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Insider Buying Says This May Be the Year for Hepatitis
Cure Company
When news hit the wires in late January that SciClone Pharmaceuticals (SCLN)
insiders were scooping up shares, the company’s stock wasted little time
shooting to $3.75 from $3.
It’s frustrating to see a stock advance so quickly on an insider signal and
miss the early part of the move. But in the market turbulence this week,
SciClone shares pulled below $3.50 again -- where they should be worth
buying.
What does SciClone do?
The San Mateo, Calif.-based company produces a compound called Zadaxin which
seems to safely help people suffering from Hepatitis C. If so, that would be
good news for the victims of this horrible disease that destroys the liver.
The two current treatments for Hepatitis C fail half the time.
SciClone’s Zadaxin is a synthetic version of a natural substance in the body
that helps our immune response fight viruses and some cancers. Zadaxin ups
the levels of this disease-fighting substance – called thymosin alpha 1 --
by 50 to 100 times. About six years of commercial use of Zadaxin in foreign
countries and over a decade of clinical work on the compound have turned up
minimal side effects.
Right now, SciClone is doing Phase III testing of Zadaxin in combination
with one of the existing Hepatitis C treatments, in the U.S. It expects
results by the end of 2005 or early 2006. SciClone also has a European
partner called Sigma-Tau, based in Italy. It is currently doing Phase III
testing of Zadaxin in combination with both the known Hepatitis C
treatments.
Zadaxin is also being tested for the treatment of Hepatitis B and certain
cancers. SciClone’s other main compound, called SCV-07, is in early stage
testing for possible use against cancer and other diseases.
The insider buying
The SciClone insiders recently picking up shares were Paulo and Claudio
Cavazza, two Italians who work at SciClone’s partner in Italy. Their
purchases were big enough – worth well over $300,000.
But what’s also interesting is that the two were adding to already
substantial holdings. Each owns more than 10% of SciClone shares. What’s
more, Paolo exercised stock options but didn’t sell the shares. This is
often a sign an insider wants to realize the tax consequences of exercising
options right away, because he wants to continue holding the stock without
paying more taxes as it keeps rising.
Potential catalysts
What might make this stock rise near term? By the middle of this year,
SciClone expects results from Phase II tests in the U.S. on the
effectiveness of Zadaxin in fighting liver cancer. Some time this year it
may also announce a marketing partner for Zadaxin in the U.S. The company is
also trying to pick up pharmaceuticals through license agreements. It wants
to sell them through its network of about 70 reps in China who are already
sell Zadaxin there.
By the end of 2005, the company should finish its Phase III testing on the
use of Zadaxin against hepatitis C. Then it would apply for approval by the
end of 2006. Sigma-Tau may also report Phase II data on the use of Zadaxin
against malignant melanoma by the end of 2005.
Financial strength
SciClone seems to have the financial strength to make it through these
various hurdles and beyond. The company recently had around $50 million in
cash. Its net quarterly cash burn is about $5 million, if you add in $5.5
million worth sales per quarter – chiefly sales of Zadaxin in China.
The bottom line: Small biotech companies are notoriously risky places
to follow the insider signal. But this little-known biotech seems to be well
on the way to bringing out a new cure for Hepatitis C, a disease that’s
grown rapidly in the past several years. Insiders who already own a lot of
the stock recently bought near the two-year low of around $3, and I’d be a
buyer too -- in the $3.25 to $3.50 range.
Disclaimer
Michael Brush may hold long or short positions in any of the stocks
mentioned in this article and those positions can change at any moment.
Investorideas.com Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas
is not affiliated or compensated by the companies mentioned in this article.
Michael Brush is a freelance writer.
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