The Envelope Please…
By
Michael Brush
July 28, 2005
Biotech companies – especially those developing cancer therapies – are
notorious for blowing up and burning investors. But when they catch fire
with a breakthrough cure, they can really take off.
Just look at Genentech (DNA). It has doubled since March on confirmation
that its Avastin kills cancer tumors by cutting off their blood supply.
So when you see insiders step up and buy at one of these cancer-cure
companies – like Peregrine Pharmaceuticals (PPHM)
– it’s worth a look. One insider at Peregrine bought $617,000 worth since
late May at about $1.
No one is suggesting Peregrine – which has a market cap of $195 million – is
the next Genentech. But it has a novel, if emerging, technology platform
that holds promise in the fight against many forms of cancer and maybe a
dozen or so of the scariest viruses, to boot.
Peregrine’s platform technology
The cells in our bodies are contained by membrane made up of phospholipids
which normally know how to position themselves in the right way.
But in cancerous cells these phospholipids get confused. Many of them end up
on the outside of the cell. That turns them into great targets – if you want
to shoot a missile at a cancerous cell inside the body to kill it.
A similar thing happens in cells infected by many common viruses. These
viruses replicate by entering cells, reproducing in the nucleus, and then
exiting the cell. On the way out, however, they get enveloped by parts of
the membrane from the host cell.
Again, this confuses phospholipids in the membrane of the virus cell, and
the phospholipids wind up on the outside of cells. That creates another
great target if you want to launch an attack.
It’s a lot more complicated than this, of course. But these are the basics
behind Peregrine’s technology -- known as Anti-Phospholipid Therapy (ATP) --
which was developed in conjunction with researchers at University of Texas
Southwestern Medical Center at Dallas. The key compound that knows how to
zero in on target cells is called Tarvacin.
The applications
If Peregrine’s ATP-based targeting technology pans out, the implications
could be pretty big. Most of the excitement right now surrounds potential
treatments of the so-called “envelope” viruses – the ones that envelope
themselves with bits the host cell membrane as they exit the host cell.
The “envelope” viruses read like a top ten list of diseases you’re most
likely to get, and really don’t want. They range from influenza and
Hepatitis B and C, to herpes, West Nile, Dengue, HIV, SARS, avian flu and
many of the potential bio-terror “hemorrhagic” viruses, like Ebola.
A great thing about Perigrine’s approach is that viruses can’t mutate to
fight off the Tarvacin attack. That’s because Tarvacin keys in on anomalies
in the cell membrane – the confused phospholipids -- that viruses don’t know
how to fix. “Since it is not made by the virus, it is not mutable by the
virus,” says Peregrine chief executive Steven King. “It is not something the
virus can change, to get away from therapy.”
Irons in the fire
The United States Army Medical Research Institute of Infectious Diseases (USAMRIID)
is evaluating the use of Tarvacin against hemorrhagic diseases resulting
from Ebola and Marburg viral infections.
Peregrine is also launching a Phase 1 study of the effectiveness of Tarvacin
against Hepatitis C. And the National Institute of Allergies and Infectious
Diseases (NIAID) is evaluating Tarvacin's potential against up to 32
different viruses. “We are also working with other groups that have not come
public. But they are also generating data on other types of viruses,” says
King.
In the realm of cancer, Tarvacin has shown early promise against many forms
of the disease, and more studies are under way. Peregrine has another
compound called Cotara that shows promise against brain cancer. It works by
honing in on dead cancer cells – of which there are many inside live cancer
cells because they grow so fast they get behind on their house cleaning – to
deliver a deadly payload.
Catalysts
One problem with early stage biotech and cancer cure companies – aside from
their tendency to blow up – is that they get bogged down in lengthy clinical
trials that can leave huge gaps of time between news events.
But Peregrine has several studies playing out on many fronts. And they don’t
have to wait for those studies to finish to release preliminary results that
can move the stock.
The cash burn
In the meantime, Peregrine has about $16.9 million in cash which it is
burning through at a rate of about $1.1 million per month. It does have a
revenue producing division called Avid Bioservices. It makes substances like
antibodies used by other biotech companies (and Peregrine) in clinical
trials. Avid Bioservices produced $4.6 million a year in revenue last year.
It has roughly 50% profit margins, and it is growing rapidly.
But that still leaves a potential cash shortage which Peregrine may have to
fill with some kind of financing that could dilute shareholders.
The bottom line: I wouldn’t let that stop you from taking a position
now. My sense is that further financing won’t occur until the stock is
trading higher, to make it worthwhile. Don’t bet the farm on this one,
because biotech companies are risky. But Peregrine has early confirmation of
its technology and so many irons in the fire, it’s worth a buy now for a
long-term hold.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in
any of the companies listed in this column. Mr. Brush is an independent
columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About
Insiders Corner:
http://www.investorideas.com/insiderscorner/. InvestorIdeas.com
Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not
affiliated or compensated by the companies mentioned in this article.
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