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Watchlist 2013: Experts Pick Potential Biotech Winners

Source: Tracy Salcedo-Chourré of The Life Sciences Report  (1/9/13)

More than 75 people packed a conference room at the Biotech Showcase in San Francisco to hear which biotech companies made The Life Sciences Report/Sagient Research Watchlist for 2013. Six experts offered observations on the state of the life sciences sector and each named companies that could prove profitable in the coming year—companies that are not only backed by strong science but are, in the words of Analyst George Zavoico, "poised to be lucky."

John Tucker of Sagient Research kicked off the seminar with a recap of how biotech stocks moved at various phases of the U.S. Food and Drug Administration's (FDA's) drug approval process. As most biotech investors know, big moves, either up or down, are associated with releases of trial data, briefing documents prior to advisory committee meetings (AdComs), the AdComs themselves, and, of course, Prescription Drug User Fee Act (PDUFA) dates. Tucker also made predictions of hot fields in the sector in 2013: Oncology will continue to be "number one" in the drug development field, he said, though infectious diseases and endocrinology are expected to show strength in the coming year.

George Zavoico, life sciences analyst with MLV& Co., named Peregrine Pharmaceuticals Inc. (PPHM:NASDAQ) and Prana Biotechnology Ltd. (PBT:ASX) as companies that show promise for 2013. Despite an "unlucky" setback, Peregrine benefits from the "compelling" science behind its monoclonal antibodies used in the treatment and diagnosis of cancer. Prana is an Australian company that focuses on how metals interact with proteins and is developing a "contrarian" treatment for neurodegenerative disorders, including Alzheimer's disease.

A managing director and senior biotechnology analyst with JMP Securities, Michael King's picks include Ariad Pharmaceuticals Inc. (ARIA:NASDAQ) and Pharmacyclics Inc. (PCYC:NASDAQ). Prefacing his comments on Ariad and its commercial-stage product, Iclusig, for the treatment of chronic myelogenous leukemia (CML), King mentioned his feeling that there is a "conspiracy among wire services to fish out the worst news" from documents presented by the FDA. Typically the information in briefing docs is "more balanced" than what is reported, King said, and that's where investors should focus their attention. In Ariad's case, "consternation" about a black box warning on Iclusig concerning potential liver and cardiac toxicity was "nonsense" given that the newly approved drug is "the most potent agent to come along" for the treatment of CML.

Pharmacyclics' Ibrutinib, King said, is the "single most exciting drug" in the pipeline for the treatment of chronic lymphocyctic leukemia and other B-cell malignancies, including mantle cell lymphoma. Seminar moderator John McCamant, editor of the Medical Technology Stock Letter, concurred, voicing his hope that the company will confirm proof of concept in phase 2 trials.

The focus for Mara Goldstein, senior analyst with Cantor Fitzgerald, is on the oncology sector. Her picks for 2013 are Celgene Corp. (CELG:NASDAQ) and Celldex Therapeutics (CLDX:NASDAQ). Revlimid, for the treatment of multiple myeloma, is a major asset for Celgene, a large-cap company with a $33B+ market cap, but Goldstein maintains other products in the company's pipeline bode well for "revenue diversification" in the coming year. She called Celldex, which just completed a phase 2 trial for CDX-011, a treatment for triple-negative breast cancer, a potentially "transformative opportunity for the company and for investors."

Raghuram Selvaraju, head of healthcare equity research with Aegis Capital, noted that the FDA was "less risk-averse" in 2012, approving drugs either on schedule or ahead of schedule. He predicted that the agency will continue in the same mode until it suffers another scandal along the lines of Vioxx, which was pulled from the market in 2004. He also predicted that companies developing treatments for orphan diseases, along with companies focused on ophthalmological products, such as Lpath Inc. (LPTN:NASDAQ), with its treatment for wet age-related macular degeneration, would profit in 2013.

Selvaraju's picks were Synergy Pharmaceuticals Inc. (SGYP:NASDAQ), an "acquisition target" with a therapy for irritable bowel syndrome that is in a phase 3 trial, and Amarin Corp. (AMRN:NASDAQ), which recently gained FDA approval for Vascepa (icosapent ethyl), a treatment for hypertiglyeridemia—all that Amarin needs is a "successful, optimized launch."

Moderator McCamant also had a pick—Coronado Biosciences (CNDO:OTCBB), which is focused on developing therapies for autoimmune disorders such as Crohn's disease and multiple sclerosis. The company's novel treatment, incorporating the ingestion of the larvae of the pig whipworm, is in phase 2, and McCamant predicts that if positive data results, Coronado "will keep running."

Time will tell whether Watchlist 2013 predictions will prove accurate. The Life Sciences Report will follow the progress of these companies over the course of the year while providing investors with expert opinions on other potential biotech winners. Be sure to look for more Watchlist 2013 coverage in The Life Sciences Report over the coming weeks.

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