OC’s biotech industry,strictly defined as those companies involved in manufacturing drugs through bio-engineering,are generating meager revenue, little or nothing in profit, and are not impressing some observers. But what the heck, the Street is enchanted.
For much of the 1990s, OC’s biotech stocks languished, reflecting the NASDAQ Biotech Index, which hovered for most of the decade around 400 or 500, but beginning in mid-December, it began a run-up to approximately 1,500, an all-time high.
A half-dozen small, publicly traded OC biotech companies have also enjoyed a hefty increase in their stock value, even though only one of them posted a profit recently and two have no revenue.
Irvine-based NeoTherapeutics has seen its stock double to 20 in the past three months, even though its latest report for the nine months ended Sept. 30 showed no revenue and its net loss increased 78% to $13.8 million.
NeoTherapeutics is developing a drug, Neotropfin, to help victims of Alzheimer’s and is working on other drugs for aging, stroke, Parkinson’s disease, depression and obesity, among other areas.
“Investors are looking to the promise of the future, the ultimate approval of the drug and the market’s that out there in Alzheimer’s is untouched,” said Sam Gulko, CFO of NeoTherapeutics. “They’re calculating what our positions will be.”
Gulko also said investors could also be looking at the company’s new division that’s researching the hot field of genomics.
He said the run-up has helped attract institutional investors, who previously couldn’t buy large enough blocks of the company’s stock.
In one sign of increased interest, NeoTherapeutics recently raised $8 million from two long-time institutional investors, Montrose Investments Ltd. and Strong River Investments Ltd., both of New York.
Besides NeoTherapeutics, other bio-tech firms with run-ups in recent months include:
n Tustin-based Techniclone Corp., a biopharmaceutical company involved in cancer research and which employs 40, has seen its stock climb in the past three months from less than a dollar to as high as 14, for a market capitalization of over $1 billion. It reported no revenue for the six months ended Oct. 31, and posted a loss of $8.9 million.
n Irvine-based Cortex Pharmaceuticals, which is developing pharmaceuticals for the treatment of neuro-degenerative diseases and psychiatric disorders, has seen its stock climb from below one in early January to above six. For the six months ended Dec. 31, it reported revenue of $1.8 million, up from zero, because of licensing payments and research collaboration agreements, while its net loss was $714,000.
n Nexell Therapeutics, which is working on cell-separation technology to treat cancer and other life-threatening diseases, has seen its stock climb in the past two months from below one to as high as 16. It reported revenue of $2 million for the quarter ended Sept. 30 and a loss of $13 million.
n Irvine-based Interpore International, which calls itself a “biomaterials” company that develops and manufacturers synthetic bone graft material, has gone from 6 to as high as 14 in the past two months. Interpore posted revenue of $9.5 million for the quarter ended Sept. 30, with net income of $1.4 million.
n Allergan Specialty Therapeutics, a spin-off of Allergan, researches and develops pharmaceutical products based on retinoid and neuroprotective technologies. Its stock has steadily increased over the past year, for a 55% gain. For the three months ended Dec. 31, revenue was $1.3 million while losses were $14.7 million.
A couple of well-known local venture capital firms said they’re investing in biotech companies, but not in Orange County.
“We have nothing in Orange County,” said Dayton Misfeldt, VP of research for Roth Capital Partners of Newport Beach. “It would be great because they would be in my backyard.”
Dr. Drew Senyei, managing partner of Enterprise Partners, formerly based in Newport Beach but now in San Diego, said he’s always looking at OC biotech companies, but hasn’t yet made a bet.
“There is potential for early-stage biotech companies in Orange County, especially coming out of UCI,” he said. “That is an untapped potential as of this date and holds a lot of promise for the future.”
One local observer who is not impressed with the stock appreciation is Dave Anast, publisher of the Costa Mesa-based Biomedical Newsletter Inc. He said he believes the upsurge is due to less-informed investors taking their profits from Internet stocks and looking for a new play.
“These companies have few products to sell and when their next quarterly earnings come out and they’re not producing a net income, the reality of the situation is going to hit the investor community,” said Anast. “If investors are expecting biotech stocks to produce a boost in earnings, they’re in for a rude shock.”
Dr. Michelle Glasky, VP of scientific affairs for NeoTherapeutics, sounded a similar note.
She said the company’s lead product, Neotropfin, is still in clinical trials and the product is still three to five years away from going to market. Hence, revenue and profits are still a few years off.
“Sophisticated investors should know that. We won’t be in the same league as the dot-coms. A lot of our investors are holding our investments for the long term,” she said.
