Newsletter Watch: A "bird flu" play
The subject of today’s column, BioCryst Pharmaceuticals, Inc. (Nasdaq: BCRX), comes with numerous caveats, not the least of which is that it has been a terrible performer over the past two years, falling from above $20 to single digits. Further, as a development stage biotech this is inherently a risky situation. The fact that is has yet to receive regulatory approval for its drugs adds further risk.
It also holds the inherent risk of being a small-cap stock, with a market capitalization of $235 million. And, it is working in a highly speculative area; the company is developing a drug, Peramivir, as a treatment for flu, as well as Fosodine, a treatment for leukemia.
BioCryst is often considered a “bird flu” play, as its Peramivir is being tested as a treatment for Avian influenza. As a result, the stock rose sharply through the second half of 2005, when media and investor attention were focused on the potential for a bird flu pandemic. It has fallen equally sharply since early 2006 as concerns over the Avian flu have abated.
The severe decline in the shares over the past year, however, has not deterred two leading biotechnology advisors who continue to see significant long-term potential. Both foresee continued development success with BioCryst’s Avian flu treatment. And both foresee additional potential in its pipeline.
In his Changewave Biotech Investor, Michael Shulman points out that the stock hit $22 in the months after the Avian Flu scare first developed and he adds, “Nothing has changed, although the stock price has fallen.”
Indeed, he says, BioCryst has been a victim of “Murphy's Law.” He notes that its drug, Peramivir, is safe and effective, which he says was proven years ago when Johnson & Johnson (NYSE: JNJ) ran trials and tried to make it in pill form. He explains that Peramivir worked for JNJ as an injectable drug; however, the pill form did not work.
Then, he observes, the Avian flu scare hit and “nobody cared anymore if Peramivir was used as an injectable, just as long as it worked.” However, prior to the Avian flu scare, Johnson & Johnson gave the drug back to BioCryst; as such, Shulman explains, the firm is now developing the drug for both Avian flu and as an “all-purpose flu treatment.”
In addition, BioCryst has a cancer drug called Fodosine in mid-stage trials (and funded by a partner) that Shulman believes is “worth the entire valuation of the company if it's approved for treatment of leukemia.”
Overall, Shulman says, “This is a very sound company and the reason I rate it among our most speculative holdings is because the stock price doesn't seem to be of importance right now to BCRX's board and management.”
Plus even though Shulman expects the drug to eventually be approved, he cautions, “Anything can happen during a drug trial.”
He concludes, “Peramivir will enter Phase II trials this coming flu season and Fodosine is trucking right along and is, so far, on track for approval. If BioCryst was located in San Francisco, and not Birmingham, Ala., it would have far more visibility and be worth $30 a share.”
The downside risk, Shulman states, is if Peramivir fails. If so, he warns, the stock could drop to $5 (it closed Thursday at $8.10). Meanwhile, Shulman’s upside target is $30 -- a level he believes could be reached in two to three years.
BioCryst has also been a long-term holding in the model portfolio of the Medical Technology Stock Letter. Editor John McCamant explains, “In light of the seemingly endless downdraft in the stock price, we would remind investors that the company has received a $100+ million contract from the U.S. Department of Health and Human Services, and therefore is spending virtually nothing on the further development of Peramivir.”
Regarding recently reported clinical trial data, he states, “In a nutshell, the data were promising, and extend upon the impressive body of data that BCRX has been building since the program's inception.”
Beyond its potential Avian flu treatment, McCamant adds that the company also has multiple other “promising development programs which are being advanced.” One of these, he explains, is for BCX-4208--which he notes has “already received excellent validation through its partnership with Roche.”
McCamant suggests, “Relative to other approved flu treatments within the same class, including Roche's Tamiflu and GlaxoSmithKline's Relenza, Peramivir has continued to demonstrate a superior pharmacokinetic profile.”
Recognizing that the stock has been a very poor performer, McCamant states, "It has been very difficult to watch the stock’s market valuation continue to erode. If ever a case could be made for continued averaging down in a specific stock, then BCRX would certainly rank right up there.”
And while one should never invest solely on takeover speculation, McCamant adds, “The company has to be viewed as one of the more attractive takeover candidates in the biotech space.” He concludes, “We continue to believe that the company represents an excellent long-term investment opportunity.”
Note: In the interest of full disclosure please be advised that I have personally recommended this stock to family and friends over the past year, some of whom hold both trading and investing positions in these shares --Steven Halpern
Steven Halpern is the founder of “TheStockAdvisors.com - Steven Halpern's Guide to Financial Newsletters,” the first website to feature a daily overview of the investment newsletter world.
