Through the first few days of 2014, biotechnology companies have continued to explode higher. With many companies facing big catalysts later this year, 2014 has the potential to generate even more impressive returns than 2013 did. Among the companies facing major catalysts this year, two companies jumped out at me as having the potential to dominate their respective medical niches. Those two companies are NeoStem (NASDAQ:NBS) and Halozyme Therapeutics (NASDAQ:HALO).
NeoStem has emerged as one of the most innovative companies in the cellular therapy industry. Cellular therapy is defined as the process by which new cells are introduced into a tissue to prevent or treat a disease or to regenerate damaged tissue. The company is focused on developing breakthrough proprietary cell therapy products as well as operating a contract development and manufacturing organization called Progenitor Cell Therapy. PCT revenues have been growing at a rapid pace, which should allow the company to internally fund its research and development efforts — a huge benefit to shareholders.
Shares of NeoStem have been on fire over the past 52 weeks, generating a return of more than 20 percent for shareholders. That includes a rapid rise since the start of 2014 on hopes that the company’s pipeline will deliver breakthrough results over the course of the next few years. The company has built an impressive pipeline that includes several promising divisions like Amorcyte, Athelos, and VSEL™ Technology (which includes wound healing).
While each of those divisions has the potential to generate significant revenue, the one investors are squarely focused on is Amorcyte, with its AMR-001 therapy. Late last year, NeoStem announced that it had completed patient enrollment in its Phase 2 AMR-001 trial, and the company expects to announce final data during the third quarter.
AMR-001 is a chemotactic hematopoietic stem cell product comprised of autologous bone marrow derived CD34+/CXCR4+ cells that are used to treat the damaged heart muscle after AMI (acute myocardial infarction). The reason for a myocardial infarction, commonly known as a heart attack, is because of reduced blood flow to the heart muscle (myocardium).
After the heart attack, a person can still suffer from reduced blood supply, which will eventually lead to cell death because of oxygen deprivation. AMR-001 is attempting to reverse that post-heart attack blood supply restriction through the process known as angiogenesis. Angiogenesis is the process through which new blood vessels form from pre-existing vessels. The hope is that AMR-001 can prevent myocardial infarct expansion and consequently block ventricular remodeling, which is the primary cause for concern in regards to the long-term well being of AMI patients.
NeoStem has estimated that the target group for receiving AMR-001 would number approximately 160,000 per year. If that holds true, the potential annual market size for NeoStem could be approximately $1.2 billion (roughly six times the company’s current market capitalization). If the Phase 2 results are successful, investors could see at least a doubling of the current share price.
The second company that should do extremely well in 2014 is Halozyme Therapeutics. Halozyme Therapeutics is a biopharmaceutical company developing and commercializing products targeting the extracellular matrix for the endocrinology, oncology, dermatology, and drug delivery markets.
Shares of Halozyme have risen by nearly 100 percent during the past six months because of several positive developments. First, shares began their ascent in August after a big insider buy and institutional investment took place. Kathryn Falberg, a director of Halozyme Therapeutics, purchased 50,000 shares at an average price of $6.91. That investment required a cash outlay of more than $345,000.
In addition to the director’s purchase, the Baker Brothers increased their Halozyme holdings by more than 100 percent during the second quarter of 2013. As of the quarter ended September 30 (third quarter), the Baker Brothers held more than 7 million shares of the company. That position is now worth more than $110 million.
Furthermore, in late September, Roche (RHHBY.PK) launched Herceptin SC in Europe. Herceptin SC will provide a treatment alternative for breast cancer patients across the continent. Because of a license and collaboration agreement between Roche and Halozyme, Halozyme received a milestone payment of $10 million. Given Halozyme’s deep pipeline, the $10 million payment will prove extremely valuable and lessen the future need to raise additional funds through a secondary.
Lastly, and perhaps most importantly, Halozyme Therapeutics announced that Helen Torley would take over as CEO beginning on January 6. This is an extremely intriguing and appealing hire, as Torley played a principal role in the Onyx Pharmaceuticals (NASDAQ:ONXX) takeover that was announced on August 25. Torley’s strong leadership skills should play an invaluable role in helping to guide Halozyme Therapeutics going forward.
As investors look to the future, it appears Halozyme is certainly headed in the right direction. The company has built an impressive and diverse pipeline that is targeting several critical indications including diabetes, pancreatic cancer, scarring, breast cancer, non-Hodgkin’s lymphoma, primary immunodeficiency, and hereditary emphysema. The potential revenue generation is staggering and certainly offers investors a low risk/high reward investment opportunity.
James Ratz is a portfolio manager with Zebra Capital based out of Los Angeles. He focuses on providing actionable information to investors of all levels.
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