Back in March, I wrote to you about the drug company Genta (GNTA: NASDAQ). The company is developing a drug called Genasense that is currently being reviewed by the FDA.

Genasense is a drug given to cancer patients to assist chemotherapy. It is an anti-sense treatment, which consists of chemically modified strands of DNA that bind to mRNA. This inhibits the production of a protein — in this case, Bcl-2, a protein that is found in many kinds of cancer cells that can “block” chemotherapy from killing them. By getting Bcl-2 out of the picture, Genasense makes chemo and other anti-cancer therapy more effective at targeting and eliminating these cancer cells.

However, this business had more of its share of problems over the last couple of years. Shares of Genta were trading as high as $16.00 until a major player in the drug market severed its partnership, its first Genasense application was rejected, and layoffs and facility closings were enacted to conserve money for research and development.  (For the full write-up, see the March 13, 2006 edition of the Sleuth.)

Since major drug manufacturer Aventis nixed its agreement with Genta, the company hasn’t had the support of a big sales and marketing staff as well as regular checks to cash to help pay the staggering costs associated with bringing an experimental medication to market.

So Genta has raised money by diluting its shares, most recently an offering worth more than $40 million only two months ago. Shares of Genta have been falling ever since. Before the market opened today, Genta traded at $1.33. (It was trading right around $2.00 when I first wrote about it.)

The company announced first quarter financial results earlier this month. As of March 31, Genta had no short-term or long-term debt, and had cash and cash equivalents of $47.2 million, compared to $21.3 million as of the end of 2005. Again, this extra money is from selling 19 million shares of stock.

All in all, everything seems in order — and investors are staying away from this company for obvious reasons: Genta’s not making enough money to cover its expenses, forcing the company to dilute its shares to stay afloat. Also, Genta’s one drug already on the market is bringing in virtually no cash for the company. On the surface, it’s a waiting game until October when a decision is supposed to come on the new drug application.

However, behind the scenes, it looks as if Genta is anticipating a speedy approval of its Genasense application. The company reported that monthly spending for the first in line with guidance of $3 to $4 million. And to prepare for a commercial launch, Genta will increase its spending in the near-term to approximately $5 million per month.

Here’s where the money will probably go. The company has recruited managers in sales and marketing, including “leaders with extensive experience in commercialization and reimbursement of oncology products.”

And with a sponsorship from the National Cancer Institute, Genta is completing a trial of standard chemotherapy, with or without Genasense, in patients with acute myeloid leukemia (a different form of the disease). The company has said that a positive result from this trial could support more drug applications for Genasense. And we can look forward to trial results of Genasense on patients with other forms of cancer later this year as well.

Here some other items of note:

– Genta submitted to the FDA a Special Protocol Assessment for a Phase 4 study of rituximab and fludarabine, with or without Genasense, in patients with certain types of leukemia who had not previously been treated with chemotherapy.

– The Company has submitted an application to the European Medicines Agency for the use of Genasense plus dacarbazine as treatment for patients with advanced melanoma. Obvously, with this approval, Genasense could be marketed in Europe. No anticipated action date was mentioned.

– In January, the company began a Phase 1 clinical study to test a new form of Genasense that can be administered by subcutaneous injection. This makes it five times more concentrated than the form of the drug currently used in clinical trials. This test of a different “delivery” of the drug could “lead to increase patient convenience and expand the utility of Genasense,” according to the company.

– In March, Genta and Emisphere Technologies, Inc. partnered in a worldwide licensing agreement to develop a gallium-containing compound given orally to patients experiencing bone loss. Keep in mind that Genta’s first approved commercial drug Ganite is a gallium nitrate injection used for the same purpose.

On top of all this, Genta will also be able to commercialize Genasense a lot faster than if it were starting from scratch. If you go back to my first column on Genta, you’ll see that Genta applied for approval of Genasense once before for a different form of cancer, and the drug was rejected by the FDA.

Because of this, the company has plenty of Genasense ready to go if it’s approved. From a Genta release: “In the event of regulatory approval, sufficient quantities of previously manufactured Genasense are on hand to support a worldwide commercial launch.”

This presents a unique opportunity. A small drug company that’s recently been crushed by broken agreements and regulatory denials says its ready to support a worldwide launch of a potentially life-saving cancer drug — which could help it turn a profit a lot faster than expected should the drug see the light of day.

And the share price is beaten down to its lowest price since December 2005. While this is still a speculative stock with no cash flow, this would be a great time to take a chance on Genta if you have the nerves and some extra trading capital. Because when October rolls around, Wall Street might be tuned in and sending these shares sky-high.

Best,

Gunner
May 22, 2006

Greg Guenthner

Greg Guenthner uses his experience as a former journalist to dig up the hard-to-find headlines that could lead to big gains for your micro-cap portfolio. Greg offers his readers the scoop on topics ranging from alternative energies to biotechnology, digging up the best penny stock opportunities before they’re discovered by the mainstream media. On top of contributing to Penny Sleuth, Greg also heads Penny Stock Fortunes and Bulletin Board Elite.

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