Why An October 28, 2006 Announcement Could Triple This Tiny Biotech Company’s Stock
In the seemingly endless sea of small biotechs, there’s one that has the potential to make you two, three, even five times your money after Oct. 28, 2006.
This $235 million company has a treatment in the works that could make chemotherapy twice as effective in the quest for killing deadly cancer cells. Its treatment is in stage 3 clinical trials, and the FDA granted the company fast track status to bring this application to market since no other treatment like it exists. This fast-track approval is important — as I mentioned in a previous Sleuth. 60% of all drugs given fast-track status are brought to market successfully. That’s good news for this small-cap company. The odds are in its favor.
Now, the only thing that stands in its way now from potential million in profits is a few months and the FDA’s approval. And approval will either be granted or denied on Oct. 28, 2006 — less than seven months from today.
If the FDA announcement is favorable, this $2 stock could double or triple in a week. If the announcement is bad, look out—the stock could fall to zero. Those are the stakes.
The company in question is Genta Inc. (GNTA:NASDAQ). And the drug application waiting FDA approval is something called Genasense, a drug given to cancer patients to assist chemotherapy. Genasense is an antisense treatment, which consist of chemically modified strands of DNA that bind to mRNA.
Without getting too technical, 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 form killing them. By getting Bcl-2 out of the picture, Genasense makes chemo and other anticancer therapy more effective at targeting and eliminating these cancer cells.
Genta’s goal is to see Genasense treatment as the preferred aid to chemotherapy for many different kinds of cancer. And based on recent clinical trial results, the company is well on its way.
In the trial, 241 patients underwent cancer treatment with or without Genasense. 17 percent of those on Genasense achieved complete or partial remission, while only 7 percent of patients who were administered chemotherapy only did. Those who were given Genasense also were in remission longer.
Translation: Genasense’s cancer application was twice as effective as normal chemotherapy.
Thanks to these tremendous results, the FDA accepted the company’s application for Genasense on March 1. The basis for the acceptance is that this treatment can help patients with relapsed or refractory chronic lymphocytic leukemia. The FDA is set to make its decision on whether the drug can be marketed on Oct. 28, 2006.
Given the fact that trial results have been fantastic and FDA has “fast-tracked” the approval process, how is this not a sure fire 100% gain in the makings?
When you are dealing with the FDA, nothing is certain.
Back in 2003 and 2004 Genta had a lucrative partnership with pharmaceutical giant Aventis to developand commercialize Genasense. Yes, the same Genasense in advanced FDA trials today. At the time, the company believed Genasense could be used effectively to help treat malignant melanoma.
Then came the bad news. In May 2004, the FDA decided it would not approve the drug to be used with melanoma patients, and the stock lost most of its value, settling in around $2. Then in November 2004, Aventis — around the same time as its merger with a major European pharmaceutical giant Sanofi — decided to terminate the agreement with Genta.
From the sanofi-aventis 2004 annual report:”In the wake of the FDA’s rejection of the NDA for Genasense in advanced melanoma, and in the light of unconvincing results in chronic lymphocytic leukemia (CLL), Sanofi-Aventis decided in November 2004 to terminate its agreement with Genta concerning the development of Genasense.”
Between the time its Genasense application was denied FDA approval and it lost its deal with Sanofi-Aventis, its stock price fell from $11.50 to $1.40.
The same thing could happen again. Despite the fast-track designation and the promise of a breakthrough drug, the FDA has already shot it down once. And if the company gets shot down again, that may be all she wrote.
Genta’s entire business model is based on the approval of its Genasense application. It has no existing product on the market that can throw off enough cash for it to stay in business. In fact, the only way Genta is able to operate now is to sell more stock, which it did last week.
Genta approved $40 million worth of shares to go on sale March 10. According to Genta’s year-end financials released this morning, the company believes this cash will fund its operations into the first quarter of 2007.
So what are the chances that the company can get this treatment approved in 2006?
Genta does have some experience in successfully bringing a drug to market. Dr. Raymond P. Warrell — Genta’s CEO — was co-fouder and chairman of a scientific advisory board that originated Trisenox, a drug used for acute promyelocytic leukemia. Other members of the management team had leadership roles with companies that put out drugs such as Topamax, Procrit and Eloxatin.
And Genta has successfully put one drug to market already. Ganite, an injection used in the treatment of cancer-related hypercalcemia, was approved in 2003. And the company’s management has scaled down its efforts to sell the drug to focus solely on the approval of Genasense.
There is no doubt Genta has the experience and the know how to get Genasense approved. But there are two major hurdles that still need to be cleared.
1: The company needs to partner with a major player in the drug market. Since Aventis left Genta high and dry, the company hasn’t had the support of a big sales and marketing staff and regular checks to cash to help pay the staggering R&D costs associated with bringing an experimental medication through the approval process.
And Genta absolutely needs the support of Big Pharma’s deep pockets to make a profit. Right now, they’re barely paying the bills, and the company has suffered. In August 2004, Genta closed its Salt Lake City research facility. The company also eliminated 85 employees that year — including its sales force — to conserve cash and focus on R&D costs for Genasense.
2: And then there’s the no-brainer: The FDA has to approve the new drug application for Genasense this time. If Genta gets Genasense approved and marketed, the effects could be far-reaching — putting the company at the front of oncology medication research. I don’t think the company can handle another setback if the drug is rejected for use with leukemia patients as it was for melanoma, especially if they’re going it alone and penniless.
As it stands, Genta is a speculative stock pick. It’s had its share of good news lately, but it has also had its problems recently — problems that could lead to another failed biotech with a list of rejected drugs.
I’ll be watching Genta closely over the next few months. And we’ll all find out in a little more that 6 months — on Oct. 28, 2006 — if this stock will punch out the ceiling.
Until next week,
Gunner
March 13, 2006
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Greg Guenthner
Greg Guenthner, CMT, is the co-editor of STORM Signals and Penny Stock Fortunes. He is also the editor of Agora Financial’s Trend Playbook, a free resource for trend followers and technical traders. For close to a decade, Greg has led Agora Financial’s small-cap division, where he founded one of one of the only independent OTC research advisories in the industry. Greg specializes is classical trading techniques and combines timing strategies with his fundamental analysis of small-cap stocks.
He is a member of the Market Technicians Association and hold the Chartered Market Technician designation.
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