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There are no new BLOG postings
so far this week. I like to save the BLOG for extreme volatility commentary,
but there isn't much moving to either up or down extremes at this time.
Nevertheless, a few of our recent features are starting to behave a little
better; NWKI and HESG are trying to work higher. I'm working
on an update on BPTR for next week, which is also trying to work
higher. Use the BLOG for any observations or questions you may have.
To use the BLOG, simply go
to the home page at www.otcjournal.com
- the BLOG will scroll down automatically on the right side of your
screen. The most current journal entries appear in the middle of your screen.
Check back frequently for updates particularly when stocks are moving to
overbought or oversold levels or in volatile markets. Your questions and
postings do not automatically appear, so don't bother posting the same
question multiple times. I personally go through to moderate and respond
to every question.
As chronicled in the September
10th edition, I believe biotech is the next big thing on Wall Street.
Technically, the biotech index looks ripe for a move to the upside. Small
and microcap biotech stocks have taken a beating in 2005, and are ready
for a significant and sustained bounce. There is a favorable demographic
as represented by the huge bulge of aging population known as the baby
boomer generation. New medical technology will experience a major surge
in demand. At the same time, the empty pipelines at big pharma is driving
innovation in small cap companies.
The Stanford Group, a unbiased institutional
research house, has rated today's idea a "Buy" with a 12 month price
target of $5. They base their conclusion on a 2009 earnings
estimate of $.36 per share with a 25% discount rate and a 30 multiple.
They also believe the valuation as compared to peer group companies suggests
significant upside. More details below.
If the Stanford Group is right, a
position at Friday's closing level would equate to a 281% return
on
invested capital. For your consideration:
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Callisto Pharmaceuticals
(AMEX: KAL): Fast Track FDA Approvals Targeted |
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Callisto is in the business
of developing new drug therapies to treat cancer. Specifically, KAL
has targeted hematological cancers, or cancers of the blood. These types
of cancers represent a challenge as there is no specific tumor or localized
site to treat.
Management at KAL is focused
on becoming commercially viable as quickly as possible. To that end, they
are focusing of treatments for "relapsed" patients. These patients have
typically received prior chemotherapies, and are not improving.
Both of the KAL therapies
in clinical trials have been granted "orphan drug" status. This unique
designation gives KAL exclusivity from competition once an FDA Approval
has been granted for a period of 7 years in the US.
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Products |
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New drugs must go through the FDA
Approval process. There are three Phases of studies- I, II, III. In very
oversimplified terms, in Phase I you make sure it's not toxic. In Phase
II you test it on a small group and see if it works. In Phase III, you
test it on a larger group, track efficacy, and experiment with dosages
amounts.
The two products KAL currently
has in clinical trials are as follows:
Annamycin is being developed
to treat relapsed Leukemia, specifically the ALL and AML versions
of the disease. The market size for this drug is approximately $300
million annually.
Leukemia is a cancer of the
blood cells that originates in bone marrow. White blood cells become malignant,
and they interfere with the work of both normal white and red blood cells.
The body has difficulty healing and fighting infection. Leukemia
cells are pictured to the right.
In a Phase I/IIa study on 20 patients
in which the dose of the drug was escalated, two of the twenty patients
exhibited complete remissions at higher doses, a clear indication of a
positive drug effect. This kind of clinical data makes Wall Street stand
up and take notice.
The next phase of clinical trials
for Annamycin will begin later this year, and positive data from
those studies could serve as a catalyst for an improving stock price.
Atiprimod is being developed
to treat relapsed Multiple Myeloma (MM). MM is an incurable cancer that
develops in bone marrow and causes lesions to form. The estimated size
of the market for Atiprimod is about $250 million annually.
It's an oral drug that inhibits tumor
growth. KAL is currently exploring this drug at four medical centers
around the US.
KAL might try positioning
Atiprimod
for a post Phase II FDA approval, as the regulatory pathway was cleared
by a drug called Velcade. Velcade was given accelerated approval. In a
pivotal study of 188 patients, Velcade yielded partial remission in only
25% of patients, indicating how desperately new drugs are needed to treat
this terrible disease. Despite the modest result, the drug was approved
for use.
Atiprimod is currently in
two Phase I/IIa studies. Early pre clinical studies are promising. The
drug proved effective in animal studies, and positive clinical data from
the current ongoing studies could have a positive effect on the share price
when the market takes note.
Annamycin and Antiprimod
are two products in clinical trials now, but there are other therapies
in development. For example, KAL is jointly developing a Superantigen
Platform treatment of bioterrorism agents. The Army and NIAID have provided
grants totally $2 million. KAL is collaborating with Rockefeller
University and the US Army Research Lab on the project.
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Comparable
Companies |
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The Stanford Research Reports identifies
three comparable companies to help establish the $5 price target
as follows:
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Vion (NASDAQ: VION):
Vion
has no revenues and a market cap of about $150 million. The company has
two compounds in clinical trials for Leukemia treatments.
-
Bioenvision (NASDAQ: BIVN):
BIVN
is also an oncology company with two products in clinical trials. Market
cap: $323 million.
-
Cell Therapeutics (NASDAQ: CTIC):
CTIC also has two products in development to treat Leukemia and MM.
Market cap: $183 million.
|
Conclusion |
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Accordingly to recent SEC filings,
KAL
currently
has 31.2 million shares I&O. Based on Friday's closing quote of $1.31,
the market is placing a value of about $40 million on the company.
VION, BIVN, and CTIC
are
all companies in similar stages of development. Yet, the lowest market
valuation of the three is currently $150 million, with the average valuation
coming in at $218.6 million.
Therefore, if KAL can achieve
the average valuation of the three comps, the stock would trade at $5.46.
Hence- Stanford Research's target price of $5.
Moreover, KAL is entering
into a period of time when it anticipates releasing clinical data on the
two drugs it currently has in trials. In the biotech arena it is clinical
data and the perception of future value that drives stock prices, not sales
and earnings.
Technically, the stock appears poised
for appreciation in both the short and long term. Here's a weekly chart
dating back to the beginning of 2005. I like the way the volume has been
improving steadily since the mid April time frame, suggesting the investor
audience is growing for KAL.
In addition, the stock has never
traded much below the $1 level. This floor suggests in the $1.25 to $1.50
range there is reasonable downside risk for an aggressive investment.
Short term, the stock has just completed
a double repo of the 3x3 displaced moving average to the upside. It broke
above the 3x3 once, came back below, and broke it again at a higher level.
You see the breakout circled in blue.
This chart suggests the stock could
easily move into the $1.60 to $1.75 range in short order.
As usual, limit orders are suggested.
At this time, accumulation anywhere under $1.50 is appropriate.
After studying the data and the comps, I would tend to agree that a $5
target level seems attainable over the next 52 weeks, assuming a backdrop
of a moderately favorable market.
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