Dr. Phillip Chan of CytoSorbents Corporation talked to The Wall Street Transcript about his company. Click here to read the complete interview.
TWST: Please start with a general overview and a history of the company.
Dr. Chan: CytoSorbents, formerly known as MedaSorb Technologies Corporation, is a critical-care focused medical device company using blood purification to treat life-threatening illnesses. Most of us know someone who has been hospitalized by a critical illness. It might have been from a severe infection like pneumonia, or a massive burn injury from a fire, or a traumatic injury from a near-fatal car accident, or possibly even from an H1N1 influenza infection last year. These are problems that are seen commonly in the intensive care unit today, but aside from antibiotics, the current standard of care for most of these patients is typically supportive care therapy, designed to keep the person alive, but not necessarily helping them to get better. Because of this, the mortality of these patients can be an appalling 30% or more. To put that in context, I always remember college orientation when our university president said, “Look to your left, now look to your right. One of you won’t be here in four years.” That’s a really scary statistic when your life is on the line. What we are trying to accomplish at CytoSorbents is to bring to market a new generation of what we call “active” therapies that are designed to target the underlying cause of why these patients die and why the mortality is so high. In particular, our flagship product is CytoSorbª, a highly efficient cytokine filter currently in clinical trials that’s designed to reduce something called “cytokine storm” that is a major cause of organ failure, infection and death in many of these critical care diseases.
One of the most significant challenges facing diagnostics is the FDA’s decision to regulate laboratory developed tests, however, the change provides current suppliers of LDTs with several advantages, Dr. Alastair Mackay of GARP Research & Securities says.
“There are many more LDTs than (in vitro diagnostic) kits, and the median test volume of an LDT is much, much lower,” Mackay said. “This means that most labs will be unable to make an economic case for strengthening claims of analytical validity, and supplementing them with new proof of clinical validity.”
Additionally, the FDA is expected to create a “grandfather” clause for LDTs already on the market. The result is unintended adverse effects on labs in low-volume markets and a competitive edge for suppliers of high-volume, high-price LDTs, such as Myriad Genetics (MYGN).
“Myriad has already sponsored multiple clinical trials on the clinical utility of its offerings, ready for inclusion in whatever FDA filing is introduced. And they have the cash in hand to fund additional studies,” Dr. Mackay said. “Further, these regulations will probably serve as barriers to competition, especially for potential startups. So all in all, I don’t think that LDT mandates will be especially burdensome to these companies.”
Smaller-cap orphan drug companies provide investment opportunities in the biotech space due to their niche characteristics and pricing freedom, a senior analyst at Global Hunter Securities, LLC, says.
“I think the orphan drug space will be hot, given that there is no pricing pressure for these drugs because of the unmet medical need for the drugs that they’re targeting,” said Dr. Kimberly Lee, D.O., adding that health care reform has had virtually no impact on orphan drug pricing.
Corcept Therapeutics (CORT) is developing Corlux for the treatment of Cushing’s syndrome, an orphan indication with less than 10,000 patients, but which may be priced at $100,000 or more per year.
“Corcept Therapeutics has an interesting story,” Dr. Lee said. “With no major competition, and a pretty good safety profile and some documented cases of efficacy in some major endocrinology journals, we think that there could be significant upside for this company from current levels.”
As patent cliffs approach in the pharma industry, companies must replace lost revenue streams, either by creating new product pipelines or through M&A, an ongoing theme in the space, Analyst Michael Yee of RBC Capital Markets says.
“The only way to [replace lost revenue] is to either have new drugs in your pipeline or go out and buy something with the war chest of cash and cheap capital that is out there,” Yee said. “Everyone has their own proprietary pipelines, but that’s risky, so you have to support it with more deals.”
Yee says a potential acquisition target is Human Genome Sciences (HGSI), which he predicts will get approval for its lupus treatment Benlysta by year end.
“I think that this is a potential $2 billion to $3 billion drug over the next five years,” Yee said. “I think that this will be a potential takeout candidate from either the likes of J&J (JNJ), Abbott (ABT), Amgen (AMGN) or Roche (RHHBY), who all have rheumatology franchises where Benlysta could fit into.”
InfoSpace INSP (NASDAQ), which was originally formed back in 1996, has gone through a number of transformations over the years. Prior to the Dotcom bust, the company was a high flier, after the bust the firm came way back down to sea-level. The c
ompany operates a number of online search services that rely on metasearch technology. InfoSpace primarily serves content providers and a significant portion of its business is focused on the mobile space. Just recently, the company released its earnings for the third quarter which was disappointing and held an earnings call (Earnings Call transcript via Seeking Alpha). Shortly after the Earnings Call its CEO, William J. Lansing stepped down after only 21 months in the position (see the 8k). The company immediately selected William J. Ruckleshaus, a member of the firm’s board and a former CFO of AudienceScience and SVP at Expedia, to serve as the firm’s interim CEO until a successor could be found for Lansing.
Some people have looked at Ruckleshaus’ selection as an attempt by the firm to pursue more acquisitions (s
ee a piece by John Cook on Seattle’s Tech Flash). I’m not quite as optimistic as Mr. Cook. Investors should keep a close eye on the firm and the steps Ruckleshaus takes over the next few months and also who the firm ultimately chooses to take over as the new CEO.
Dr. Ray Salemme, CEO of Redpoint Bio Corp., talked to the Wall Street Transcript about his company. Click here to read the complete interview.
TWST: Would you begin with a brief historical sketch of the company and a picture of the things you are doing at the present time?
Dr. Salemme: Yes, thank you very much. I joined the company about six years ago. I was recruited to put together a discovery platform that would take a scientific approach to modulating the sense of taste. Redpoint’s understanding of taste biology and its relationship to metabolism and satiety impact both the development of healthier foods and potentially, new approaches for treating diabetes and obesity. We are developing taste modulators for the food and beverage industry with the aim of enhancing sweet and savory flavors in food and beverage products, and so allowing reductions in the amounts of added sugar and salt. We believe that the development of healthier foods can significantly contribute to improving the overall health of the world’s population, since many modern diseases are related to excess dietary sugar and salt.
The upstream oil sector still faces major domestic uncertainty months after the Macondo well incident, according to Dave Wilson, an Analyst at Howard Weil. Even with the end of the drilling moratorium, many companies haven’t been able to obtain permits for exploration and production in the Gulf of Mexico.
“The real question, I think, that’s facing the industry is allowing them to get permits to go back and drill. That seems to be the real problem,” Wilson said. “Even with the moratorium lifted, I think there is still some uncertainty due to the pace at which the government will be issuing permits to do exploration and production in the Gulf of Mexico.”
According to the analyst, E&P companies are exploring their options outside of the GOM, with some moving their rigs to international locations.
However, despite ongoing uncertainty, Wilson still sees investment opportunity in the E&P sector. “Top of my list right now, I do like Ensco (ESV) followed very closely by Transocean (RIG),” he said. “I know picking that stock, RIG, to be at the top of the list is a little controversial, as there’s a lot of uncertainty there regarding the ultimate liability that they’ll have.”
There will be increased demand for next-generation batteries as more power plants are dependent on alternative power for production, says Jon Hickman, an Analyst at MDB Capital Group LLC. Alternative power plants are less constant in their production of energy than fossil fuel plants, and next-generation batteries can offset the variability in production.
“The more alternative energy production you put on your grid, like with solar power or wind or geothermal, the less reliable the power production becomes on a minute-by-minute basis,” Hickman says. “A cloud can come along and as the sun goes away, the power being generated by the solar power plant falls way off, the wind stops blowing and your wind power plant goes offline.”
Lithium-ion batteries can be used to store the energy produced through alternative production methods and release it while production is low. In addition, lithium-ion batteries charge and discharge quickly, generating up to 10 megawatts of power during a production low, thus making the cycle more constant.
Hickman points to Ener1 (HEV), Valence Technology (VLNC) and Altair Nanotechnologies (ALTI) as battery technology companies looking to get involved in grid storage.
With the new advents of virtualization and multicore server processors shaping the re-architecture of the data center as we know it, enabling IT to be delivered as a service, the industry’s large-system vendors are turning to consolidation in an effort to not be left on the virtual sidelines.
“[C]ompanies such as HP (HPQ), IBM (IBM), Dell (DELL) and Oracle (ORCL) have been seeing this as a huge opportunity and have essentially been tooling themselves to participate in this opportunity, which has meant filling up portfolio gaps by acquiring companies that could enable them to play in this market opportunity better,” said Rajesh Ghai, a director and senior research analyst at ThinkEquity LLC.
Ghai points to HP’s acquisition of 3PAR (PAR) as an example of a larger entity acquiring a smaller one to fill a hole in its high-end storage portfolio.
“Given that we see this cloud opportunity as a strong driver of IT spending for the next three or four years at least, we believe it is not surprising that most large system vendors are trying to fill up gaps in their portfolios with the best available small technology companies,” he said.
M&A rumors are also circling around STEC (STEC), who has supposedly been in talks with Dell and IBM.
While Oracle (ORCL) may have a large task ahead of itself — integrating the billions of dollars’ worth of applications it bought from other companies into a cohesive product — the enterprise software giant’s success, or lack thereof, may irrelevant to competitors IBM (IBM) and SAP (SAP), who will lose market share to Oracle no matter the outcome.
“Samuel Palmisano told me that IBM is essentially betting that Oracle can’t integrate. If they can, then IBM is very poorly positioned. If Oracle can’t, then IBM is almost ideally positioned to pick up the pieces,” explained Richard Williams, a senior software analyst for Cross Research LLC. “The fascinating part, from my point of view, is in a way it doesn’t matter. The reason I say that is because by the time we find out whether Oracle is bluffing or not, it will be too late to try to avoid dealing with them. In other words, by the time you know whether they are real or not, you will have already had to make your decision as to whether to embrace its technology or not.”
According to Williams, Oracle has at least a three-year pass before competitors begin to challenge its integration ability, effectively offering the company a considerable amount of time to take market share away from IBM and SAP.
“The interesting twist is that for every dollar of license revenue they take away from SAP, it takes away $3 to $5 of integration and consulting business from IBM,” he said. “Thus, IBM is actually the bigger loser as this thing progresses.”
