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Healthcare
Biotechnology & Drugs
Diagnostic Devices

ANALYST INDUSTRY REVIEW
Ms. Mya Wagle - Equity Analyst
RedChip.com, Inc.  
Phone: 503-241-1265

Interview conducted by:
Walter Banks, Co-Publisher

CEOCFOinterviews.com
December 2000

CEOCFOinterviews - Give a brief career history.

Ms. Wagle – “I cover stocks in the Healthcare arena ranging from diagnostic devices to biotech companies.  These are the sectors that I like to cover because my background is as a trained Biochemist.  I have spent extensive time getting postgraduate work done in that area as well as business school.  I also spent some time with health regulators in state health departments and insurance companies.  I enjoy putting everything that I’ve learned together in a package as an Equity Analyst at RedChip.” 

CEOCFOinterviews - Can you take us through the steps of what it takes a biotech company to bring a new drug to the market place?

Ms. Wagle – “The steps that a company has to go through to bring a drug to market is as follows: they must put it through an INDA or an investigational new drug application.  After a few studies on it you then put in for an NDA, which is a new drug application and in between all of that you have the clinical trials, Phase I, Phase II and Phase III, with each clinical trial taking a minimum of about twelve to eighteen months.  So if you’ve got an investigational drug application through the FDA, which normally takes about four to six months, then you start your studies and your clinical trials, with every Phase taking eighteen months, five years has just past right there.  Once a study is over you have to put all of the data together and focus on how you will plan the next study, because things may have cropped up in that study which you will want to address in the next study.  So there will be a period of about a four to six month waiting period before you start the next study, in which you chew on the data and then plan your next Phase.  So that’s the reason why it takes any biotech company a minimum of five to seven years to get a new drug out, and most of these companies don’t turn profitable until about the second year after they’ve started selling the drug.”            

CEOCFOinterviews - Why do you like the healthcare sector and why should an investor be interested in diagnostic devices and biotech stock?

Ms. Wagle – “When I grew up my father always said that you make money for two reasons.  One is to feed your family and the other is for your basic health, because if you don’t have health you can’t enjoy anything else that you have.  The desire to help people live longer may also be the reason why we have so many different areas of research, and scientists tend to do research in areas that are of concern to them.  In the twentieth century we’ve seen advances in antibiotics and now drug resistant bacteria, with scientists trying to get to the drug resistant bacteria through biotech means.  We also now have major advances in the understanding of the human DNA, with scientists trying to get at the root of the cause of so many diseases.  So biotech becomes the key to the search for a solution to diseases.”

 “I think investors should look at biotech stock because the companies are trying to get at the root of the matter, but trying to get at the root of the matter is always longer than going over it superficially.  For example, instead of just putting a band aid on a cut, or simply treating the symptoms, some companies are researching into genetics to find out which genes could be responsible for certain diseases.  Once they get to a gene that has gone wrong, they may try to correct the gene or create a compound in such a way that it counteracts the effect of the malfunctioning gene.  To do all of this requires many resources in money and intellect, and in today’s capitalistic society, scientific research is done by only a few people.  There are more people in business than there are in scientific research.  Not too many people are willing to put in those long pain staking days at the lab bench, it’s almost like a labor of love, so they need support in their effort to try to find the cause for diseases.”         

“When it comes to biotech stock, in terms of the research, clinical studies and getting approval for a new drug, therapy or device before a company can even bring it to the market place, it is a long process.  I like to think of it, as, instead of a mother going through a nine-month pregnancy, she has to go through it for nine years.  A long term pregnancy and even longer labor process, but at the end there is always that wonderful baby.”

CEOCFOinterviews - What is the upside and reward like for the investor who is willing to wait through this long process?

Ms. Wagle – “The upside can be unbelievable.  Let’s just take Amgen, Inc. (NASD: AMGN) into account.  Amgen has Epogen and Neupogen, and these are factors to help stimulate the production of your red blood supply.  Many times during surgery, the patient loses blood-causing anemia.  Well there was no real solution to this problem until Amgen came along with a biotech product that is similar to the one that your body produces and which could be injected into a patient.  Sometimes even a transfusion does not work as well, because this is a purely genetic product that could save someone.   It’s like a flashlight going off when the product is finally on the market.  We can use it here, we can use it there, and so they generally find out that there are multiple uses for it, even widening its market.  If the investor wants something worthwhile like a scientist working in the lab, working towards this greater goal, the investor must be patient.  With biotech companies it’s not only the effort, the brain power and the monetary resources, but it’s also like Edison said, “success is one percent inspiration ninety nine percent perspiration”, and I think that statement which was true at the beginning of the twentieth century, should be applied now at the beginning of the twenty first century.”

CEOCFOinterviews - What should an investor look for in the management team of a biotech company?

Ms. Wagle – “Of the basic principals of investing, number one is that management has to be focused, promoting from within and especially with biotech companies, the scientist have to have creative license.  They need an entrepreneurial CEO who can look at the scientific as well as the business side of things, because after the scientist has created a product, you need someone to sell it.  Therefore, the CEO has to be alert in forming relationships, especially with the smaller biotech company who will need to liaison with a large pharmaceutical firm to bring a product to the market.  The CEO has to be developing those helping hands along  the way and can’t wait until he or she is at the end of Phase III to try and do this.”             

CEOCFOinterviews - Which of the companies that you follow, do you feel meet those criteria of having a strong management team and forming those important alliances?

Ms. Wagle – “Targeted Genetics Corp. (NASD: TGEN), in Seattle has done a good job at forming alliances.  Their CEO Ms. Steward Parker has been a fascinating ambassador, linking up with the big pharmaceutical companies these days.  They have an alliance with Biogen Inc. (NASD: BGEN), one with Elan Pharmaceuticals (Elan Corporation, plc, NYSE: ELN) and yesterday I received an email saying that they now have an alliance with American Home Products.  These are fabulous large companies, who know how to sell, who know how to market to their target audience and they have a sales force in place.  This is what was necessary for a small company like Targeted Genetics, which does not have any sales force.  Targeted Genetics now has a product in Phase III clinical trials, and along with Corixa Corporation (NASD: CRXA) were spin-offs of Immunex Corporation (NASD: IMNX), also based in Seattle.”

“Another company that I cover called NeoRx Corporation (NASD: NERX), had problem with one of their products during a Phase II trial and their stock dropped when the FDA stopped the study, but I believe they will recover because of their management team.  They have a very sharp CEO, Paul G. Abrams.  He is an MD himself and a JD, so we have to realize that he knows the medical and the legal implications.  He’s a brilliant man who is also very good at business, so he’s been able to nurture this company for the last eight years.  He’s facing a tough battle to get this company up and going, but knowing him I’m sure he’s going to see what went wrong and where.”

CEOCFOinterviews - What other basic principals of investing should be looked at when considering a biotech or diagnostic device company?

Ms. Wagle – “Of the basic principals number one is management, number two is product, number three is ensuring that they have the proper mechanism in place to nurture the product, and number four would be numbers, such as earnings and sales, but to get those earnings and sales they must have the proper mechanism.”

CEOCFOinterviews - What aspects do you consider when you look at a companies technology or product?

Ms. Wagle – “One of the important things that I look for when I decide to cover a company is the technology.  Where does the product fit?  Will it add, will it be synergistic or will it be just an addendum?  I have a diagnostic company that I follow, it’s not a biotech company, it’s called Cardio Dynamics (Symbol: CDIC).  I love that company, and I give them a Strong Buy.  Would you want a catheter passed up through your groin for an angiogram or would you prefer four sensors placed on your chest, and your heart condition monitored.  I would rather the sensors, and Cardio Dynamics.  This wonderful little machine has four sensors, two for the neck and two for the chest.  You can get all of the heart parameters that allow you to figure out what is wrong with the patients heart, using a noninvasive technology.  GE is selling their product on the market.” 

“There’s another company called Imatron Inc. (NASD: IMAT) which I give a buy to, who used to have alliances with Seamans.  For a couple of years they were almost treated like the pariah.  Seamans dictated all of the terms and said they were going are going to sell your instrument this way and their marketing strategy was wrong.  When Imatron distanced itself from Seamans it faced a tremendous uphill battle.  In October, Opera had a show in which she had a complete heart condition diagnosis on the Imatron scanner.  They have gotten about sixteen hundred calls per day now since that show, because there scanner is almost fifteen times faster than the GE scanner.  What it does is it takes a picture of your heart and arteries in 3D slices, and it comes up with a calcium count.  You might have a normal cholesterol and lipid level, but there might still be plaque in your arteries.  The plaque deposition happens in conjugation with the lipids and the amount of calcium in your system.  Therefore, Imatron came up with what is called the calcium score that indicates whether you have heart disease, or whether you have a predisposition towards heart disease.  It’s almost a prognostic instrument.  If you have a high calcium score, then you can change your life style so that you don’t develop a plaque deposition.  They are now selling it by themselves, and they are doing a great job.  They are turning profitable.  They’ve just started marketing it themselves within the last year and a half.  They have a fabulous World Wide sales VP, Jack Marquess, and President, Terry Ross who has invested about three million dollars of his own money into the company.  They’ve been selling almost seven or eight instruments per quarter, and these instruments cost about two million dollars a piece.  People don’t buy these instruments on a shopping spree, but they’ve been able to sell them and they are making money.  Both Cardio Dynamics and Imatron have fabulous management.  To me management is number one.  Cardio Dynamics has dynamic management.  They have the best thing for getting regulatory approval.  I would say that they have the best mechanism for a small company that I’ve ever seen.”                    

CEOCFOinterviews - Of the companies that you cover, which are situated the best with their cash and credit.

Ms. Wagle – “Targeted Genetics has set up all of these alliances with these large pharmaceutical firms who have very deep pockets.  A Phase I trial cannot only last about twelve to eighteen months but it can also cost anywhere from one million to three million dollars.  Therefore, a biotech company needs a strong force of cash, to finance all of this Phase I, Phase II and Phase III trials, all of these studies at these different hospitals, which expect to be paid.  For the small biotech companies such as Abbott Laboratories (NYSE: ABT), Merk & Co, Inc. (NYSE: MRK), or Pfizer Inc. (NYSE: PFE) , American Home Products (NYSE: AHP) can provide that.  So, the alliances that Targeted Genetics has made will prove to be very profitable in that they will be paid in mile stone payments.  Many times there is an up front payment, a mile stone payment, and then royalties and licenses along the way.  What has happened with these large companies is that they’ve gotten to the point where they have all of these successful drugs, and other drugs in their R&D pipeline, but many of them don’t have the biotechnology know how, in house.  So the large companies are giving out a helping hand to the smaller companies who are more entrepreneurial and coming up with the new drugs, but need the money.  The large companies provide the money in an agreement, which allows them to license and market the new technology.  In a way, it proves to be profitable for both and many times, if the small company is smart they will form these alliances, because to get to the size of a Pfizer and a Merk, didn’t come within a few years.  They also have fabulous distribution systems in place, to which the smaller companies don’t have any access.  It would be easier for an Abbott or a Merk to sell their liaison’s drug to a hospital or doctor because they generally will only have ten minutes to make the sale and the doctor will most likely listen to the larger company with the proven track record.”  

CEOCFOinterviews - Can you tell us about ABAXIS, which is another diagnostic device company that you cover?

Ms. Wagle – “ABAXIS, (Nasdaq: ABAX) under Clint Severson and Don Parker have had the shrewd management to guide them into the vet arena.  They have this little instrument, and they realized that they could get these little instruments into the vet market without the chloride test.  They went in, capitalized and have done a fabulous job.”   
“There is plenty of room for ABAXIS to grow in the Vet arena, and continue to build value.  To get more instruments in there, with the passage of time ABAXIS may have to make their prices more competitive, both for their instruments and for their discs.  Currently people are buying their VetScan, a point-of-care blood analyzer because ABAXIS has made a name for them, but as with any industry, there comes competition and the lowering of prices.  They really have the advantage of gaining more market share because of the quality of the product and the Vets like it.  They have quite a few sales people of their own along with distribution partners in Europe.”

CEOCFOinterviews - What are your recommendations for the companies that you cover?

Ms. Wagle – “ABAXIS is in the category of a Strong Buy because of the way that they’ve garnered market share and increased production capacity.  They are also establishing a customer service and a technical service, which is very crucial when a company gets to the size that ABAXIS is. Customers want the feeling of reassurance that there is someone, whom they can call; in the case, that something goes wrong.  Along with the VetScan the customer must also purchase consumable rotors in order to analyze the blood.  Right now, they are in their new production facility, which will allow them to meet customer demand for those rotors.  That should do well for them in the Vet market.  Their success in the human market depends on an alliance with a big house and if they can add the chloride test which is necessary for that market and have it approved”.

“Targeted Genetics would be a Strong Buy right now with all of their alliances.  Their products are in Phase II and Phase III trials, and they are making the right connections at the proper time.  They also have a good R&D department headed by a strong Vice President, Barrie J. Carter, and Ph.D.  You need all of these mechanisms in place before you can go anywhere.  For biotech investors, it’s a long waiting process.  Do not expect any earning, do not expect any dividends, but the companies valuations generally go up at the end of the Phase II and throughout the Phase III trials, and the stock can go up tremendously.”

CEOCFOinterviews - Are there any other companies which you may have a buy or strong buy on?

Ms. Wagle – “I would like to tell you about IMPATH Inc. (NASD: IMPH).  What IMPATH has done is that there are many cancers, which are hard to diagnose in a small hospital or academic institution. With cancer one of the important things is getting to the root.  To treat a cancer you have to know where the primary site of the cancer is. Many times when you find a cancer it has started to metastasize.  About fifteen percent of cancers in general are what     you would call tumors of unknown origin.  IMPATH is company, which is made up of a group of pathologists and oncologist.  If you go into a small county hospital the oncologist or the family practice physician, after sending the sample to their lab, still doesn’t know what the primary origin of the tumor is, they can send the sample to IMPATH via FedEx.  IMPATH with it’s team of pathologists and oncologist gives it’s diagnostic and prognostic information on the cancer and gets back to the physician in approximately about forty eight hours.  With a tumor, the more aggressive the tumor is the greater the chance that it will recur.  The slower growing tumors have a lesser risk of recurring.  In general, the maximum amount of money spent is when a tumor continues to recur.  Therefore, the best thing would be to stop the tumor at the very beginning and IMPATH with their service in diagnostics is a fast turn around time.  This fast turnaround time gives these physicians the options of going ahead with an aggressive treatment for the tumor.  Up front the treatment may be more expensive, but if you can stop it from recurring, you will lower the long term cost, which could be greater.”
“IMPATH has that service and they also have a huge database.  It has linked up with a large number of hospitals and has a whole database of diagnostic and prognostic profiles, treatment and outcome data.  So if you want to look at certain outcome data, they can provide that information and hospitals can license this software.  The third arena that they are in is because of all of the names that they have.  IMPATH gets six hundred samples a day for testing.  Therefore, their database is up to about six hundred and fifty thousand cancer profiles in their database.  Only five percent of cancer patients in the U.S. are in that kind of clinical trial.  What IMPATH does is work with the biopharma companies, and helps them get the right patient profiles into their clinical trials.  Therefore, it performs a service that is extremely unique.  Because of all of the profiles in it’s database it can for example, go to a Genentech, Inc. (NYSE: DNA), and if they are doing a new study on breast cancer, IMPATH can offer the names of ten women with the profiles that they are looking for.  I think that is how IMPATH is building up their business niche.  It not only provides the diagnostics and prognostic lab services, it also has a database of information and it’s capitalizing on its database of information by providing it to the genomic companies.”

CEOCFOinterviews - And what is you recommendation on them?

Ms. Wagle – “It’s a buy right now because their stock has been on a tear.  It’s gone up eight to eighty in the last eight months.”

CEOCFOinterviews - What thought would you like to leave the investment community?

Ms. Wagle – “If investors buy a biotech or diagnostic device company at the end of Phase I trials, when you know the product is going to work, and they have the patients to wait for another six to seven years, it usually will pay off.”

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