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Biotechnology & Drugs
ANALYST INDUSTRY REVIEW
Ms. Mya Wagle - Equity Analyst
Interview conducted by:
Walter Banks, Co-Publisher
- 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 Ive 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 youve 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 thats 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 dont turn profitable until about the second year after
theyve started selling the
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 dont have health you cant 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 weve 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
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 todays
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, its almost like
a labor of love, so they need support in their effort to try to find the cause for
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.
Lets 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. Its 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 its not only the effort, the brain power and the monetary
resources, but its 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
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 cant wait until he or she is at the end of Phase III to try and do
CEOCFOinterviews - Which of the companies that you follow, do
you feel meet those criteria of having a strong management team and forming those
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
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. Hes a brilliant
man who is also very good at business, so hes been able to nurture this company for
the last eight years. Hes facing a tough battle to get this company up and
going, but knowing him Im sure hes going to see what went wrong and
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
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, its not a biotech company, its 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
Theres 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. Its almost a
prognostic instrument. If you have a high calcium score, then you can change your
life style so that you dont develop a plaque deposition. They are now selling
it by themselves, and they are doing a great job. They are turning profitable.
Theyve 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. Theyve
been selling almost seven or eight instruments per quarter, and these instruments cost
about two million dollars a piece. People dont buy these instruments on a
shopping spree, but theyve 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 Ive ever
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 theyve gotten to the
point where they have all of these successful drugs, and other drugs in their R&D
pipeline, but many of them dont 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, didnt come within a few years. They also have fabulous
distribution systems in place, to which the smaller companies dont have any
access. It would be easier for an Abbott or a Merk to sell their liaisons 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
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 theyve 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, its 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 doesnt know what the primary origin of the tumor is, they
can send the sample to IMPATH via FedEx. IMPATH with its team of pathologists
and oncologist gives its 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 its 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
its capitalizing on its database of information by providing it to the genomic
CEOCFOinterviews - And what is you recommendation on them?
Ms. Wagle Its a buy right now because
their stock has been on a tear. Its gone up eight to eighty in the last eight
CEOCFOinterviews - What thought would you like to leave the
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.