AnorMED , Cardiome Pharma Corp. , Cortex Pharmaceuticals, Inc.

It has been a long time since my last column in BioSpace—in fact three children and many diapers later. I have still been writing the private newsletter but getting time for extra pieces has been difficult. The small cap biotech market has finally heated up although I still think there are many undervalued companies. I will write about a few of the companies that are in my personal account as well as the Model Portfolio tracked by the Biotech Insight Newsletter.

AnorMED (AOM) is a Canadian company with what looks to be a real drug (MOZOBIL) for stem cell mobilization in transplant patients. The two Phase III trials should be fully enrolled by summer with interim results perhaps by year-end. This is a niche market but for a small company with a market cap of $286 million the opportunity is still substantial. So far the trials have demonstrated better mobilization and engraftment when MOZOBIL is added to G-CSF. There is even a hint that patients may have better disease free survival with this regimen—using an historical control group as the comparator. AOM’s main technology is around antagonists for the CXCR4 receptor (one of the more important chemokine receptors). This receptor is found on hemopoietic cells and is also one of the two co-receptors used by HIV to gain entrance to T-cells. The receptor is also involved in healing and in cancer. AOM just reported early results from the first cohort of an HIV trial using another R4 blocker and the data looks promising. AOM is facing a board fight with their largest shareholder who wants to replace the board—my guess is they want to push for selling the company. The stock has traded up in recent weeks but it is still a buy at current levels. I remain long AOM.

Cardiome (CRME) is another one of my favorite Canadian companies. Like AOM their stock has traded up then leveled off. The value driver is RSD1235, an IV drug used to terminate atrial fibrillation (AF). Two Phase III trials show this to be the best in class drug for this indication and most importantly the safety profile was excellent. The company will also have early data out this summer on an oral version used to maintain sinus rhythm once AF has been terminated. We should have data on both the low and high dose arms of this oral study by year-end and this will give a very good indication as to efficacy. I do expect the oral version to work because that has been the experience of other IV antiarrhythmic agents when used in oral formulations. The bigger question is safety and to answer that we will need to wait for much larger Phase III studies. The IV formulation should be a money maker for CRME. They are partnered in N. A. with Astellas but Europe remains unpartnered. CRME has not yet partnered the oral version and this could truly be a blockbuster. I don’t see much downside in this stock unless there are some unforeseen safety issues the company has not made public. I remain long CRME.

Cortex (COR) has finally caught on with investors. They have a very extensive patent estate around ampakines (drugs that modulate one of the most important excitatory class of receptors in the brain). Another recently approved drug that modulates a different class of glutamine receptors, Namenda, has become a best seller in the treatment of Alzheimer’s disease. Cortex’s first drug had very poor pharmacokinetics (short half-life, etc.) and even though it had some modest clinical results—it was basically a non-starter. However their new drug, CX717 has very drug-like characteristics with a good half-life, absorption, serum levels, etc. COR just reported on an early trial in ADHD (attention deficit hyperactivity disorder) with a positive P value (.05) in the hyperactivity sub-score. This seems impressive considering the small number of patients in the trial. A more important trial in sleep deprived patients should report late in April. The idea is that CX717 can improve cognition under a variety of circumstances, one of them being sleep deprivation in normal volunteers. If CX717 works under these conditions and has a good safety profile it could become a blockbuster. COR currently has a market cap of only $162 million. So despite the recent run-up there is still plenty of upside if the next trial is positive. I would expect COR to partner at least some of the major indications for 717 on the back of positive trials. I remain long COR.

There are other small cap biotechs that I feel are undervalued and many that seem fully—if not overvalued. More about these in a future article.

As a matter of disclosure, I want all readers to know that I own many of the stocks I write about in my personal account and always maintain a long position. I am not a stock broker or a registered investment adviser. I also write about some of these stocks in alerts for BioSpace, which can be found at www.biospace.com. Biotech Insight is a web-based newsletter published and archived at www.biotechinsight.com. Alerts and newsletters are sent electronically to subscribers. The following is further disclosure: Dr. Garren is an advisor to two funds investing in biotechnology. I recommend many of these same stocks to the investment funds mentioned above. It should be noted that certain funds go both long and short. The information in this column under no circumstances serves as a recommendation to buy or sell stocks. Please also see the disclosure about Biotech Insight archived on BioSpace.

Ronald Garren, M.D.

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