Markets & Finance

Marcial: BioSante May Be Buyout Bait


The biotech's LibiGel, in clinical trials, could make it a player in treating female sexual dysfunction—and draw bids from Big Pharma

BioSante Parmaceuticals (BPAX) is going where Procter & Gamble (PG) and Pfizer (PFE) feared to tread: developing products aimed at restoring the loss of sexual desire in women. The little-known Lincolnshire (Ill.) biotech is developing hormone replacement products to treat testosterone deficiency in men and estrogen deficiency in women. But its lead product, LibiGel, is what's attracting investor attention.

LibiGel is a testosterone gel aimed at sexual dysfunction in menopausal women. BioSante recently initiated its second of two Phase III clinical trials after the Food & Drug Administration awarded it a "special protocol assessment" approval to test the product for safety. The company conducted the first of the two Phase III trials in 2006, specifically for LibiGel's efficacy. Data from that study are expected to be released in 2009.

A total of 2,400 to 3,000 women over 50 are to be enrolled for the clinical trials on safety, which will test for cardiosvascular risk factors. BioSante CEO Stephen Simes says that if all goes well, BioSante could file for a new-drug application with the FDA by late 2009.

Bullish on Wall Street

The big question is, does LibiGel work? Simes certainly argues that it does. He expects the results from the efficacy trials to bear this out. And if LibiGel completes the safety clinical trial with success, the product will address a multibillion-dollar market, says Simes. He's not the only one with his hopes up: Three Wall Street analysts who follow BioSante are all bullish on the stock.

And there is another factor that has stirred investors' interest: BioSante could end up being acquired by a Big Pharma concern in the not-too-distant future. That's because BioSante has hired Deutsche Bank Securities to review strategic alternatives, including selling the company. Simes says that without any deal, whether a sale or at least a partner, BioSante would have to raise capital for the clinical trials and eventual production of LibiGel.

Some analysts figure BioSante could be acquired for about $11 a share; the stock traded at 5.32 on June 17. With 26.8 million shares outstanding, that translates to a total potential price of $290 million, a measly sum compared with the multibillion-dollar mergers and acquisitions grabbing headlines.

Bulging Pipeline

BioSante has other drugs in its pipeline: Pill Plus, a hormone contraceptive for women in Phase II trials, which is licensed to and being developed by Pantarhei Bioscience; Bio T-Gel, a treatment for testosterone deficiency in men that is licensed to and being developed by Teva Pharmaceutical (TEVA); BioLook, a facial line filler in aesthetic medicine, licensed to and being developed by Medical Aesthetics Technology; and CaP, a patented calcium phosphate technology for use as a vaccine adjuvant and for drug delivery.

BioSante has one FDA-approved product already on the market: Elestrin, to reduce hot flashes in menopausal women. Its marketing partner for Elestrin is Nycomed, which has paid BioSante $14 million in up-front and milestone payments. BioSante has rights to receive more milestone payments of up to $40 million, plus royalties from sales of Elestrin, launched in June, 2007.

But it's optimism about LibiGel that is driving analysts to recommend BioSante's stock. One of them is Elemer Piros of Rodman & Renshaw (RODM), who rates BioSante's stock outperform. He says the second Phase III trial on safety is the most important component of the clinical tests because of the FDA's concerns about the "potential risk for cardiovascular events with testosterone products in women." The trials should put such worries to rest, says Piros. He expects the results from the trial to be out in late 2009 or early 2010. "We currently project that the drug could be launched in 2011," says Piros, who has a price target for the stock of $9.

Another bull on BioSante is Oppenheimer (OPY) analyst Kevin DeGeeter, who rates the stock outperform with a price target of $9. He figures BioSante could be bought out at 10.50 to 11 a share. "The potential buyers could be Watson Pharmaceuticals (WPI) and Johnson & Johnson (JNJ)," says DeGeeter. Also bullish is Noelle Tune of Soleil Securities, who has a price target of $10.

To be sure, BioSante looks like one of the most enticing small biotechs around, considering the huge potential market value of LibiGel and its other products—plus a possible takeover, to boot. If any Big Pharma names come calling, BioSante will soar.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.

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