OT..... GenVec Plummets on Pfizer BailoutGenVec Plummets on Pfizer Bailout
by David Leidl
January 24, 2002
Call it a knee-jerk response, call it bad news, call it a buying opportunity but when GenVec Inc. (NASDAQ: GNVC) announced that mighty Pfizer Inc. (NYSE: PFE) has elected to discontinue co-development of the gene-based heart therapy BioBypass, the Street reacted with a distinct negative bias. However, one analyst says the news bodes well for GenVac.
"We view any weakness in the stock as a buying opportunity," notes Dr. Albert Rauch, covering analyst for Ladenberg, Thalmann & Company.
Today, the weakeness is there. For the moment.
At 12:33 p.m. ET, GNVC was down 19.95% or 80 cents to $3.21 on large volume of 801,500 shares or sixfold the three-month daily average of 130,636 shares. Its 52-week range is $8.375 set on January 25, 2001 with $1.50 low posted on September 21, 2001. Its most-recent-quarter (mrq) per-share book value is $1.84.
"I think it is good news," says Dr. Rauch. "The market, of course, reacted negatively off the bat. But that’s to be expected. Once you sit down, think about it, run through the numbers. Nothing has changed with the product; it’s still there. We still feel it works, we think it has a lot to add. So, what in essence is that GenVec is getting all the economics back; we view that as very good, a positive thing."
First off, Dr. Rauch points out that the decision was based solely on business considerations and not because Pfizer sniffed anything worrisome coming out of the ongoing Phase II trials. This point has been stressed by both companies.
Pfizer is not running away from the gene-based coronary-artery refurbishing and peripheral-vascular-disease fighting drug. Pfizer will stand by it, maintaining responsibility for the costs involved in the ongoing clinical studies for another six months. Data results from the Phase II trials are expected in Q3 and Q4 of this year.
Aside from keeping its huge purse open, Pfizer will also return all development and consideration rights to BioBypass back to GenVec and will waive all rights to future royalties for any products ultimately realized from the trials.
In his intra-day research note, Dr. Rauch notes that the decision to discontinue the Pfizer/GenVec BioBypass relationship was based on the "business fit" and not scientific-related issues. The clinical data remains blinded, the technology remains strong and potentially very lucrative. Instead, call it a type of house cleaning.
When Pfizer acquired biotech Warner-Lambert last year, it also acquired the BioBypass project partnership. Now, after looking deep within itself and what Rauch calls "its own pretty full pipeline," Pfizer decided the gene-therapy project was simply not congruent with its own small-molecule forte and overall strategy. Says Rauch: "Essentially, they [Pfizer] just don’t like gene-therapy, right now. That’s not their core focus."
Meanwhile GenVec’s own focus, the BioBypass schedule, will roll on unimpeded. Dr. Rauch expects BioBypass will enter Phase III trials in Q3 of 2003 for peripheral vascular disease (PVD). He also believes that GenVec will fund and go forward on the PVD trials under its own steam, keeping the U.S. rights to what’s "a big market, a billion-dollar market" and partnering off the rights for the rest of the world.
In early 2005, BioBypass is expect to move into Phase III trials for coronary artery disease (CAD). Due to the huge marketing potential for CAD, and now that Pfizer has stood back, it is expected that GenVec will be seeking a new global partner for this particular indication.
Or as GenVec President and CEO Dr. Paul H. Fischer said in a release, the Phase II trials are moving along as planned and over the next six months "we will work closely with Pfizer to successfully transfer the ongoing clinical trials to GenVec." The trials remain blinded, nothing has changed in terms of the medical aspects. However, a lot has changed in terms of the potential financial benefits. Rather than splitting the pot, GenVec now gets to keep it all. Or as Fischer put it: "If those data show clinical benefit, GenVec plans to take full advantage of its ownership of BioBypass.''
It’s also reason for analyst Rauch to reiterate his Strong Buy rating with a 12-month target of $9 . . . reiterated, but with an extra push.
"We think this is very positive. We’ve actually increased our revenue projections. . . .We’re telling people to aggressively buy with this pull back."
Based in Gaithersburg, Maryland, GenVec Inc. is focused on the development and commercialization of novel gene-based therapies that produce medically beneficial proteins at the site of disease. The company combines its patented gene transfer technologies with proprietary therapeutic genes to create product candidates, including BioBypass® angiogen for cardiovascular disease, TNFerade for oncology and AdPEDF for ophthalmology.
For the nine months ended 9/30/01, GenVec total revenues fell 62% to $4.3 million. Net loss totaled $12.7 million, up from $4.7 million. Results reflect reduced amounts earned under the research support agreement with Pfizer and increased costs related to new product development initiatives.
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