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1 Catalyst Biotech Investors Need to Watch

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Biotechs depending on a single drug ooze volatility. Scoring a potential winner requires following the drug's path carefully. One of the last catalysts before the final decision from the Food and Drug Administration comes from a drug's phase 3 results. Ziopharm Oncology (NASDAQ: ZIOP  ) , MannKind (NASDAQ: MNKD  ) , and Merrimack Pharmaceuticals (NASDAQ: MACK  ) all have "make or break" products in phase 3 that will announce results next year.

Positive trial results can send shares soaring, such as when Amarin  (NASDAQ: AMRN  )  nearly doubled in 2011 after promising results for its triglyceride-lowering treatment. However, there is always the other side of the clinical study coin to consider; a number of biotechs have seen shares plunge after phase 3 failures. 

Let's see which route the following three companies and their experimental drugs might take.

Ziopharm doubles up
Ziopharm's lead drug candidate is palifosfamide, a chemotherapy treatment currently in two separate phase 3 trials for a rare tissue cancer and a more common form of lung cancer.

An independent data monitoring committee recently advised Ziopharm to finish the sarcoma trial, having found that the drug was making sufficient progress. Exact results won't be in until the first quarter, while the lung cancer trial should report sometime next year.

Ziopharm ended the recent quarter with $95.3 million in cash and equivalents. Cash burn for that quarter was about $15 million. The company needs to finish the lung cancer trial and get the products to market if the FDA grants final approval. The pipeline also includes four drugs currently  in phase 2, so investors need to keep a close watch on cash burn in upcoming quarters.

Merrimack gets novel with pancreatic cancer
Like Ziopharm, Merrimack is also developing cancer-fighting drugs – namely a treatment for metastatic pancreatic cancer. The FDA has granted the company's MM-398 orphan drug status. Transparency Market Research estimates that the U.S. pancreatic cancer market will reach $1.2 billion by 2015.

MM-398 is being tested both as a monotherapy and as a combination therapy, and the design of the trial reflects this approach, testing the drug's efficacy when administered with other treatments. The trial began this past summer, and results won't arrive for a while. Additional early stage trials now under way will test the drug's ability to fight other forms of cancer, including colorectal.

Merrimack has faith in this drug, first acquiring the company that originally developed MM-398 and then signing an agreement to pay up to $220 million for the marketing rights to Europe and Asia. That payment, made to partnering company PharmaEngine, included $10 million up front and a series of promised milestone payments.

As of September, the company had $86.8 million in cash, equivalents, and short-term investments. A loan agreement went into effect this month that would entitle Merrimack to a maximum of $40 million. The cash burn for the most recent quarter was about $20.5 million , and the company expects to make it through on what it has until 2014.

MannKind inhales
For the last company, we move from niche cancer indications to the wide world of diabetes. MannKind's lead candidate is the inhalable insulin Afrezza, a treatment for diabetes types 1 and 2. Afrezza is fast-acting insulin that improves upon existing products like Eli Lilly's Humalog in two significant ways: speedier absorption and needle-free dosing.

Bears will point out that Afrezza is following in the footsteps of Pfizer's failed Exubera. That inhaler-based insulin was released in 2006 and quickly sputtered out, leading to a $2.8 million loss. But Afrezza will be cheaper for patients, and it has a smaller dispersal device that makes it easier to tote around.

Expect phase 3 results next summer, followed by an NDA in the fall. This will be MannKind's third attempt to get Afrezza past the FDA. The continued trials are because of a change in the dispersal device, not any questions with the drug's efficacy.

Afrezza's continued delays have left MannKind with a cash problem. Cash burn for the most recent quarter was around $34 million. Cash, cash equivalents, and short-term investments added up to a bit more than $2 million at the end of that quarter. That cash situation was helped with a secondary offering in September that raised $86 million. And a recent license deal sold off a pipeline cancer drug out for cash up front and royalty payments that could total $140 million. However, another FDA setback could drain MannKind dry.

Foolish final thoughts
Cancer drugs historically have a harder time than other indications in getting FDA approval. But the unmet-need aspect of the Ziopharm and Merrimack drugs could swing things in their favor. MannKind is particularly vulnerable should Afrezza face further problems, and its fate seems most up in the air at this point.

Want to know more about MannKind's chances? Still down around 90% from its highs less than a decade ago, there's been no giant leap for MannKind shareholders. The debate rages over whether Afrezza will be a complete flop or a massive blockbuster success. In this brand new premium report on MannKind, we outline every key topic investors have to know with this risky stock. It also comes with a full year of analyst updates to keep you covered as key news develops, so don't miss out — simply click here now to claim your copy today.

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