Don't let it get away!
Keep track of the stocks that matter to you.
Help yourself with the Fool's FREE and easy new watchlist service today.
Young, upstart pharmaceutical and biotech companies do one thing that almost no other industry does. They go years without generating any revenue. Thanks to investors, they can periodically issue shares to raise cash while their drugs are in development. Companies in this space like to raise capital when it reaches an inflection point like a successful clinical trial or approval from the Food and Drug Administration. Between these inflection points, though, these companies need to keep a close eye on the amount of cash they spend.
Starting fresh in 2013
Acadia had a pretty impressive 2012. After a couple adjustments to the design of its phase 3 trial of its flagship drug pimavanserin, the company declared that the trial was a success. Upon that announcement, the share price jumped 136%, and it would be only a matter of time before the company issued shares to help finance the last leg of its phase 3 program. That day came back in December, when Acadia raised $86 million for that very purpose.
If this drug were to make it all the way through FDA approval, it would be the only FDA-approved drug to deal with Parkinson's disease psychosis. The only treatment used so far to deal with this has been anti-psychotics like AstraZeneca's (NYSE: AZN ) Seroquel, which have not truly dealt with psychosis or have hampered the effectiveness of other treatments for motor function associated with the disease. Without any upcoming competition, it looks like pimavanserin could be a big hit for the company.
Pending expenditures for the fourth quarter, Acadia will have about $106 million in cash and marketable securities on hand. Based on the company's last earnings release, Acadia spent about $15.3 million in operating expenses for the first nine months of the fiscal year. Of course, we can assume that it will spend more as these trials become more complex, but unless spending levels take an unexpected turn toward the stratosphere, this haul of cash should easily take Acadia through 2013 and possibly through a large part of 2014 as well.
The home stretch?
According to the company's recent announcements, Celsion is close to publishing its phase 3 clinical results for its ThermoDox treatment . This is an experimental cancer drug that uses radiofrequency ablation in its drug delivery process. This type of treatment could prove very effective for patients with inoperable cancers. The primary studies for ThermoDox have been on primary liver cancer, but the company is also testing the treatment on recurrent chest wall breast cancer and colorectal liver metastases. If Celsion could prove its drug's effectiveness in this study, it could open up a number of potential uses for its drug.
As of the end of September, the company spent $16 million for operating expenses in 2012. With about $22 million in the coffers from its previous earnings release, the company will probably run dry sometime in 2013. Celsion has a lot riding on this treatment, because its entire pipeline is centered around the ThermoDox treatment. If Celsion comes back with a positive phase 3 clinical trial, the company may have to issue shares soon after. If those trial results don't produce positive results, however, Ceslion could be in for some tough times.
For small pharmaceutical companies like Sunesis, the idea of creating a drug that has the potential $500 million market seems like a pipe dream . This is what the company could be looking at, according to some analysts, if its drug Vosaroxin proves to be successful. The drug, which is in development for the treatment of acute myeloid leukemia, is in the process of enrolling patients in its phase 3 clinical trial.
Thanks to a $25 million royalty agreement the company signed back in March, the company still carries about $75 million in cash. With no true revenue source, the company believes it will be able to keep the lights on through the end of 2014. If Sunesis can successfully complete its phase 3 trials within that two-year time frame, it should be on the right track.
What a Fool believes
Don't expect these companies to use their current holdings to bring these drugs all the way to market, nor do they need to. If all three can keep their clinical trials on track, their current holdings should be enough to take them to an FDA decision board. While it is important for these companies to keep their budgets in order, it is far more important that these drugs pass clinical trials. The success of these drugs is the only mechanism for the companies to start generating revenue.
Dealing with extreme volatility is just a way of life for investors in the world of clinical-stage drug companies. We at the Fool want your entire portfolio to beat the market. Make sure you start 2013 with a bang and get the inside scoop on what Motley Fool Superinvestor David Gardner will be buying this year. He's crushed the market in his Stock Advisor and Rule Breakers portfolios for years, and now I invite you to a personal tour of his flagship stock-picking service: Supernova. Just click here now for instant access.