We have long been touting nanotechnology as the next big thing; indeed we have gone as far to state it will be the biggest of all previous big things. A whole corner in the Rule Breakers service is devoted to the subject of all things nano, and we are absolutely convinced that in time it will bring forth multiple Rule Breaking investing opportunities.
But there's quite a lag between scientific speculation and commercial reality. Watching the commercial progress of nanotechnology has been a little like watching tectonic plates shift -- interesting to devotees while invisible to most. At least, that's how it was until this month, when a sudden earthquake shook everything up.
That's what happened when the FDA approved American Pharmaceutical Partners' (NASDAQ:APPX) new nano-based drug Abraxane. Investors felt the tremors as APPX stock immediately shot up 50% and the company's market cap swelled by $1 billion. Abraxane, a novel and less-toxic formulation of paclitaxel -- the active molecule in the widely used cancer drug Taxol -- is actually owned by American Bioscience, a private biotech company. APPX is a wholly owned subsidiary of American Bioscience and has the exclusive license to market and sell Abraxane.
What American Bioscience and American Pharmaceutical Partners have done is to take paclitaxel, a chemotherapeutic originally derived from the yew tree (though now synthetic), and work with it at the nano-size. At that size, it can be linked with a naturally occurring protein -- in this case albumin -- to form a novel conjugate. When Abraxane enters the body, it sets off fewer immune system alarm bells than conventional paclitaxel, causing much lower incidence of fainting, shock, or severe allergy. In addition, patients can tolerate higher doses of the drug, which led to better response rates in clinical trials. And the drug can be infused much more quickly and easily than conventional paclitaxel, making it easier for physicians to use.
Although paclitaxel came off patent last year, this improved formulation offers patient benefits over any generic version of Taxol, which was a market leader. Abraxane has relatively few side effects and no requirement to use steroids prior to treatment; Taxol and any generic versions suffer from both these limitations. Generally, when a drug comes off patent, cheaper generic versions swallow up the lion's share of the market. But Abraxane should be regarded as an entirely new product, and APPX will reap the benefit.
The company could, however, soon face competition from a similar product being developed by Cell Therapeutics (NASDAQ:CTIC). Pivotal data on the CTIC product, called Xyotax, are expected in the next several weeks and could potentially lead to an FDA filing later this year.
American Bioscience also has begun trials for various other treatments of cancer utilizing this technology. The future looks bright thanks to a novel methodology of nanoparticulate drug delivery.
Following in their tiny footsteps
A strikingly similar approach is being taken by Skyepharma (NASDAQ:SKYE), which has also taken an off-patent drug -- in this case, the anesthetic propofol -- and reformulated it using proprietary nanoparticulate solubilization technology called IDD-D.
Skyepharma estimates over 40% of drugs fail in very early stages of development because they are poorly soluble, which prevents an easy delivery mechanism to the patient. Conventional Taxol, for instance, must be given with a derivative of castor oil called Cremaphor. This is nasty stuff that makes the drug more soluble in water, but also causes a number of unwanted side effects. Skyepharma's IDD-D platform promises to remove these solubility issues. IDD-D propofol is currently in phase III trials, being funded by its development partner Endo (NYSE:ENDP). Propofol has some limitations in its use that Skyepharma is hoping to eliminate.
This is a $700 million market and both companies are hoping for a product launch by 2006, provided the trials proceed smoothly. Skyepharma has a $750 million market cap, and Endo a $2.7 billion market cap, but they share profits, so no prizes for which one represents the best play for a boost if all goes well.
Bouncing back
Turnaround biotech ElanCorp. (NYSE:ELN) has made some extremely wise strategic moves since flirting with bankruptcy after a series of financial scandals. One of its best decisions was to not sell off its drug delivery unit, something that very nearly happened in its search for much-needed cash. That division was validated once again when its proprietary nanocrystals technology gained its first commercial hit with Johnson & Johnson's nanocrystal-based version of its immunosuppressant drug Rapamune (sirolimus). This was cleared by the U.S. Food and Drug Administration (FDA) last year.
Elan recently announced a new partnership with Swiss giant Roche, under which it will provide Roche with formulation services and technology in exchange for research revenues, development milestones, and royalties on sales of any product incorporating NanoCrystal technology. Elan is arguably richly valued right now, and the technology cannot boost its valuation to the same degree that Abraxane lifted APPX. But it demonstrates another commercial road opening up courtesy of nanotechnology.
So what of Hidden Gems pick FlamelTechnologies (NASDAQ:FLML) and its proprietary Medusa technology? Although the company suffered setbacks in 2004, with Bristol-Myers Squibb pulling out of a development deal on its lead product Basulin, perhaps the CEO will find it easier to attract a new partner now that Abraxane has gotten market approval and the nano-encapsulation approach has been validated.
Although the technology is different than the others we've discussed, the ambitions are the same. Flamel uses the unique size and properties of the nanoscale to be more accurate in delivery and dosage. Adding a billion or two dollars to one's market cap with one success is a mighty lucrative incentive to a CEO of a public company. It might motivate him to make the phone calls once again to the prospective partners he has previously tried to bring in.
One nano-company still stuck in penny stock land, but with a nano-formulated product already on the market, is Novavax (NASDAQ:NVAX). The product is Estrasorb, a topical emulsion for use in estrogen therapy. It received FDA approval last year and is based upon its proprietary micellar nanoparticulate technology. Novavax's low valuation, with a current market cap of only $114 million, is a reflection of its very thin pipeline. However, the company is actively pursuing multiple drug candidates formulated with the micellar nanoparticle technology. Although we do not advocate buying stocks trading below $5, Novavax, currently trading at $2.69 a share, does have reasonable trading volume and is worth watching. If the company proceeds into human clinical trials with new products and manages to build out a market for Estrasorb, then we should see that valuation rise accordingly.
The Abraxane success is but one drop of the potential nano-ocean. That's why we repeat ad nauseam: Get involved in nanotechnology. It will create enormous value in biotechnology, in electronics, in materials and in so many associated industries -- more value than we can possibly predict. And ever so slowly, the plates are shifting and progress is happening, right before your very eyes.
If you're looking for the next growth company in this groundbreaking field and others like it, we urge you take a no-obligation free trial to our ultimate growth service, Motley Fool Rule Breakers.
Other recent stories on how you can make money in this developing sector:
- Profiting from Nanotechnology
- Commercializing Nanotechnology
- Is Nanotechnology for Real?
- The Players and Pretenders of Nanotech
- Dynamite in Small Packages
Share your views with Carl (TMFBreakerCarl) and John (TMFBreakerJohn) on the Nanotechnology discussion board.
Carl Wherrett owns shares of Flamel, and so does John Yelovich. You can reach Carl and John via email.The Fool has a disclosure policy.
