When small development-stage drug companies release financial results, investors usually only have to pay attention to their cash balance and burn rate, along with any updates on prospective drugs. Here's the skinny on tiny Panacos Pharmaceuticals
For 2006, Panacos burned through $27 million in cash and ended with more than $60 million in cash and equivalents. This means Panacos needs to sign a partnership deal (more on that in a second) or find financing sometime late this year or early next year
In the conference call, Panacos also updated investors on bevirimat, its compound for HIV, after the recent delays in development. It plans to resume the phase 2b trial sometime this year. Once the tests begin again, there should be a steady stream of results, as bevirimat gets tested in different doses.
It's important to mention one axiom of pharmaceutical investing: When a company tinkers with the formulation or dosing of a drug, unexpected results can occur. Panacos already proved this rule in its latest phase 2b clinical study, when it moved from a liquid formulation of the drug to a tablet form. Investors should be aware of the risk that will accompany this second change in bevirimat's formulation.
Even with the delays in bevirimat's development, shares of Panacos have a lot of upside. Nearly all of the pharmaceutical giants are scrambling to find novel drugs to acquire or partner for. Compounds like bevirimat, with unique mechanisms of action in an important field like HIV, are exactly what they look for in a deal, and because bevirimat is still relatively early in its development, larger firms wouldn't have to shell out hundreds of millions of dollars for a partnership.
Just consider the partnership deal that small Canadian drug developer Ambrilia Biopharma signed with Merck
If Panacos resumes clinical testing of bevirimat later this year, I don't expect shares to be trading anywhere near this level come 2008. Just the amount of up-front cash that Panacos could receive from a similar deal would give investors market-beating returns on this $225 million-market-cap company. Investing in a drug company on the hopes of a partnership is almost never a good idea, but I mention all this to exemplify how cheap shares are today compared with Panacos' potential, and to offer some sort of relative valuation analysis.
Panacos is a Rule Breakers recommendation. A free trial to Rule Breakers gives you a chance to chat with other investors and our analysts about the technologies that will change our lives and help our portfolios. Merck used to be an Income Investor recommendation.