I'm not usually a big fan of biotech companies, especially ones with negative earnings forecasts. However, PanacosPharmaceuticals (NASDAQ:PANC) truly has some exciting news that warrants looking into.
In a press release Aug. 22, Panacos announced the successful completion of phase 2a clinical study trials of its new drug PA-457, which was found to be safe and effective in reducing the level of HIV in the bloodstream by a median of 90% when taken at its highest dose.
While this represents an astounding success, there's also another reason why this drug makes it the perfect time to look into Panacos shares. PA-457 also proved effective in treating strains of the HIV virus that have become resistant to existing drug therapies.
In fact, PA-457 is the first in a new class of HIV drugs called maturation inhibitors, with broad activity against HIV, including strains resistant to currently approved drugs, the most common cause of HIV treatment failure.
The likely implication is that PA-457 may quickly capture significant market share when launched. If these success rates can continue to be safely replicated, Panacos' financial opportunity is substantial.
As a result of this news, the stock price soared 46% Monday, closing at $10.30. While this surge may seem enormous, it's only the tip of the iceberg if this drug proves as successful as these trials indicate.
Nonetheless, the company has its risks. While its current cash reserves of $15 million will allow it to function into the near future, it will eventually need to secure more funding if it intends to continue operations.
The data just presented on PA-457 could help it secure a partnership that would bring in much-needed cash. Panacos may be able to find a partner in industry giants such as Motley Fool Inside Value pick Pfizer (NYSE:PFE), Motley Fool Income Investor pick Merck (NYSE:MRK), or Bristol-MyersSquibb (NYSE:BMY), or in a mid-cap pharmaceutical company such as Gilead Sciences (NASDAQ:GILD). Failing to strike a deal, Panacos should have no problem attaining additional funding through the capital markets for such a strong idea.
With a potential 2009 launch slated for PA-457, it's difficult to entirely predict this drug's implications on the company's prospects. The next four years may introduce other factors that diminish the value of PA-457, but the opportunity to buy in before the revenue makes Panacos an obvious winner is extremely appealing. Although a market cap below $380 million is not necessarily cheap for a company riding on an experimental drug, the drug's potential warrants serious consideration for this biotech company.
Fool contributor Tarek Sultani is a freelance journalist. He does not have a beneficial interest in any of the companies mentioned in the article. The Motley Fool has an ironclad disclosure policy.
