A Growing Medical Problem May Be a Growth Opportunity

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The New York Sun

To Wall Street, a growing disease or ailment, though unfortunate, signals a growing opportunity to make a buck. That’s by zeroing in on companies that produce medications aimed at treating or preventing the medical problem.


One such growing disease, osteoporosis, which is characterized by low bone mass and the structural weakening of the bone tissue, fits the bill, according to David Sandell, an editor of Emerging Investments, a Manhattan-based monthly newsletter.


Osteoporosis, afflicting more than 10 million Americans, is already a major health concern, Mr. Sandell says, noting that it may only be the tip of the iceberg. Indicative of this, the National Osteoporosis Foundation reports that another 34 million Americans are at high risk of developing the disease because of low bone mass. In effect, this puts an estimated 44 million Americans (roughly 55% of people 50 or older), in the direct line of a major public health threat, Mr. Sandell says.


Given the aging population and that seniors are much more susceptible to osteoporosis, the potential number of sufferers is destined to grow, especially, he points out, as more baby boomers enter their golden years.


Currently, osteoporosis is responsible for more than 1.5 million fractures annually, as weakening bone mass makes an individual more vulnerable to hip, spine, and wrist fractures.


Interestingly, because many victims don’t know they have it until the first fracture, osteoporosis is known as a “silent disease.”


There is no cure for osteoporosis, but there is a handful of medications that help prevent and treat the disease.The flagship drugs in this arena, Fosamax, Boniva, and Actonel, are the properties of pharmaceutical biggies Merck and Novartis. But Mr. Sandell’s investment favorites are a couple of concentrated osteoporosis plays – Unigene Laboratories ($3.44) and NPS pharmaceuticals ($11.20), two smaller companies.


Given their small size and solid prospects – their respective market capitalizations are $286 million and $533 million – both are also rated as takeover candidates.


First, a look at Unigene, which focuses on the oral and nasal delivery of large market peptide drugs, including those targeting osteoporosis. A key drug here is Fortical, which got the green light from the Food and Drug Administration in August, and is a nasal calcitonin product directed toward post-menopausal women.


A significant plus is said to be Unigene’s relationships with several health care companies. One is a licensing agreement with Upsher-Smith Labs to package, distribute, and market its nasal calcitonin drug. Likewise, it has signed with GlaxoSmithKline to develop an oral formulation of a compound used to regulate calcium absorption in the blood and bones, and with Novartis to produce salmon calcitonin.


While Unigene is slightly in the red, having lost $0.7 a share last year, sales have begun to ramp up, growing from roughly $2.5 million in 2002 to $8.4 million in 2004. The market has begun to take notice, with the stock about doubling since mid-July. With three drugs in an osteoporosis market destined to grow and positive partnerships already in place, Unigene’s outlook looks promising, Mr. Sandell says.


Next, NPS pharmaceuticals. Aside from a comprehensive pipeline directed toward a series of ailments, including osteoporosis, it has approved drugs for hypercalcemia (an elevated calcium level) and rheumatoid arthritis. NPS’s PREOS, which stimulates the growth of new bone by increasing the number and actions of osteoblasts (bone-building cells) was submitted for FDA approval in July. A ruling is expected early next year. Although competing against Eli Lilly’s Forteo, PREOS, Mr. Sandell believes, could mean big things for a company that has seen its stock price drop from the mid-$30s in early 2004.


If NPS is able to successfully compete with Eli Lilly in this market, PREOS will be major win for the company. However, while its revenue has risen from a little more than $2 million in 2002 to in excess of $14 million in 2004, its expenses have grown slightly faster, pushing the company further into the red.


Mr. Sandell notes that NPS is more speculative than Unigene, but FDA approval of PREOS would be the catalyst, he points out, that drives NPS into profitability and its stock price sharply upward.


His overall bottom line thinking seems clear: Put your chips on osteoporosis plays; they’re winning bets.


The New York Sun

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