One-product companies currently on a knife edge

The dramatic declines in the share prices of Arpida and Targanta Therapeutics last week, down 84% and 86% respectively following a negative FDA advisory committee review of their antibiotic drugs, highlights the high level of risk associated with investing in companies who have put all their resources behind the development of one product.

Whilst constraints over cash and resources often ultimately dictates a one-product strategy for many small biotech and specialty companies, in today’s financial climate this approach has become even riskier. An analysis of NPV data from EvaluatePharma reveals that for 72 companies, just one clinical stage product accounts for at least 95% of their total NPV and highlights those companies currently on a knife edge with just one filed or phase III drug and precious little cash to fall back on if trial results or regulatory reviews go awry (see table below).

At the mercy of regulators

For the following companies, just one filed product accounts for 100% of the total NPV currently being assigned to the company’s products by analysts, according to EvaluatePharma’s NPV Analyzer.

The problem for companies such as Dyax, Introgen Therapeutics and Advanced Life Sciences is that current cash reserves are almost empty, therefore a positive review of their drugs is absolutely vital to the companies’ very survival.

The 35% slump in Somaxon Pharmaceuticals’ shares on Monday with news that the FDA has delayed its review of Somaxon’s insomnia drug, Silenor, by three months is clear evidence of the potential volatility.

Whilst companies with significantly healthier cash reserves, such as Cypress Bioscience, Pain Therapeutics and Intercell are better placed to cope with a regulatory rejection as their immediate future is more secure, the impact of a negative decision is still likely to be significant.

Conversely, given the obvious difference between the potential NPV of the drugs and the respective companies’ current market capitalisation, the upside should approval be granted is significant.

Definition of pivotal data

Focusing on companies currently with just one phase III product accounting for all of their current NPV, a similar analysis highlights the following 24 companies in particularly precarious position.

The problem for many companies still seeking a commercial partner for their products the desperate need for cash suggests their bargaining power is considerably weaker and with most share prices suffering heavy losses this year, some could be prime takeover candidates.