Actinium Set To Follow In Opko's Foosteps Amid Near Term Catalysts

Opko Health OPK is perhaps most well known at this point for the near daily insider buying by its founder, CEO and Chairman Phillip Frost.  A quick look at its insider transaction history paints quite the picture in that regard. What this has helped in part to create is an extremely valuable and liquid currency that the company has leveraged to create a strong stable of portfolio companies in varying stages of development.  Opko’s portfolio companies target an assortment of billion dollar market opportunities, with several already on the goal line of generating possibly significant revenues.  Rolapitant, which was outlicensed to Tesaro TSRO, announced positive phase 3 results in Q4 2013; phase 3 results are expected for Rayaldy in mid-2014; Opko’s 4Kscore has been tested in 9 clinical studies and over 10,000 patients with its final U.S. clinical validation currently ongoing.   

Actinium Pharmaceuticals ATNM shares several similarities in following the path that Opko has surged along the past couple years.  Actinium has its own portfolio of products at varying stages in the pipeline addressing markets with multiple billion dollar opportunities as well.  Interestingly, it is a different set of market opportunities than Opko has that would either grant Opko access to a large new potential market in its pipeline or work tangentially with an existing Opko product that could provide vertical integration.  For example: Opko’s 4Kscore blood test for prostate cancer and Actinium’s Actimab-P treatment for prostate cancer.  This type of vertical integration is something Frost has shown a keen interest to try and build throughout his career.   

Actinium looks like a very strong buy here.  Its current $300 million market cap is relatively small for a company with a drug entering phase 3, a drug in phase 2, and several other products in the pipeline. A more reasonable valuation for a company with this pipeline would be a $600 million market cap on the low-end, at least a double from here.   Research coverage initiated on Actinium by Ed White at Laidlaw & Co. gave the company a buy recommendation and an $18/share target price, up from its current price of $11.90.  Actinium also looks like it would make a perfect tuck-in acquisition for Opko that is right in-line with Opko’s business strategy. 

Stronger than previous successful comp with Opko

The last company I compared with Opko was for a different reason.  Cancer Genetics CGIX is trying to become a player in one of the same markets as Opko: diagnostics.  Both companies have strong potential entries to the diagnostic kit market, a multi-billion dollar opportunity.  Cancer Genetics was a near-term double almost immediately following my writeup.

Actinium is more like an Opko in progress in that it has several different technologies getting closer to the finish line with an aggregate of $16 billion in addressable market opportunities.  Actinium’s two most advanced drugs are designed to treat blood-borne cancers. These drugs feature antibody-directed radioisotopes to target unmet medical needs in cancer. Both of its drugs have been tested on approximately 300 combined patients through  FDA phase 1 and phase 2 clinical trials.  Another reason I had recommended Cancer Genetics as a buy then was its market cap being significantly smaller than Opko’s at the time, thus allowing for a greater potential return in the short term.  Actinium represents the same type of asymmetrical trade, under-priced based on its current portfolio with cash in the bank to continue progress on its phase 2 and 3 trials that will bring share price appreciate as investors begin to take notice. 

Another good example of this has been my continued analysis on Neuralstem CUR.  Neuralstem’s share price is up 271% since my first article on it in November 2012.  I wrote about it again as being my favorite investment heading into 2014 on December 8^th, 2013 and it is up 79%since my second article.  In biotechs, companies can sometimes get lost in the shuffle (especially on the bulletin board).  I believe this has been the case to the extreme with Actinium, as the management has focused on positioning the company and not on the stock price.  This will change as investors realize the progress of several drugs in its portfolio, which should be further amplified by the increased visibility provided by Actinium’s recent uplisting to the NYSE MKT.

Background on New Player Actinium Pharmaceuticals

Actinium’s drugs deliver deadly radiation to cancerous tumors. Injected into the body via a pharmaceutical carrier, Actinium’s antibodies precisely target cancerous cells while avoiding normal cells. To accomplish this difficult task, the drugs use radioisotopes that emit alpha and beta waves through targeted antibodies. Alpha emitters traditionally kill cells at a very short range, and beta emitters kill by crossfire, which is useful in select indications.

Actinium’s most advanced drug is Iomab-B, which has completed its phase 2 trial and is getting set to begin phase 3.  The company held a successful end of phase 2 meeting with the FDA and reached agreements on path to approval, number of studies, and phase 3 trial design.   

Actinium’s second most advanced drug is Actimab-A. Currently in a Phase 1/2 trial, this drug targets acute myeloid leukemia cancer.  A key here is that no new AML drugs have been approved in over a decade while unmet medical needs remain.  Any continued progress shown should start to spark the interest of potential licensors and other investors.   

Below is a table summarizing this year's catalysts for both drugs:

Actinium Pharmaceuticals owns 17 US and 51 international patents for two alpha emitters: Actinium 225 and Bismuth 213. Actinium 225's cancer-killing alpha particles were first developed by Dr. David Scheinberg at Memorial Sloan Kettering Cancer Center.  The Sloan Kettering Center is still a large shareholder in Actinium.

Bayer makes acquisition in same target market for $2.9 billion

A multi-billion dollar acquisition took place in December for an alpha-emitter antibody drug that had completed phase 3.  Actinium’s two lead drugs are alpha-emitter antibodies; one is preparing for phase 3 and the other is in phase 2.   Bayer AG (BAYRY) acquired Algeta (ALGZF) for $2.9 billion.  Algeta’s lead product is radium-223 dichloride, an alpha-emitter antibody approach to targeting cancer cells with a half-life of 11 days that had completed phase 3 trials.  Actinium’s lead drug, Bismuth 213, is an alpha- emitter antibody approach to targeting cancer cells with a similar half-life that is set to begin phase 3.  Actinium’s next most advanced product, Actinium 225, is also an alpha-emitter antibody approach with a similar half-life that is currently in phase 2.  Algeta provides a great indicator of the potential upside if one or both of Actinium’s two lead technologies make it through phase 3.  With this type of precedent in the market in place, there is always the chance a larger player comes in earlier to get a better price and take it through the finish line.

Following up on that last sentence, this quote from Greg Vlahos, who heads the U.S. life sciences practice for PricewaterhouseCoopers, is pretty telling regarding the current state of the biotech market (especially with how red-hot many recent biotech IPOs have been): "The money is going into companies that are looking at novel therapies and big markets," said Vlahos, speaking not just of venture capital but also about the startups that have recently been going public.  Another reason Vlahos cites for the booming biotech IPO market is that many blockbuster drugs developed in recent decades by large public pharmaceutical companies are approaching a "patent cliff" -- meaning other drugmakers will be free to start producing lower-cost, generic versions of those therapies. For companies desperate to find new drugs on which to bet, buying startups armed with recent patents is often less expensive and easier than developing products from scratch.   PwC also notes that mergers and acquisitions in the life sciences industry spiked 24 percent in the last quarter of 2013, with 31 companies snapped up for a total of $37 billion.

Recent Uplisting to the NYSE

Actinium recently uplisted to the NYSE MKT exchange, a move that should help to start bringing in institutional investors.   Actinium’s CEO, Kaushik J. Dave, had the following comment prior to its uplisting: “Trading on the New York Stock Exchange will provide the Company with great visibility, marketability and liquidity and represents another important milestone for the Company.  Our decision to move to the NYSE MKT provides us access to a broader investor base and further increased shareholder value.  This will allow the Company to continue its path on developing cancer drugs in an area of unmet medical needs.”

Actinium should continue to benefit from the recent steam in biotech IPO’s as a result of this process adding increased transparency and visibility for the company.  Quick numbers on biotech IPOs so far in 2014 that should get any investor excited about the prospect:

In total, the 18 life sciences companies that have gone public this year are up 34.7% above their initial pricings. Leading the way are Dicerna ($DRNA), which is trading at roughly 260% of its $15 debut, and Ultragenyx ($RARE), whose share value has more than doubled to about $44. Orphan drug outfit Auspex ($ASPX) is up about 100% on its $12 pricing, while Revance Therapeutics ($RVNC) is trading roughly 67% above its debut and early entrant GlycoMimetics ($GLYC) has risen 30%.

Opko and Actinium Pipelines

This visual below demonstrating my comparison earlier between Opko and Actinium shows a good look at each company’s pipeline:

Actinium’s pipeline would mesh well with Opko’s and provide five new products addressing markets totaling over $16 billion in aggregate.  Opko could use its currency to obtain two products already on the doorstep in phase 3 and phase 2 that it could carry through and bring to market with its strong global distribution.  A third technology Opko would add to its pipeline, albeit earlier stage, could provide vertical integration for Opko’s 4KScore blood test for prostate cancer with a possible treatment for prostate cancer.  At Actinium’s current valuation, something I attribute partially to being unnoticed due its bulletin board listing, I see several potential suitors being interested as it continues its course.  The synergies with Opko in particular seem like it would be a strong fit.

Financing Risk

When will the company need more money?  Always a first question to ask in biotech.  Looking at Actinium’s balance sheet shows solid positioning for the next year and a half from a financing perspective.  Actinium had $5.88 million in cash as of March 31, 2014.  The company recently completed a private placement of $6.6 million in January.  At its current burn rate of $500,000/month, the company has room to run for about the next year.  In biotech where financing is always a matter of when and not if, Actinium looks good from this perspective for a company with a drug entering phase 3.