Five biotechs to watch (Page 2)

OncoGenex (OGXI Market Outperform) shares have had a dramatic run this year, rising from the single digits as late as May to the mid-thirties on the increased awareness of OGX-011, its Phase II compound for the treatment of prostate and lung cancer. OGX-011 is a second generation antisense molecule that was in-licensed from Isis (ISIS Not Rated), and has been developed by OncoGenex. The small Canadian company presented impressive efficacy data at this year's ASCO meeting, with the compound providing an impressive survival advantage in a randomized controlled Phase II trial in prostate cancer, and is ready to enter two Phase III trials under an SPA with the FDA. We believe that this fall we can have an additional boost to OGXI shares, since we expect that either OGX-011 will be partnered, or the whole company will be sold, since even at current levels (market cap ~$200M), the company is valued at a fraction of the $894M Johnson & Johnson (JNJ Not Rated) recently paid for Cougar Biotechnology, that was also developing a Phase III compound for the treatment of prostate cancer.

MannKind (MNKD Market Outperform) is developing Afresa, an inhalable form of insulin, with a possible FDA advisory meeting sometime in the fall, and a Jan 16, 2010 PDUFA date. In addition, the company has guided that it is in active discussions with pharmaceutical partners for the co-development and commercialization of Afresa. The field of inhalable insulins took a major hit a couple of years ago, when the first inhalable insulin to make it to the market, Pfizer's (PFE Not Rated) Exubera, was a commercial disappointment and was marred by numerous safety concerns, including a decrease in lung function and the association with lung cancer. We believe that there are actually more differences than similarities between Exubera and Afresa, and we believe that Afresa is far superior to Exubera in terms of efficacy, safety and convenience. We are optimistic about the company's prospects in securing a partner for Afresa sometime this fall and its fate in front of the FDA and we see the potential for signficant upside from current levels for MNKD shares.