Potential BioMS: Successful Drug Trials but Risk Still Exists

A successful phase II trial of BioMS Medical Corp.'s (BOMSF.PK) lead compound dirucotide for the treatment of Multiple Sclerosis would undoubtedly give a boost to the biotech share price, but with results not expected to start rolling out until the first quarter of 2009, investors are cautioned in a new report from BMO Capital Markets, to carefully weigh the risks against the potential rewards before jumping in.

According to analyst Christine Charette, the rewards of a positive phase II trial for dirocutide and beyond that, the successful introduction of the treatment to market, would be substantial.

She noted that the Multiple Sclerosis market is worth just shy of C$7-million and is expected to grow substantially in the coming years as more effective drugs come to market.

However, she was quick to point out that there is still a high degree of uncertainty that surrounds not only dirocutide as a potential treatment, but also Multiple Sclerosis itself.

In a note, she told clients:

MS is a heterogenic disease, and the precise mechanisms underlying the biology and the immune response leading to destruction of tissue are not understood. 

Furthermore, the mechanism of dirucotide's action is not well characterized and is viewed with skepticism in some circles. We believe this, combined with the limited phase II data, leads to a risk profile that is higher than average.

Phase II results for the treatment being developed in partnership with Lilly (LLY), are expected in the first quarter of next year for trials related to relapsing-remitting MS. Phase II/III trial data in secondary progressive MS is expected in the second half of 2009.  Ms. Charette said BioMS has access to over C$233-million in cash, enough to last until well after these trial results are released. 

She initiated coverage on BioMS with a "market perform" rating and C$4 target price, telling clients BioMS's ultimate valuation will be several times higher should Phase II results prove positive. 

She added:

We believe the expected uptick in valuation will not occur all at once and there will be time to purchase, albeit at a higher price, but at much lower risk.

Comments

[Fitz]

I don't think that the risk is very high at this point, Lilly has paid $87 million up front for the rights, with an additional $410 million in future milestone payments ( I believe this is the largest such rights agreement every in Canadian history ).