Life Sciences: Looking for Small Companies That Could Return Tenfold or Greater Multiples to Investors
(Thomson Reuters ONE) -
In an interview with George S. Mack of The Life Sciences Report, BluMont Capital
Portfolio Manager Hugh Cleland discusses how the pharmaceuticalizing of
nutraceuticals is one of his most successful investing themes.
"Reliant Pharmaceuticals pharmaceuticalized fish oil with Lovaza (omega-3-acid
ethyl esters)," explains Cleland. "Reliant was purchased for $1.65 billion (B)
by GlaxoSmithKline (NYSE:GSK) in 2008. Within two years, GSK's sales of Lovaza
were over $1B. Amarin Corp. (NASDAQ:AMRN) has continued on that theme with
Vascepa (icosapent ethyl). Both Lovaza and Vascepa are essentially
pharmaceuticalized fish oil drugs that went through the full phase 1-to-phase 3
process, and are now approved by the U.S. Food and Drug Administration (FDA) for
treating very high triglyceride levels.
"A couple of my large holdings, Neptune Technologies & Bioressources
(TSX:NTB)(NASDAQ:NEPT) and Acasti Pharma Inc. (TSX:APO), are pharmaceuticalizing
krill oil (omega-3 fatty acids conjugated to phospholipids). Krill oil carries
its omega-3s on phospholipids (rather than on triglycerides, as is the case in
fish oil), which appears to result in a higher level of efficacy than fish oil,
as well as a broader range of therapeutic effects.
Cleland says he owns both Neptune and Acasti stock, both professionally and
personally.
"Each company appeals to a different type of investor. Biotech specialists tend
to gravitate to Acasti, which is a pure play on developing a phospholipid-omega-
3 drug for treating high triglycerides and/or very high triglycerides. In fact,
Dr. Harlan Waksal, co-founder of ImClone Systems, joined Acasti's management
team in July 2011. (ImClone Systems was purchased by Eli Lilly and Co.
[LLY:NYSE] for $6.5B in 2008.)
"Neptune owns almost 60% of Acasti, but also has rapidly growing sales and cash
flow from a nutraceutical form of krill oil. Neptune also owns 90% of
NeuroBioPharm, a subsidiary that is focusing on neurological applications of its
phospholipid omega-3, such as in the treatment of attention deficit
hyperactivity disorder (ADHD) and Alzheimer's disease.
"Back in 2009 Amarin was a $40M market-cap company. Reliant Pharmaceuticals had
a $1.65B exit to GSK, followed by a ramp in the sales of its drug, Lovaza, to
over $1B within two years. Investors have seen, twice now, the really large
returns you can get in the pharmaceuticalized fish oil area. Both Neptune and
Acasti are trading on those successes, hoping to be 'the next Amarin.'
Cleland says Neptune also has value as a neurological opportunity. A variety of
studies indicate that omega-3, or fish oil in general, is healthy for the brain,
whether for ADHD or age-related cognitive impairment. Neptune is in the process
of spinning out NeuroBioPharm, which will pursue these applications. I would
argue that no value is being ascribed to NeuroBioPharm in the stock currently.
It is essentially a free call option within Neptune.
Cleland is the executive vice-president and portfolio manager at BluMont Capital
Corp., based in Toronto, Canada. BluMont Capital acquired Northern Rivers
Capital Management, which was founded by Cleland in May 2001, in January 2010.
Cleland currently manages two funds for BluMont: the BluMont Northern Rivers
Innovation RSP Fund (available on FundSERV), and the BluMont Innovation PE
Strategy Fund I, which takes a private equity approach to the management of
publicly traded small- and micro-cap technology and healthcare stocks.
The complete interview is available to investors at: The Life Sciences Report
http://www.thelifesciencesreport.com/pub/na/14076
In the interview, Cleland shares the names of a handful of small companies that
could return tenfold or greater multiples to investors. In the exclusive report,
Cleland also mentions IntelGenx (TSX.V:IGX)(OTCQX: IGXT), Cynapsus Therapeutics
Inc. (TSX.V:CTH)(OTCPK:CYNAF), and Senesco Technologies Inc. (AMEX:SNT) among
others.
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