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September 3, 2013

Nuvilex: To Build or To Buy

Due to the current R&D model for large pharmaceuticals, it is often cheaper and more prudent to acquire, or invest in, a younger firm, in order to gain access to its technology than build one for from scratch, as exemplified by the recent purchase of Onyx Pharmaceuticals, Inc. (NASDAQ – ONXX).  by Amgen, Inc. (NASDAQ – AMGN).  This recent buyout of a cancer treatment biotech by a major pharmaceutical firm bodes well for Nuvilex, Inc.’s (OTCQB – NVLX - $0.13 – Spec Buy).

On a related note, a few months ago, we published an article on Nuvilex under our Microcap Hot Topics section that touched upon a study that indicated that less than one in five biotech and pharmaceutical clinical companies are able to successfully complete Phase II clinical trials.  Since that publication, we have conducted a cursory review of firms that have conducted oncology-specific trials over the past several years and have discovered that the number of successful Phase II trials in oncology is even lower than the broader group at large.

Moreover, we were surprised to see that despite their relative size, experience, and deep pockets, many large pharmaceutical and biotech giants appear to lack the innovative spark internally. Essentially, the success of these firms in clinical trials could almost be viewed as a numbers game, as these behemoths achieve success more so from the sheer number of trials in which they engage rather than innovation. If a firm has conducted 25 separate trials over a given period, it is bound to have greater success than the Firm that has conducted two.

Due to the heavy cost structure associated with these trials, and the fact that big pharma has its own cost structure that may be higher than smaller firms, in many cases, it is cheaper and more prudent to acquire, or invest in, a younger firm, in order to gain access to its technology.  Not only does it usually cost less to execute a transaction of this type, but if a bigger Firm’s mandate is to enter or attempt to lead in a specific therapeutic category, clearly a business development-based transaction makes more sense than taking the years to build and develop a therapy from scratch.

Now that Nuvilex has the live-cell encapsulation platform to treat oncology rights under wraps, its profile in the biotech community has likely changed. As a result, as the Firm prepares for the final stages of clinical trials for its pancreatic cancer treatment, its profile has been raised enough to warrant much closer looks at the technology by larger players that have not succeeded in even completing Phase II trials to treat the same disease. The list is actually quite long and contains a who’s who of the pharmaceutical and biotech world.  Moreover since this biologic-based delivery platform is geared to potentially be used in conjunction with pro-drugs to treat a multitude of diseases, its value may be greater than just a typical, narrow, drug-based therapy.

While it is natural for investors to interpret the value a larger firm would have on Nuvilex, the value proposition that Nuvilex offers a larger firm should not be discounted either.

For more information, refer to our previous NVLX Reports, Updates and Hot Topics by visiting www.GoldmanResearch.com

Senior Analyst: Robert Goldman
Rob Goldman has over 20 years of investment and company research experience as a senior research analyst and as a portfolio and mutual fund manager. During his tenure as a sell side analyst, Rob was a senior member of Piper Jaffray's Technology and Communications teams. Prior to joining Piper, Rob led Josephthal & Co.'s Washington-based Emerging Growth Research Group. In addition to his sell-side experience Rob served as Chief Investment Officer of a boutique investment management firm and Blue and White Investment Management, where he managed Small Cap Growth portfolios and The Blue and White Fund.

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I, Robert Goldman, hereby certify that the view expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the recommendations or views expressed in this research report.

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