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When is a car not a car?

When it turns into a driveway!

Now, when is doxycycline not an antibiotic?

According to any doctor, me included, that would be never… an antibiotic is an antibiotic. That has been the position of the FDA. Apparently, however, that is not always the case. Included in the FDA's definition of “antibiotic” is the reasonable requirement that it be able to kill germs. That would seem logical. However, that leaves room for doxycycline to NOT be an antibiotic under certain circumstances. The particular circumstance would be when doxycycline is given in a sub therapeutic dose incapable of its antibiotic effect but fully able to partially inhibit the enzyme collagenase. That enzyme is an important part of the cycle of periodontal disease and its inhibition.

Enter SUNY and CollaGenex Pharmaceuticals.

CollaGenex Pharmaceuticals, Inc. (NASDAQ: CGPI), headquartered in Newtown, PA, is a specialty pharmaceutical company with therapeutics addressing indications of large unmet need in both dental and dermatology markets. The company is currently marketing eight innovative medical therapies with a dedicated sales force of over 115 individuals. With a marketing and sales force infrastructure in place, CollaGenex is poised for continued organic growth through the expansion of current products into additional markets as well as the potential to in-license additional products for development and commercialization.

The company's lead product, Periostat (low dose doxycycline), was developed by CollaGenex and launched in the United States in January 1999 for use as an adjunct to scaling and root planing (SRP for the dental experts among us) for periodontal disease. Peak revenues from Periostat for dental indications are expected to reach $100 million in 2008. Additionally, the company is evaluating Periostat in Phase 3 clinical trials for patients with rosacea. If successful, a potential launch for Periostat in rosacea could be achieved as early as 2006 with peak sales of $300 million as early as 2010. CollaGenex is also developing novel products using its proprietary platform technology, Inhibitors of Multiple Proteases And CytokineS (IMPACS), the same technology on which Periostat is based. The company is currently developing Metastat in Phase 2 trials in conjunction with the National Cancer Institute (NCI) for Kaposi's Sarcoma. Additionally, second generation IMPACS molecules are currently undergoing preclinical development.

CGPI has exclusive licenses to patents issued to the State University of New York (SUNY). SUNY has a use patent on the use of low (non-antibiotic) dose doxycycline to treat periodontal disease. This is an old product on which the composition of matter patents are long expired. The “composition of matter” patents are issued for brand new drug discovery. This use patent was supposed to expire in 2004, but they have a reissue of that patent that doesn't expire until 2007. Mutual and West-ward, two generic manufacturers have filed ANDAs (Abbreviated New Drug Applications) with the FDA on the basis that Periostat is an antibiotic. Different rules apply to antibiotics than other drugs and, if Periostat were held to be an antibiotic, the FDA could review and approve these ANDAs. CGPI holds that low dose doxy is NOT an antibiotic and therefore the ANDAs can't be reviewed until 2007 and has filed suit to prevent the FDA from reviewing these applications. The distinction is vital because antibiotics do not receive preferential legal treatment under the Hatch-Waxman act which deals with drug patents. The judge in the CGPI/FDA suit has ruled that CGPI is likely to prevail in this case and has issued an injunction preventing the FDA from reviewing the applications until the case is decided. CGPI also filed patent infringement suits against Mutual and West-ward. These suits will not proceed until the outcome of the FDA suit is known. SUNY and CGPI also have more recent use patents on the use of low dose doxy for treatment of acne, rosacea, Meibomitis, and other ailments, as well as composition of matter and use patents on the IMPACS drugs, which are modified tetracyclines that have no antibiotic activity at any dosage. One of these drugs is Metastat that is currently in Phase II for Kaposi's Sarcoma and should soon advance to Phase III, both trials being financed by the NCI.

The court's opinion on the validity of the CGPI/SUNY on low dose doxycycline can be read here….
http://www.dcd.uscourts.gov/03-1405.pdf

I found it fascinating. It shows the strength of the CGPI patent. More importantly, it shows how a medical layman (the judge in this case) and an MD/PHD type view antibiotics. To the MD… once an antibiotic, always an antibiotic. The court ruling shows how the unbiased eye of the layman views the situation.

Recently, the strength of CGPI legal position was further bolstered when one of the generic companies withdrew it's ANDA and settled CGPI's suit against them (West-ward). The current thinking on CGPI suit against the FDA is that the FDA does not want to get a black eye in court on this matter so they intend to simply let the suit lay fallow until 2007 at which time they will sue for dismissal after the patent issue is no longer moot. This allows CGPI to proceed unfettered but leaves the apparition of legal risk over the company for the time being. This serves the purpose of depressing the stock price.

Revenues for CGPI have marched up for the last three years. The company had its first profitable quarter in Q3/02 and has continued to increase profits over the last 6 quarters. TTM earnings are 43c. Earnings for the next 4 quarters are slated at 95c … which translates to a forward looking PE of about 14 with the present stock price. Calendar year 04 PE is estimated at 15 which is not bad for a company growing revenues at over 25% year. Current market cap is 179mill and enterprise value is 164mill. They have $1.05/share in cash and are TTM cash flow positive to the tune of $10.5mill.

There are 13.8million shares outstanding. There are right at 3 million stock options outstanding with an average exercise price of $8.91.

Catch the last 10-K here…
http://www.sec.gov/Archives/edgar/data/1012270/000095011703001258/a34894.txt

Read about the IMPACS here
http://www.collagenex.com/core_impacs.asp

If you have insomnia and want to read about the FDA's process on ANDA's, go here…
http://www.fda.gov/cder/regulatory/applications/ANDA.htm

CollaGenex looks pretty interesting to me. The risk associated with their lead product appears much less that might be first assumed based on recent court decisions. The decision of West-Ward Pharma to settle CGPI's patent infringement suit really bolsters that impression.

Purchase at the present stock price gives one a reasonably priced specialty pharma company that is cash flow positive and has late phase 2 compounds where clinical investigation is being led by the NCI.

I'm taking a hard look at this one and would appreciate an help, esp with the stock option eval and thoughts on their science.

e
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