Dr. Phillip Frost's impressive track record is one that I have highlighted in several of my previous articles, and at this point, an introduction is not needed. After Dr. Frost recently disclosed Opko Health's exit in Sorrento Therapeutics (SRNE), which resulted in a cumulative return of 1000% in five years
, the search is on for Dr. Frost's next successful investment. One company that has experienced a lot of behind the scenes action recently is Biozone (BZNE) Pharmaceuticals, which sold 90% of its assets to MusclePharm (OTCQB:[[MSLP]]), and underwent a reverse merger with CoCrystal Discovery, a formerly private biotech company that received strategic investments from Dr. Frost in 2008, and Opko Health (OPK) and Teva Pharmaceuticals (TEVA) in 2011.
After thoroughly investigating the background of the CEO and Chief Scientist, and the technology being utilized and the products being developed, I believe something big is brewing behind the scenes of CoCrystal Discovery. Opko Health's second investment in the company completed just last week, a look into the scientific opinions of cocrystals and their pharmaceutical applications, and a conversation with CEO Dr. Gary Wilcox confirmed my bullish opinion behind this unique biotech company.
The Company and Management
CoCrystal Discovery, which still trades under the name and ticker of BioZone (changing momentarily pending shareholder approval), is focusing its efforts towards anti-viral therapeutic treatments that treat a range of common illnesses, including the Influenza virus, the hepatitis C virus, the norovirus, the rhinovirus, and the dengue virus.
The company is currently focused on developing oral, once-a-day medicines to treat the above-mentioned viruses, and in the future the company has the option to broaden its drug offerings, thanks to its unique technology.
Dr. Wilcox commented, "There's no shortage of viral diseases to conquer, we can definitely apply our technology to any virus out there."
The management behind CoCrystal is nothing short of exceptional, and the company has a number of seasoned veterans that are immersed in the developmental process of the therapies being developed.
CEO Dr. Gary Wilcox served as the Executive Vice President of Operations for the Icos Corporation from 1993 to 2007, and was also on the board of directors for the company. Dr. Wilcox is best known for spearheading the development of the blockbuster drug Cialis
, which now rakes in more than $2 billion in annual sales. Prior to Icos, Dr. Wilcox served as the Vice Chairman, Executive Vice President, and Director of Xoma Corporation (XOMA), and was the co-founder, Chairman, and CEO of Ingene prior to its merger with Xoma. Dr. Wilcox also served as a professor in the Department of Microbiology at UCLA for 10 years. Dr. Wilcox has a long history of introducing successful drugs to the market, and there's no reason why the drugs under development at CoCrystal should be any different.
Chief Scientist Dr. Kornberg is a biochemist and professor of structural biology at Stanford University School of Medicine. Kornberg received the Nobel Prize in Chemistry in 2006
for his studies regarding the process by which genetic information from DNA is copied to RNA, which he achieved through the utilization of X-ray crystallography. Dr. Kornberg has received a plethora of awards dating all the way back to the early 1980s. He holds a bachelor's degree in chemistry from Harvard University, and a Ph.D. in chemical physics from Stanford University. Here's an excerpt from the Nobel Prize committee regarding Dr. Kornberg's work related to his 2006 award.
The truly revolutionary aspect of the picture Kornberg has created is that it captures the process of transcription in full flow. What we see is an RNA-strand being constructed, and hence the exact positions of the DNA, polymerase and RNA during this process.
Dr. Phillip Frost, Dr. Jane Hsiao, and Steve Rubin are all on the board of directors of CoCrystal Discoveries, and all have a long and successful track record in the healthcare space.
Biozone's reverse merger with CoCrystal Discoveries is eerily similar to SafeStitch Medical's reverse merger with TransEnterix (TRXC). Dr. Phillip Frost had a stake in both public companies, the public companies were bleeding cash and had no clear future, and the companies completed a merger with a private company that has an exciting product under development. It took TransEnterix approximately three months after the merger closed to receive a name change and new ticker symbol. I believe it's safe to speculate that Biozone will receive its official name and new ticker by early March, three months after its merger closed. The company should be reporting earnings in late February, which will shed some light on the administrative proceedings of the company, as well as its official strategy moving forward.
Core Scientific Competence
Many readers and skeptics may be thinking, "so what? What makes CoCrystal so great? This company is a tiny fish in a sea of early stage biotech companies that all promise the same thing: to deliver groundbreaking medicine that will save the lives of millions."
This is a valid and understandable concern, and there is no doubt that at this time CoCrystal is purely a speculative investment, as are all other early stage biotech companies. Having said that, in this large sea of early stage biotech companies, there are certain ones that stand a better chance at surviving and moving up the food chain than others. If the overqualified, accomplished management didn't convince you on this company, maybe the technology will.
To fully understand the value proposition of CoCrystal Discovery, you need to have a basic understanding of the technology being utilized to develop these broad targeted therapies. The technology is right in the name.
Discovery is utilizing X-ray crystallography technology, the same technology that aided Dr. Kornberg in many of his groundbreaking studies, to develop pharmaceutical cocrystals
. The use of X-ray crystallography technology allows CoCrystal Discovery to obtain high-resolution structures of viral diseases, and then uses proprietary quantum mechanical computation methods to screen and design drug candidates that take advantage of the information gathered from the crystallography high-resolution structures. Dr. Wilcox explained that the process is akin to you being locked out of your house.
The key is the medicine, and the door lock is the virus, so by X-raying the door lock (virus), you are able to design a key (medicine) that fits the lock (virus), thanks to the detailed X-ray image. This approach allows CoCrystal to predict possible mutants in the virus, which would help better avoid drug resistance.
A 2008 scholarly article authored by Ning Shan and Michael Zaworotko and published in Drug Discovery Today
, focusing on the role of cocrystals in pharmaceutical science, went into more detail about the scientific advantage of cocrystals and the potential impact they can have on current and new drugs.
Cocrystals have lagged behind in the pharmaceutical industry since they were discovered back in the 1800's, and they have received a limited number of studies detailing its forms or characteristics, however cocrystals are appealing to scientists because they can, "significantly diversify the number of crystal forms that exist for a particular active pharmaceutical ingredient ((API))." This advantage allows for improvements in the physical properties of the drug, and the FDA has commented that,
[cocrystal pharmaceuticals] achieve performance characteristics to ensure drug product stability, bioavailability, patience acceptance, and other quality characteristics…Pharmaceutical cocrystals are of interest because they offer the advantage of generating a diverse array of solid-state forms from APIs that lack ionizable functional groups needed for salt formation.
Cocrystals ability of offering greater diversity to drug developers in terms of the number of crystalline forms available for a medicine, which have been limited to salts, solvates/hydrates, and polymorphs, is of great relevance to the pharmaceutical industry, and the utilization of cocrystals can lead to a tidal wave of safe and effective drugs. The active ingredient in drugs has to be stabilized through a number of other chemicals, which tend to reduce the stability and strength of the drug and increase the chances of negative side effects. Utilizing cocrystals allows the active ingredient in the drug to remain stable and effective without the need for the other bonding chemicals.
Engineering cocrystals offers drug developers a quicker pathway to commercialization because the cocrystals of existing APIs can be patented as new crystal forms, and they can be developed as new drugs if they exhibit clinical advantages over the existing API. Receiving a patent for a cocrystal based off of an existing API allows the developer to bypass the discovery and toxicology phase of drug development.
Avoiding these phases will save CoCrystal a lot of time and significantly speed up the process for the company to get its anti-viral medicines into clinical trials.
Cocrystals allow drug developers to alter the composition and molecular makeup of a drug without the need to make or break covalent bonds, which leads to a more stable, and effective drug. As many as 60 different cocrystals can exist for a particular API, and this large diversity of potential drug forms offers an exciting opportunity for drug developers to substantially improve current drugs, and create new ones.
The concluding remarks of Shan and Zaworotko's scholarly article are incredibly bullish for any biotech company utilizing cocrystals for drug development.
In summary, the importance of crystal from selection during development of APIs has never been higher, and pharmaceutical cocrystals have become an important part of a landscape that was previously occupied only by polymorphs, salts, and solvates/hydrates.
The concepts of supramolecular synthesis and crystal engineering remain largely underexploited.
One might claim that it is now fair to assert that the issue no longer centers around whether cocrystals are designable or if pharmaceutical cocrystals will impact pharmaceutical form and formulation; the issue now is when it will happen, who will benefit, and whether the changes will be evolutionary or revolutionary.
After nearly six years since the publication of this article, I believe CoCrystal Discovery is one company that will surely benefit from the utilization of pharmaceutical cocrystals, and after six years of developing its therapies, I believe investors will receive an update soon now that the company went public.
Any company can utilize X-ray crystallography and develop a wide range of drugs utilizing cocrystals. One company that is doing so is privately funded Thar Pharmaceuticals, with multiple therapies in phase I and II trials for drugs that are delivered through IVs.
CoCrystal is utilizing high-energy X-ray facilities that can cost more than a billion dollars to build in some cases, and cost tens of millions of dollars to maintain each year. There are only a handful of these facilities in the US, with only two located on the west coast, at UC Berkeley and Stanford University. The fact that Dr. Kornberg and four members of CoCrystal's seven-person scientific advisory board are faculty members at Stanford leads me to speculate that CoCrystal may have a beneficial advantage (discounted access) regarding usage of these capital-intensive facilities. CoCrystal has contracts in place with both Stanford University and Berkely College for the use of the two facilities.
Source: Berkely Lab
Even if you have access to the technology, what's more important is the people who are using the technology. Crystal engineering is a complex field that requires an extensive number of crystal surveys from the Cambridge Structural Database, as well as experimental work to prepare and characterize new compounds that are sustained by molecular recognition. From the article:
A detailed understanding of the supramolecular chemistry of the functional groups present in a given molecule is a prerequisite for designing a cocrystal because it facilitates selection of appropriate cocrystal formers.
CoCrystal Discovery has a team of scientists that have a life long career in Structural Biology, Biochemistry, structure based drug design, Microbiology and Immunology, among other fields. The expertise of the management and scientific advisory board in place at CoCrystal signals that the company has the right people behind the right technology to develop promising anti-viral drugs.
The Market Opportunity
CoCrystal is targeting a number of multi-billion dollar markets with its first in class antiviral therapies. The hepatitis C virus has impacted more than 170 million people worldwide and represented a $6 billion market in 2012, and is expected to grow to more than $20 billion in 2020. Johnson and Johnson recently acquired a hepatitis C drug candidate from GlaxoSmithKline for an undisclosed amount, Gilead Science spent nearly $11 billion on Pharmasset for access to their hepatitis C drug candidates back in 2011 (all drug candidates failed), and Bristol-Myers Squibb purchased Inhibitex for $2.5 billion in 2012 for their hepatitis C drug candidates.
Clearly there is a large pile of resources being thrown at these early stage therapies (successful or not), and if CoCrystal unveils a promising hepatitis C drug candidate that is ready for clinical trials, an increased valuation would be warranted. CoCrystal is targeting two Hepatitis C replication enzymes, with one in the lead optimization stage (pre/clinical drug development follows), and the other being in the lead identification stage.
The influenza market exceeded $6 billion in 2013, and the norovirus, dengue virus and rhinovirus (common cold) all represent billion dollar markets. It should be noted that CoCrystal Discoveries is developing cures for these viruses, not symptom relief medication, and the scarce technology that CoCrystal is utilizing to develop these potential blockbuster therapies is a testament to how unique this company is, how much potential this company has, and how far this company should go.
The idea that CoCrystal's potential rhinovirus cure could pose a threat to the likes of Dayquil/Nyquil and other over the counter cold-relief medications in the future (ways away) is profound, especially for a company that has a valuation of less than $100 million. CoCrystal's once a day medications will be prescription based cures, not symptom relief, and will target a specific population at first.
For the rhinovirus, CoCrystal will be specifically targeting patients who have asthma or COPD, which when combined with the rhinovirus results in a serious health complication. Patients who have a history of asthma or COPD and obtain the rhinovirus represent the fourth most common US hospital admittance. If CoCrystal's developmental rhinovirus treatment does show significant signs of safety and effectiveness, then the drug can apply for over the counter status after years of data has been thoroughly reviewed.
Because CoCrystal only needs a protein of a virus to be subject to high resolution X-ray crystallography, the targeted market size can be expansive if management expands the number of viruses they target.
A Timeline to Value Creation
Although CoCrystal Discovery is engaged in the early stage discovery and development of anti-viral medicines, the company has room to move higher now that shares are hovering above key support near $0.50.
There is reason to believe that CoCrystal may be gearing up to move its leading hepatitis C anti-viral into the drug development stage (clinical trials), which has shown to add significant value to a company that's positioned in the hepatitis C market. It takes approximately six and a half years to complete the drug discovery stage, and after working on its anti-virals for more than six years, CoCrystal seems ready to create a number of catalysts and significant value for its shareholders as it steadily introduces a number of anti-virals based off of promising technology into the FDA drug development process.
A scholarly editorial published in 2012 by Bhupinder Singh Sekhon further backs up the positive advantages of utilizing cocrystals for the development of pharmaceuticals, and highlights the potential value behind them.
Co-crystal screening technology has the potential to identify and establish new IP for new drug-drug co-crystals of multiple APIs to protect the product from competition… optimization of co-crystal screening may lead to commercialization of new co-crystal product along with separated single enantiomers. In the case of commercial API-API combination, a patent of a drug-drug co-crystal with better drug properties than previously known forms could be of high commercial value. Designing drug-drug co-crystals of marketed drugs may shorten development period (including clinical trials) than those of New Chemical Entities as co-crystals do not involve structural modification of the APIs.
The significance behind the ability to bypass a number of studies to get the drug into clinical testing is profound. CoCrystal's hepatitis C antiviral that has been in the last stage of drug discovery for months can bypass nearly all of the IND application and begin phase one trials within months. Here are the studies CoCrystal is able to bypass thanks to the use of cocrystals:
- Acute Studies
- Repeated Dose Studies
- Genertic Toxicity Studies
- Reproductive Toxicity Studies
- Carcinogenicity Studies
- Toxicokinetic Studies
The ability to avoid these studies, which generally take a number of months, is why I speculate that CoCrystal well on its way to beginning clinical studies for there hepatitis C anti-viral, which would create significant value for all shareholders.
The recent funding from a secondary offering, and the infusion of Muscle Pharm stock may serve as a buffer to get the hepatitis C vaccine into clinical development. Also worth mentioning, the pockets of CoCrystal's investors run deep. Teva Pharmaceuticals has obtained the rights to exclusively license the drug for its own development pipeline, and has the option to invest more money once CoCrystal achieves specific milestones.
This is a micro cap stock that is associated with volatile price swings, has no source of revenues, and will not be recording revenues anytime soon. The company's drug pipeline has not been clinically tested yet and is subject to failure. Currently this investment is solely a bet on the stellar and experienced management that is in place, and the technology that they are using. The company has approximately 120 million shares outstanding, and although the company recently completed a secondary offering, CoCrystal will most likely need to raise more cash down the line, which should result in another secondary offering.
However, it should be noted that while CoCrystal Discovery is developing potential life saving drugs, they are not spending a large amount of money to do so. The company operates laboratories in Bothell, Washington (headquarters), and Mountain View, California (Stanford University), and has a small work force. The company received an initial investment of $10 million from the Phillip Frost group during its inception, a $733,438 grant from Qualified Therapeutic Discovery Project for the company's development of its hepatitis C and common cold drugs, and a $7.5 million investment from Teva Pharmaceuticals in 2011. Let's assume in its first six years of operation, CoCrystal burned through all of the raised $18.2 million, or approximately $3 million per year. Given the fact that the company just raised more than $5 million in a private offering, already had $1 million in cash, and has nearly $10 million worth of MusclePharm stock, I believe the company can avoid further dilution for at least a year. However, if the company's developing drugs are farther along the hit to lead process of drug development than previously thought and ready for clinical trials, additional funding would be necessary, hence more dilution.
A large risk associated with this speculative investment, depending on what type of investor you are, is time. With all of CoCrystal's current therapies in the hit to lead process, it can take years for any of CoCrystal's therapies to reach Phase III trials. However, since the company recently went public and is undergoing a number of changes through its recent merger, it should be expected that the company reveals its current status and strategy moving forward momentarily. The combined company's first earnings report should be released in late February, which should provide more clarity, and possibly a positive catalyst. The company has been developing its pipeline for six years, so at this point it is very likely that at least one of these therapies is on the verge of beginning preclinical drug development and clinical trials thereafter.
The combined annual deaths for the five viruses CoCrystal is targeting is more than 6 million, more than a billion people have been impacted by the viruses, and all of CoCrystal's therapies are positioned in a growing market with un-met needs. The opportunity for CoCrystal Discovery and its investors is exciting, and with shares currently trading near support at $0.55, and an imminent release of earnings, now may be a prime time for the speculative investor to open up a position in this company. If CoCrystal plays out like Dr. Frost's five-year 1000% Sorrento investment, shares of CoCrystal would be trading above $5.00 per share in 2019.
This early stage developmental company is utilizing a unique technology to develop potential breakthrough drugs, and the strong interest in early stage hepatitis C therapies by major pharmaceutical companies may lead to BioZone significantly appreciating in value well before the company enters Phase III trials and commercialization. Keep in mind that this company has been in development for six years, so there is plenty of progress to be reported, and when management releases an update on its line of potential blockbusters, and its timeline moving forward, the share price should act accordingly.
Addition information was sourced from CoCrystal's website.