Articles
See All
A POTENTIAL MULTI-BAGGER IN SMALL CAP BIOTECH
It is looking like the biotech winter is over. The S&P Biotech ETF (XBI – NYSE) is on the cusp of breaking out.
Source: Stockcharts.com
It has been so long we may forget that–not only can biotech stocks go two directions–that when they move, it can be very, very quick.
Given the potential for a sector move–and so many names are trading below cash value, they could run BIG.
I’ll give you 3 names in the next 3 weeks – two new ones and one old favorite — and see if they can participate in what is starting to look like a new bull market.
SKYE BIOSCIENCES – SKYE-OTCQB
ATTRACTS TIER 1 BROKERS & FUNDS
We haven’t seen a pharma story like Ozempic/Wegovy in decades.
Novo Nordisk (NVO-NYSE) saw GLP-1 sales climb from $4.1 billion in 2021 to over $14 billion in 2023. Eli Lilly’s Mounjaro added another $5 billion in 2023.
No wonder so many juniors are trying to attach themselves to the theme.
One that I think has a chance—in part because the smartest funds in US biotech have just funded them for US$50 million—is Skye Biosciences (SKYE – OTCQB).
That’s right—pink sheets. Why would top funds—including (arguably) Baker Bros, the #1 biotech buyside fund in the US right now—fund an OTC-listed company (Over-The-Counter) as part of that $50 million round that just completed?
And why would Piper Sandler, arguably the top biotech investment bank in the US right now, initiate research with a $12 price target on an OTC listed stock?
It’s because…after a $50 million raise, it will meet the requirements for a full NASD listing. I don’t know exactly when, but with Tier 1 sponsorship like this, it won’t stay on the OTC for long.
That should be a big lift for the stock. Right now, only determined retail investors can buy the stock (which is why I’m sending this out to you today!).
While GLP-1 receptors like Ozempic and Mounjaro are amazing drugs, they do have side effects AND…they indiscriminately suppress appetite, meaning you lose muscle as well as fat.
These short comings are making Big Pharma to evaluate other receptors.
Novo Nordisk showed interest themselves, buying privately-held Inversago Pharma and its CB-1 inhibitor for up to US$1.075 billion.
CB-1 stands for cannabinoid receptor-1. That’s right, the same pathway as everyone’s favorite “weed”.
If you can stop or slow CB-1 signaling, you may have an important new mechanism for weight loss. The promise comes from how CB-1 goes to the heart of the problem – metabolism.
CB-1 impacts weight loss but without reducing muscle mass. It triggers the body’s metabolic system, messaging the body to burn fat, not muscle.
Drugs like Ozempic don’t distinguish between muscle and fat.
That difference could be worth BILLIONS of dollars–in a market that Goldman Sachs says will be worth over $100 billion in a few short years.
At roughly the same time as the Inversago acquisition, Skye bought a company called Bird Rock Bio with a Phase 2-ready CB-1 inhibitor called nimacimab for only US$20M. $1 Billion vs. $20 million.
Skye is moving ahead with nimacimab in a Ph2 trial beginning Q3. Trial design is still being finalized, but the company presentation suggests the study will have 4 arms.
- 50 patients taking nimacimab.
- 50 taking placebo.
- 50 taking semaglutide (Ozempic).
- 50 taking both nimacimab and semaglutide.
If they can show either that nimacimab is superior to semaglutide, or that nimacimab enhances semaglutide by reducing muscle loss…..they WIN.
The side-effect profile also works in their favor. Like cannabis, early CB-1 inhibitors targeted the central nervous system (CNS). Side effects were anxiety, depression and suicidal thoughts. Not so good.
What early CB-1 inhibitors did not cause were the digestive, intestinal, and nausea issues that are associated with GLP-1 treatment.
Skye is expecting to limit side effects because nimacimab is a different kind of CB-1 inhibitor. It is a large, monoclonal antibody that does NOT pass readily through the blood-brain barrier.
Inversago’s molecule, which Novo paid $1 billion for, does go through the blood-brain barrier more easily. So arguably SKYE’s molecule is worth more.
Their Ph1 study showed nimacimab was well tolerated with no neurological effects. Animal models showed no accumulation of the drug in the brain.
Nimacimab has patents out to 2035.
Previous owners of nimacimab made big investments to advance the drug.
Apart from saving Skye tens of millions of development dollars, this has also saved the company many years of development to be right at the point of launching a Phase 2 study – with another notable inflection point. Cha cha cha!
Skye raised $50 million in January with the sale of 21.7M shares at $2.30. Since that financing the stock has run from $2.30 to $7.50. (DISCLOSURE–I’m long 3000 at $5.78)
Skye has another readout – in glaucoma – in Q2, but The Big Event will be nimacimab, which should have intermim data in Q1 25, with topline data by Q4 25.
Source: Skye Biosciences Investor Presentation
Skye’s market cap is $310M. That’s not small in the world of pink sheet companies or junior biotech.
Don’t let that fool you. If the trial data is positive and nimacimab has promise to be a true competitor – or complement – to the existing GLP-1 inhibitors, the stock has plenty of upside ahead; enough to be a HUGE winner from here.
Just announcing initial enrollment in their Phase 2 this summer will likely be a catalyst–if the Ozempic / weight loss meme is still in full swing.
