BERKO: Stock may gain if customers lose double chins

By: Malcolm Berko//April 7, 2015//

BERKO: Stock may gain if customers lose double chins

By: Malcolm Berko//April 7, 2015//

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DEAR MR. BERKO: What are your thoughts on Kythera Biopharmaceuticals? My family doctor, a brilliant clinician, told me Kythera has an injectable that will eliminate my double chin, to be available early next year. I’d like to invest $10,000 if you believe that this company has a chance for success. – JF, Vancouver, Wash.

DEAR JF: My dad used to say, “If you want to avoid egg on your face, don’t slap a man who is chewing tobacco and never purchase a stock without foreseeable future earnings.” That advice, from more than 50 years ago, still stands.

Kythera Biopharmaceuticals (KYTH-$51.20) is a clinical-stage biopharmaceutical company focusing on the discovery, development and commercialization of aesthetic medicine. Its most talked-about development is the one you mentioned, an injectable that reduces submental fat, more commonly known as the double chin or twin chins. The injectable, ATX-101, is a patented formulation of deoxycholic acid, a naturally occurring substance in our bodies that’s important in breaking down body fat. KYTH’s formulation has gone through 19 clinical studies, covering 2,600 patients, and has been under development for eight years. In a 2014 study (probably paid for by Kythera), the American Society for Dermatologic Surgery reported that nearly 7 in 10 Americans are “bothered by submental fullness” and that twin chins are a “much-cited yet undertreated … aesthetic complaint.” Well, so are bromhidrosis, hyperhidrosis, halitosis and alopecia. Kythera, domiciled in California, should have several members of Congress obliquely positioned on its payroll, lobbying Medicare to pay for this nonsurgical cure for twin chins. And I’d not be surprised if ATX-101 were also to be approved by Medicaid, because we have the best congressmen money can buy.

While speaking with someone who is knowledgeable about KYTH, I was told management believes that it has a workable oral prescription for the treatment of male-pattern baldness. The potion is called setipiprant. It’s a clinical-stage antagonist that inhibits prostaglandin D2 ethanolamide lipids, which are prominent on the scalps of bald men and believed to be mainly responsible for hair loss. Test results have been impressive, but setipiprant won’t become marketable until 2020. Though setipiprant is considered benign, please understand that the bureaucratic Food and Drug Administration must take years to approve things to justify its 15,100 employees and its $5.6 billion budget. It took the FDA 47 months to approve baby aspirin. If this potion is as effective as many believe, setipiprant (or whatever commercial name is used) will become a blockbuster among blockbuster drugs.

The FDA’s advisory panel voted to approve Kythera’s injectable for twin chins, and if the drug receives the FDA’s final approval (advisory panel recommendations aren’t binding), the drug could be ready for commercialization late this year. Some observers who have been following this situation believe that ATX-101 will generate revenues of $300 million a year until all the double chins in the U.S. are gone. KYTH has also filed for approval in Canada, Switzerland and Australia.

I’m not impressed by a company with no product on the market and zero near-term earnings on the horizon. However, KYTH’s exceptional board of directors is an impressive and impeccable group of professionals who are experienced in the development and commercialization of aesthetic medicines. KYTH may not have revenues or earnings this year, and the company burns through money like fire on dry timber, but fortunately, a secondary offering of 2.5 million shares last March put $125 million in the bank, though that deposit has burned down to about $99 million. KYTH has 23 million shares outstanding, multimillion-dollar carryforward losses and a market cap of nearly $1 billion. I avoid biopharmaceuticals with numbers like KYTH’s, because they usually peter out and shareholders end up with egg on their faces. But if you can afford the risk, go ahead and make a $10,000 (200 shares) investment. Fidelity Select Biotechnology Portfolio and Fidelity OTC Portfolio own 1.3 million shares each. Wall Street has a 12-month high price target of $85 and a low price target of $50, and the shares are trading an utch higher than the low price target.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected].

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