A small-cap biotech with a big future

Investors have been blind to this break-out biotech stock, says Tom Bulford. But recent developments are attracting the interest of big pharma, making it one penny share to watch.

"If only investors understood us better, our share price would be much higher!"

That is a plea that I often hear. But one company determined to do something about it is drug delivery specialist Lipoxen (LPX). Lipoxen has been busy doing the groundwork. It has embarked upon a PR blitz mailing out DVDs and courting the City.

And it looks as if the message is beginning to get through. Lipoxen's share price has doubled within the last month, finally breaking out of a three-year lull.

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As Chief Executive Scott Maguire explains 'the trouble with any high tech offering is the challenge of describing something complex in an easily understood manner'. In this respect, the DVD falls some way short. See how you get on with this:

"The MRNA is then translated into the cytoplasm to produce protein. These foreign proteins are degraded by the proteasome. The resulting peptide fragments can bind to the MHC Class 1 molecules which are then exposed on the APC surface activating cytotoxic T-cells".


Well let me try to explain what all this is about. Because anyone willing to get through an explanation of what these products do will be in on a terrific investment story.

How Lipoxen helps make drugs far more effective

Lipoxen is concerned with delivering drugs as effectively as possible. To be crass, it's about how you put them into the body to maximise their good effects and minimise bad side effects. It has two main technologies that help do this, 'PolyXen' and 'ImuXen'. Let me start with PolyXen.

Many of the drugs that we take are made of proteins or peptides. These are not always as effective as they could be. This is because if left to itself, the body breaks them down and starts to digest them in a process known as 'proteolysis'. This weakens the medicine. And if the body doesn't break them down, there is also a chance that the immune system will simply reject drug from the body altogether.

PolyXen is a method of overcoming these problems. The first way it works is to bind the drug to molecules of a chemical called 'polyethylene glycol'. This is an artificial substance widely used in industry. For example, it's the main ingredient of anti-freeze. Combining drugs with it helps to stop the body rejecting them. However, it has been shown to make them less active.

So Lipoxen has developed another way of administering the drugs that doesn't reduce their strength. This second method attaches the medicine to a substance called 'polysialic acid' instead. Because this occurs naturally in the body anyway, it does not trigger the body's immune system.

Secondly, it stops the drug getting digested by the body. It creates a protective barrier called a 'hydrophilic shield' around the drug, protecting it from the body's digestive system. That means the active molecule, the drug, can stay in the body and do its useful work for longer.

Developing what could be a massively lucrative single-shot vaccine

Lipoxen's second key product is called ImuXen. It is a step towards solving a serious problem with the delivery of emergency drugs. Take the recent swine flu epidemic as an example.

When pharmaceutical companies were racing to come up with a vaccine for swine flu in 2009, they faced one huge problem. The vaccine they were working on was only effective if patients were given two injections a month apart. It meant that a large percentage of people declined the offer of a vaccine, even if it were free, because of the inconvenience of arranging and remembering two appointments over a month.

ImuXen was developed to help solve this kind of problem. It is a step towards providing 'single shot immunity'. That means immunity delivered by just one vaccine injection.

ImuXen works by increasing the effectiveness of liposomes (tiny balls filled with medicine for delivery into the body). Lipoxen's breakthrough is to fill naturally occurring, biodegradable liposomes with both protein antigens and DNA. These are able to simultaneously prime and boost the immune response, while avoiding the risks associated with the use of live vaccines. This holds the prospect of being developed into a massively useful 'single shot' vaccine.

Terrific test results lure Big Pharma

So both PolyXen and ImuXen are novel ways of delivering drugs and vaccines into the body. And evidence of their effectiveness is now starting to emerge.

In October, Lipoxen reported results of a trial on mice for the delivery of an influenza vaccine using ImuXen. The results were tremendously encouraging. They supported Lipoxen's claim that ImuXen could boost the effectiveness of influenza vaccines thirty-fold. It could increase manufacturing output of vaccines ten-fold. Furthermore, it could eliminate the need to store vaccines in refrigerated conditions, a key consideration in tropical climates.

The PolyXen platform is more advanced however. Baxter Healthcare has shown considerable interest, using PolyXen in a trial for the delivery of the blood clotting Factor VIII. They have also taken a shareholding in Lipoxen. A second important development partner is the Serum Institute of India, which has been trialling PolyXen as a method of delivering EPO (which promotes the formation of red blood cells). The results of Phase II (a) clinical trials, expected before the end of the year, probably inspired the recent move in the share price.

Lipoxen has a number of other development partners. Its confidence in the potential value of its delivery technologies is so high that directors have been given an equity incentive that only attains a value if the share price hits £1. That is six times today's level.

No wonder Scott Maguire describes Lipoxen as a "small-cap company with a big future". This, he says, "is surely a space well worth watching!"

This article is taken from Tom Bulford's free twice-weekly email The Penny Sleuth

Tom worked as a fund manager in the City of London and in Hong Kong for over 20 years. As a director with Schroder Investment Management International he was responsible for £2 billion of foreign clients' money, and launched what became Argentina's largest mutual fund. Now working from his home in Oxfordshire, Tom Bulford helps private investors with his premium tipping newsletter, Red Hot Biotech Alert.