Marcial: Clinical Data Is a Biotech to Watch

In the mystifying world of biotechnology, investors need a combination of extraordinary patience, iron insides, and sharp stock-picking skills. You need all of those qualities to be a victor, rather than a victim, in an arcane sector that trips up even some of the most astute investors.

This is the reason activist billionaire investor Randal J. Kirk loves the territory. He is one of the handful of investors who have defied the odds and bagged enormous profits from some wisely chosen biotech gems. How does he do it? An extra skill helps: a keen eye for potential deals. Some of the billions he has made from biotech investing come from picking out little-known companies that subsequently ended up being acquired by Big Pharma outfits because of their attractive drugs or technology.

One of his recent discoveries: Clinical Data (CLDA), which has developed a possible blockbuster antidepressant drug, along with a genetic test to predict its effectiveness in patients. This combination separates it from the rest of the crowd, says Kirk. There are several antidepressants already on the market, such as Pfizer's (PFE) Zoloft and Eli Lilly's (LLY) Prozac. Some 21 million Americans suffer from depression, creating an estimated $9 billion market. But Kirk is confident Clinical Data's antidepressant drug, Vilazodone, would be faster-acting and as effective, if not more, than the competition.

SOME TRACK RECORD

Who is Kirk, and why does he favor Clinical Data? Kirk is CEO of a private equity and venture capital outfit called Third Security, and is currently the largest stakeholder in Clinical Data, controlling some 44% of the company's stock. He has assumed the chairmanship of the company. But the best way to describe him, apart from saying he's an activist investor, is to recall a few of the companies he has invested in, and how they attracted the takeover interest of larger pharmaceutical companies.

In 1996 he founded New River Pharmaceuticals, which developed products aimed at treating drug abuse. It went public in August, 2004, at split-adjusted 4 a share. In 2007, Shire Pharmaceuticals bought the company at 64 a share—a giant win for Kirk. Another winner was King Pharmaceuticals, which Kirk co-founded in 1993, serving as its chairman. The company, a maker of cardiovascular and hypertension drugs, went public in 1998 at around split-adjusted 5 a share, with Kirk owning some 5% of the stock. In 2002, Kirk quit the board and sold part of his stake in the company, which had hit a high of 42. The company went on to list its stock on the New York Stock Exchange and now has a market cap of $2.7 billion, based on a recent price of 11 a share.

In 1999, Kirk purchased a large stake in Scios, a leader in heart-failure treatments, which at the time traded at 4 a share. Kirk, sensing an opportunity, swooped in and became its largest stakeholder on a piece of potentially devastating news: The company's lead product, Natrecor, was rejected by the Food & Drug Administration. That caused its marketing partner, Bayer (BAYRY), to pull out of its agreement with Scios.

Marcial: BioSante May Be Buyout Bait