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George Zavocio: I have a Ph.D. in physiology and I've worked for a number of pharmaceutical and biotechnology companies, including Bristol-Myers Squibb Co. (BMY:NYSE), Alexion Pharmaceuticals Inc. (ALXN:NASDAQ) and T Cell Sciences, which is now Celldex Therapeutics Inc. (CLDX:NASDAQ). In addition to physiology, my interest and experience lies in pathology and biochemistry and particularly in signal transduction pathways-how messages signal from the outside to the inside of the cell. That segues into diseases that depend on signaling transduction for their pathogenesis, and they include cancer, autoimmune disease and inflammation. I follow companies that discover and develop drugs for these indications and for treating cardiovascular diseases. I'm also interested in molecular diagnostics. Medicine is moving beyond just diagnosis and prognosis to predicting how individual patients will respond to drugs and how their disease will progress. That, in a nutshell, is my theme.
TLSR: Is there a key focus?
GZ: Oncology is one of my key focuses. There are more oncology companies out there than practically any other type of disease-focused company, so it's easy to pick oncology companies-or at least to screen them to find some that I like. The autoimmune/inflammation space is less well populated by companies, with the exception of companies developing vaccines. I have gravitated toward vaccine companies to some extent, including cancer vaccines, since new discoveries and technologies are making it possible to produce effective vaccines for diseases for which there are no currently available vaccines.
TLSR: You have some companies under coverage that approach a billion dollars in market cap, but you're basically in the small-cap space. Your companies are small enough to give investors doubles and potentially triples, yet large enough for mutual funds to own. I'm wondering if this is a conscious part of your theme at MLV, or did it just happen that way?
GZ: It is a conscious effort for me and for MLV in the healthcare sector. I find that I can approach the science, the investigators and the academic researchers developing innovative drugs mainly through smaller-cap companies. The larger-cap companies tend to be far more secretive about their early-stage development projects and are less open to speaking with analysts about the science. It is hard to get close to people involved in drug discovery at a large pharmaceutical company. I find the small-cap, micro-cap and even the private company space to have a wealth of very interesting research. The most interesting have the potential of changing the standard of care for some diseases.
TLSR: George, we have had a lengthy period of about three-and-a-half years where biotech has stagnated in the public markets, and shares have not been reactive to any reports of progress in pipelines. Does biotech have the wind to its back now?
GZ: Instead of saying biotech stocks have the wind to their backs I'd say maybe they have a strong breeze to their backs.
TLSR: Is the market ready to buy these stocks now?
GZ: I think it is. Many companies that have been well funded-or funded enough-through this rough period have continued to make progress and built up their fundamental values. Some have started, and some have completed, important clinical trials. This is despite the fact that their stock prices may have declined. Once you get into proof of concept Phase 2b trials, and certainly into Phase 3 trials, then you're looking at a much shorter time horizon to potential commercialization, partnership or outright acquisition by a larger pharmaceutical company, and you begin to see investors adding value to those particular companies.
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Looking for Innovative Small-Cap Biotech Companies: George Zavoico
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