July 2010’s Penny Shares to Watch…

(Compiled from articles published in June 2010)

This month’s penny shares to watch:

• Why investors are missing out on BIG opportunities in the biotech sector…

LIPOXEN (LPX)

• Why this unsung sector could make you some of your biggest gains…

CRYO-SAVE (CRYO), VINDON HEALTHCARE (VDN), OXECO (OXE)

Why investors are missing out on BIG opportunities in the biotech sector…

(This article first appeared in Penny Sleuth on 3 June 2010. Penny Sleuth is an unregulated free e-letter written by Tom Bulford and published by MoneyWeek Limited)

In the huge pharmaceutical industry most of the headlines are made by new drug formulations. But there’s another hugely important strand of the business on which billions of dollars are spent. That is the creation of improved delivery mechanisms.

The first step of any drug delivery system is to get the drug into the body. But the challenge does not end there.

To determine whether a drug ‘works’ and is saleable, its essential to know what happens once it is inside the body. For how long does its deliver its therapeutic benefit? How accurately is this delivered? And how much collateral damage is caused in the process?

One promising penny share company that is working on ways to radically improve drug delivery is Lipoxen (ticker: LPX).

When I dropped in to his office last week, chief executive Scott Maguire was adamant that Lipoxen’s technology is living up to its high promise.

But he was also frustrated about UK investors. It seems these investors are worried about the risks involved in his company’s business.

What they didn’t seem to realise, Maguire said, was that, compared with other biotechs, the risks associated with Lipoxen are low.

This is because it is simply reformulating existing drugs and vaccines with natural delivery technologies. And on top of that, all clinical trials to date have been very successful. If only investors could see this…

Why biotech shares are often hugely undervalued

Frustration with the investment community is a common complaint of leaders of the UK’s biotech sector.

In part, this is due to lack of expertise in the City. But a second factor – one that certainly applies to Lipoxen – is that biotechs are often prevented from publicising their successes because their major pharmaceutical partners would rather keep them quiet.

So today Lipoxen is valued at just £10m – even though a single licensing deal for one of its drug delivery platforms could be worth a multiple of this.

The question is how long investors will have to wait for that to happen. As chairman Brian Richards points out, this is “the stage that real shareholder value is generated”.

The answer to this question, as Lipoxen knows all too well, is not entirely in its own hands. In order to offset the huge costs involved, Lipoxen licenses its know-how out to others who can conduct clinical trials.

Last year was a tale of delays to several of the projects that should prove the worth of its drug delivery platforms.

One trial, conducted by Russian partner FDS, was delayed due to a lack of finance. A second for the UK’s Technology Strategy Board was upset when lead manager Cambridge Biostability Ltd went into liquidation. A third was rescheduled when project leader the Serum Institute of India (SIIL) had a change of plan...

The ‘breakthrough’ trial that could send Lipoxen shares soaring

Ironically though, the latter may create the breakthrough for Lipoxen, because the change to SIIL’s plan was to expand the trial.

While this has delayed the results – which are now expected in the third quarter of this year – they will be all the more significant when they do appear.

The trial that SIIL is running uses over 30 patients suffering from anaemia (a consequence of kidney failure). They have all been given the standard drug, erythropoietin (EPO), for this condition . But it has been delivered into the body using Lipoxen’s unique PolyXen technology.

Typically long-lasting therapeutic agents such as proteins and peptides are carried into the body in combination with polyethylene glycol, an artificial chemical polymer that is widely used in industry and is an ingredient of vehicle anti-freeze.

Instead of using artificial polymers Lipoxen’s approach is to use natural, biodegradable polymers. It believes these should allow the drugs to act for longer and with fewer unwanted side effects.

In the case of PolyXen, proteins are combined with polysialic acid, a type of sugar naturally occurring in the human body. Because it doesn’t trigger an immune response, polysialic acid has been called ‘nature’s ultimate stealth technology’ – the ideal carrier of therapeutic proteins.

I understand that the Indian trial of PolyXen-delivered EPO is going well. But this is far from the only string to Lipoxen’s bow.

Lipoxen shareholder Baxter International has been evaluating PolyXen as a delivery mechanism for a series of drugs, including the blood-clotting agent Factor VIII. We could hear news of this industry giant’s plans in the next few weeks.

Meanwhile in the area of vaccinations, Lipoxen has a platform technology called ImuXen. This could have a number of benefits.

First, it could allow multiple vaccines to be delivered in the same dose. Second, it could multiply their effectiveness. And third, it could also permit vaccines to be stored in ambient rather than refrigerated conditions. This is especially important in many developing countries.

Clearly these innovations could make a big difference to healthcare and could save a good deal of money as well. Even so, the UK stock market seems unwilling to take anything on trust.

This is frustrating for Scott Maguire. But for penny share investors it means that the announcement of any licensing deal is sure to be greeted with a dramatic hike in the share price. This is one to watch.

By the way, I’m making a specific in-depth recommendation on another excellent drug delivery share in the June issue of Red Hot Penny Shares. Look out for that if you’re a Red Hot reader.

Also this month, I reveal one of the most extraordinary oil exploration opportunities I’ve ever seen – and one that could easily make you 500%. There’s something quite unique about this one. It’s all there in the issue, as you’ll see…

Why this unsung sector could make you some of your biggest gains…

(This article first appeared in Penny Sleuth on 8 June 2010. Penny Sleuth is an unregulated free e-letter written by Tom Bulford and published by MoneyWeek Limited)

Three months ago an old friend of mine, apparently fit and healthy after a career in the army, felt a sharp and unexpected pain in his side. Last week he died, just one more victim of cancer. For him an extraordinary breakthrough in medical science, which was reported last week, comes too late.

Thanks to the work of Oncimmune, a company set up to commercialise research undertaken at Nottingham University, it may soon be possible to beat cancer with nothing more than a simple blood test.

If diagnosed early enough, cancer can be treated. The reason it is such a killer is that it is often not discovered until it is too late.

But researchers at Nottingham University have realised that the onset of cancer prompts a reaction from the immune system. By tracking and analysing this reaction, they have developed a reliable test based on just a small sample of blood...

Two breakthrough fields in the medical sector

Unfortunately it is not possible to invest in Oncimmune, but the field of diagnostics is just one in which ground-breaking developments are happening.

A second is stem cell-based regenerative medicine. Last year a fascinating television programme showed how a rat’s heart had been grown in a laboratory by placing a stem cell on the frame (or ‘scaffold’) of the artificial heart. The cell then multiplied, covering the scaffold — rather like a sweet pea plant growing up a garden trellis – making a new, beating heart.

The reason that stem cell medicine is so promising is not only that that these cells can be used to grow new organs. What is also important is that, because these organs can be grown from the patient’s own cells, the risk that the body’s immune system will reject them is much reduced.

Stem cells can be taken from blood or bone marrow, but much better is to take them from the umbilical cord of newborn babies.

Stem cells are easy to extract from this source and are easier to program. They can then be stored cryogenically for years, until one day they are required to seed the growth of, for instance, a new liver.

Today, parents who choose to have their offspring’s stem cells stored will have to pay thousands of pounds for the privilege. But the thought that these stem cells could one day save their children’s lives is persuading more and more of them to do so.

Two penny shares that could profit from a boom in stem cell storage

Last week, a panel of influential scientists forecasted a boom in the storage of stem cells. I think there are two penny shares that could profit from this.

The first is CRYO-SAVE (CRYO) - although beware because it is about to shift its share quote from AIM to Euronext. The second is VINDON HEALTHCARE (VDN), for which cryogenic storage of stem cells is as yet a minor part of its operations.

The business of stem cell storage seems attractive because a fee is paid up-front, then the stem cells simply sit in large freezing cylinders and probably will never be touched. It is a bit like having somebody pay you £1,000 to keep a small portion of cheese in your fridge for 20 years – with the difference being that stem cells don’t go mouldy and start to smell.

Last week the stock market offered another way to invest in the broad theme of regenerative medicine, through OXECO (OXE). It agreed to acquire Tissue Regenix – a spin-out from Leeds University.

Tissue Regenix has developed a process for the production of biological scaffolds. Once produced, these scaffolds can be implanted back into the body, where they are repopulated with the patient's own cells.

This is innovative because it means worn-out or diseased body parts can be replaced without the need for anti-rejection drugs. The company’s main product, the dCELL Vascular Patch, is permanently implanted into the human body for vascular repair and will be marketed later this year.

I’m very keen to find out more about Tissue Regenix. For now though, it seems to be another example not only of the wonderful advances being made in medicine, but also the extraordinary opportunities available to those investors brave enough to venture into this very tricky area.

Not for nothing has it been compared to oil exploration. Years of hard work and millions of pounds invested can come to nothing. But success can be worth a fortune.

It just so happens that in the Red Hot Penny Shares portfolio there are some great recommendations from both the oil sector AND the medical sector.

Good investing,

Tom Bulford
Editor, Red Hot Penny Shares

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(This article first appeared in Penny Sleuth in June 2010. Penny Sleuth is an unregulated free e-letter written by Tom Bulford and published by MoneyWeek Limited)