Cure for cancer or just another bust?


by Siu-Yee Ng

Five years ago, a little Maryland biotechnology company came into the spotlight. In May 1998, the New York Times quoted a Nobel Prize-winning scientist saying that drugs in EntreMed’s pipeline could “cure cancer in two years.” Investors rushed to buy the stock, sending it from US$12 to more than US$51 that same day. Some paid as much as US$80. But we soon learned that EntreMed was only able to shrink some tumors in mice, not in people. This was nothing new. Scientists have been curing cancer in mice for decades. Great, if you’re a mouse.

But it was enough to send the stock flying. EntreMed’s stock price went up as high as US$98.50 during the 2000 bubble. But this was speculative hype. Like many other biotechnology companies still in the early stages, EntreMed couldn’t deliver on their promises fast enough to satisfy demanding and impatient investors.

But today, many biotechnology companies are on the verge of major breakthroughs, maybe even EntreMed.

Burning cash

Three years ago, we took a group of investors to tour three biotech companies in Maryland. One of them was EntreMed. The stock was trading at around US$30 at the time. And, unlike the other two companies that were ready to kick us out the door after their presentations, EntreMed was more than eager to court us.

The company provided us with food, drinks and even gifts. The executives came out to greet us before the presentation. And former CEO and ex-military man John W. Holaday was the king of the carnival. His presentation was simple and easy to understand. He was personable and casual.

But his sales pitch was not enough to convince us that this stock should be trading at such high valuations. It was burning through cash too quickly, especially since they didn’t even have a product on the market yet. And neither Holaday nor the CFO ever answered our questions about the company’s finances.

It seemed as if the company was spending more dollars on PR than on research. And as much as we appreciated all the attention, the company looked more like a short than a buy.

The cash-strapped company never took advantage of the technology boom. Unlike other biotechnology companies that raised capital through large stock offerings, EntreMed

settled for a series of lesser financings that left it in financial uncertainty.

And the company was going through executives faster than J. Lo goesthrough husbands. Rumor had it that Holiday was a tough man to work for. Employee turnover was extremely high, further crippling the company.

But EntreMed may be turning around. Holaday has stepped down as CEO. And the company has secured additional funding. There are plans for further cutbacks and to refocus remaining funds on its top drug candidate, Panzem.

The company runs a lot of risk by putting all its eggs in one basket. This is a very speculative play. But… they have the game down pat. They know how to sell themselves and their stock. If the pieces fall into place, the profits could be spectacular.