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BioSante Satisfied to Be Second By Adam Feuerstein Senior Writer 9/20/2004 8:00 AM

BioSante Pharmaceuticals (BPA:Amex) is a sexy stock.

The standout opportunity amidst the small drug company's well-stocked pipeline of hormone therapy products is a testosterone gel that, if approved for sale, would be used by menopausal women to boost their flagging sex drive.

The commercial market for legitimate products to treat "female sexual dysfunction" barely exists today. This stands in stark contrast to the mountains of cash forked over by men for drugs like Viagra, Cialis and Levitra.

But gender inequality over sexual dysfunction treatments is about to change, which puts BioSante in a sweet spot. And at a current stock price of $8.91 and a market cap of $164 million, the company is both underappreciated by investors and undervalued given the significant commercial potential for products like LibiGel.

There are a bunch of reasons to like the BioSante story. For starters, there is well-established science behind LibiGel, and with that foundation comes a relatively lower risk that the product blows up. Doctors have long understood that a lower-than-normal level of the hormone testosterone contributes to a waning desire for sex in women, especially women nearing, or in, menopause. When testosterone levels are boosted back to normal levels, a woman's desire for sex also returns to more normal levels.

Pfizer (PFE:NYSE) spent many years trying to prove that Viagra would also work for women, but while the drug did increase blood flow to the vagina (it does the same for a man's penis), the drug giant found that women who took Viagra did not have an increased desire for sex. This bolstered the belief that hormones play a larger role in female sex drive and forced Pfizer earlier this year to stop testing Viagra for women.

Competitor's Success Bolsters LibiGel

The best evidence of LibiGel's efficacy, so far, actually comes from a larger competitor. Procter & Gamble (PG:NYSE) is developing Intrinsa, a testosterone patch that treats female sexual dysfunction. In May, the company announced positive results from a pivotal phase III study of 562 women, who had had their ovaries removed and were therefore in menopause. Women in the study who wore the testosterone patch reported a 74% increase in the frequency of satisfying sexual activity as well as a 56% increase in sexual desire vs. baseline. Results from the study were statistically significant, and Procter & Gamble is expected to seek Intrinsa marketing approval from the Food and Drug Administration by the end of the year.

BioSante is currently conducting a rigorous phase II study of LibiGel in a similar patient population. Late last year, the company announced positive interim results from this study. A final analysis is expected to be made public soon, possibly by the end of September. If this LibiGel study is positive, as expected, BioSante will move quickly to begin a pivotal phase III study in early 2005. If the phase III study is positive, BioSante could file for LibiGel approval by the end of 2006.

Having a marketing giant like Procter & Gamble ahead of it in this new product category is actually an advantage for BioSante. There are no treatments currently approved specifically for the use of testosterone therapy to treat female sexual dysfunction (some doctors prescribe male testosterone hormone treatments for women, but these have to be adjusted).

This means Procter & Gamble will need to make a large marketing investment, mainly through consumer advertising, to make women aware of the condition and introduce Intrinsa. This effort will be similar in scope to what Pfizer had to do when it launched Viagra. Who better to handle this task than a consumer products giant like Proctor & Gamble? Once LibiGel is approved, BioSante will be able to glide easily into the market created by Intrinsa.

Preferred Method Helps Market Outlook

Since female sexual dysfunction is a brand-new category, it's hard to estimate the market size with complete accuracy. But scientific studies indicate that more than 40% of women experience some degree of sexual dysfunction. Analysts peg the total commercial market opportunity for products like Intrinsa and LibiGel at between $1 billion and $2 billion.

No one expects BioSante to grab majority market share from a marketing juggernaut like Procter & Gamble, but even a 10% to 20% slice of the total market will be a huge boon for the company, particularly given its current market cap. There are other companies developing similar products, including Cellegy Pharmaceuticals (CLGY:Nasdaq) .

And there are some reasons to think that women might prefer LibiGel over Intrinsa. LibiGel is a clear gel applied to a small area of the skin once per day; Intrinsa is a patch that must be worn continuously and changed every three days. Once a women rubs LibiGel into her skin, it disappears without any residue and the testosterone is absorbed over 24 hours; patches like Intrinsa can cause skin irritation and could fall off.

LibiGel might be the brightest light in BioSante's drug pipeline, but it's not there by itself. The company is developing five other male and female hormone treatment products, including Bio-T-Gel, a male testosterone therapy that is expected to be marketed by Teva Pharmaceuticals (TEVA:Nasdaq) in exchange for royalty payments. For women, BioSante is also in late-stage clinical trials with Bio-E-Gel estrogen therapy.