Mike Havrilla on IMCL - ImClone Systems Inc.

I think the recent decline in Discovery Labs (DSCO) since the Company announced a minor delay in submitting a complete response to the FDA for an approvable ruling on Surfaxin represents a buying opportunity and bought some shares on Friday at $1.74 per share. Insider buying over the past two months (including a 75,000 share buy from the CEO at $1.87) demonstrates management's confidence in already meeting the FDA's requirements and the plan to submit a complete response to FDA for Surfaxin, which should now occur by about the third week of October. As long as DSCO submits the complete response by the end of October, a Class I review (60-day) would still allow for approval by the end of 2008. Since the stock was trading near $3 ahead of the approvable ruling back in May; the upside on approval could easily exceed that level, making the stock a buy for speculative, small-cap biotech investors.

Given three approvable rulings by the FDA requesting more data on Surfaxin, investors are understandably skeptical and appear to be taking a wait-and-see approach on the Company and its management. However, the recent insider buying between $1.87-1.89 gives me enough confidence to believe DSCO will get things right this time and achieve Surfaxin approval by the end of 2008. I think DSCO will submit the required impurity data and biological activity tests to the FDA toward the end of October; and the agency will classify the response as a Class I review with a 60-day decision deadline as compared to the more lengthy Class II resubmission process of six months. Assuming the FDA rules the response as a Class I review and meets the 60-day deadline, Surfaxin should be approved before year-end.

In addition to the bullish case above for DSCO and possible Surfaxin approval by year-end, the biotech space offers investors a defensive growth industry removed from economic concerns and as a bonus there have been a spate of deals ranging from micro-caps to mega-caps as big pharma companies look to fill voids in their R&D pipelines and expand their product offerings. Genentech (DNA) has rejected Roche's (RHHBY) $89 bid to acquire the remaining 44% of DNA it does not already own as insufficient. I think DNA could easily get $100 per share based on Eli Lilly's (LLY) $70 offer to acquire ImClone Systems (IMCL), which trumps Erbitux marketing partner Bristol-Myers (BMY) recently raised bid of $62 per share. Also, several buyouts in the out-of-favor micro-cap biotech space have been announced over the past year with 100%-plus takeover premiums, including:

(1.) SGX Pharma (SGXP) was acquired for $64M cash or $3/share by Lilly for its cancer drug discovery platform.

(2.) Kosan Biosciences (KOSN) was acquired by Bristol-Myers for its cancer drug pipeline.

(3.) Barrier Therapeutics (BTRX) was acquired by privately-held Stiefel Labs.