Alnylam (Nasdaq: ALNY) leads a short list of some of the fastest-growing biotech stocks
where analyst estimate revisions continue to rise.

BioHealth Investor began by analyzing 171 stocks in the biotech sector based on revenue growth over the trailing four quarters, identifying 30 stocks in the sector with better
than 50 percent revenue growth over the past 12 months.

We then screened those 30 stocks to look for those very few names that have seen both strong growth in at least the past two years and positive analyst estimate revisions in recent months, in an effort to find stocks with strong trends that still have potentially improving operations going forward.

The work resulted in growth biotech stocks to watch: Alnylam Pharmaceuticals Inc. (Nasdaq: ALNY), Amicus Therapeutics Inc. (Nasdaq: FOLD), Halozyme Therapeutics Inc. (Nasdaq: HALO), American Oriental Bioengineering Inc. (NYSE: AOB), and Stemcells Inc. (Nasdaq: STEM).

1) Alnylam:

With a new class of potential biotech medicines, aggressive goals for development and partnerships, cash on the books and a large addressable market, Alnylam tops our short list of biotechs with strong growth and increasing analyst estimates.

The technology:

Alnylam is developing potential drugs to treat infection, liver cancer, high cholesterol and Huntingdon’s Disease. All of its candidates are taking advantage of RNA interference technologies, which uses short strands of genetic RNA to block the expression of disease-causing genes. The company first demonstrated in 2008 in a Phase II study that a treatment based on RNA interference, or RNAi, achieved significant efficacy in a human
trial.

Key trials:

In June, Alnylam and partner Cubist Pharmaceuticals Inc. (Nasdaq: CBST) announced Phase II study data for ALN-RSV01, an RNAi therapeutic in development for the treatment of a type of respiratory viral infection in adult lung transplant patients. The study
achieved its primary objective of showing the drug was safe and well tolerated.

An upcoming key trial is the company’s drug candidate ALN-VSP02 to treat liver and liver-related cancers. The Phase II data is expected in the first half of 2010.

Catalyst:

The company is expected to add to its pipeline over the next 12 to 18 months. By the end of calendar 2010, it expects to have four or more RNAi therapeutic programs in clinical development. It also plans to announce four or more new major business collaborations by
the end of next year, including broad platform alliances similar to the one has in place with Roche Pharmaceuticals Inc. (OTC: RHHBY).

Financials:

Alnylam has more than $400 million in cash, and no debt. The company may announce partnerships, but it likely doesn’t need to raise cash from partners.

Revenue growth is expected to slow to about 9 to 10 percent this year, but the trend is in Alnylam’s favor. Cumulative annualized growth since 2005 has been more than 100 percent a year. Revenue increased 89 percent in 2008, and still rose double-digits in March, despite an incredibly tough year-ago comparison.

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2) Amicus Therapeutics:

There may not seem to be a mega-market for treating genetic diseases such as Fabry disease for which Amicus currently has a Phase III trial, but it could be the gateway to eventually targeting much larger markets, such as Parkinson’s.

The technology:

Certain types of diseases such as Fabry disease, Gaucher disease and Pompe disease are caused by gene mutations that lead to the production of deformed proteins. Amicus has developed oral therapies that bind to those mutated proteins and stabilize them, offering potentially new treatment options.

The Amicus therapy in theory has the potential to cost less than options on the market today, such as enzyme replacement therapy. And unlike enzymes delivered through an IV, the Amicus therapy can be delivered orally, resulting in more comfort for patients. Over time, it could prove to be a better way to target diseases that attack the central nervous system.

Key trial:

The company earlier in June announced it will start a Phase III study of its investigational treatment for Fabry disease, involving about 60 patients for its drug called Amigal. It marks the company’s first move into late-stage development. The FDA has given its OK for Amicus to seek accelerated approval for Amigal.

Catalyst:

Data could be delivered in a Phase II trial of patients with Gaucher disease as early as the third quarter. Positive results could help drive the stock higher.

Financials:

Revenue is small, but growing fast, up more than 700 percent last year to $15 million. Revenue in the first quarter was $4.6 million, up more than 43 percent from a year earlier. The company just filed for a $100 million mixed shelf offering in April; it is expected to have roughly that amount of cash by year’s end.

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3) Halozyme Therapeutics

Halozyme has both important intellectual property in its Enhanze drug delivery technology, and a key partner in Roche to help put it to use in products.

The technology:

The company’s claim to fame is its Enhanze drug delivery system. The Enhanze technology may allow for a partner’s drug to be delivered by temporarily opening flow channels under the skin. It might allow many drugs to be delivered with better absorption and dispersion into the body. Halozyme is targeting in-vitro fertilization, and may be partnering with companies that may using the technology to deliver cancer drugs.

One of the key Halozyme-owned drugs is Hylenex, which works to temporarily speed absorption of injected drugs and/or fluids. It was approved by the FDA in 2005, and has been licensed commercially by Baxter Bioscience (NYSE: BAX).

Key trials:

One of the markets for Halozyme’s technology is insulin absorption. In June, the company showed in its Phase II PH20 study that its technology showed faster insulin absorption and increased peak insulin concentrations for Type 1 diabetic patients. A Phase III multi-dose insulin study is expected to get under way by year’s end.

Catalysts:

Roche is a key partner, and it’s possible that Roche could be expanding the use of Halozyme technology in drug trials. Analysts have theorized that through partnerships, explorative work may already be under way to test cancer drugs such as Genentech Inc.’s
(Nasdaq: DNA) Avastin or Rituxan using Halozyme’s delivery technology. Any announcements of a successful trial could be a positive for the stock.

Financials:

With the addition of $40 million the company raised in June, Halozyme may have close to $100 million in cash when it reports second-quarter results, perhaps enough to last through the end of 2010. The company’s revenue rose 131 percent last year to $8.8 million– very small numbers, but the ramp of its Cumulase and Hylenex products continues. Revenue growth was 56 percent in the first quarter.

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4) American Oriental Bioengineering:

Quarterly growth has recently slowed to its lowest level in four years, and operating margins have slid, but there is reason to think there’s stronger growth ahead for American Oriental Bioengineering’s largest sales category, its Jinji brand of women’s health products.

The technology:

AOB is not a pure biotech, in that it markets prescription and over-the-counter medications, as well as neutraceutical products in China. Most of its prescription offerings target traditional plant-based Chinese medicines for a rural population. More than 85 percent of the company’s revenue last year came from plant-based cures that the company has modernized.

But the company does have some innovative products, such as its CE gel, approved in China as a treatment for bedwetting. The company also manufactures a freeze-dried plant-based injectable antiviral treatment that accounts for nearly 15 percent of sales, although
similar products were recalled by some other manufacturers last year amid safety concerns.

Key trial:

The company started a Phase I trial in the U.S. for CE Gel in March. It has potential applications for children, as well as adult women.

Catalysts:

AOB has made nine acquisitions over the past five years totaling more than $240 million. Additional acquisitions have the potential to dilute the stock temporarily, although the company has done a good job integrating the acquisitions it’s made to date. Another
catalyst could be a focus on Jinji this year, as well as on more prescription pharmaceuticals in general, which carry higher margin.

Financials:

The company does not have a positive net cash position. But unlike most biotechs, it’s actually creating cash rather than burning it. Gross margins have been about 68 percent over the past three years, and were still above 60 percent in the most recent quarter,  leading to profit margins well above 20 percent. Revenue growth has averaged
nearly 70 percent over the past four years. Sales growth is expected to slow to about 30 percent this year.

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5) Stemcells

It’s very possible that other large companies may be seeking partnerships with other stem cell companies after GE Healthcare (Nasdaq: GE) signed a very high profile one with small-cap Geron Inc. (Nasdaq: GERN) last month, raising expectations for tiny Stemcells Inc.

The technology:

As its name implies, Stemcells is focused on delivering products based on stem cell technologies, including cell-based treatments for diseases targeting the central nervous system, liver and pancreas. The company’s advances are from non-embryonic stem cells.
The company owns more than 40 U.S. patents, and more than 170 worldwide.

In the case of degenerative diseases, organ transplants are not always an option, and there are rarely enough healthy donor organs to go around. Stemcells’ technology helps identify and transplant stem cells that can conceivably generate new and healthy cells that may help restore the diseased organ to health.

Key trial:

Although it was only Phase I data, the company in June showed with its HuCNS-SC trail in Batten disease, the treatment was well tolerated; the treatment involved implanting stem cells into the brains of children. While that trial was completed in January, further
analysis could be used to glean potential early data on HuCNS-SC’s efficacy.

Catalysts:

Any potential deal with a large partner would be a major catalyst for the stock. That is not all that far fetched, after President Obama in March lifted the eight-year ban on embryonic stem cell research imposed by the Bush Administration, and GE Healthcare’s exclusive global agreement to commercialize stem cell drug discovery technologies with Stemcell rival Geron.  It is also possible that by late this year, Stemcells could file for FDA approval to start human trials for treating spinal cord injuries with stem cells.

Financials:

With about $34 million in net cash, Stemcells is not as strong as Geron, with $200 million in cash on the books. But Stemcells has enough to last it through the rest of the year without the need for a partnership or a dilutive offering. Sales remain minuscule, but the
company has posted meaningful revenue for two consecutive quarters for the first time in its history.

MIke Tarsala is the editor of BioHealth Investor, a part of the 24/7 Wall St. network of sites.

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