CAPScall of the Week: Ampio Pharmaceuticals

For years, satirical late-night-TV host Stephen Colbert has been running a series on his show called "Better Know a District," which highlights one of the 435 U.S. congressional districts and its representative. While I am no Stephen Colbert, I am brutally inquisitive when it comes to the 5,000-plus listed companies on the U.S. stock exchanges.

That's why I've made it a weekly tradition to examine one seldom-followed company within the Motley Fool CAPS database and make a CAPScall of outperform or underperform on that company.

For this week's round of what I like to call "Better Know a Stock," I'd like to take a closer look at Ampio Pharmaceuticals (Nasdaq: AMPE) .

What Ampio Pharmaceuticals does Ampio Pharmaceuticals is a clinical stage biopharmaceutical and diagnostics company focused on treating male sexual dysfunction, inflammation, eye disease, and metabolic disease. The company has a prime focus on utilizing existing drugs in new indications and with other drug combinations in order to keep costs low and hopefully expedite an approval from the Food and Drug Administration.

As a clinical-stage company, Ampio has no FDA-approved drugs, but it does have an extensive pipeline of drug hopefuls. Its leading candidate is a late-stage orally disintegrating tablet, Zertane, for the treatment of premature ejaculation, or PE, and it acquired the technology to formulate it from Valeant Pharmaceuticals (NYSE: VRX) last year. Ampio also has two drugs in mid-stage trials: Optina for diabetic retinopathy, and Ampion for inflammation, as well as Vasaloc in early stage trials as an oral therapy for diabetic nephropathy. Finally, Ampio has a hand-held device known as Oxidation Reduction Potential, or ORP, to diagnose patients via a rapid blood test.

Whom it competes against This one is a little tricky because certain aspects of Ampio's pipeline are more or less devoid of competition. Zertane is unique as there's currently no drug available that targets PE, and Ampio recently signed an agreement with Syngene to work on creating an all-in-one impotence and P/E drug. Optina is also unique as a direct treatment of swelling of the macula of the eye caused by type-1 and type-2 diabetes.

On the other hand, Ampio has a boatload of competition when it comes to its ORP diagnostic device and with regard to Ampion. Its ORP device will face significant backlash from Roche (NASDAQOTH: RHHBY.PK), which holds significant market share in the blood glucose testing market. Similarly, Ampion could prove effective at treating arthritis and other central nervous system diseases, but it will face stiff competition from the likes of Johnson & Johnson (NYSE: JNJ) , whose Remicade produced $5.5 billion in sales in 2011, and Abbott Labs (NYSE: ABT) , whose world-leading inflammation drug Humira brought in $7.9 billion in revenue last year. This could mean that Ampion has a wide enough market to take share without too many other companies noticing, but it could also mean that the inflammation market is too mature for another drug.

The call After carefully reviewing the merits of Ampio Pharmaceuticals, I've decided to make a CAPScall of outperform on the company.

Part of my optimism relates to the positive data from its phase 3 clinical trial of Zertane, which met all of its end goals with no adverse side effects. With the company lining up privately held Ethypharm to manufacture the oral tablet, I would say the signs are looking good that the FDA will approve the P/E drug and that a partner will soon step up to help Ampio with marketing. Call me nuts, but I also think its ORP diagnostic devices could make a serious dent in Roche's glucose market if they prove effective. The other factor to consider with Ampio is that it's using older existing drugs with its trials, which helps keep costs down and fast-tracks the drug in most cases. The formula for success is here, now it's up to Ampio to deliver.

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CAPScall of the Week: Ampio Pharmaceuticals