Decisions from the Food and Drug Administration [FDA] can have a profound effect on the stock prices of biotech companies. The stocks of young biotechs with few or no FDA approved drugs typically move drastically in response to FDA approvals or rejections, as a large portion of the business is riding on the impending approval. The larger companies with a basket of FDA approved drugs already under their belts will not move as drastically on these binary events.
The companies involved diligently perform extensive research to develop new drugs that will improve the lives of individuals. The most successful companies will build a track-record of developing marketable drugs and/or acquiring companies with FDA approved drugs to become leaders in the industry. Others may struggle for many years before getting their first marketable drug.
The following five biotech companies have FDA decision dates in January 2013.
Santarus Inc. (SNTS) has an FDA decision date on 1/16/2013 for Uceris (budesonide) with an indication for induction of remission of mild to moderate active ulcerative colitis. Santarus is a company with four FDA approved drugs already on the market and three compounds in addition to Uceris are being developed in its pipeline. Two of the three additional drugs in the pipeline are in Phase 3 trials, with the other drug in Phase 1.
Santarus is running a profitable business with $35.48 million in operating cash flow and $22.9 million in free cash flow for the past twelve months. It achieved a profit margin of 7.87% and an operating margin of 8.75% over the same period.
The company is expected to grow earnings annually at 15% for the next five years. This should be sufficient growth to allow the current stock price to double in five years.
Analysts have a one-year average price target of $11.20 for the stock.
NuPathe Inc. (PATH) has an FDA decision date on 1/17/2013 for Zecuity with an indication for migraine. Zecuity was formerly known as NP101 and Zelrix. If approved, Zecuity will be the first transdermal patch to treat migraine. Zecuity works by actively delivering sumatriptan, the most widely prescribed migraine medication. The patch was previously rejected by the FDA when it was named Zelrix with questions about chemistry, manufacturing, and safety. Zecuity is designed to address the issue with some migraine patients that experience migraine-related nausea who prefer taking medication in patch form over pill form.
NuPathe does not yet have an FDA approved product on the market, so an approval of Zecuity should have a significant positive effect on the stock. The company also has two drugs in pre-clinical trials in its pipeline: NP201 for Parkinson's disease and NP202 for schizophrenia and bipolar disorder.
The company has an average one-year price target of $6, up from its recent close of $3.20.
Raptor Pharmaceuticals (RPTP) has an FDA decision date on 1/20/2013 for its drug RP103 with an indication for nephropathic cystinosis. The company also expects a decision from the European Medicines Agency in the first half of 2013 to market RP103 in Europe. RP103 has completed Phase 2/3 clinical trials to treat Huntington's disease.
Raptor also has RP104 in its pipeline, which is in Phase 2b for the treatment of the progressive liver disease known as nonalcoholic steatohepatitis. This disease affects about 2% - 5% of the U.S. population. The company also has Convivia in Phase 2 to address ALDH2 deficiency.
Three additional products are in pre-clinical trials: HepTide to treat liver cancer and other liver diseases; NeuroTrans to deliver therapeutics across the blood-brain barrier; and WntTide for the treatment of breast cancer.
Since the company does not yet have any FDA approved drugs on the market, the impending decision should have a dramatic effect on the price of the stock. Analysts have an average one-year price target of $9 on the stock which is currently trading at $5.47.
Impax Laboratories (IPXL) faces an FDA decision date on 1/21/2013 for Rytary for the treatment of idiopathic Parkinson's disease. Impax is an established company that markets 102 generic pharmaceutical products. Here are some examples of what Impax addresses with its approved drugs: diabetes, depression, Parkinson's disease, viruses, bacteria, high lipid levels, and more.
The company has 39 pending Abbreviated New Drug Applications with the FDA. Seven of the 39 have first-to-file or first-to-market potential. Impax also has 79 products under development. The company's branded division works to address unmet needs for Central Nervous System disorders.
Impax is undervalued with a forward PE ratio of 13.67, a PEG of 0.58, and a price to book ratio of 1.96. It has a profit margin of 12.17% and an operating margin of 20.76%. For the quarter ending in September, Impax had total cash of $339.7 million and zero debt. The company is expected to grow earnings annually at about 19% for the next five years. With its attractive valuation, numerous and diversified product offerings, and extensive pipeline, the stock should reasonably double in about four years.
The average analyst one-year price target for the stock is $25.40 up from the current price of $20.23.
Hyperion Therapeutics (HPTX) has an FDA decision date on 1/23/2013 for Ravicti for the treatment of urea cycle disorder. This disorder is a genetic disease that prevents enzymes from removing ammonia in the blood. Ravicti is also in Phase 2 for the treatment of hepatic encephalopathy, a serious but potentially reversible disorder that can occur in patients with cirrhosis or acute liver failure. That's about all Hyperion has in the pipeline.
Since the company doesn't have any FDA approved drugs on the market, the entire company is riding on the success of Ravicti. For this reason, the stock should move dramatically up or down on news of an approval or rejection of the drug. In the meantime, the stock will probably trend higher leading up to the decision date.
The average analyst one-year price target is $16.50, up from the current price of $10.23.
The least risky companies among this group is Santarus and Impax as they have a basket of already approved drugs on the market. These two companies should perform well over the long-haul and won't move as dramatically on the upcoming FDA decision date. NuPathe, Raptor, and Hyperion don't have any FDA approved drugs on the market, so the stocks of these companies should move dramatically as they look to get their foot in the door with a marketed drug to generate revenue and earnings.