Small Market Cap Pharma Attempting to Address Undermet Needs
As 2012 wanes, investors may look back on the year and see that it was filled with landmark headlines indicating huge gains or losses for investors in promising healthcare companies attempting to address areas of unmet medical needs. There was much money to be made and lost through investments in these companies striving to navigate the clinical and regulatory pathways in efforts to ultimately reach their goals - addressing unmet or undermet needs and financially benefiting from those successes. In order to stay ahead of the curve, wise investors may choose to open positions in small pharmaceuticals with significant catalysts ahead in 2013. These catalysts may be in the form of attempting to gain regulatory approvals or navigating Phase II or Phase III clinicals in order to advance company pipelines. I wish to delve into some promising small pharmaceuticals for the year ahead of us. In order to address the different types of investors with differing risk tolerances, I am presenting companies from small market capitalization development-phase companies to those with larger valuations and likely on the cusp of transitioning into a marketing-phase pharmaceutical. This article should be construed as the beginning of the research venture into each of these, and interested investors are advised to perform their own due diligence before opening positions in any of these possibilities.
AcelRx Pharmaceuticals (ACRX) has had a great 2012 and looks primed to have another great year ahead. The company recently released clinical data from the first of three Phase III trials that wrapped up in Q4 for its lead product candidate, ARX-01. The drug utilizes AcelRX's sublingual (under the tongue and absorbed through the skin) administration tablet technology termed the NanoTab® System. The active ingredient in ARX-01 is sufentanil, a potent opioid analgesic that is typically administered intravenously. The problem with the IV administration of sufentanil is that there is an initial spike in the drug's concentration in the patient's blood plasma with the subsequent concentration waning rapidly with decreased efficacy after the initial onset.
The first of the expected three data sets was released on November 15th with convincing results. Subjects that had just undergone major abdominal or orthopedic surgeries were administered ARX-01 for the trial with a control group receiving IV-administered morphine. According to the press release, ARX-01 was statistically superior to IV PCA morphine for the PGA (patient global assessment) endpoint (p=0.009). The number of patients rating NanoTab® System as "Excellent" was higher than those rating IV PCA morphine as excellent (42.9% vs. 30.6%, p=0.016). Additionally, patients in the study reported that they had greater overall satisfaction (4.15 vs. 3.83 out of 5, p=0.003) with greater overall ease of care (4.45 vs. 4.07, p<0.001) with the NanoTab® System compared to IV PCA morphine. Also noted in the press release, but not touted (though I think it is very pertinent), was the statement that "Similar percentages of NanoTab® System-treated and IV PCA morphine-treated patients dropped out of the study prematurely due to lack of efficacy (7.3% vs. 8.3% respectively) or due to an adverse event (7.9% vs. 11.1% respectively)." Although ARX-01 narrowly beat out IV PCA morphine for dropping out due to lack of efficacy, the 3.2% greater portion of the overall patient set dropping out due to adverse events appears to be very significant.
Shares in the company spiked and stayed strong until a December 5th 10 million share offering (pricing at the time was not noted) killed the stock's momentum and triggered a two-day sell-off. It is my opinion that investors were concerned about the potential share price of the offering. An after-hours announcement by the company on December 6th noted that the offering would be priced at the closing market price of $3.31. Shares responded with a huge volume of trading on December 7th, closing up on the day 3.93% at 3.44 after trading as high as 12% at $3.71.
AcelRx investors should be anticipating an exciting 2013 ahead. Q1 will likely witness data release of its other two Phase III trials for ARX-01 with a subsequent new drug application (NDA) sometime in mid year. If all goes as planned, the company should receive a regulatory decision from the FDA in 2H, providing a full year of major catalysts for the company in 2013. Another catalyst that will likely be impactful first will be a regulatory decision by the European Medicines Agency (EMA) in 1H for ARX-01. An October 3rd, 2012 announcement by the company noted that the three Phase III trials' data would be sufficient to meet EMA requirements for regulatory approval if the data were positive. The trials would be helping AcelRx get the most "bang for its buck" as additional positive data from the remaining trials could mean not only an FDA approval in the U.S., but also a marketing approval for the 31 EU/EFTA (European Union/European Free Trade Association) countries representing a population of over 500 million people.
AcelRx shares are still well under the 52-week high of $5.25 reached on November 27 after the first of the three Phase III trials' data were released. However, the stock is now steadily rebounding since its recent selloff due to the stock offering announcement. I anticipate a slow but steady run up with some dips likely by the end of the year. If the remaining two Phase III trials' data are as positive as the first set already presented, then affirmative FDA and EMA decisions are likely, barring any unforeseen problems. Failure on either or both of the two remaining data sets could be problematic for the company with share price suffering. However, the two remaining trials are for differing indications: patients undergoing elective unilateral knee replacement surgery and a functionality study of the handheld component of ARX-01 in unilateral knee replacement surgery. These are likely smaller targeted patient groups and would probably simply be left out of the NDA and product labeling if the remaining two Phase III data sets are not as promising. AcelRx is a development-phase company and is not an investment for all investor types. Additional due diligence is advised before opening a position in this company's common shares. For the short term, there appears to be support at the $3.31 range with a possible "double bottom" formation developing which could be a bullish indicator.
Advanced Medical Isotope Corp. (OTCQB:ADMD), also referred to as AMIC, is a budding development-phase company that has witnessed its common shares advance by more than 180% YTD. The company has been developing its capabilities to produce radioisotopes to be used for diagnostic imaging and radiotherapy for the last couple of years, but now appears to be advancing a bit more rapidly. On April 12th of this year, AMIC announced its first contract in which it would supply medical isotopes for Kennewick General Hospital of Kennewick, Washington. Although not mentioned in the press release, the utilized isotope is fluorine-18 (F-18), the isotope most widely used for PET (positron emission tomography), a commonly used diagnostic tool used to produce high-quality, 3D images in evaluating cancers, cardiac disease, and brain function. Although details of the contract were not revealed, the company's recent Q3 filing indicated revenue for the period, most likely the result of this contract. For the three months ending September 30th, the company reported revenue of $62K, with $181K for the nine month period. This is still construed as a development-phase company, as its $13 million market capitalization reflects. However, real revenue for a small company like this with a real product is significant and could lead to bigger contracts in the coming days and months as it continues to grow its network of contacts.
AMIC's potential is two-fold. Its initial business model and only source of revenue is medical isotope production. Early in the development of its business, the company already has a network of universities (SUNY Buffalo, Idaho State University, and University of Missouri) and three U.S. national laboratories (Pacific Northwest National Laboratory, Los Alamos National Laboratory, and Lawrence Berkeley National Laboratory) enlisted in its early work in isotope production and pertinent application research. The company's growth strategies as noted on its website, give investors food for thought in the terms of many possible upcoming press releases. For example, consider the following statements:
- AMIC began formal negotiations for the creation of strategic relationships to produce and sell medical isotopes in Taiwan and China.
- Initiated discussions for the construction of regional PET isotope production centers in Los Angeles, California and Oahu, Hawaii.
- AMIC commenced three international advanced technology collaborative development projects for production and isotopic separation capability, offering high-value products not available from other sources.
- Completed a strategic acquisition of a competitive firm, thereby establishing AMIC's position as a marketplace supplier through international sales of the O-18 isotope.
Updates on any of these with possibilities of contracts or revenue coming could provide for significant share price movement. In the company's Q2 financials was another obscure statement providing for evidence of possible news in future. In the filing, the company noted "We currently offer regional distribution of F-18 from our Kennewick, WA production facility. Other regional production facilities are being considered throughout the U.S. and abroad."
Possible catalysts loom large for this microcap company due to potential contracts and news of developments pertaining to its increasing capacity to produce medical isotopes through its linear accelerator technologies rather than the industry's normal source of nuclear reactors. However, an announcement from April 12th of this year dramatically increased shareholder interest in the company and diversified its business model by adding a clinical-stage therapy candidate to its product line. The company announced that it had obtained an exclusive license to eight patents for injectable radiogel technology for use in high-dose radiation therapy from Battelle, the world's largest nonprofit research and development company. Radiogel is comprised of a water-based biodegradable polymer that contains the medical isotope, yttrium-90 (Y-90). The product is injected into targeted cancer tumors where it then polymerizes into a lattice (cage-like structure) that is immobile and traps the Y-90 microspheres. The Y-90 emits high-energy beta radiation which is therapeutic by killing local cancer cells that are more susceptible to the cytotoxic effects of radiation than normal, healthy cells. This offers the same therapeutic effects as externally-administered radiation treatments with a focus on only cancer tumors while having minimal systemic exposure to the harmful side effects. Y-90 has a short life as indicated by its 64.2 hour half life. In 64.2 hours after administration, half of the material has decayed to the stable zirconium-90. In another 64.2 hours later, half of the remaining has decayed and so forth. By the 11th day after administration, over 94% of the radiation has been emitted, leaving little to negatively affect the safety profile of the treatment regimen. The remaining polymer lattice degrades and is absorbed by and excreted by the body.
Although the company hasn't recently released an update on the radiogel product, an April 2012 company presentation by the company CEO, James Katzaroff, gives investors an idea of what could be coming. On slide number eight, the company noted "Animal studies and testing for FDA 510(K) approval about to begin. Approval is projected in 2013." Not a company given to excessive press releases or updates, an update on the initiation (or completion) of these trials or a 510(K) (medical device application for marketing approval) application could be a huge share price mover for this company's common shares.
Advanced Medical Isotope Corp. is not an investment for every investor type. The company should be considered as a development-phase company with minimal revenue currently. It is traded on the OTCBB exchange which is more subject to share price manipulation and illiquidity at times. Interested investors are advised to perform considerable research into the company, its medical isotopes product and research work, its radiogel technology now being developed and then any SEC filings from the last couple of years before opening a position in the company's common shares. There is risk here, but the $13 million market capitalization appears to take that into consideration. The upside here could be significant depending on how the company's business model unfolds. Shareholders could witness an exciting 2013 ahead for this promising and increasingly-diverse company.
Lexicon Pharmaceuticals (LXRX) common shares have had a volatile year with a 52-week range of $0.94-$3.28. The company's developing pipeline is headed by its lead drug candidate, Telotristat etiprate (LX1032), an orally-administered drug that acts by inhibiting the enzyme tryptophan hydroxylase (TPH), the rate-limiting enzyme responsible for serotonin production. The company recently released Phase II data for the drug for use in patients suffering from carcinoid syndrome, which is manifested by a combination of symptoms, including diarrhea, bronchial restriction, facial flushing, and increased heart rate, all caused by the release of excessive serotonin and other substances into the blood stream from metastatic carcinoid tumors. Data released from the trial were promising with significant improvement seen in symptoms across the board. The number of daily bowel movements had a median reduction of 46.4% from baseline at week 12 with a statistical significance of (P=0.001). 75% of patients at week 12 reported an improvement in their overall carcinoid symptoms. Statistically significant improvements in stool consistency (p < 0.001) and trends of reductions in abdominal pain (p=0.09) and the number of cutaneous flushing episodes (p=0.052) were also noted. The median percentage reductions from baseline of urinary 5-HIAA (biomarker of serotonin synthesis) at weeks 8 and 12 were 68.3% (p=0.019) and 72.7% (p=0.031), respectively.
On October 12th Lexicon announced that it had initiated enrollment for its Phase III clinical evaluating LX1032 for the treatment of carcinoid syndrome. The registrational trial is a 12-week, randomized, double-blind, placebo-controlled study to evaluate the effectiveness of the drug as a new treatment for carcinoid syndrome that is refractory to a currently approved therapy. The 105-patient trial will then enter its final phase with each of the groups of subjects receiving the maximum dose, 500mg, three times per day for the remaining 36-week period. Depending on the enrollment rate, this should put topline results as being released in late 2013 with interim results likely throughout the year.
Tackling a fairly small indication, but with an unmet clinical need, Lexicon obtained Fast Track status and Orphan Drug designation from the FDA, and Orphan Drug designation from the European Medicines Agency for LX1032 to treat carcinoid syndrome. Lexicon is attempting to address a smaller area of need for this therapy than AMIC's radiogel for solid cancer tumors or AcelRX's ARX-01 for knee surgery and general abdominal or orthopedic surgeries. However, the Orphan Drug status for the therapy provides for competition-free marketing for LX1032 for up to seven years after regulatory approval to better enable the company to profit from its candidate's success. Despite also being a development-phase company, Lexicon's market capitalization is more substantial than the remaining two candidates at almost $960 million. However, the company does have a more impressive pipeline that is more diverse and tackling more indications than either AcelRx or AMIC. Each of these three companies has upside potential if events unfold positively for 2013. Interested investors should perform much research into each of these to more fully understand the potential for clinical and regulatory success as well as the targeted indication sizes. With 2012 waning, now could be the time to open a position(s) in anticipation of a possible exciting year ahead for these promising development-phase companies.