Seeking Alpha
Long/short equity, deep value, growth, newsletter provider
Profile| Send Message| ()  

Last week we looked at two biotech stocks that had fallen greatly in the previous weeks on bad news. As we mentioned, bad results from drug trials and FDA denials are the two major killers of biotech stock prices and the portfolios of those who invest in them. These sell-offs, however, can prove to be very lucrative to those not in the stock when the crashes occur. We looked at Celsion Corp, (CLSN) and Tranzyme Inc, (TZYM) last time. Over the last week shares of Celsion have since rebounded from a close of $1.16 to an intraday high of $1.54, a gain of approximately 33%. Tranzyme saw its shares move from 56c to an intraday high of 65c for a 16% gain. In this article we are going to look at two more biotech stocks that have seen steep drops in their stock prices in recent weeks on bad FDA news. With the same criteria as the last article we are going to examine their pipelines and look at the potential for rebounds in their stock prices in the near term.

Columbia Laboratories Inc, (CBRX)

Columbia develops products by utilizing its proprietary bioadhesive drug delivery technologies to treat various medical conditions. The company offers bioadhesive vaginal gel products that provide solutions for infertility, pregnancy support, amenorrhea, and other gynecologic conditions. Its products include CRINONE and PROCHIEVE, which are progesterone gels; and STRIANT, a testosterone buccal system. Columbia sold U.S. rights to CRINONE 8% and CRINONE 4% to Watson Pharmaceuticals, Inc. (now Actatis, Inc.) in July 2010. Merck Serono holds marketing rights to CRINONE 8% for all territories outside of the United States. On Ocotober 26, Columbia confirmed that the U.S. Food and Drug Administration has denied Watson Pharmaceuticals' (WPI) Formal Dispute Resolution Request related to its New Drug Application for Prochieve for the prevention of preterm birth in women with a short cervical length. Watson stated that it intends to review possible options related to the continued pursuit of the NDA. This is the news that sent shares of Columbia down 40%.

Columbia derives its revenues from manufacturing the drugs it sold marketing right to Watson and Merck.

Some highlights of their most recent earnings report include:

  • Total net revenues increased 35% to $6.7 million in the third quarter of 2012, compared to $4.9 million in the third quarter of 2011.
  • Net product revenues were $5.6 million, compared to $4.1 million in the third quarter of 2011, due to higher sales of CRINONE® (progesterone gel) to Merck Serono S.A. ("Merck Serono") and Watson Pharmaceuticals, Inc. ("Watson").
  • Gross profit on net product revenues was 43%, compared to 24% in the third quarter of 2011, due primarily to greater sales in higher-margin country markets.
  • Operating income was $1.4 million, versus an operating loss of $0.6 million in the third quarter of 2011, reflecting the higher revenues and a $0.4 million decrease in operating expenses from prior year levels.
  • Cash, cash equivalents and short-term investments increased by $2.6 million in the quarter to $25.6 million at September 30, 2012.

This marked the companies second straight quarter of operating income and positive cash flow. With a market cap of only $53m and $25m in cash with positive cash flow generation this small biotech looks very attractive at these prices levels. If Watson is able to appeal to the FDA for a new trial for Prochieve there could be significant upside. Many times biotech stocks that fall on bad data are burning cash and have no sales. Columbia on the other hand has a growing business that is profitable and generating positive cash flow with the potential of good news on their pipeline. Columbia has a chart breakout at 65c with a move to 75c and $1 as potential targets.

Zogenix, Inc (ZGNX)

The company engages in the development and commercialization of products for the treatment of central nervous system disorders and pain. Its commercial product includes Sumavel DosePro (sumatriptan injection), a delivery system that offers needle-free subcutaneous administration of sumatriptan for the acute treatment of migraine and cluster headache. The company's lead product candidate, Zohydro, is a single-entity extended-release hydrocodone, which has completed Phase III clinical trials for the treatment of moderate to severe chronic pain requiring around-the-clock opioid therapy. It is also developing Relday, an injectable formulation of risperidone to treat the symptoms of schizophrenia and bipolar disorder in adults and teenagers 13 years of age and older. In December shares of Zogenix lost 50% of their value after an FDA panel voted against a stronger version of hydrocodone, questioning the need for a new form of one of most widely abused prescription painkillers. The final FDA decision is due on Zogenix on March 1, a little over two weeks away. It is not unheard of for the FDA to ignore its panel recommendations. Zogenix could see its share price move up into the decision. Zogenix has a chart breakout at $1.51 that could see a quick move back to the $2 area ahead of the FDA decision.

Biotech stocks carry risk but with that risk comes high reward. It is not uncommon for the FDA to ignore panel decisions. Zogenix has a near term catalyst with its upcoming FDA decision. With its chart set up and speculation, the stock could see a nice rebound in the coming weeks. Columbia is a cash flow positive stock growing revenues with the potential for positive FDA news or even a buyout. With $25m in cash it would make sense for either Merck or Watson to pick up Columbia at these depressed prices. Like Celsion and Tranzyme both these stock carry high risk but as those two stocks have shown in recent days that risk can give nice returns to investors looking to speculate on bounces!

Source: Speculative Biotech Stocks That Could Bounce, Part 2