Below are some of the eye-catching headlines that have piqued the interest of investors in the health care sector. The brief pieces on each critical caption mention the background information while also analyzing how the market will potentially react.
Affymax's grave reaction to Omontys withdrawals
Unusual news from the weekend in the healthcare sector came out of Affymax (AFFY) after voluntarily withdrawing all lots of their only product, Omontys. There have been 19 reports of fatal reactions in patients following the first dose of intravenous use, leading to 3 deaths amongst the affected patients. Being the only stream of revenue for AFFY, Omontys' future sales are now in serious doubt after the recall, which lowered the value of the company's stock by 85% on Monday. To add, a negative cash flow and no other prospect leave the company with nothing but a tarnished reputation and accumulated damage control.
Looking at the situation from the alternative and more optimistic view of remaining shareholders, one may desperately argue a market overreaction to an event that has yet to provide a definitive answer. So far, management has not identified the cause to these fatal reactions. Since their clinical trials, which received FDA approval in March 2012, approximately 27,000 patients have received Omontys. Therefore, in more than two years time (during clinical trials and post launch), there had not been any fatal reactions to the use of Omontys. The FDA found the drug to be safe enough for approval. Suddenly, 3 deaths occur due to the administration of the drug in a matter of a month.
An explanation for such highly coincidental possibilities can be an issue in the manufacturing of the drug or even matters other than the drug itself. Obviously, the odds are stacked against AFFY to revive the prospects of Omontys. Nevertheless, until a definitive answer is provided, there remains a slight pulse that keeps remaining investors hopeful of a chance to salvage their investment.
Recent headlines have not been kind to Endo Health Solution (ENDP) as management has provided conservative guidance figures, competition is slowly creeping and analysts have been downgrading the struggling pharma, which is down 20% in the last year.
Monday rolled around with some refreshing news for ENDP shareholders who welcomed newly appointed CEO Rajiv De Silva. Despite a downgrade from Piper Jaffray, new CEO De Silva earned the approval of the market as shares traded almost 8% higher while being supported by significant volume. Investors are hopeful the former President& COO of Valeant Pharmaceutical (VRX) can begin a next chapter for ENDP that implements the same enhanced operating efficiency VRX enjoyed during his tenure.
De Silva represents a fresh start for the struggling pharma as generic competition will diminish its top-seller, Lidoderm, in September 2013. Such news influences the moderate projections of 2013 revenue. With De Silva in charge, talks of selling Endo have died down. Wells Fargo believes his appointment suggests Endo Health does not intend to put itself on the market in the near-term. Though this is mixed news for investors, De Silva is expected to steer Endo in the right direction and return significant shareholder value by possibly leading to more appealing acquisition terms in the distant future. Interested investors should keep an eye on ENDP, as earnings approach on February 28, while also analyzing the direction of the firm with a new head. Will a capable CEO be the solution to Endo's recent struggles?
Sanuwave: Turnaround in the making?
Sanuwave (SNWV.OB) is a medical device company that utilizes shockwave therapy for treatment of wounds with their Pulsed Acoustic Cellular Expression (PACE) technology. The company released an imperative news piece on February 26 regarding the appointment of a new CEO and oversubscribed capital offering, both of which indicate a possible turnaround in the making.
SNWV's lead product, dermaPACE focuses on the treatment of diabetic ulcers, which according to GlobalData is valued at $1.2 billion globally and expected to reach a $2.3 billion market by 2017. DermaPACE is currently under review by the FDA for their supplemental trial results, that are expected to initiate during 1Q 2013. This additional trial will require fewer patients than would otherwise be the case while still ensuring adequate statistical power. As a result, it will save significant time and cost. With the succession of this estimated 20 month trial, the medical device would meet the three dire "wound treatment" market demands. The technology would cut down overall treatment time in half, reduce costs/patient by a third and ensure 100% efficacy.
Sanuwave is in a comparable situation as the above headline regarding Endo Health. The struggling firm is initiating a fresh start with the appointment of a competent new leader to change the fortunes of the company. Joseph Chiarelli has had previous experience in the healthcare industry as well as on Wall Street in a management or research position for over 25 years. His extensive background of working with companies of discrete financial conditions enables him to execute an achievable corporate strategy. In addition, the company was working with select accredited investors (aka "smart-money") to raise additional funds of up to $1.25 million through convertible promissory notes. Due to strong interest, the company oversubscribed $2 million through sale of notes. This is a very telling show of confidence from existing "smart-money" investors who continue to support the company despite its recent struggles.
With the latest news coming out and impending successful trials, this company that was once trading at 10x current price may be poised for a turnaround to the same prior levels.
Competition heats up in the anti-obesity market
After much ongoing debate about the superiority of the FDA's two approved diet drugs, investors now have data to support their respective arguments. Vivus (VVUS) reported its 4Q results on February 25, the company's first full quarter of selling its diet pill Qsymia. Simply put, Qsymia results did not meet expectations which caused the price of VVUS to fall 5% in after-market trading. Sales for the quarter came to $2 million, missing the expected $3.1 million figure. However, the company reported that Qsymia prescriptions jumped 33 percent to 17,383 from January to February. S, G&A costs jumped more than eight-fold ($50.3 million) due to the launch of the diet pill. At this rate, more cash needs to be raised in the next year as VVUS will up spending to "launch a direct-to-customer campaign for Qsymia."
So, what do these results mean for the anti-obesity market? Qsymia's disappointing sales results indicate that there is an opportunity for competitor Arena Pharmaceutical (ARNA) to penetrate the open market with its own weight loss drug, Belviq. The increase in sales figure for Qsymia from January to February is an encouraging sign of traction in the market that indicates a healthy sector with growing demand.
All eyes will now be on ARNA with their upcoming March 4th conference call that will give clarification on commercial strategy for Belviq, while also potentially acting as the launch date. Considering Qsymia's underwhelming results, ARNA's strategy is crucial if the company wants to overcome sales expectations for their diet drug. A correct pricing and marketing strategy will determine whether ARNA has the upper hand over VVUS. Nonetheless, investors should keep in mind that one quarter is only a trivial indicator of what to expect going forward. These companies will continue to be compared until there is a clear cut leader in the market.
Disclosure: I am long SNWV.OB.