Biotech Stocks With Recent Developments: 3 To Consider, 1 To Avoid

Includes: CLSN, LJPC, MNK, MTP
by: Bio Insights

The following article will discuss biotech companies that have recently released fresh news, or will do so in the near future. While some of these are smaller and much riskier than larger companies in the healthcare sector that are well capitalized and generally more stable, these companies generally provide the best chance at making monster returns on investment within a few years - especially in the world of biotech, where sleeper hits are created on a frequent basis and subsequently bought out by big pharma for enormous premiums.

3 To Consider:

1.) Questcor (NASDAQ: QCOR)

News: Record Acthar sales in Q4 2012, no sign of any healthcare reimbursement disasters

Questcor is one of the few small pharma stocks that pay a dividend (as of October 2012). The company is also extremely profitable due to great sales of Acthar gel (the company's flagship product) combined with great margins. On top of this, the company is seeing top-line growth of over 100%, and is starting to raise dividend payments. In its last quarterly report, the company raised dividends by 25% to boost payouts to $.25/share per quarter.

QCOR has risen over 15% this year to reach a share price of $30.80 (as of the time of this article's creation), although there is much more room to run given the fact that Questcor was trading at roughly $50/share prior to a bear raid in September 2012 that greatly overstated the importance of an Aetna reimbursement change that removed Acthar coverage for patients with multiple sclerosis and nephrotic syndrome due to a lack of clinical evidence supporting Acthar in these indications. While this may have damaged Acthar sales to some extent, the doomsday scenario where other healthcare insurers would follow suit never actually occurred. Instead, Acthar sales continue to come in at record numbers and Questcor is finding itself flush with cash.

2.) DARA Biosciences (NASDAQ: DARA)

News: DARA regains NASDAQ compliance due to >$1.00/share price on NASDAQ

While DARA already has four products in its commercial pipeline, investors are mostly excited about KRN5500 - one of the two products the company has in the developmental phase. KRN5500 is being developed as a NCE molecule to treat chemotherapy-induced neuropathic pain - an indication that holds significant unmet demand and market potential for a viable FDA approved product. KRN5500 received fast track status by the FDA in 2011, and is waiting on orphan drug indication following an application that was submitted to the FDA recently.

Another interesting development in DARA has been the price action of the stock itself, which is hovering just about $1/share. DARA received notice from NASDAQ on February 12th 2013 that the company's stock has regained compliance with listing requirements, which I think will put a floor of $1/share on DARA for the immediate future. This also means that DARA will probably not have to undergo a reverse split - especially if the stock is buoyed on confirmation of orphan drug status for KRN5500.

3.) La Jolla (NASDAQ:LJPC)

News: FDA gives nod to submit IND for LJPC-501, paving way for an addition to LJPC pipeline

La Jolla is another company that has quite a few molecules in its developmental pipeline, although the company's narrow focus on the modulation of galectin (specifically galectin-3) has kept a lid on the company's future market prospects - as well as its valuation.

On Monday, the company issued a press release stating that the FDA gave the company the nod to proceed with an IND application on its compound LJPC-501, which will target the hepatorenal syndrome (HRS) indication. According to the company, the large number of patients suffering from HRS don't have any FDA-approved treatment options. This means that an approval of LJPC-501 would be an immediate slam dunk for La Jolla due to lack of competition.

LJPC intends to start the phase I trial for this new pipeline compound in the second half of 2013, which could generate new investor interest in the company.

1 To Avoid:

1.) Celsion Corporation (NASDAQ: CLSN)

News: Thermodox fails phase III trials, company later raises $15 million by selling preferred stock

Celsion was a very popular play on the cancer space in late 2012, and continued to be a great holding until the results of the phase III HEAT study were revealed in late January 2013. Thermodox, which is Celsion's only pipeline product, was a "big potential big risk" product that fell flat on its face when put to the test in clinical trials. This is why CLSN is down 88% since the start of the year, and why the market is only valuing the company a bit higher than the worth of its remaining pile of cash & short term investments.

Despite its performance in the recent phase III clinical trial for hepatocellular carcinoma (the most common form of liver cancer), Celsion has not shut down development of Thermodox and seems ready to hold out until clinical trial results are provided for Thermodox's other target indications. This includes breast cancer, which is being studied in the phase II DIGNITY trial.

Some people consider Celsion to be an acquisition target for some reason, although I find it hard to believe that the company looks attractive to anyone in its current state. The company was recently able to raise an additional $15 million in cash through the sale of preferred shares of CLSN, but the potentially dilutive effects of this transaction and the long-term outlook of Thermodox make CLSN an unfavorable biotech bet.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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