As an investor in predominantly development phase pharmaceuticals (no approved/marketed therapies or medical devices), my investments are often more affected by non-fundamental catalysts such as clinical trial data, targeted markets, regulatory decisions and company financing. Although certainly not immune to the ups and downs of the markets, these development phase companies, especially the ones with near-term catalysts, in my opinion trend up (and down) more independently of the broader markets than comparable market capitalization companies in other sectors. The broad Nasdaq Biotechnology Index (NBI), however, does seem to behave a bit more like the S&P 500 and other larger indices as it contains both development phase and marketing phase pharmaceuticals.
On October 5, 2012 the NBI reached intraday highs of 1548.59 before trending back down below 1350 in November. On February 1st the index met resistance again after trending back up to intraday highs then back at 1548.666 before trending back down. On March 1st the NBI finally closed above resistance, ending the day at 1560. Last week, the NBI, DJIA and S&P indices each broke resistance and traded at record highs to the dismay of bears who may have thought increased fuel prices, the North Korean political climate and our own mandatory budget cuts due to the March 1st sequestration would have been sufficient to send the indices back down. The resulting chart for failure to maintain these highs could give a bearish "double top" pattern for the NBI and even more bearish "triple top" for the S&P, so I believe we are still on shaky ground if these gains are not maintained for some time. Although I believe in resiliency of the American markets and the American worker, I still do not believe for a certainty that we have "blue skies ahead" with regard to our financial markets. However, as an investor I realize that risks must be taken to experience the potential rewards, and I believe that small pharmaceutical investments with near-term catalysts possess the appropriate risk/reward ratio for my investment goals.
For the immediate future, I will be monitoring a small selection of companies and trying to ascertain entries and exits based on their own merits and on the markets in general. This list is comprised of development phase pharmaceuticals with imminent share-price moving catalysts. Each of the presented companies has its own unique risks and rewards and should be researched more deeply before investment decisions are made. Although the possible major catalysts could occur in March, there is no guarantee if each of these will see the expected events in March or that the events will be positive in nature.
Affymax (AFFY) was a frightening investment for shareholders of record on Monday, February 25th with the company's shares opening down over 85% from Friday the 22nd's close of $16.52, opening Monday at $2.64. The drop was the result of a weekend announcement by Affymax and partner Takeda Pharmaceutical Company Limited (TKPYY.PK) that they were voluntarily recalling OMONTYS (FDA approved on March 27, 2012) for the treatment of anemia due to chronic kidney disease [CKD] in adult patients on dialysis. The announcement stated that fatal reactions occurred in 0.02% of patients receiving the drug for the first time (approximately 3-5 patients of the 25,000 who have received the drug). As of the recall date, approximately 0.20% of patients who received OMONTYS experienced some type of serious hypersensitivity reaction (approximately 50 patients). All lots of the drug were recalled, so the company apparently could not find a specific lot at fault and had no time frame on when or if the issue would be resolved due to the early stage of the investigation. With very few details given as to a time frame for the investigation and when/if OMONTYS would be returned to the market, shares remained depressed until last Thursday's surge from its opening price of $2.31 to the daily high of $4.10, before closing at $3.49 for a gain of over 53% on the day. With no news from either Takeda or Affymax, I could not find a legitimate reason for the surge other than some rumors and conjecture on social media sites. Time will only tell how the stock responds with regard to no news or substantial news in the week(s) ahead.
Affymax shares closed Friday at $3.29, up 22% on the week and down 6.53% for the day with intraweek lows of $2.26 and highs of $4.10. Due to the delicate nature of the recall, the week ahead could be extremely volatile as investors speculate as to if/when OMONTYS would return to the market, and under what (if any) restrictions. Some of the speculations can be found in a recent article I wrote titled "Speculation on the Cause of the OMONTYS Recall" in which I primarily investigated the possibility of polyethylene glycol (PEG) issues in the article, with additional findings in the comments section. However, other readers chimed in with additional legitimate opinions, giving an interesting spin on why or if OMONTYS was even at fault for the adverse events (AE). Before making any investment decision on Affymax, I strongly recommend interested investors review the article and its comments. With a current market capitalization of just over $122 million, the upside and downside could each be substantial depending on pending news, conjecture or rumors. This is not an investment for the risk averse, but I do see huge gains depending on what (if any) labeling restrictions are included if OMONTYS is returned to the U.S. markets.
With either a short interest covering or social media rumors being a probable cause for the huge surge on Thursday, I did find an interesting article released also on Thursday that may or may not have been a coincidence. Titled "Arrayit's Potential as a Blockbuster Companion Diagnostic," the article was released by Emerging Growth Corporation, an apparent Investor Relations (IR) company with Arrayit Corporation (ARYC.PK) listed as one of its clients. The article touted Arrayit's companion diagnostic test as a possible way to screen Affymax's patients to determine if an allergic reaction could be possible in response to an OMONTYS regimen. The article noted "Companion diagnostic tests are molecular assays that measure levels of proteins, genes or specific mutations in order to provide the right treatment to the right patient. In Affymax's case, companion diagnostics could be used to ensure that the patient being treated was not hypersensitive to Omontys. This would thereby avoid adverse events, while providing the convenience-related benefits compared to Amgen Inc.'s (AMGN) Epogen." Although Arrayit s product line is impressive, at least on the company's website, investors should perform much research on this Pink Sheets listed company with $3.8 million in revenue for 2012 with net income of a loss of $199 thousand. The company's common shares are also illiquid at the moment with an average of less than 24 thousand shares traded daily for this $5.19 million market capitalization company. Although Arrayit could provide a possible means to evaluate the patients experiencing adverse events with regard to OMONTYS and a means to screen future patients, the company should only be considered as a speculative possibility unless more information can be presented by the company. However, such diagnostic tests do exist elsewhere and would likely be a huge part of the OMONTYS investigation moving forward and could help to determine whether OMONTYS was at fault or not, and what the next steps should be in regard to possibly returning the drug to the market.
Another major catalyst also "lies in wait" for Affymax. The company submitted a Marketing Authorization Application in early 2012 to the European Medicines Agency (EMA) for European marketing of OMONTYS for the treatment of anemia associated with chronic kidney disease (CKD) in adult patients on dialysis. Although unlikely to market OMONTYS in the EU until current issues are resolved, the pending decision is indeed something investors should consider as they make their decisions.
AcelRx Pharmaceuticals (ACRX) reported topline results last Monday from the second of three Phase III trials underway evaluating its sublingual sufentanil pipeline for the treatment of acute pain. The trial evaluating the candidate for the control of post-operative pain following abdominal surgery is the second data of three trials underway evaluating the company's sublingual Sufentanil NanoTab PCA (patient-controlled analgesia) System, a device/drug combination that dispenses sublingual tablets containing sufentanil via a small caplet under the patient's tongue. To minimize the possibility of abuse or overdose, the device is programmed to dispense only the amount prescribed via the programmed schedule (once every 2 hours, for example). Data for the trial were impressive and met primary endpoint of pain control at 48 hours after surgery versus a placebo (p=0.001) and the secondary endpoints of pain control at 24 and 72 hours after surgery (P<0.001 and P=0.004, respectively).
Last week's data followed the first of the three Phase III trials for the NanoTab system, with the first data set released on November 15th of 2012. That trial evaluated NanoTab PCA effectiveness treating acute pain immediately following major abdominal or orthopedic surgery. The trial was a randomized 1:1 design comparing Sufentanil NanoTab PCA to IV-administered PCA morphine. Data demonstrated that the Sufentanil NanoTab PCA System was non-inferior (p<0.001) to IV PCA morphine for the primary endpoint of PGA (patient global assessment, an accepted means of evaluating pain control effectiveness) over the 48-hour period immediately after surgery as demonstrated by the combined percentage of patients with PGA ratings of "good" or "excellent" (78.5% vs. 66.1% respectively). With numerous secondary endpoints also mentioned in the press release, I advise investors use those data for their primary evaluation of AcelRx's impressive late stage clinical candidate.
AcelRx is anticipating Phase III results on its final trial for Sufentanil NanoTab PCA, evaluating 400 patients for acute pain relief 48 hours after hip or knee replacement surgery, sometime in Q2 2013. Although this will likely be a huge share price mover for the company's common shares, I do not believe that data release will be the next major catalyst for the company. On Tuesday of this week, AcelRx will release its Q4 2012 financials and corporate update after markets close for the day. Any number of possibilities for updates is possible, although I believe the most probable significant news could come in the form of a partnership announcement or update. Last Wednesday, AcelRx presented at the Cowen and Company 33rd Annual Health Care Conference. At the conference, Richard King, president and CEO, noted that it is "Our plan and our intent to commercialize this product on sales in the United States and to identify and consummate a partnership for commercialization outside of the United States." Based on those comments, it appears AcelRx should be readying a production facility of its own or a CMO (contract manufacturing organization) in the near future as well as its own sales force in anticipation of product launch sometime in late 2013 or more likely early 2014, pending regulatory approval.
AcelRx will be submitting a new drug application (NDA) in Q3 to the FDA for U.S. marketing approval. I also anticipate a near-simultaneous submission of the same trial data to the European Medicines Agency for marketing approval in the 27 EU member countries and additional 4 European Free Trade Association countries. While a European marketing partnership may not come until after the EMA decision, I believe that the already-released Phase III data were promising enough to garner potential suitors' attention, with data positive enough for a NDA (FDA) or MAA already released, regardless of the knee/hip data set. If for some reason the remaining indication data set is not statistically significant, the company would likely still submit applications for marketing approvals for the major abdominal or orthopedic surgery indications, still a significant target market.
Despite last week's exciting developments with promising Phase III data and solid presentations at Cowen & Company, AcelRx shares closed the week pretty much flat at $4.91, below its $5.00 support area. Interested investors should watch the stock trade early in the week to ascertain if a better entry can be found lower or if imminent events can help shares rebound a bit and begin trading upward with the company's market capitalization now value-priced at $182 million. Tuesday's after hours update could provide minimal and expected information, or it could contain information that may catalyze AcelRx shares ahead of time as the remaining data approaches, FDA and EMA applications are made, and a possible suitor is announced.
ZIOPHARM Oncology's (ZIOP) pipeline is focused on cancer treatment with the company's lead product candidate, ZIO-201 (palifosfamide), in a Phase III trial evaluating the chemotherapy agent as a first-line treatment for soft tissue sarcoma. On February 12, ZIOPHARM announced that the Phase III trial (PICASSO 3) had finally reached its target number of progression free survival (PFS) events. This event initiated the blinded data collection process and then efficacy analysis by an independent data monitoring committee (IDMC), with data to be released during the final week of March. If data are promising, the company could be holding the first FDA-approved treatment for soft tissue sarcoma in nearly 30 years, a huge event for the now $401 million market capitalization company.
So, what's the significant share price driver with no results yet known? Company CEO, Jonathan Lewis, stated in a recent interview that "All options are on the table." "There are discussions going on right now as regards potential partnering." Investors could take these discussions as a positive with the company showing indirect confidence in the upcoming data release. Lewis went on to state that "Ziopharm likely will collaborate with a large, global company, collecting a royalty on the medicine's sales if it's approved." According to JMP Securities analyst, Jason Butler, palifosfamide could earn annual revenue of up to $250 million by 2020 if approved. With peak annual sales of over half of ZIOPHARM's current market capitalization, the upside in its common shares could be significant, however the downside should also be considered by interested investors if data are negative.
ZIOPHARM's common shares closed at $5.04 on Friday, over its $5.00 resistance and setting the stage for what could be an exciting three weeks ahead. Many investors may consider buying on this strength and then watching trades closely as the data release approaches. If Friday's strength carries over into this week, I will also quickly open a position or buy on any short-term weakness in anticipation of a potential share price increase in the coming days/weeks. In terms of cash, the company stated in its Q3 2012 financials that it had $95.3 million in cash and equivalents and anticipated its funding was sufficient to carry it into 2H 2013. With multiple candidates in early as well as advanced-stage development, ZIOPHARM should have several significant events ahead for 2013. However, a second Phase III trial underway evaluating palifosfamide for small cell lung cancer (SCLC) is the next major value driver for the company. As interim data for SCLC are anticipated and released on the open label, adaptive and randomized study, ZIOPHARM could see its market capitalization approaching $1 billion in late 2013 or early 2014.
Interested investors should also consider a second scenario that could yield long-term gains with regard to a long position in ZIOPHARM. If the PICASSO 3 data fail to impress and the company's share price plummets, investors should remember that the second Phase III trial for SCLC is already underway, the company's pipeline is fairly deep, and its financials are decent for a development stage pharmaceutical. Therefore, current entry price (buying into strength) may be a solid plan for the week ahead, while consideration for a long position in the event data fail to impress at the end of the month could provide for another solid entry if the sell-off is significant.
The days and weeks ahead seem to have the broader markets primed for volatility as political tensions with North Korea continue to play out, the effects of the Federal Government $85 billion spending cuts begin to be revealed, gasoline prices could rise to record levels and Obama battles the GOP for an acceptable 2013 Federal budget. Any of these events can affect the markets dramatically and help to determine if markets trend down from current levels, if gains are held or if markets continue their bullish push upward. For these reasons and many more, I will continue to focus a large portion of my investment and trading portfolios in small, development phase pharmaceuticals with short term or even imminent catalysts ahead.