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

With the market breaking out to all time highs, speculative money is sure to flow into stocks and nothing is more speculative than the biotech sector. In this article, we are going to look at two cancer stocks that have fallen 20% or more in the last month as these stocks should offer some nice upside potential for traders in the near term. These cancer related biotech stocks that have near term catalysts, have had recent drops in price and offer great potential for near-term rebounds.

1.Inovio Pharmaceuticals, Inc. (INO)

We have discussed INO in previous articles based on their tremendous pipeline and potential for 2013. In its earnings report on Monday INO stated, "We expect to report in 1Q 2013 interim data of a Phase II clinical trial, conducted by our collaborator ChronTech Pharma AB, treating hepatitis C virus with a DNA vaccine delivered with our proprietary electroporation delivery system in conjunction with a drug regimen." With only two weeks left in the quarter, news on this trial could come at any day.

Background:

ChronVac-C®, developed by ChronTech Pharma AB, is a codon-optimized NS3/4A DNA vaccine targeting chronic hepatitis caused by HCV, genotype 1. It is injected into muscle tissue and followed by electroporation using Inovio's MedPulser® DNA Delivery System, with the goal of achieving expression of and T-cell immune responses to the NS3/4A antigen. In an earlier Phase I study, 83% of the participants who received this treatment cleared the virus. This Phase II follow-on trial is an open-label, single-dose, randomized trial of 32 patients. The therapy will be given two times, with four weeks in between, followed by SOC treatment after the final vaccine dose in treatment-naïve chronic HCV infected genotype-1 subjects. This trial will assess the level of immune responses, levels of HCV viral load, and further assess the response to the delivery technology. Twenty patients will receive ChronVac-C® vaccine delivered with Inovio's electroporation device; the 12-patient comparison group will receive standard-of-care treatment alone.

Fundamentals:

Two weeks ago INO saw its share price crushed when it announced a $15.1m financing priced at 55c per share. This was expected given the numerous drugs it has under trial right now. Now that financing has been completed we can now await the many trial results upcoming. In the Monday earnings report management stated they now have enough funding to take them through 2014, so financing worries are now removed for the foreseeable future. It should be noted that the day after INO closed its financing that its partner ChronVAC received a bridge loan, perhaps from INO ahead of positive data. Also, the CEO of INO purchased 60,000 shares today.

Technicals:

INO has consolidated after its large drop on financing news. The stock had a similar sell-off late last year before rebounding 60%. A break over 55c on the INO chart, especially if coupled with positive trial news, could see the stock make a full recovery back to 70c or higher.


(Click to enlarge)

2. MELA Sciences Inc (NASDAQ:MELA)

Background:

MELA is a medical device company that has developed and is commercializing MelaFind(NYSE:R). The roll-out of this product is still in its infancy but is starting to finally gain traction. The 4th quarter earnigns release gave some nice updates on the commercial launch.

    • Obtained signed user agreements for 115 MelaFind systems in the US and Germany by the end of the fourth quarter.

    • Ended the fourth quarter with 95 MelaFind systems installed in dermatologists' offices in the US and Germany and continue to work with customers to train and assist them in using MelaFind appropriately in order to incorporate its use successfully into their practices.

    • Entered into discussions with over 100 additional dermatologist practices that either have a user agreement currently under evaluation, or have been classified as "highly interested" by the Company as of year-end 2012.

In a clinical trial of 1,300 patients presenting with over 1,600 lesions, MelaFind detected 98% of melanomas, while missing fewer than 2% of these early cancers. A control group of dermatologists in another controlled study using conventional techniques misdiagnosed the presence of melanoma 28% of the time. This data is being conveyed to more and more dermatologists. The key metric for MELA in the coming weeks will be updates on new installs. In the early days of a commercial launch this is the news that can drive stocks such as MELA sharply higher. The stock traded at $4+ on expectations and is now down 75% and could make for a compelling takeover target.

Fundamentals:

After the February financing and with the committed debt financing in place MELA has $30m in cash available to fund the roll-out of their product. Since FDA approval the stock has lost 75% of its value and it trading at multi-year lows

Technicals:

The stock dropped from $1.64 on its earnings report two weeks ago despite the positive indications from the company on the rollout. MELA appears to be putting in a bottom here at the $1.10-20 area and looks poised for a rebound back to the 50 day moving average at $1.56, a potential gain of 35%.


(Click to enlarge)

Final Thoughts:

These two biotech stocks have both been beaten down over the last two weeks but have put in bottoms in their charts and have upcoming catalysts. INO has Phase II Hep C trial data due any day. MELA appears to be gaining steam on its commercial rollout. Both offer compelling value here for some nice upside near term.

Source: 2 Cancer Stocks Ready To Rally