Last week was particularly special for four biotechnology companies. We saw very large gains as data related catalysts created a surge of optimism. With that being said, I am looking at four stocks that rose significantly, and am offering my take on what may be the best way to play the movement and the catalyst.
A Safe Clinical Stage Biotech With a Promising Future
ACADIA Pharmaceuticals (NASDAQ:ACAD) has seen an incredible year, with gains of 300%. And last week the stock rallied yet again with a 21% return after its drug Pimavanserin performed well in a Phase 3 trial. The drug is used to treat Parkinson's disease, and so far the company has already achieved positive top-line results and is proving its drug to be very effective at reducing hallucinations and delusions that are related to the disease. Therefore, ACADIA has become a truly innovating company and has made a medical breakthrough with the success of this product.
The reason that last week's study results were so important is because it validates the success of its previously reported trial. The company now has a valuation of $600 million and it is estimated that Pimavanserin has peak sales potential of $300 million. Therefore, I am not sure how much more the stock can extend, at this point in development. It's already trading at two times peak sales and is yet to sell its product. With that being said, I think ACADIA is a superb company, with a great technology that could become the next Pharmacyclics. However, with just one product near marketing approval for Parkinson's disease, and a pipeline that is in the very early stages of clinical development, most of the stock's upside will rest in the commercial success of pimavanserin and the company's ability to prove its efficiency at treating other diseases. Therefore, I do think there is better value elsewhere, at least right now, at this point, but that ACADIA should prove to be a safe investment long-term.
Massive Gains Might Just be the Beginning
Anacor Pharmaceuticals (NASDAQ:ANAC) exploded during the last two days of last week, with gains of more than 60%. The strong gains occurred after the company announced data for its Phase 2 product AN2728. The product is designed to treat eczema, which is a type of chronic rash that causes inflammation and itching, and is believed to have the potential to be more effective than rivals. In this one study, the product improved the skin condition by 71% over a 28 day period, and according to an analyst at Wedbush Securities, the product could generate global sales of $1 billion annually.
The interesting part of this story is that Anacor also has a Phase 3 product, tavaborole, a topical anti-fungal for the treatment of onychomycosis, and in two Phase 3 studies, it achieved statistically significant and clinically meaningful results on all primary and secondary endpoints. However, there was some immediate concern regarding age and health of clinical participants, and its effectiveness compared to Valeant's product efinaconazole.
The encouraging fact about Anacor is that the company has several promising products that treat large patient populations. And despite its gains of 60%, the stock is still valued at just $215 million. As a clinical stage company, this does compare favorably to ACADIA, and if success continues, then the stock could appreciate to reflect its billion dollar products. Therefore, I see a small investment as a good opportunity.
Catalysts "Could" Propel this Stock
Last Friday, shares of Halozyme Therapeutics (NASDAQ:HALO) rose 30.93% after its partner, Baxter (NYSE:BAX), announced that the EU has recommended the approval for HyQvia. HyQvia is Baxter's product but it uses Halozyme's technology. The market potential for this product is huge, $6 billion globally, and HyQvia has many advantages, such as being the only that is given once-monthly.
This is a company with a lot of potential, and with a lot of upcoming catalysts, including: news of market approval with Roche for its subcutaneous Herceptin product, ASCO presentation for its pancreatic cancer treating product, and a potential meeting with the FDA to discuss HyQvia. This is a stock that had received its fair share of negative news over the last year, losing about 50% of its value in the last 12 months prior to Friday. However, all negative news does appear to be baked into the stock, meaning that positive news could spark a short-term rally higher, that is if we receive more positive news.
Questions Regarding Patient Acceptance leaves me Skeptical of this Company
It was a crazy week for Titan Pharmaceuticals (OTCQB:TTNP), as the stock fell 40% after the FDA suggested that its product, Probuphine, might need higher doses, and then also raised safety concerns. This sparked fear ahead of the company's review by an advisory panel regarding whether or not to approve the product. Then, on Friday the stock rallied 35% as the FDA recommended approval of Probuphine for the treatment of addiction to heroin and opioid pain killers.
After Probuphine's approval, the company will receive $50 million from its partner Braeburn Pharmaceuticals, along with a low double digit royalty rate and up to $130 million in sales milestones. Therefore, with Titan having a market cap of just $125 million and it targeting a market of 2.3 million people, there is significant upside potential. In fact, with Reckitt Benckiser's drug Suboxone returning more than $1.4 billion in sales, you have to believe that Titan's buprenorphine drug could become a blockbuster.
While I do admit there is massive upside in shares of Titan Pharmaceuticals, I must also share from personal experience. For two years I worked for the Department of Corrections as a counselor to those with long-term prison sentences for drug-related charges, mostly heroin and opioids. In the program Suboxone was administered, and the program was very effective, as it removed the urge to use drugs while also being a partial opioid. Now, the problem with treating individuals in this space is more psychological than physical, as the physical addiction leaves in short-time, the psychological urge can last forever. Therefore, the process of simply taking Suboxone works on those psychological needs, and is similar to how a person who smokes will often chew gum or have a sucker/lollipop at all times to satisfy the oral fixation. With Probuphine, the drug is not taken orally, but rather implanted, and then releases the drug for long periods of time. Therefore, I am very skeptical of its success, as I don't know that it will become a product of choice for opioid addicts. However, I think it will be a compelling story to follow, but that the company faces multiple challenges of adoption, therefore any investment would have to be small.
Last week there were several big-time performances in the small cap biotechnology space. While I view each stock differently, I do acknowledge that at this point, all have great upside potential. In my opinion, ACADIA is the safest, Anacor has the greatest upside, Halozyme has the most catalysts, and Titan has the most questions. However, the good thing about biotechnology is that it is the ultimate industry of risk and reward, where all of your dreams can come true or can be crushed. Therefore, take time to assess these four movers yourself, because it is very possible that future gains will occur.