More Bio Run-Up Ideas

by: Alexander Maxwell

Due to the positive response of my previous article I have tried to include even more FDA decisions, to help investors fill in the gaps of time between FDA decisions. As we all know, FDA decisions can be very volatile to a stock, and can send a stock price soaring, or can send it way down (for an example of the potentially negative effects see AP Pharma (APPA.OB)).

There are many exciting FDA decisions coming soon, as well as many exciting European Pharmaceutical decisions coming up soon. In the interest of full disclosure about the European Medical Association (abbreviated EMA), remember that its panel recommendations are just like in the US, simply recommendations. The EMA usually follows the advice of its panels, but is not necessarily bound to act in the way in which its panel requests. In both cases, these decisions can have a very large impact on the price of a stock.

I would like to cover the decision faced by Avanir Pharmaceuticals (NASDAQ:AVNR) for its PBA drug Neudexta, but have unfortunately written this article too late to be able to cover the European Medical Panel Result. Obviously, this result will have a large impact on Avanir's share price as it will expand the potential market for its drug. This should provide for more revenues for Avanir, and subsequently bring it closer to profitability. I would look for a partner deal soon in Europe, which would provide some revenue to Avanir at little to no cost. The EMA CHMP Panel Result represents an important catalyst for Avanir.

The first stock that could experience a possible run up is the stock Onyx Pharmaceuticals (NASDAQ:ONXX), which is working on this drug in collaboration with Bayer. The drug in question is the drug Stivarga for Colorectal Cancer. This drug has already been approved by the FDA, so it seems that approval in the EU should not be an issue. The EMA is supposed to render a final decision on June 28th, 2013. Remember that often times with Europe this is just an estimate as to when a decision will be made. However, scenarios do exist where the EU and US regulators have not been the same in the decisions rendered towards a drug. The agreement for Onyx is very lucrative, as Onyx is entitled to a royalty of 20% on global net sales of Stivarga. Recent revenue projections have the drug reaching $1 billion in global sales in 2020. The approval by the European Medical Association would be very important for Onyx and Bayer to be able to reach this estimate. The opportunity for Onyx and Bayer to expand the market for this drug would mean even more royalty revenues for Onyx, which would of course mean a higher stock price. Look for this drug to be approved by the EMA, as it has been incredibly successful in obtaining quick FDA approval and was recently approved in Japan. In regards to the run-up potential of this stock, however, I am not so sure. With Onyx sitting at a market cap of $6.4 billion, this drug is important, however I would not expect that big of a run-up based on anticipated approval. Usually bio run-ups are best when it is a smaller cap pharmaceutical stock going for approval of its first or second drug. Another exciting EMA approval opportunity occurring on the same date is the EMA decision regarding Dendreon's Provenge.

Dendreon (NASDAQ:DNDN) has had some trouble selling its prostate cancer treatment Provenge. Provenge is a revolutionary treatment, however, the problem amongst others has been the cost of the treatment, along with the benefits of the treatment. The EMA is supposed to render a final decision on June 28th, 2013. Just like Onyx, I would expect for DNDN to be able to see Provenge's approval. This is also an important decision for Dendreon, as it desperately needs to find ways to be able to increase the sales of Provenge. Dendreon seems to be committed to marketing Provenge by itself in the European Union, which seems to be a good idea for the company. I would expect to see a pop in the share price should this decision be positive for Dendreon, but not a massive pop (maybe in the 7-10% range), I would imagine that approval already seems to be baked into the stock price at Dendreon. This is another scenario where a run-up is possible, however, I would not say that it is very probable. This is due to the nature of a widely expected approval, coupled with the relatively high market cap of Dendreon. Nevertheless, Dendreon has the potential to see some very good news from the European Medical Association Panel in April, and then Dendreon can move onto the same challenge that it has had in the United States, selling the drug.

Now back to the United States, a decision, which I forgot to include in my recent article was the US FDA decision on Navidea Biosciences (NYSEMKT:NAVB). The drug that the FDA will decide on is a breast cancer lymph node mapping drug called Lymphoseek. Lymphoseek managed to gain FDA approval on March 15, 2013. However, revenue projections are not that great for the drug, as I suspect that Navidea will have trouble convincing doctors that their drug is better than the currently utilized blue dye (which is also much cheaper to use as a technique). Nonetheless, congratulations to Navidea shareholders, and I am sorry that I missed it in my previous article.

Staying in the United States, Valeant Pharmaceuticals (NYSE:VRX) has an upcoming FDA decision on its drug efinaconazole for the treatment of toenail fungus infection. The PDUFA date is May 24th, 2013. For those of you who don't know, here is a quick recap. The PDUFA date is the date by which the FDA is expected to make a decision, the FDA has three options regarding the decision: approval, issue a CRL (which means not approved and states the reasons why the drug is not approved), or delay the decision for an additional time period, usually three months. Now, back to Valeant's drug, the Phase III data for the drug looked rather good, from the Valeant Press release announcing the results:

The study's primary endpoint was stringently defined as the complete cure rate at Week 52, which means that the target nail showed no clinical involvement and no evidence of fungus present by both KOH testing and a negative fungal culture. In Study 1, 17.8% of subjects treated with efinaconazole were completely cured, as compared to only 3.3% of subjects treated with vehicle and in Study 2, 15.2% of subjects treated with efinaconazole were completely cured, as compared to only 5.5% of subjects treated with vehicle. Using the secondary endpoint of complete or almost complete cure, defined as < 5% clinical involvement and 100% mycologic cure, the success rates for efinaconazole increased to 26.4% and 23.4%, respectively. The adverse events that were reported were generally mild and transient and were similar between subjects treated with efinaconazole solution 10% and vehicle.

As you can see in both of these studies, it appears as though the drug rather thoroughly beat the Placebo. This was done to a clinical significance, and with few adverse reactions, it would seem as though FDA approval for the drug is rather likely. In regards to the run-up potential, there may be a small run-up based on a small bump in the stock price should efinaconazole be approved. However, just like many of the other companies listed above we can see that with a market cap of $22.94 billion, that there is not that great of a potential for a run-up.

A very interesting upcoming decision is the one by the FDA regarding the fact of Affymax's (NASDAQ:AFFY) Omontys. Omontys is indicated for the treatment of Anemia in patients undergoing Kidney Dialysis. Omontys was recently pulled off of the market in the United States by Affymax and its partner Takeda Pharmaceuticals. Now, why would Affymax represent a good run up candidate considering that its drug was taken off of the market? Well, the fact that the share price is way down, and Affymax is sitting at a market cap of $51.10 million. Affymax desperately needs for this drug to be put back onto the market, and quickly. The problem for potential investors is the fact that it is not clear when exactly the FDA will make any sort of determination as to whether Omontys will be allowed back onto the market. Interestingly, as Affymax meets with the FDA there should be an increase in stock price, as investors will have renewed hopes that the setback will only be temporary. It recently slashed a large amount of its workforce, and there has been some bankruptcy speculation (see the above article). The FDA decision would represent a key Binary event. The FDA coming out in the determination that Omontys is allowed to come back onto the market; would help to prop up the stock price as Affymax would once again be able to generate revenue. However, Affymax would not be a stock that I would invest in personally. It is too laden with risk, and it is not even clear if the drug will ever be allowed back onto the market.

FDA catalysts represent an important situation for any stock. The idea of investing before an FDA catalyst event and leaving that position before the event and pocketing the "run-up" as profit will help to minimize the risk of a negative decision. Remember, however, that it is possible for the FDA to come out with a decision early so do be careful to not ride a decision too close to the wire.

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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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