Small Pharma Watch List: Week Of April 8, 2013

by: Chemistfrog

Last week was eventful for small pharmaceutical traders with surprises around every corner. Among the biggest surprises is widely-followed Ariad Pharmaceuticals' (NASDAQ:ARIA) continued share price correction, closing the week at $16.88, down about 8% for the week and about 24% from its closing high of $22.2 on March 14, despite a reassuring April 4 conference call addressing concerns about its newly-launched Iclusig. Another favorite, Sarepta Therapeutics (NASDAQ:SRPT), continued its bullish stock price ascent on the heels of Friday's Phase II clinical update on an open-label extension study of eteplirsen in patients with Duchenne muscular dystrophy (DMD).

Results were promising for this unmet disease need, with the company noting that "after 74 weeks, patients in the 30 mg/kg and 50 mg/kg dose cohorts who were able to perform the 6MWT (modified Intent-to-Treat or mITT population; n=6) showed a statistically significant treatment benefit of 65.2 meters (p d 0.004) when compared to the placebo/delayed-treatment cohort (n=4). The eteplirsen-treated patients in the mITT population demonstrated less than a 5 percent decline (13.4 meters) from baseline in walking ability." The broader markets also experienced a bit of a correction with the Nasdaq and NYSE down for the week after the U.S. Labor Department reported that U.S. employers added less than half the number of workers than economists were expecting for March, 88,000 versus the 190,000 that had been predicted.

For the week ahead, I present investment options that should have increased investor interest for any number of reasons. The presented companies should be researched beyond the simple summaries presented below, but I believe each to present solid investment possibilities for the week ahead and beyond.

Rigel Pharmaceuticals (NASDAQ:RIGL) shares were pummeled with a 40.24% loss on Friday after partner AstraZeneca (NYSE:AZN) reported that its rheumatoid arthritis (RA) drug, fostamatinib, met only one of two endpoints in the first of three Phase III trials set to report data in the first half of 2013. Termed the OSKIRA-1 trial, data reported out on Friday indicated that the endpoint assessing signs and symptoms of RA as measured by ACR20 response rates was statistically significant for both dosages, with P<0.001 and P<0.006 correlations (generally speaking, P<0.05 or less is construed as statistically significant). Meanwhile, the second data point assessing an X-ray endpoint known as mTSS (modified Total Sharp Score) failed to have statistical significance versus a placebo with any dosage at 24 with a terrible data set of p=0.252 and p=0.170. While the miss is significant and could at the very least limit the targeted patient set, it does not put an end to the program with two more trials set to report out in the next two months. For my thoughts on the program and what could happen next, please see a recent article I wrote on some Phase III candidates with data reporting out this year. A Bloomberg report on the OSKIRA-1 data sums up my thoughts via an analyst's words: "The jury is still out on fostamatinib," David Ferreiro, an analyst with Oppenheimer & Co., wrote in a research report today. He has an outperform recommendation on Rigel. 'Overall, we expect downside in the shares and need more data to 'reach a conclusion.'"

Trading at its 52-week low, with two more Phase III trials having data reported out in the next couple of months, I would anticipate that shares should start trending back up as those announcements approach. However, the downside risk is certainly real with a possibility of both remaining trials also failing to meet endpoints, so investors should know the risks and plan accordingly. Something else is also relevant for those wishing to research Rigel. Regardless of the trials' outcome, the company's cash position is solid, having just over $298 million as of Dec. 31 -- enough to carry the company into 2015 according to the company's 2012 10-K.

Sorrento Therapeutics (NASDAQ:SRNE) is an under the radar small pharmaceutical company that is quietly having an impressive year. Although there is much happening with the company in many areas, the week ahead could be an exciting one due to presentations that could push the company's pipeline and investment potential into the spotlight. The presentations will be from Sorrento's recent acquisition, IGDRASOL, a private entity that is developing a pipeline focused on fighting metastatic breast cancer (MBC), non-small cell lung cancer (NSCLC) and other cancers. Sorrento announced its exclusive option to acquire IGDRASOL on March 7 and gave a brief summary on the acquisition's product line. Most importantly in the announcement was IGDRASOL's lead product candidate, Cynviloq™ (IG-001), which is completing a Phase II clinical with the company preparing for an upcoming Phase III registration trial. IGDRASOL has already submitted an "End of Phase II" request to the FDA and expects to meet with the regulatory agency by the end of the first half.

As a formulation of already-approved paclitaxel, Cynviloq™ could be eligible for approval via FDA's 505(b)(2) bioequivalence regulatory pathway versus albumin-bound (protein-bound) paclitaxel (Abraxane®) in its currently approved MBC and NSCLC indications. Rather than using an albumin-bound formulation, Cynviloq™ employs nano-particle paclitaxel with a polymeric micelle technology to aid in administration, dissolution and tumor adsorption. Clinical studies of IG-001 in the U.S. and other countries such as Korea and Russia, have demonstrated similar clinical activity as Abraxane® in patients having MBC, NSCLC, advanced pancreatic cancer and ovarian cancer. The 505(b)(2) pathway, if approved, would allow the company a much shorter and cheaper regulatory path to the markets. Additionally, the Cynviloq™ could benefit from up to five years of market exclusivity, keeping "copycat" generics from taking away pieces of the targeted market group pie.

On March 31, Sorrento and IGDRASOL announced that IGDRASOL would be presenting data this week on April 8, 9, and 10, with each presentation lasting from 1:00-5:00 p.m. at the annual meeting of the American Association for Cancer Research (AACR) in Washington, D.C. According to the press release, the time, title, authors and location of the data presentations are as follows:

1) Monday, April 8, 1:00 - 5:00 PM (2141/10) - "IG-001 utilization of albumin mediated transport and its potential application in difficult to perfuse tumors." Kouros Motamed, Larn Hwang, Chao Hsiao, Vuong Trieu. IGDRASOL, Fountain Valley, CA. Poster Session, PO.ET01.03. Novel Targeted Therapies 1.

2) Tuesday, April 9, 1:00 - 5:00 PM (3481/27) - "Development of personalized paclitaxel therapy (IG-001) for ovarian cancer." Larn Hwang, Chao Hsiao, Kouros Motamed, Vuong Trieu. IGDRASOL, Fountain Valley, CA. Poster Session, PO.CL13.08. Biomarkers 5: Breast and Gynecologic Cancers.

3) Tuesday, April 9, 1:00 - 5:00 PM (4526/24) - "IG-001 - Evaluation as next generation nanoparticle paclitaxel against poorly perfused tumors." Vuong Trieu, Larn Hwang, Kouros Motamed, Chao Hsiao. IGDRASOL, Fountain Valley, CA. Poster Session, PO.CH06.01. Drug Delivery Technology.

Data presented should give investors an idea of the efficacy and safety profiles of Cynviloq™ and help them better assess the likelihood of regulatory success that could allow it to take a piece of Abraxane®'s greater than $400 million in sales in MBC alone in 2012. Any comments pertaining to the upcoming "End of Phase II" meeting or the 505(b)(2) bioequivalence regulatory pathway designation could also be possible, either of which could increase shareholder interest in the coming days. Like Rigel, an investment in Sorrento is not for everyone due to elevated risks because of its development-phase pharmaceutical status, low market capitalization, low share price, and reduced liquidity, any of which may make it an unsuitable holding for some investors. However, the upside potential should be considered, and I advise interested investors to watch closely for announcements from IGDRADASOL or Sorrento from the conference.

Oculus Innovative Sciences' (OCLS) shares have been having an impressive two weeks after what could have been construed as two share-price damaging announcements. On March 7th, the company announced a stock offering of 7,500,000 shares priced at $0.40 (post split adjusted to $2.80) per share to raise $3 million to advance its family of products based upon its proprietary Microcyn® Technology platform, which includes new formulations designed to reduce the need for antibiotics as it reduces infections. In another bit of potentially-negative news for shareholders, on March 28 the company announced a 1-for-7 reverse split of its common stock in order to regain Nasdaq listing compliance. In many cases, the offering and the subsequent reverse splits are often followed by either downtrends or sideways trading for share prices. However, shareholders that were likely hesitant about the company's financials and/or imminent reverse split now seem to be more optimistic about the company's, and its share price's futures. In the last week alone, shares that opened last Monday at $3.25 closed out the week at $3.92 for a one-week gain of over 27%.

In the week ahead, investors should watch and see if the company's stock chart continues its bullish trend or if resistance at split-adjusted $4.00 and $4.25 will send shares back down, possibly continuing its 4-year downward trend. In my opinion, the worst is behind Oculus and better times are likely ahead as the company continues developing its pipeline, garners U.S. and international partnerships and increases its revenue. Oculus' fiscal Q3 2012 ended on Dec. 31, 2012. The company had $6.6 million in cash and equivalents on Dec. 31, which gives the company about $9.5 million in current cash holdings after its March 12 offering closing which included an over-allotment providing the company with about $3.45 million in capital. While Oculus continues developing its pipeline in hopes of increasing revenue in the U.S., the company is having solid regulatory success internationally.

The company's Microcyn® Technology products have obtained a CE Mark device approval in Europe for debriding, irrigating and moistening acute and chronic wounds in comprehensive wound treatment via reducing microbial load and creating a moist micro-environment. In Mexico, Microcyn® is approved as a drug for antiseptic treatment of wounds and infected areas. In India, the company has a drug license for cleaning and debriding in wound management. In China, Oculus has additionally obtained a medical device approval by the Chinese State Food and Drug Administration for reducing the propagation of microbes in wounds and creating a moist micro-environment for wound healing.

I anticipate continued revenue growth as Oculus grows its international sales force. If/when it can garner a U.S. approval, the large market here would likely reverse its four-year share price drop and send the approximately $25 million market capitalization company stock back up on a prolonged uptrend. Even with no U.S. approval, the company's revenue is steadily increasing. In Q3, it reported $3.5 million in revenue, up 25% from its previous Q3 2011 of $2.8 million. U.S. revenue from Oculus's animal healthcare partner, Innovacyn for the three months ended December 31, 2012, was $883,000, up $218,000 from the same period in 2011. Revenue growth attributed to Oculus's dermatology partners reflected strong division growth as three new products were launched in Q4 of the fiscal year ending March 31, 2012. Interested investors should perform additional research in Oculus before opening a position. The company's potential is beyond the scope of this article, which is written to merely mention the short-term bullish trend in the company's stock under high volume and after a solid fiscal quarter behind it. I will be performing additional research on the company myself before opening any position, but am excited about what I see so far.

Supernus Pharmaceuticals (NASDAQ:SUPN) is one of the most oversold pharmaceuticals in 2013 with no real reason behind its share price plummet that I can ascertain. Since the Jan. 2 open of $7.17, shares have dropped about 25% YTD. The biggest drop occurred just after the release on March 14th of its Q4 2012 and 2012 10-K financials and corporate update, with no unexpected or negative information released. On Feb. 1, Supernus launched its recently-approved Oxtellar XR™, a novel once per day extended release antiepileptic drug approved for the treatment of partial seizures in adults and in children 6 to 17 years of age. The launch was accompanied by a marketing push from about 75 sales representatives, presumably scattered throughout the U.S. to get the product information to as many pertinent healthcare providers as possible.

Mentioning the launch in the March 14th announcement, the company president and CEO noted: "Looking forward into 2013, we are excited about our recent launch of Oxtellar XR™ and the upcoming launch of Trokendi XR™ in the third quarter of the year. Our sales force is now fully engaged in promoting Oxtellar XR™ to high prescribing physicians. We have made excellent progress in placing Oxtellar XRTM on managed care formularies and distributing Oxtellar XR™ through the wholesaler network." With little information yet available on how Oxtellar XR is performing in terms of sales, CFO Greg Patrick stated that "assuming availability of the requisite data, the company believes that it may be able to report revenue for Oxtellar XR prescriptions that were sold in the first quarter in our second quarter financial results." Perhaps this delay in sales data scared shareholders who doubted actual sales growth?

Regardless of what happened, the 20% selloff of the company's stock on March 15 was significant and in my opinion was due to a single large shareholder, perhaps an institutional shareholder, compounded by stop limits being triggered and sending shares downward on a large volume selloff. The following Monday also witnessed a large volume day, with shares dropping below $5.00 per share on March 18 and 19 and have traded in the $5.00 to $5.70 region since then.

I believe Supernus shares are dramatically oversold and should begin recovering soon as anticipated sales updates are expected in its Q2 filings. With the current volume now down to pre-March 15 levels and the likely large seller being done selling in the interim, last week marked a week of promise for Supernus common shares. After trading down at the $5.00 range again on Wednesday and Thursday, the one month chart appears to be developing a bullish "double bottom" technical chart formation, with Friday's surge of $7.71% with a $5.45 close certainly confirming that bullish possibility. Supernus has a couple of other significant catalysts, in addition to the Oxtellar XR sales update.

On June 26, 2012, the company received tentative approval on what should have been its flagship drug, Trokendi XR™, a once-daily extended release formulation of topiramate (formerly known as SPN-538), also for the treatment of epilepsy. In the announcement, Supernus noted that "the letter (from the FDA) states that the FDA completed its review of the Trokendi XR™ NDA and that no additional clinical trials are required. Our initial understanding is that final approval is conditioned on resolving a marketing exclusivity issue raised by the FDA regarding a specific pediatric population." In its recent 2012 10-K, the company mentioned Trokendi XR™ in the statement: "Looking forward into 2013, we are excited about our recent launch of Oxtellar XR™ and the upcoming launch of Trokendi XR™ in the third quarter of the year."

With Q2 already well on its way, anticipation of the final approval and launch of Trokendi XR™ in Q3 should begin garnering investor interest in the coming weeks. On Nov. 20, 2012, Supernus announced Phase IIb results of its lead product candidate, SPN-810 for the treatment of children ages 6 to 12 diagnosed with Attention Deficit and Hyperactivity Disorder (ADHD) and characterized by impulsive aggression not controlled by optimal stimulant and psychosocial treatment. Data were promising with solid information to support dosing requirements with solid safety data prompting the company to advance the drug to Phase III registration trials with an FDA meeting to discuss trial design in 2013. In the 2012 10-K, the president noted: "Since we issued the topline results we have been analyzing the full dataset and working on putting together a package that outlines our development plan including a proposed Phase III design to discuss in detail with the FDA later this year."

Friday's late-day surge of Supernus shares may very well have been the beginning of the next leg back up for the company's stock chart, with the 52-week highs of $16.68 still quite a way away. So, the stock's chart appears to have bottomed, sales data are likely in Q1 financials, the company's next approved product launch appears to be imminent in Q3 and updates on the FDA meeting and trial design decisions are likely in Q4 for SPN-810. Interested investors should watch Supernus trade early in the week and determine for themselves if this is indeed the beginning of increased share price and investor interest in Supernus with good upside potential ahead.

The company has enough money to fund operations into Q4, but I believe a partnership could be possible moving forward with marketing help in the U.S. or licensing out either of its epilepsy drugs to international marketing to fund operations until the company reaches profitability. Another possibility (yes, speculative only) is a partnership for SPN-810, with an upfront payment helping the company out financially as well. Partnership or not, licensing or not, I believe Supernus shares will become and remain bullish at least until Q1 financials are released, and then even longer if Oxtellar XR™ sales are strong. I advise interested investors keep Supernus in mind moving forward with little downside from the company's current $168 million market capitalization expected by the author.

Disclosure: I am long RIGL, SUPN. I may initiate a long position in SRNE or OCLS over 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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