Don't Miss These 3 Healthcare Sweet Spots

Includes: CLDX, KERX, SRPT
by: Fusion Research

Biotech companies offer a solid long-term opportunity for investors, but drug approvals still remain an issue for them. They are involved in development of new drugs, which are constantly undergoing clinical trials. The new drugs cater to unmet needs, create a market opportunity, and bring in constant revenue for these companies. These companies also face risk on their research & development spending from clinical trial failures and regulatory delays. Three such biotech companies are developing promising new drugs. Let's look at their roadmap of development.

New Drugs in pipeline to be a valuable asset

Celldex Therapeutics' (CLDX) vaccine Rindopepimut, or CDX-110, is in its phase III trials and is expected to complete it by the end of 2013. Rindopepimut is a brain cancer vaccine, which creates a defense system against a gene, EGFR-VIII, which causes the growth of brain cancer.

In the previous phase II ACT III trial results, cancer patients survived for 21.8 months, compared to historical results of 15 months survival with other drugs. CDX-110 is currently the only EGFR-VIII specific vaccine under trial for the treatment of brain cancer, and pharmaceutical research firm Decision Resources expects it will gain an 18 percent patient share in the U.S. in the Glioblastoma multiforme, or GBM, market by 2020.

GBM is the most common and aggressive form of brain cancer, which includes EGFR-VIII affected patients too. The vaccine is expected to cost more than $100,000 for annual treatment and is expected to be approved by FDA in 2016. Revenue after the successful results of Phase III and the approval is expected to be $8.87 million in 2016 and $45.75 million in 2017. This will be a significant contribution to Celldex's topline as its revenue was only $11.20 million in 2012.

Celldex is also planning to initiate phase IIb trials of its drug CDX-011 in the second half of 2013 after positive result from the previous Phase II EMERGE trial. CDX-011 is a drug that can help treat breast cancer patients with Triple-negative breast cancer or TNBC and high Glycoprotein non-metastatic b, or GPNMB. TNBC and high GPNMB are specific cases of breast cancer. The final results of the trials and approval are expected in 2015, and if approved, will help to treat 6% of all breast cancer patients. The total breast cancer patients with TNBC and high GPNMB, is expected to be around 63,000 people in U.S. and around 100,000 people worldwide. It is expected that CDX-011's revenue will be $5.27 million in 2016 and $46.44 million in 2017. The constant revenue stream after the commercial release of its drug will cause the EPS to rise to negative $0.23 in 2017 and $0.84 in 2018 from negative $1.02 in 2012.

NDA filing for Zerenex in US and Japan

Keryx Biopharmaceuticals (KERX) is developing a new drug called Zerenex, which will be used for the treatment of dialysis patients who are suffering from renal disease. Zerenex has already completed two phase III clinical trials and recently filed for FDA approval.

During phase III trials, Zerenex reduced the usage of some of the compounds used, like 24% less Erythropoiesis-Stimulating Agents, or ESA, and 52% less IV-iron, during dialysis treatment. The reduced usage of these compounds could mean a saving of $750 million annually for dialysis centers. Zerenex is expected to be approved and reach the market by 2014. According to Fresenius, a medical equipment company, there are over 400,000 dialysis patients each in the US and EU, and Keryx anticipates a combined revenue of $500 million a year from the U.S. and EU in 2014.

For the further development and commercialization of Zerenex in the U.S., Keryx has maintained the drug itself, whereas in Japan it has sub-licensed the development to JT and Torii Pharmaceutical (OTC:TRXPF), or JTT. Under the agreement, JTT has to pay royalty fees and certain payments based upon the progress report of the drug approval in Japan. As a result, Keryx has received a payment of $7 million from JTT related to filing for approval with the Japanese ministry. In addition, JTT will make royalty payments to Keryx on net sales of Zerenex. Keryx has received $35 million-up-to date from JTT. There are approximately 304,000 dialysis patients in Japan, and the expected cash flow to Keryx will be $10 million in 2014 and $28 million in 2015. This is substantial for Keryx, since this is the only source of revenue for the company until it launches Zerenex. The approval of its drug is expected to take its EPS to a positive figure of $0.44 in 2015 from negative $0.32 in 2012.

Competition for new DMD drug

Sarepta Therapeutics (SRPT) received an approval from U.S. regulators to file a New Drug Application, or NDA, for its drug Eteplirsen, and has decided to file an application in the first half of 2014. Eteplirsen is a drug to treat Duchenne muscular dystrophy, or DMD, a rare muscle disease, which deprives affected boys the ability to walk.

This NDA filing approval is due to its remarkable phase IIb results, which showed effective benefit to boys suffering from the disease. DMD is a fatal, progressive disease diagnosed between the age of three to five years. It affects one in 3,600- 6,000 newborn boys worldwide. Although this disease has been for several decades, no treatment has been invented yet. This drug is commercially viable because the unmet medical need for DMD is high and treatment is lifelong. The total number of DMD patients is approximately 10,000 in the U.S., and Eteplirsen is expected to give Sarepta total sales of $1.7 billion over the next six years.

Sarepta's competitor GlaxoSmithKline (GSK) also announced that it has received a breakthrough therapy status for its drug Drisapersen from the FDA. Drisapersen has a similar mechanism as that of Eteplirsen, but it uses a different chemical compound. Even if Drisapersen appears on the market before Eteplirsen and takes 50% market share, that still leaves half of the market for Sarepta. In addition, Drisapersen has shown some major side effects leading to a few hospitalizations in phase III trials. Sarepta could reverse the negative EPS trend and show positive EPS of $8.80 in 2016, once Eteplirsen comes onto the market.


While analyzing biotech companies, investors should look at the potential drugs in the pipeline. All three biotech companies discussed have negative EPS due to the absence of a constant source of revenue. However, after the commercial release of their drugs, they will achieve positive EPS, which is a good sign for the future of these companies. CDX-110 will be game changing product for Celldex as it is the only EGFR-VIII vaccine. Keryx is likely to receive drug approval for Zerenex after filing for NDA in both the U.S. and Japan. Revenue from Zerenex is anticipated from 2014 onwards. Sarepta's new drug has a huge opportunity ahead since there is currently no treatment for DMD. We believe these three biotech stocks will garner returns for the long-term for investors.

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.