3 Biotech Products To Watch Over The Next Year

Includes: AMRN, GALE, OSIR
by: Amy Baldwin

Product catalysts in biotechnology can transform the valuation of a company. Sometimes a product can be unsuccessful, or remain relatively unnoticed, but a marketing catalyst can change a product's outlook for the better. Over the next year, there will be many such examples, but three companies in particular really stand out as having the potential for change on momentous catalysts.

#1) Grafix

Osiris Therapeutics' (NASDAQ:OSIR) stock more than doubled after the company presented data on the stem cell product, Grafix, which is derived from human placentas to treat serious wounds. The noted data was on patients who suffer from diabetic foot ulcers.

In a study named Protocol 302, Osiris showed that 62% of the patients who were treated with Grafix saw their wounds close, versus 21% who were not treated with it. In terms of volume, Grafix yielded closed wounds in three times as many patients compared to conventional treatments.

Osiris' press release estimates the diabetic foot ulcer market to be worth $2 billion yearly, and with current data Osiris claims that Grafix is the best available treatment. Osiris will begin to market the product immediately based on Protocol 302, as it does not need regulatory approval. Given Osiris' $630 million market cap, it appears the market has high expectations for Grafix. Yet, Craig Hallum has already stated that MiMedx's (NASDAQ:MDXG) Epifix is better than Grafix.

The outlook is mixed in regards to Grafix, and we really don't have much to use as a guide to whether it will be a commercial success or a flop. The product will be closely watched in the year ahead. If sales reflect Osiris' noted $2 billion market, the company could trade considerably higher. In addition, investors should note the state of the biotechnology industry. New companies are filing IPOs with $600 million plus market capitalizations without human data. Osiris has a product on the market and $15 million in sales during the last 12 months. Thus, Osiris looks to be a much better value and opportunity compared to other companies in the space, suggesting that Grafix might be worth the risk.

#2) Vascepa

By most accounts, sales of Amarin Corporation's (NASDAQ:AMRN) fish oil product, Vascepa, have been very disappointing. In the company's most recent quarter, sales were just $5.5 million, far short of the $8.43 million that was expected. But keep in mind: expectations have been lowered over the last year as Amarin's stock has fallen almost 55% during the last 12 months.

Vascepa competes with OTC fish oils -- but with prescription strength, fewer pills are needed to obtain a therapeutic result. Currently, Vascepa is FDA approved to treat patients with severe levels of triglycerides, those at 500 mg/dL or above. Amarin estimates that four million people in the U.S. alone fall into this category, with the highest levels of triglycerides.

While sales have been disappointing, Amarin could drastically improve its outlook in the months ahead. In October the FDA advisory panel will likely indicate whether the company's ANCHOR indication will be approved. If so, patients with triglyceride levels above 200 mg/dL will be eligible to take Vascepa. According to Amarin, this indication includes 40 million patients in the U.S., more than 10 times its current patient population.

Amarin is currently trading with a market capitalization of $1 billion and has seen its valuation increase 14% in the last month. With the ANCHOR indication being so important, it is very possible that Amarin will significantly trade higher prior to the panel notes in October. If approved, the bulls' perspective significantly strengthens as Vascepa was once a drug with peak sales expectations upward of $2 billion annually -- some analysts now foresee sales of just $500 million -- and it's likely that many of those high expectations will begin to surface once more, with an additional 40 million patient population. Accordingly, an Amarin with a billion-dollar worth begins to look very attractive.

#3) Abstral

Galena Biopharma's (NASDAQ:GALE) breakthrough pain medication, Abstral, has been somewhat overlooked by investors; but with the product now launched, Galena's stock has traded higher by an incredible 40% in the last month.

What makes Abstral unique is that it is dissolved under the tongue and also begins to work in just 10 minutes, delivering high levels of fentanyl. The FDA approved the drug in 2011, but its launch has primarily been into the European market, orchestrated by the company ProStrakan.

In 2012, Abstral produced sales of $54 million, and enjoyed a 42% year-over-year growth rate in Q4 2012. Currently, the product has a 29% fentanyl market share in Europe. In the U.S., the fentanyl market is estimated at $400 million annually, which is where Galena will market Abstral.

Abstral will not be a record-breaking product in terms of profitability, but its low expectations make it a drug worth watching over the next year. Galena has set the bar quite low, aiming for a 10%-15% market share over the next three years ($60 million). Cephalon (NASDAQ:CEPH) and Teva's (NYSE:TEVA) drug, Fentora, controls the largest piece of the fentanyl market, producing $161 million in sales.

In the EU, Abstral's quick delivery has made it a success, and this benefit could also lead Galena to exceed its own expectations. A couple of weeks ago Seeking Alpha contributor, Brian Nichols, wrote an article showing how the expectations and market value of Abstral are practically zero. This information suggests that investors would warmly welcome any fundamental upside with Abstral.

On Tuesday we saw Galena's share rise more than 5% after the company announced the debut of Abstral at PAINWeek. In the press release, Galena disclosed that the Abstral team is fully staffed, and the marketing campaign would be presented at the PAINWeek conference. Lastly, Galena announced a new study for Abstral, to assess Abstral for breakthrough cancer pain in opioid-tolerant cancer patients. These developments and the stock performance behind the news should serve as proof that Galena could trade higher with any success from Abstral.

Most of Galena's $200 million valuation is tied into the outlook of its Phase III breast cancer drug, NeuVax. If successful, NeuVax will be a "smash hit", treating the 50%-75% of patients who don't qualify for the $7 billion a year drug, Herceptin. In a Phase II study, NeuVax created a 78% reduction in breast cancer recurrence in patients who were node-positive. Though many have ignored the outlook for Abstral until recently, it is worth following now that sales should be produced-- along with the potential that lies with the company's cancer therapy.


Each of these already marketed products are important in their own respect. All complement low expectations and value-presenting market capitalizations.

Grafix is the riskiest to me, due to the $300 million in market capitalization that was added to Osiris' stock. Osiris has a sketchy history at marketing products (i.e., Prochymal), but because insiders own more than half of the company, its stock might see the least downside volatility. Ergo, the product's outlook is uncertain with competition and conflicting analyst information, but high ownership could support the stock's price throughout its initial marketing process.

With a 50% one-year loss, expectations for Vascepa are low, and that makes Amarin attractive. While a $1 billion market capitalization isn't cheap, investors realize that the future of Vascepa can't be determined based on one year of sales. Consequently, a billion-dollar valuation supports the potential of this drug. If the additional indication is approved - and leading up to the approval - Amarin could trade higher. But then again, if sales don't improve Amarin could experience further loss, as investors would be running out of excuses for poor performance.

I, for one, think Abstral will be a successful product. The fentanyl market may be just $400 million annually, but Abstral manages pain, which is the largest segment of medicine-- and cancer is a large piece of pain management. Theoretically, Galena isn't restricted to those prescribed Fentora (or others), but can market Abstral to physicians who use morphine or OxyContin to manage breakthrough cancer pain. Hence, I think Abstral could boost Galena's worth, prevent long-term dilution while testing NeuVax, and build the company's relationship with oncologists. Essentially, I think marketing Abstral is a good strategy for Galena, an interesting one for a developmental company, making it worth following.

Disclosure: I am long GALE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.