Good news and bad can move biotechnology stocks in every direction and the ease in which share prices can fluctuate is a big part of the risk in investing in them. The time to buy can often be right after news of a setback comes out or even following good news and a spike. If a biotech still has plenty to offer, maybe even money in the bank or even has experienced FDA approval before it can really be a good time to buy.
The following four biotechs have experienced highs and lows, but currently have valuations closer to their 52-week lows than highs. This makes the price right, but does that make them a bargain? Nanosphere has an approved product, but issues with sales. Zalicus has plenty of promise and still has some nice partnerships but really has little to show for it. Discovery has an approval and another product that offers similar promise but has not exactly turned it all around. Vical experienced failure with its lead candidate and really took a major hit, but is there anything left?
These four stocks have decent valuations that at least make them worth considering and even the potential to make it to your watchlist.
Nanosphere (NSPH) - $ 1.91 a share
Nanosphere lost any momentum it had following its disclosure of a second quarter profit and 2013 sales forecast that left many investors in a selling mood. This information coupled with an analyst downgrade by Brandon Couillard from Jefferies helped push the stock down about 30% in one day alone. Sales for the quarter were about 10% less than analyst expectations leading many to question the demand for its approved product, the Verigene blood screening system.
The Verigene blood screening system does appear to work and Nanosphere has developed several critical tests that can be run on the system. The Verigene system to begin with can screen blood for pathogens, identifying them quickly and even identifying drug resistance markers that help medical professionals find the right treatment for the pathogen found. In cardiac care, the Verigene system can combine testing for risk-stratifying cardiac markers as well as pharmacogenetic tests that can lead to better informed decisions in cardiac care and treatment. The pharacogenetic testing can also extend to more applications where determining how patients will metabolize certain drugs can lead to correct dosage levels as well as determining the best option for treatment.
The only issue seems to be with sales and what it might mean. Is the system too expensive? Are budgets stretched too thin to usher in a Verigene system? A myriad of tests can be run with this system and thus the future lies in getting these Verigene systems into medical facilities and even research institutions. So Nanosphere is a curious biotech with an approved product that appears to live up to its billing experiencing soft sales and lower expectations.
Taking a quick look at the books, Nanosphere has under $32 million in cash left and seems to be burning through about $8 million per quarter leaving it with little room to run. Lower expectations for Verigene sales do little to paint a prettier picture. Most experts were expecting sales of just over $2 million during the second quarter and were left with $1.9 instead. Nanosphere also slashed its own revenue forecast by 25 percent! Revenue for the year was adjusted to $10.5 million from $14 million previously estimated. That leads us to believe that might be a sign that management has taken the "ramp" off the growth and might be conceding that growth has reached a plateau or leveling point at the very least. What can take Nanosphere to the next level remains to be seen.
Zalicus (ZLCS) - $ 4.84 a share
Zalicus has endured highs and lows and the turbulence that ZLCS is currently encountering is no exception. I have been following Zalicus for quite some time and despite the failures associated with CombinatoRX, Prednisporin and even Exalgo to a certain extent the hope of achieving some meaningful results has yet to fade. Throw in the partnerships with Novartis (NVS) that has yet to yield any advancement into phase I stages and Sanofi (SNY) who has basically abandoned Prednisporin struggling to move forward with it, and you have an unparalleled fall from grace. Is there anything left to get excited about?
The one thing Zalicus has always had is a promising method of action for its pain therapy pipeline and a receptive following from many investors. Zalicus has focused on pain medications and has a very promising ion channel program that it is advancing in pre-clinical trials for the treatment of pain symptoms. Its lead candidate Z160 is a first in class oral calcium channel blocker that has advanced to phase II trials and has the potential to treat many forms of chronic pain conditions. The phase II trials are focused on treating chronic neuropathic pain associated with Lumbosacral Radiculopathy (LSR) and post-herpetic neuralgia (PHN). Zalicus has focused its attention on blocking the pain response to the brain through its effect on blocking the N-type calcium ion channels which ultimately acts to diminish the pain feedback to the brain.
Zalicus has extended release hydromorphone (HCI) tablets (Exalgo) that have been approved by the FDA and are presently being commercialized in the U.S. by Mallinckrodt Pharmaceuticals. Prednisporin, a topical ocular drug for the treatment of inflammatory ocular diseases like persistent allergic conjunctivitis, has advanced to phase IIb clinical development by Fovea Pharmaceuticals (division of Sanofi) but expectations are pretty low at this point for it to succeed in a timely manner. Earlier this year, Zalicus pulled the plug on Synavive for treating rheumatoid arthritis and shares haven't fully recovered since. Zalicus also has candidate Z944, a T-type calcium channel blocker that is still in phase I for treating multiple inflammatory and acute pain models and is not short on developing products.
The company just underwent a reverse 1 for 6 stock split and was granted orphan drug designation for Z160 just last week. Despite this morsel of good news, the stock had its moment of glory and then has been beaten back ever since, losing 11.2% of its value last Tuesday (Oct 8th) alone. The current dip might be a good entry point for those still following the stock as Zalicus does have some revenue even though the cash position is far from strong. The glimmer of hope might burn stronger with some of the others, but still a mechanism of action for pain treatment worth keeping an eye on.
Discovery Laboratories (DSCO) - $ 2.33 a share
Discovery Laboratories experienced a spike in its share price last Friday due to some positive news regarding Surfaxin. Shares are now starting to settle and despite all the positive hype surrounding the run-up in DSCO stock, the party appears to be over and nothing has really changed. Discovery is now free to launch Surfaxin and the chains of the FDA approval process appear to be off making this current dip an intriguing buying opportunity.
Surfaxin stands alone as the first of its kind synthetic intratracheal suspension for the treatment of respiratory distress syndrome (RDS-A) in premature infants. The drug was originally approved by the FDA in March of 2012, but the company had to delay the launch based on a review of the analytical testing and quality control process of the drug. Improvements in the way of the analytical chemistry methods used to assess Surfaxin led to an update to the product specifications being required by the FDA. The response was submitted back in June and Surfaxin has finally been cleared to enter the marketplace. The company now expects to launch the drug within the next few months.
The estimated sales of Surfaxin could bring around $8-10 million in the coming year, however, the sales are expected to reach close to $50 million in 2017. What might be even more compelling to investors is that more is expected from Discovery's other product candidate, Aerosurf. Aerosurf is currently in phase II trials for the treatment of moderate RDS and offers a wider range of applications than Surfaxin. The thinking here is that if Surfaxin works and Aerosurf has the same active pharmaceutical ingredient, then there is good reason to believe that Aerosurf will produce positive results and FDA approval as well.
In the meantime, Surfaxin will help bring in some revenue and even if some dilution is required to get Aerosurf through trials there will likely be a nice pot at the end of the rainbow. If shares continue to shed some of that 30% run-up, the Discovery market cap currently under $135 million will be a value no matter how many shares have to be issued to cover expenses in the future. Discovery does have over $30 million to get Surfaxin up and running and continue its work with Aerosurf, so the horizon does look rather bright. Even if Aerosurf fails, Discovery is not left with a cupboard that's bare and in this sector that makes it a worthy competitor.
Vical (VICL)- $ 1.29 a share
Vical is just coming off the sting of shutting down its Allovectin (A7) program for treating patients with skin cancer or melanoma. Vical has since laid of almost 40% of its workforce and has lost an even higher percent of its value since releasing the news. Vical has lost its lead candidate that offered great promise on paper, but apparently couldn't deliver results in the trials. Vical is certainly down, but a case can be made for why they aren't exactly out.
Vical has two interesting products that are already approved in ONCEPT a canine melanoma vaccine in collaboration with Merial and Apex IHN in collaboration with Novartis Aqua Health for protecting farm-raised salmon from infection or disease present in infected wild salmon. These two products are not going to break the bank, but do stand as proof that Vical's DNA technology can produce some results.
Vical also has more collaborations that are alive and well. Its collaboration with Astellas Pharmaceuticals to develop ASP0113 for the treatment of patients who have latent cytomegalovirus (CMV) infections or have been introduced to the virus through donor cells or organ transplants. ASP0113 is in phase III trials for treating susceptible hematopoietic cell transplant (HCT) patients and phase II trials for treating solid organ transplant (SOT) patients. These collaborations appear promising and will pretty much fill a void in patient care. Another collaboration is with AnGes for Collategene for the treatment of patients with critical limb ischemia. This collaboration is about to enter phase III trials and has been granted a "fast track" designation by the FDA.
In addition to the collaborations, Vical still has two proprietary products with an HSV-2 vaccine and CyMVectin for preventing the spread of the CMV virus from pregnant women infected with CMV to their children. These both are in developmental stages, but do represent some hope for a better future.
Vical's stock is more of the story. With Allovectin in the picture, Vical's stock was at $3.58 a share (Aug 8th) and just closed at $1.29 a share (Oct 14th) in this post failure period of time. This represents a drop in value of about 65%. The company does have about $64 million in cash and has certainly done enough to cut costs which was mentioned previously, so it appears to be getting adjusted for life without Allovectin. The only question is if all the little things can make up for losing one really big thing.
In case you have found something you like, keep in mind that these four stocks are still moving around. Investing in biotechs can be very risky and despite plenty of promise, most products still don't make it past the FDA. News and hype alone can't make up for revenue and profit. Just make sure you believe in what the company is developing and wait to make your buy on the dip. This can help cushion any fall while setting yourself up for any breakout. If you go in with a "long" position, just know that until profit comes in a rollercoaster ride should be expected.