The following companies have binary events in November that could move their stocks significantly. They all have upcoming FDA review dates for their new drugs. An FDA approval could cause a sizable rise in the stocks, while a rejection or Complete Response Letter could cause a sell-off. Occasionally, the decision date is postponed or moved up to a later date. November presents an interesting mix of a small-cap, a mid-cap, and a large-cap company.
Sanofi (SNY) is the large-cap company among this group, which has an FDA review date on 11/13/13 for Lemtrada with an indication for relapsing multiple sclerosis. There are 400,000 people with multiple sclerosis in the United States and 2.5 million throughout the world. Lemtrada has already been approved in Europe in September. Patients with MS who have taken Lemtrada had lower recurrence rates and less disability than patients taking Rebif.
Since Sanofi is already an established company with a strong portfolio of drugs on the market, it can be considered low risk, low reward upon the approval or rejection of Lemtrada. The FDA decision regarding this drug is not going to make or break the company. However, the drug costs $95,000 for full treatment in Germany, so it has blockbuster potential based on the U.S. MS population of 400,000. Lemtrada is likely to be approved in the U.S. since it has already been approved in Europe and is already approved to treat Leukemia and T-Cell Lymphoma under the name Campath.
Sanofi is attractively valued with a forward PE of 9.7, a PEG of 1.8, and a price to book ratio of 1.9. The company pays a 2.6% dividend and is expected to grow earnings annually at 6%. The 29 analysts that cover the stock have an average price target of $83 for the stock which is currently trading at $51.
Vanda Pharmaceuticals (VNDA) is the small-cap company among the three that I'm featuring in this article. Vanda has an FDA review date on 11/14/13 with a final decision set for January 31, 2014 for Hetlioz (Tasimelteon) with an indication for Non-24-hour disorder in the totally blind. Non-24 is a disorder that typically affects the blind, where their circadian rhythm become out of alignment causing insomnia, daytime sleepiness or irregular sleep patterns. This typically affects the blind since they lack the ability to perceive light, which synchronizes the daily circadian rhythm. Hetlioz treats this disorder by acting as a circadian regulator, which resets the master body clock. It does this by synchronizing the body's melatonin and cortisol circadian rhythms with the day-night cycle in Non-24 patients. Approximately 65,000 to 95,000 people have Non-24 hour disorder in the United States.
Vanda is the riskiest (high risk, high reward) company among these three as it only has one other drug already on the market. The company's drug, Fanapt, is FDA approved for the treatment of Schizophrenia. Since Hetlioz has the potential of adding significant revenue for the company, Vanda's stock has a lot riding on its approval. Vanda should see a large increase or decrease in the stock price depending on the approval or rejection of the drug.
Vanda is not yet profitable so it can be difficult to value. Lazard Capital Markets has a positive view of Vanda for the likely approval of Hetlioz. Lazard has a price target of $22 for the stock. The four analysts covering Vanda have an average target price of $19 on the stock which is currently trading at $8.40.
Biomarin Pharmaceuticals (BMRN) is the mid-cap company among these three firms. It has an FDA review date on 11/19/13 for Vimizim with an indication for Mucopolysaccharidosis Type IVA (Morquio A syndrome). People with Morquio A do not produce enough of the enzyme that is needed to breakdown long chains of sugar carbohydrates into simpler molecules. This results in cellular damage which affects appearance, physical abilities, organ and system functioning, and mental development. Vimizim works by acting as an enzyme replacement which should halt the progression of the disease and alleviate some symptoms. Morquio A is estimated to occur in 1 of every 200,000 births. Currently, there are no specific treatments for Morquio A syndrome. This bodes well for Biomarin as the company has the potential to be the go-to firm for treating this disorder.
Biomarin can be considered of medium to high risk among these three companies. It has four drugs already on the market for other rare diseases and another five in its pipeline being developed in addition to Vimizim. Despite having four drugs on the market, Biomarin is not yet profitable due to high R&D and other costs. The company just reported revenue growth of 6.9% and a loss of $0.38 per share for Q3 2013. Earnings missed the consensus estimates by $0.08 per share.
Biomarin is expected to grow earnings annually by 25% for the next five years. The 22 analysts covering the company have a price target of $79 for the stock which is currently trading at $69.
The good thing about biotechs is that they are developing products to improve and extend the lives of individuals. Conservative investors may want to consider Sanofi as it pays a dividend, is established and profitable, and has a sizable portfolio of products on the market. Investors who are willing to take on more risk with more reward potential, may want to consider Biomarin or Vanda, which may see a spike in stock price if the drugs being reviewed become approved by the FDA. However, be prepared for a sell-off in the event that the drugs are not approved or if the decision dates are delayed.