As a retail investor, it can be difficult to find a suitable biotechnology stock with upside potential. If you are seeking an investment in the developmental space, it can be even more difficult, although the potential upside makes it enticing. Not only do you have to sort through data, but you also have to sort through the varied opinions and inherent volatility that comes with the investment. Gathering all the usual information such as catalysts, revenue potential, and cash on hand should be the norm when researching a biotech company. However, if you're looking to add a tool to your assessment analysis, then you might want to start gauging the ownership of institutions, as these might very well be the best measure of risk and development success. I will break down the following company, which I feel will be successful. But the deciding factor in my mind is the big increase of institutional ownership quarter over quarter.
Progenics Pharmaceuticals (NASDAQ:PGNX)
Progenics is a preeminent oncology company focused on developing innovative drugs to improve the lives of prostate cancer patients and their families. Their pipeline includes therapeutic and diagnostic candidates in pre-clinical through late-stage development.
In July of last year, the company and its partner, Salix Pharmaceuticals (NASDAQ:SLXP), announced receipt of a complete response letter (CRL) from the FDA for its attempted regulatory approval for RELISTOR® (methylnaltrexone bromide) injection for subcutaneous use for the treatment of opioid-induced constipation (OIC) in adult patients with chronic, non-cancer pain. The drug had been FDA approved since 2008 to treat constipation in patients with advanced illness and receiving palliative care, when response to existing laxative therapy had not been effective. It is also approved for use in 58 countries worldwide, including the European Union, Canada, and Australia. The company had filed an sNDA (supplemental new drug application) attempting to expand the product's labeling, but was unsuccessful and received the CRL.
At an October 5th End-of-Review meeting with the FDA, Salix discussed the CRL with the regulatory entity who advised them that it was concerned that there may be a "risk associated with the chronic use of mu-opioid antagonists in patients who are taking opioids for chronic pain. In order to understand this potential risk, the FDA's Division has communicated that a very large, well-controlled, chronic administration trial will have to be conducted to assess the safety of any mu-opioid antagonist prior to market approval for the treatment of patients with OIC who are taking opioids for chronic, non-cancer pain." However, Salix expressed the opinion that post-marketing data combined with clinical and preclinical data for RELISTOR® "adequately demonstrate an appropriate and expected safety profile sufficient to permit the approval of the current Relistor sNDA." Progenics and Salix plan to work with the FDA on a more acceptable regulatory path for the labeling expansion rather than another large trial.
Catalyst (Adcom March 10-11)
On October 1st of this year, Salix Pharmaceuticals, Ltd. and Progenics Pharmaceuticals announced that the FDA will convene an Advisory Committee on March 10-11, 2014 at which time Salix's Supplemental New Drug Application (sNDA) for RELISTOR will be discussed.
Also, the FDA has stated that it will take action under the appeal within 30 days after receiving input from the Advisory Committee.(April 10-11th decision).
As you can see in the graphs below, the institutional ownership is extremely high at 82.93%. This has increased close to 10% from the last reported date on March 31st.Company Details
|Total Shares Out Standing (millions):||61|
|Market Capitalization ($ millions):||$186|
|Price (as of 09/30/2013)||3.68|
|Owner Name||Date||Shared Held||Change (Shares)||Change(%)||Value(in 1,000s)|
|BAKER BROS. ADVISORS LP||06/30/2013||4,200,000||3,300,000||366.67||15,456|
|BROADFIN CAPITAL, LLC||06/30/2013||3,500,615||698,949||24.95||12,882|
|KINGDON CAPITAL MANAGEMENT, L.L.C.||06/30/2013||580,000||580,000||New||2,134|
|BLACKROCK FUND ADVISORS||06/30/2013||1,729,000||573,656||49.65||6,363|
|UBS OCONNOR LLC||06/30/2013||318,191||318,191||New||1,171|
|PERCEPTIVE ADVISORS LLC||06/30/2013||306,650||306,650||New||1,128|
|AQR CAPITAL MANAGEMENT LLC||06/30/2013||250,000||250,000||New||920|
|D. E. SHAW & CO., INC.||06/30/2013||504,093||168,102||50.03||1,855|
|CITADEL ADVISORS LLC||06/30/2013||397,254||161,746||68.68||1,462|
|NORTHERN TRUST CORP||06/30/2013||683,353||157,380||29.92||2,515|
|OXFORD ASSET MANAGEMENT||09/30/2013||127,856||127,856||New||471|
|RENAISSANCE TECHNOLOGIES LLC||06/30/2013||103,089||103,089||New||379|
|BARCLAYS GLOBAL INVESTORS UK HOLDINGS LTD||06/30/2013||1,493,011||98,993||7.10||5,494|
At a price per share of $3.95, the current valuation of Progenics Pharmaceuticals is mind boggling. The current market capitalization of around $240 million is extremely cheap, taking into consideration the potential upcoming catalyst, pipeline of potential blockbuster drugs and diagnostic agents (see graph below). I feel a fair price per share would be $8.00 to $9.00 per share (which would be a 100% return from the current pps) and with approval of Relistor a $11 to $12 would be appropriate.
Sometimes the large institutions are going to be wrong. However, for clinical stage biotechnology companies, ownership can be an indication of how institutions assess a product's chance for success. These institutions have more resources than you, and can see things that you might miss. Astute investors are urged to do further due diligence on Progenix Pharmaceuticals, as it will likely reward investors with substantial gains in the near future.