2014 Could Be A Big Year For Inovio, Merrimack, And NeoStem

Includes: CLBS, INO, MACK
by: EnhydrisPECorp

As an avid biotech investor/trader, I am excited about the upcoming year. We already have dozens of catalysts for numerous companies on the calendar, with some of these catalysts being potentially transformative events for their respective companies. Although there are literally several dozen such events one could point to, I believe the following 3 companies have "make or break" clinical trial read outs that are especially interesting to investors. In short, investors that take a position now in these companies will probably end up being either very happy, or moribund next year.

So without further ado, let's delve into these 3 developmental stage biopharmas.

Inovio (NYSEMKT:INO) has had a decent year in 2013 by any standard, more than tripling in share price. But 2014 is set to be company's make it or break it year. Inovio's lead clinical candidate VGX-3100 is set to report topline results in March/April 2014 for its mid-stage trial for Cervical Intraepithelial Neoplasia, or CIN.

Why is this is a pivotal event in the life of the company? Besides the value proposition VGX-3100 would offer Inovio investors as an effective vaccine against CIN, this trial is critical because it will either validate the company's synthetic vaccine portfolio, or sink it. As I've stated previously, synthetic vaccines have a long history of failing in mid-stage clinical trials. Inovio believes their proprietary electroporation technique for vaccine delivery is the key to pushing these vaccines into their next stage of development. So all eyes will be on this data readout come next year.

If VGX-3100 reports positive results, the stock is sure to rocket upwards in a hurry. By contrast, if the trial fails, I see literally no value remaining in the company, as it means they haven't overcome the problems that have plagued synthetic vaccines from their inception. In short, VGX-3100's trial results are a clear-cut binary event for the future of Inovio as a whole.

Interestingly, Inovio insiders have made some big buys of their own shares heading into the close of the year. So while I have accused the company of being overly optimistic about their platform in the past and have repeatedly shorted the stock, I will give them this: they are putting their money where their mouth is. You can't say the same for literally dozens upon dozens of biopharmas that trumpet their "game-changing" platform and subsequently dump shares as fast as they can. So I'm definitely intrigued, and am considering a long position in the stock.

The large and growing short position in the stock also shows the asymmetric expectations surrounding Inovio. Simply put, someone is going to lose, and lose big on this one.

Merrimack (NASDAQ:MACK) recently pushed back their topline data readout for their late-stage pancreatic cancer drug MM-398 until Q2 of 2014, and raised eyebrows in the process. According to the company's press release, the readout was pushed back because overall survival across the entire trial was occurring later than forecasted. Given that pancreatic cancer-especially after patients have failed front-line therapies as in MM-398's trial, is such a deadly condition, the market appeared to take this as a sign that MM-398 is improving overall survival. Based on this announcement and a subsequent partnering agreement with Actavis, Merrimack shares thus have lifted off into orbit-up 79% over the last month alone.

While I previously cautioned investors against reading too much into this announcement, I am cautiously optimistic about MM-398's chances for success. Consequently, I've been accumulating a speculative position in the stock and plan to hold through the data release. If MM-398 reports positive late-stage results, MACK shares should easily double in PPS in 2014.

NeoStem (NBS) is expected to release mid-stage trial results for its lead clinical candidate, AMR-001, in the second half of 2014. As a reminder, AMR-001 is essentially enriched bone marrow cells that are injected into an artery affected by a heart attack 6 to 11 days following the event. The infused cells then migrate to the damaged tissue and remodel the affected area (i.e., angiogenesis). The idea is to improve global heart function following a heart attack.

Why is this a big deal? For starters, this approach could become part of the standard of care for heart attack patients. In fact, several meta-analyses have already shown that bone marrow cells infused into an acute myocardial infarction do improve global heart function. I previously discussed this issue here.

Secondly, NeoStem currently has a tiny microcap of approximately $116 M, and is sitting on a therapy that could become part of the standard of care for heart patients. Let that sink in for a few seconds if you will. So although AMR-001 would still have to undergo a pivotal late-stage trial before being approved and that could take years, positive mid-stage results will undoubtedly be transformational for this micro-cap biopharma.

Because this is a novel therapy (stem cells) and the condition is so common, I would expect positive trial results to make headlines in major News outlets across the Globe. Yet, NeoStem trades on minimal volume, averaging only 396k shares per session. Despite the lack of enthusiasm for this stem cell company, I think this is an excellent time to initiate a speculative position in NeoStem given its favorable risk-reward profile. The best part about NeoStem is that it does have multiple clinical candidates and a cell-manufacturing business to fall back on in case AMR-001 turns out to be a dud.

Disclosure: I am long NBS, MACK. 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.