Editors' Note: This article covers a stock trading with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
Chelsea Therapeutics and Venaxis Incorporated share common ground here. These two companies have binary events occurring in the first quarter of 2014. Savy biotech investors realize that this is where you can make substantial portfolio percentage gains. These plays are risky, of course, but are two developments that I feel have the best chance at successful results in the near term. Here they are:
Chelsea Therapeutics (NASDAQ:CHTP)
The FDA granted Northera (Droxidopa) orphan drug status in 2007. In November 2011, the FDA granted Northera priority review. Priority review is reserved for drugs that offer a major advance in treatment, or provide treatment where no adequate therapy exists.
Northera is a drug for the treatment of symptomatic neurogenic hypotension (NOH) associated with Parkinson's disease. The company has had its issues getting Northera on the market. On February 23, 2012, Northera was given an up vote from the FDA Panel by a 7-4 vote. However, the FDA decided to issue a complete response letter (NYSE:CRL) on March 28, 2012. The FDA wanted more data to support efficacy and demonstrate durability over a 2-3 month period. CHTP went back and received guidance from the FDA in 2012 and it was determined that its 306B trial would not be suitable or able to be modified. The company and investors believed a new trial to confirm efficacy would be needed before any chance of approval.
On February 20, 2013, CHTP was informed by the Director of the Office of New Drugs at the FDA stating that the Study 306B can serve as the basis for resubmission of Northera. The Director states:
The guidance suggests that "data strongly demonstrating a short-term clinical benefit (e.g., improvement in symptoms or ability to function) of droxidopa in patients with NOH would be adequate for approval, with a possible requirement to verify durable clinical benefit post-approval."
The graph below shows that the primary endpoint of improvement of dizziness was proven in the new 306B study (Phase III) for a second time. Keep in mind that the first advisory panel only had the Study 301 which was stated to be insufficient. Therefore, the second 306b study creates substantial evidence of confirmation of efficacy.
As mentioned above (by the director of new drugs at the FDA), Chelsea still lacks Northera durability data to show the benefits beyond the one week period. FDA has signaled a willingness to approve with a commitment to conduct a longer-term post-marketing study. Therefore, another study was designed by Chelsea which will enroll 450 NOH patients and assess a dizziness reduction endpoint. On December 9th, the following press release was announced:
The Company expects Study 401 to enroll approximately 450 patients. Study 401 will evaluate the clinical efficacy and safety of Northera versus placebo over a 17 week (maximum) treatment period consisting of an initial, open-label dose titration (up to 2 weeks), followed by a washout period (up to 3 weeks), followed by a 12 week treatment period on a stable dose. The primary outcome measure of the study is to evaluate the duration of clinical benefit of Northera as demonstrated by the change in the Orthostatic Hypotension Symptom Assessment (OHSA) Item 1, which includes symptoms of dizziness and lightheadedness. Secondary outcome measures include patient reported falls, standing blood pressure change, and other efficacy measures, including the orthostatic hypotension questionnaire (OHQ) composite and individual item scores and the clinical global impression scales.
"Chelsea is committed to understanding the long-term safety and durability of Northera in symptomatic nOH, a goal we hope to achieve through Study 401, the largest randomized, placebo-controlled study undertaken in this orphan indication," said Joseph G. Oliveto, Interim Chief Executive Officer of Chelsea Therapeutics. "We thank the many investigators who have committed to participating in this global study, as well as the patients and their families who will take part in it. There exists a significant unmet need in nOH, and it remains Chelsea's goal to bring new treatment options to those suffering from this debilitating condition."
This achievement shows the willingness and commitment to the FDA to get Northera approved in the new year.
Northera Possible Indications:
|Compound||Indication||Phase I||Phase II||Phase III||NDA Submitted|
|Droxidopa (Northera™)||Symptomatic Neurogenic Orthostatic Hypotension||-----||-----||------||---------|
In the above table, you can see that Northera is being reviewed for Neurogenic Orthostatic Hypotension (PDUFA February 14th). Also, Northera is also in Phase 2 studies for Intradialytic Hypotension and Fibromyalgia.
The drug was approved in Japan in 1989 for treating frozen gait and dizziness on standing associated with Parkinson's disease, as well as orthostatic hypotension. Japanese regulators expanded Droxidopa's marketing approval to include prevention of vertigo, dizziness and weakness associated with orthostatic hypotension in hemodialysis patients in 2000.
The current market capitalization is approximately 280 million, with 77 million shares at a current price per share of $3.64. The company projects revenue between $300-$375 million per year not including the potential revenue for the other indications for Fibromyalgia and Intradialytic Hypotension as listed above which could generate $600-700 million per year. The company has an AdCom on January 14/14 and a PDUFA on February 14/14.
Therefore, CHTP deserves a PPS of $8 to $9 based on the high probability of approval and potential for other possible indications for Northera. Giving it a fair market cap of around 600-700 million. Biotech guru Adam Feuerstein agrees that it is undervalued and is bullish on CHTP as he mentioned here on his very popular Biotech Stock Mailbag:
I believe there's a 75% chance FDA approves Northera on the second go-around with Chelsea. The stock's current market value of less than $200 million does not fully account for the drug's approval and commercial market opportunity.
Bullish: Institutional Holdings increasing :Baker Bros. Advisors added over one million shares last quarter
|Owner Name||Date||Shared Held||Change (Shares)||Change(%)||Value(in 1,000s)|
|BAKER BROS. ADVISORS LP||09/30/2013||5,794,753||1,018,966||21.34||19,696|
|J. GOLDMAN & CO LP||09/30/2013||637,500||637,500||New||2,167|
|NORTHERN TRUST CORP||09/30/2013||860,002||547,170||174.91||2,923|
|EAM INVESTORS, LLC||09/30/2013||453,302||453,302||New||1,541|
|BLACKROCK FUND ADVISORS||09/30/2013||1,902,295||220,493||13.11||6,466|
|RENAISSANCE TECHNOLOGIES LLC||09/30/2013||225,695||215,301||2,071.40||767|
|HIGHLAND CAPITAL MANAGEMENT LP||09/30/2013||239,800||159,800||199.75||815|
|VANGUARD GROUP INC||09/30/2013||2,163,884||143,082||7.08||7,355|
|GROUP ONE TRADING, L.P.||09/30/2013||228,428||122,229||115.09||776|
|HIGHBRIDGE CAPITAL MANAGEMENT LLC||09/30/2013||111,614||111,614||New||379|
|PARAMETRIC PORTFOLIO ASSOCIATES LLC||09/30/2013||93,322||93,322||New||317|
|DEUTSCHE BANK AG\||09/30/2013||483,208||90,912||23.17||1,642|
|AQR CAPITAL MANAGEMENT LLC||09/30/2013||83,600||83,600||New||284|
|DRW SECURITIES, LLC||09/30/2013||80,012||80,012||New||272|
Venaxis (NASDAQ:APPY) is a diagnostic company focused on developing and commercializing its unique multi-biomarker diagnostic test. The APPY1 test is designed to aid in the identification of patients at low risk for acute appendicitis. The APPY1 test is a simple, rapid blood test that may help physicians manage the large number of children and adolescents who enter hospital emergency departments with abdominal pain that's suspected to be acute appendicitis. Determining if a patient requires emergency surgery for appendicitis is critical and current practices have important limitations. While eliminating the expensive, long-term health hazards associated with exposure to ionizing radiation from CT scans.
European Commercial Partnerships
Venaxis received the CE Mark as a blood-based diagnostic test focused on children and adolescents suspected of having appendicitis to help identify low-risk subjects and avoid unnecessary testing to support a full European product launch next year. Memorandum of understanding (NASDAQ:MOU) has been reached in several European countries, and some are still in negotiations. Company announcements on new partnerships are imminent. as illustrated in the graph below:
Catalyst: Top-Line Results Expected in Q1/2014
The first of two futility analyses -- which consisted of an independent review of the validity, integrity, and clinical and scientific relevance of the ongoing study -- was performed on the first 579 patients to complete the study. The study was a success. The Data and Safety Monitoring Board (DSMB) recommended continuation of the pivotal clinical trial. The study will enroll a total of 2,000 patients.
During the third quarter, the APPY1 Test successfully passed the second interim futility analyses performed by an external Data and Safety Monitoring Board (DSMB). In September, the DSMB recommended the study continue to completion following an analysis of the first approximately 1,100 patients to complete the study. To date, Venaxis has enrolled more than 1,700 patients and aims to complete the study with 2,000 net evaluable patients by year end. Top-line results are expected in the first quarter 2014. If successful, a planned FDA 510(k) de novo medical device should be filed during Q2 2014.
As you can see in the above graph, revenues are expected to be between 33 million and 52.5 million (if 30% of market is achieved). This is based only on the indication of patients aged two to 20. Therefore, off-labeled use of APPY1 sales are not included in the above projections.
Venaxis has a market cap of $38 million with a current price per share of $1.81. . Therefore, I consider Venaxis to be a very promising company with great potential for price appreciation. I believe it warrants a price per share of $4.50 based on successful data results (in Q1/2014) and revenue projections. Canaccord Genuity gives APPY a $7.00 price target.
APPY and CHTP are speculative investments that can offer huge rewards for the astute. Venexis has a miniscule market cap of around 38 million in an area that has the potential to produce 150 million in revenue. Chelsea is on the verge of getting Northera approved, a drug that could very well generate $600-700 million per year.
Astute investors are urged to do further due diligence on these two companies, as they will likely reward investors with substantial gains in the near future.