The market has marched through the holiday period with very little to disappoint investors. This positive investor sentiment has been felt in the biotechnology sector as many positive events have led to some monster gains in this sector. The following three issues have had some of these positive results, and have experienced some nice gains that don't seem to be letting up. Here is an examination into these three biotech stocks that appear to be in the midst of breakout territory. The only question with these is whether the attention from investors is short-lived, or whether the breakout has only just begun.
Rexahn Pharmaceuticals (NYSEMKT:RNN) - $1.16 a share (January 14th)
Rexahn Pharmaceuticals has drawn a good share of attention lately, and its shares that were languishing below $.50 a share in December have more than doubled since then. The buzz regarding Rexahn shares seems to revolve around the initiation of coverage of RNN provided by Roth Capital Markets and their "buy" recommendation. It might also be an indication that investors who follow Rexahn are convinced that the pipeline, that has now been pared down to only includes cancer treatments, is going to be the right move forward for Rexahn's ultimate success. Whatever the case, the shares have enjoyed a lofty 250% 52-week increase in valuation, with most of that occurring just last week. The market cap, once well below $100 million, has climbed to $170.2 million in a short amount of time. The 50-day moving average is $.54, to provide more insight into how recent the breakout has been.
Rexahn Pharmaceuticals has a pipeline of products brimming with potential led by its lead candidate Archexin, for the treatment of refractory cancers in organs like the kidneys, pancreas and ovaries. Archexin is in trials for the treatment of solid tumors and pancreatic cancer, providing some positive results when combined with gemcitabine in phase IIa trials. Rexahn is also developing RX-3117, a small molecule compound, that inhibits DNA and RNA synthesis, and causes apoptotic death in cancer cells through UCK enzyme activation. This candidate has shown some positive results in preclinical studies for treating colon, pancreatic, and lung cancers, as well as renal tumors. RX-5902, or Supinoxin, is another worthy cancer fighting candidate that can inhibit the growth, progression, and metastasis in various cancers.
Rexahn has plenty of potential, but no current revenues for the time being. Third quarter 2013 results showed a loss of $2.14 million for the quarter, which was down from $3.11 million from the previous quarter. Rexahn has no debt, and only has around $15 million in cash, but keeping the burn rate closer to $2 million buys it more time to further its potent pipeline. As trials proceed, the burn rate should increase and money will become a problem, but shares have plenty of room to rise before money becomes more of an issue. Much of the recent activity is based more on future potential than anything the books can provide.
Depomed (DEPO) - $11.39 a share (January 14th)
Depomed's valuation has also been surging lately, with shares climbing in value around 40% in less than a month. This investor interest has been primarily due to Depomed's acquisition of the US rights to Nautilus Neuroscience's drug for acute migraine attacks, Cambia. The $48.7 million deal helps strengthen Depomed's position with neurologists adding more to its strong pipeline, and enhancing the capability of Cambia by reaching more patients with Depomed's more extensive sales territories and network of sales reps. In acquiring Cambia, Depomed gets the only single agent NSAID (non-steroidal anti-inflammatory drug) in the US specifically indicated for migraines. There appears to be some investor sentiment that this acquisition might produce some profit from Depomed in 2014.
Depomed certainly adds revenue generation to its pipeline of pain and central nervous system disorder treatments with the addition of Cambia. They already have three existing products in the marketplace. Gralise, a treatment for after-shingles pain, is already prescribed by many neurologists who are likely to use Cambia as well. With about 70% of Cambia prescribers being neurologists, Depomed estimates that half of those are currently prescribing Gralise to patients in need. This will likely help enhance the performance of Cambia as Depomed moves it forward. Depomed also has Zipsor out for the treatment of mild to moderate pain. Zipsor is a NSAID that is effective, as well as fast, at treating pain symptoms with tests that proved it to be significantly effective in treating pain in adult men following orthopedic surgery to remove bunions. The third existing product is Lazanda, an opiod analgesic for the treatment of breakthrough pain experienced by cancer patients. Depomed also has trials for DM-1992, for patients with Parkinson's disease, and several partnered products with Glumetza (Santarus (NASDAQ:SNTS)), Janumet (Merck (NYSE:MRK)) and NucyntaER (Janssen) already approved and in the marketplace.
Depomed had a great year in 2011 with a nice $70.7 million profit, however, followed that up with a loss of $29.78 million in 2012. This did not sit well with investors who grew impatient with Depomed in 2012 and early 2013, as shares bounced around the $6 a share range for this time period. The books are solid with no debt and over $80 million in cash reserves, but investors have been waiting to see more. Things seem to have reversed as Depomed managed to have a decent $6.5 million profit in the third quarter of 2013. This performance has not gone unnoticed as Depomed's shares have experienced a 52-week change of just about 80%. Cambia has the potential to be icing on the cake, and shares might still have more room to move higher.
Emergent BioSolutions (NYSE:EBS) - $25.99 a share (January 14th)
Emergent BioSolutions has seen its shares embark on a steady climb ever since experiencing a 52-week low on April 4th of last year ($13.02 a share). Since then the share price has almost doubled, and Emergent BioSolutions has given investors plenty to be excited about. The most recent rise in valuation has been due to a deal Emergent just made to acquire Cangene Corporation, for $222 million, in order to obtain its biodefense pipeline products. These products including Bat, Vigiv, Episil, and Aigiv, will only help diversify Emergent's current list of products. Cangene did have revenues of about $50 million in the fiscal year ending March 31st of 2013 for its biodefense products alone, and does have about $35 million in cash reserves to add to Emergent's already solid balance sheet. The acquisition does add more revenue and boosts Emergent's bottom line for many quarters to come, but the products Emergent acquires might be even more important down the road with the added diversity that they provide.
Emergent BioSolutions already has four products being tested for Anthrax. Anthrivig is in phase III trials, while PreviThrax and NuThrax are in phase II trials, and Thravixa is in phase I trials. The addition of cangene's products adds to this infectious disease pipeline that already has produced BioThrax for Anthraxa, and RSDL, a lotion for chemical decontamination. Emergent additionally has Otlertuzumab, for treating chromic lymphocytic leukemia (CLL), in phase II trials representing its oncology platform. Currently, BioThrax is the only FDA-licensed product for pre-exposure protection from the deadly anthrax infection. RSDL on the other hand is a super fast acting chemical warfare agent skin decontaminant that acts within 2 minutes, and has proven to be safe on the skin at the same time. Emergent has a nice niche, and with the acquisition of Cangene, is looking to add even more.
The products and Cangene acquisition certainly provide value for investors looking to jump on board, and the books have been relatively solid. Emergent had a strong second and third quarter performance in 2013, with quarterly profits of $10.48 million and $13.49 million respectfully. Emergent had revenues just under $90 million last quarter, and acquiring Cangene should do very little to affect the books in a negative sense. Revenues should only get better, and Emergent should have no problem warranting a market cap above $1 billion. Given the current valuation of EBS shares, the dynamics are in place to ensure that growth doesn't stop here.
Emergent BioSolutions has proven to know what it takes to sustain profitability, and Depomed has been there before, but Rexahn is only now getting some worthwhile attention. The risk is less as one moves down the list, but the reward might be the greatest with Rexahn leading things off. It just depends on how much risk one is willing to assume. There is plenty to like with each of these three issues, but only time will tell if valuations have peaked or have room to rise further. Positive investor sentiment is hard to attain in this sector, and yet when it happens there is no telling how high shares can climb.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.