Last year was an excellent year for biotech stocks as a whole. The American stock exchanges Biotechnology stock index rose 50.6%. Of the 330 companies on the list 135 their stocks rise 50%. Sixty four companies saw their stocks double in value, while 25 tripled. I think in 2014 biotechs will continue to outperform the market, and with a number of companies having potential blockbuster drugs in late stage trials or waiting for FDA approval, some companies may well break out to all-time highs. Below are three companies that had strong stock gains in 2013 and I believe have the potential to exceed these gains in 2014.
NEOSTEM - DEVELOPING A STEM CELL INDUSTRY
In 2013 NeoStem (NASDAQ:NBS), with its four subsidiaries, made a lot of advances in developing the most diversified stem cell company. And in 2014 I expect certain catalysts to propel the company and the stock forward. Analysts at Aegis helped NeoStem start the year off well by raising its price target to $23.00 per share, which would amount to a 237% increase over its year-end price.
While Progenitor Cell Therapy, its bicoastal stem cell contract manufacturing subsidiary, is a revenue producing entity and continues to gain new clients, and its VSELs™ (very small embryonic like stem cells) technology may prove to be an ethical alternative to embryonic stem cell therapies, its two other subsidiaries, Amorcyte and Athelos, are what I see as driving NeoStem's stock to new highs in 2014.
NEOSTEM'S AMORCYTE - REGENERATING HEART FUNCTION AFTER A HEART ATTACK
Amorcyte has been developing AMR-001, a stem cell therapy comprised of autologous bone marrow derived CD34+/CXCR4+ cells that can potentially reverse the restriction of the blood supply after a heart attack, including the more severe STEMI, and rescue tissue from dying. These enriched cells are injected into the affected artery and work their way to the damaged tissue and reconstruct the area, forming new blood vessels that increase microvascular blood flow in the heart muscle. CD34+/CXCR4+ are the cells that mobilize during a heart attack in an attempt to rescue the damaged tissue.
Building on the positive data in its Phase I study, this past December NeoStem completed enrollment of 160 patients in a Phase II study for the preservation of heart function after STEMI. While the stem cell therapy appeared to work, Amorcyte's challenge was to figure the number of stem cells required to be effective. It appears as though the company has discovered that number was 10 million, as those patients showed no signs of deterioration of heart muscle function compared to the control group, which received 5 million cells and saw a 30% to 40% deterioration.
AMR-001 could be a blockbuster platform with potential to exceed a billion dollars annually. It is estimated that by 2030 approximately 116 million Americans will have some form of cardiovascular disease. In the U.S. annually about 715,000 Americans will have a heart attack, over 160,000 will suffer a STEMI, and roughly 600,000 will die from heart disease-- and as the population ages those number are expected to increase.
NEOSTEM'S ATHELOS - TREG CELL THERAPY LOOKS TO CURE AUTOIMMUNE DISEASE
Athelos is developing enhanced regulatory T-cell (Treg) therapies to treat, and possibly cure, autoimmune conditions. Treg cells are vital for keeping the immune system in check, and does so by suppressing a variety of physiological and pathological immune responses; and due to the 24 million people suffering from autoimmune disease, the enhanced Treg cell platform has the potential to be a billion-dollar product. Autoimmune diseases include, but are not limited to: asthma, multiple sclerosis, inflammatory bowel disease and type I diabetes (T1D). Collectively, the autoimmune drug market is expected to reach over $90 billion by 2019.
Athelos, which is 80% owned by NeoStem and 20% by Becton Dickinson, is currently in Phase I clinical trials for type 1 diabetes, steroid resistant asthma, and for treating graft versus host disease -- a complication that can happen after a stem cell or bone marrow transplant where the newly transplanted donor cells attack the host's body. The company expects Treg therapy to eventually be tested for other indications including T1D, multiple sclerosis, and allergic conditions that result from T-effector and Treg cell imbalances. Currently Athelos holds 21 U.S. patents on Treg cell technology.
NEOSTEM - WHAT TO LOOK FOR IN 2014 THAT COULD DRIVE THE STOCK UPWARD
In June the Phase II AMI-001 trials should be complete and results released sometime in the 3rd quarter. Also in the first half of 2014 the Phase I results from the Treg T1D study should be released, leading to the initiation of Phase II trials with the University of California San Francisco. Look for NeoStem to file an investigational new drug (IND) application with the FDA for its VESLs technology sometime in 2014, which will lead to initiating human clinical trials to treat periodontitis.
NeoStem has a market cap just above $187 million. The stock closed on Jan 17th at $6.91 per share. The company is well funded with about $58 million in the bank, and has a burn rate of approximately $7 million a month. Stock dilution, an issue that hampered the stock's climb last year, should no longer be a factor for at least the next two years, and one can now focus on the company's stem cell products. Positive data on AMR-001 alone could send the stock rising in 2014; add in what would happen if the Treg cell technology received positive data and the stock has the potential to rise significantly in 2014.
MANNKIND CORP - ALL OR NOTHING WITH ITS DIABETES DRUG
MannKind Corporation (NASDAQ:MNKD) had an excellent run in 2013, up 119%, due primarily to the possible impending approval of its inhaled insulin drug, Afrezza, to treat diabetes. While MannKind focuses on the discovery, development, and commercialization of drugs for diseases such as diabetes and cancer, for today's investor MannKind is really a one-drug company - Afrezza. But that one drug, if successful, could be worth billions in yearly revenue; 370 million people worldwide have diabetes and 300 more million are pre-diabetics. The insulin market is expected to reach $32 billion in 2018.
What could make Afrezza the insulin of choice is that it's not an injectable, but the first oral insulin treatment since Pfizer's (NYSE:PFE) Exubera in 2007 (if approved by the FDA). And while Exubera was a financial disaster, costing Pfizer over $3 billion, the same fate should not be expected for Afrezza. Exubera had issues with the bulky size of the delivery device plus the insurance companies refused to pay for the drug, thus making the cost unaffordable for most patients. Afrezza will not have those issues: the delivery system is now similar to an asthma inhaler and it is expected that the drug will be priced competitively compared to other insulin products.
Even if MannKind gains FDA approval there will still be issues that the company needs to address, such as sales and marketing, and competition from other novel diabetes drugs that may soon seek regulatory approval. MannKind does not have the capacity to actually sell and market Afrezza; therefore the company will be dependent on finding a partner willing to pay the costs of acquiring the sales rights and absorbing marketing costs. One such company that has been generating rumors is the global pharmaceutical giant Roche (OTCQX:RHHBY). And while that would be a substantial boon for MannKind to have a $247 billion pharmaceutical behemoth marketing Afrezza, the rumors to date are unsubstantiated.
MANNKIND - WHAT TO LOOK FOR IN 2014
MannKind is expecting a final decision on Afrezza from the FDA by April 15, 2014. My take is the odds are favorable for FDA approval, as the company has focused on addressing the FDA's concerns. Plus, the drug's pharmacokinetics/efficacy has been demonstrated across a number of trials consisting of over 5,000 patients that the drug offers clear benefits over current best-in-class treatments. I expect in the coming months MannKind will partner with a giant pharmaceutical company to market Afrezza. If MannKind does find the right partner -- and the drug is priced and marketed properly -- the company should have a blockbuster product, and the stock should rise significantly.
While today MannKind is basically a one-drug company with Afrezza, there's more to it. The company's Technosphere® Technology Platform, a dry powder delivery system that mimics the process by which a drug is absorbed, distributed, metabolized, and eliminated by the body, has the potential for other treatments-- including cancer, pain management, respiratory disorders, and GI issues. In 2014 I look for the company to expand its Technosphere platform well beyond diabetes and will begin to develop what might be its next billion-dollar product.
ORAMED - ON MANNKIND'S HEELS WITH ITS OWN ORAL INSULIN DRUG
MannKind could see competition from a small Israeli company, Oramed Pharmaceuticals, Inc. (NASDAQ:ORMP), which is in late stages of its oral insulin capsule treatment for both type 1 and type 2 diabetes (T2D). Oramed stock has had a stellar year ending with a bang, almost doubling its value in the last ten days of trading. This was due to announcing successful results of its lead candidate, ORMD-0801, in tests for T1D. As an oral treatment ORMD-0801 is able to mimic insulin's natural location and gradients in the body by first passing through the liver before entering the bloodstream, something that injections are unable to do.
What makes Oramed's product unique is that previous attempts to develop an insulin pill failed as the tests proved difficulty in maintaining pill integrity as it passed through the gut. Oramed was able to address that issue, designing the capsule with an enteric coating so the insulin protein retained its integrity and effectiveness after crossing biological membranes in the gut.
In November the company completed its Phase IIA study for T2D consisting of 30 patients in early stages of the disease where the treatment can still slow the rate of degeneration by providing additional insulin to the body and allowing the pancreas a respite. An additional benefit of the oral ORMD-0801 is that it has shown it helps slow the progression of diabetes, and reduces the severity and onset of life threatening and debilitating conditions associated with the disease.
On December 19th the company announced it received patent approval in the European Union for the company's invention titled, "Methods and Compositions for Oral Administrations of Proteins." This is big news for Oramed; Europe can be a major revenue source for the company as it accounts for 25% of the world's pharmaceutical market. In 2010 Europeans spent $8.6 billion on diabetes-related medicines, and the market is expected to grow to $14 billion by 2017.
Oramed stock is on a roll, and even the December 26th announcement that the company entered into definitive agreements with investors to purchase 1.58 million shares of common stock at $10.00 per share did not dampen the stock's run, closing out 2013 at $15.43, continuing its run up and heavy volume since December 20th. The funding raises $15.8 million before discounts and expenses, which will be used study an insulin drug and a diabetes drug, and for general corporate purposes. While last year's burn rate was estimated to be between $5-$6 million, this year the burn rate is expected to rise as the company increases its tests. However, the funding should more than be enough keep the company afloat for 2014.
ORAMED - WHAT TO LOOK FOR IN 2014
Once Oramed's Phase IIA trial is completed, the company plans to begin a large multi-centered Phase IIB trial. Later stage trials require more funds and Oramed will need to partner with a major pharmaceutical company to help with the added costs, which is why I look for the company to find a partner sometime late in 2014 . One such company that has been brought up is Novo Nordisk (NYSE:NVO), which has been attempting to develop its own oral insulin pill, but trails far behind Oramed at this point. There have been rumblings that the two companies have been in discussion about a partnership -- and if that does indeed happen, look for Oramed's stock to continue on its upward trend.
The stocks of all three companies profiled have excellent upward potential this year. MannKind has the chance to have the biggest gains if Afrezza is approved, but it would also see the largest drop if the drug is rejected. Oramed appears to have a novel product that will attract interest from a major pharmaceutical company, however it might be sometime before that happens. NeoStem slowly and quietly continues to advance. I think this is the break out year for the company, especially if its AMR-001 has positive data from its Phase II study.