Bottom fishing involves a strategy where an investor buys potentially promising stocks believing that the stock's depressed price is temporary, and that the stock will recover and become a lucrative long term or short term investment. Bottom fishing can be a risky strategy because the company's stock price is usually depressed for a reason and the stock may not recover.
Three biopharma stocks were at or near 52 week lows last week (January 20-24, 2014):
Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX),
VIVUS Inc. (NASDAQ:VVUS),
Sunesis Pharmaceuticals, Inc. (NASDAQ:SNSS).
Are any of these stocks a good value?
Most investors who believe in Lexicon Pharmaceuticals believe in LX4211, the company's promising type 2 diabetes drug candidate. As a result, it was no big surprise that Lexicon reached a 52 week high of $3.18 on October 1, 2013 after the company announced that LX4211 met its primary endpoint for reducing post-prandial glucose in a Phase 2 study of patients with type 2 diabetes and moderate to severe kidney disease. The stock soared more than 30% higher in intraday trading, but settled at $2.89 at the close of trading. The stock hovered in the $2 range until December 5 when it fell to $1.95. The stock has not traded over $2 since, hitting a 52 week low of $1.70 on December 16.
This 960M market cap company has not had much good news to report lately.
On December 3, 2013, Lexicon did not paint a pretty picture when the company announced that its diarrhea-predominant irritable bowel syndrome investigational drug, LX1033, failed to achieve a statistically significant improvement in stool consistency as evaluated by the Bristol Stool Form Scale.
On December 6, Bank of America Merrill Lynch analyst Colin Bristow initiated coverage of Lexicon with an Underperform rating and set a price target of $1.50 for the stock. Bristow believes that the company's chief asset, LX4211 is "significantly overvalued."
On January 13, 2014, Lexicon announced that it would layoff approximately 115 employees, representing about 45% of the company's total workforce. The jobs were primarily in research, discovery and support positions. Lexicon expects to reduce its expenses by approximately $14 million, for the balance of 2014 and approximately $22 million on an annualized basis. As of September 30, 2013, Lexicon had $151.2 million in cash and investments.
"This transition increases Lexicon's financial strength and will enable the company to more effectively advance our key late-stage programs and to prepare for commercialization," said Arthur T. Sands, M.D., Ph.D., Lexicon's president and chief executive officer.
Lexicon claims that the company is changing its "focus away from drug discovery and toward the completion of late-stage development and preparation for commercial operations." Could Lexicon be streamlining to make itself a more attractive acquisition target for a larger pharmaceutical company?
Lexicon has another strong asset in addition to LX4211. The company is developing telotristat etiprate, a serotonin synthesis inhibitor, that has shown promising results in earlier studies and is currently in Phase 3 trials for carcinoid syndrome.
With over $100 million in cash and expenses substantially reduced, Lexicon should be around for awhile. The company is engaged in partnership discussions for LX4211 and "other potential collaborations and alliances" that could make 2014 a pivotal year for Lexicon.
On Friday, January 24, 2014, VIVUS Inc. stock bottomed at $8.06 off a 52 week high of $15.62 that was reached on May 28, 2013.
VIVUS is an 831M market cap biopharmaceutical company commercializing and developing obesity, sleep apnea, diabetes and sexual health therapies.
It's been a rough go for VIVUS. The September 2012 launch of the company's weight loss drug, Qsymia (phentermine and topiramate extended-release), did not go well. Not only did the company lack sufficient marketing capabilities, but many insurance companies would not cover the drug and there were high out-of-pocket costs. To make matters worse, the drug faces fierce competition from Arena Pharmaceuticals' (NASDAQ:ARNA)/Eisai's Belviq (lorcaserin HCl). The faithful thought VIVUS would find a partner to help market Qysmia, but it didn't happen.
Then there was the nasty proxy fight with First Manhattan Co. that resulted in Vivus giving control to First Manhattan in July 2013 that led to a substantial shake-up of management resulting in a reconstituted Board of Directors. Former Astra Zeneca (NYSE:AZN) Tony Zook was named CEO. Zook suddenly resigned in September for health reasons. Seth H. Z. Fischer, a former Johnson & Johnson (JNJ) executive was named CEO. All of the changes caused some investors to question the stability of the company.
If it wasn't one issue, it was another and during the past year, VIVUS was downgraded by Bank of America/Merrill Lynch, Brean Capital, Credit Suisse, Needham and Company, Jefferies, Piper Jaffray, and Lazard Capital.
The company plans to expand use of Qsymia through targeted patient and physician education, finding a partner for Qsymia, quickly creating a pathway for approval in Europe, and eliminating expenses that are not essential to expanding Qsymia usage.
In July 2013, VIVUS announced an exclusive license with the Menarini Group to commercialize its erectile dysfunction (NYSE:ED) drug, Spedra (avanafil), in Europe, Australia and New Zealand. Under the agreement, VIVUS is eligible to receive up to $102 million in milestones and other payments over the life of the agreement in addition to royalties.
In October 2013, the company announced an exclusive license with Auxilium Pharmaceuticals, Inc. (NASDAQ:AUXL) to commercialize avanafil in the United States and Canada. Under the license, Auxilium will pay VIVUS a one-time license fee of $30 million. Vivus is also eligible for over $250 million in potential milestone and royalty payments.
On December 12, 2013, VIVUS announced that it entered into a license and commercialization agreement with Sanofi (NYSE:SNY) to commercialize avanafil on an exclusive basis in Africa, the Middle East, Turkey, and the Commonwealth of Independent States (NYSE:CIS) including Russia. Under the terms of the agreement, VIVUS is eligible to receive up to $61 million in upfront payments, regulatory and sales milestones, as well as escalating royalties based on net sales.
Under the Menarini, Auxilium and Sanofi agreements, avanafil is expected to be commercialized in over 100 countries worldwide. With all that good news, VIVUS hoped its erectile dysfunction drug would get Wall Street excited. Unfortunately, it appears to have done little but leave Mr. Market frustratingly flaccid.
Sunesis Pharmaceuticals is a 243M biopharmaceutical company that develops and commercializes new oncology therapeutics for the treatment of solid and hematologic cancers.
The company's lead product candidate is vosaroxin, a first-in-class anti-cancer quinolone derivative (AQD). AQDs are a class of compounds that have not been used previously for the treatment of cancer. Both the FDA and European Commission have granted orphan drug designation to vosaroxin for the treatment of acute myeloid leukemia (AML). Vosaroxin has also been granted fast track designation by the FDA for the potential treatment of relapsed or refractory AML in combination with cytarabine.
On January 9, 2014 Sunesis announced that it had expanded its hematology franchise through two separate global licensing agreements with Biogen Idec (NASDAQ:BIIB) and Millennium: The Takeda Oncology Company.
"These programs represent an exciting expansion of Sunesis' pipeline which, with vosaroxin, provide the opportunity to create a leading hematology franchise," said Daniel Swisher, CEO of Sunesis. "This pipeline is supplemented by other promising programs that continue their development through our collaborator-funded programs with Biogen Idec and Millennium. Taken together with vosaroxin, our wholly owned late-stage program, these efforts are expected to yield a number of important corporate milestones in the upcoming quarters, including a second quarter readout of the pivotal, Phase 3 VALOR trial of vosaroxin in first relapsed or refractory acute myeloid leukemia."
On January 9, Roth Capital reiterated its Buy rating and $12 price target on Sunesis after the company announced its agreements with Biogen Idec and Millennium.
Sunesis hit a 52 week low of $4.43 on Friday, January 24 down from a 52 week high of $6.54 on February 6, 2013. On December 17, Zacks announced that Sunesis entered Oversold territory and it may be a good time to buy (Sunesis sold from $4.56 to $4.64 on December 17). Zacks has given Sunesis a 2 or Buy rating.
A key event for the company is coming soon with the reading of the top results from the company's pivotal VALOR study.
"Strong investigator support for VALOR from across our more than 100 sites worldwide has allowed us to finish enrolling VALOR, the largest-ever company-sponsored trial in first relapsed/refractory AML, on schedule," said Adam R. Craig, MD, PhD, Executive Vice President, Development and Chief Medical Officer of Sunesis. "With over 700 patients enrolled, VALOR is well powered to demonstrate a clinically meaningful improvement in overall survival, the study's primary endpoint. We look forward to top-line results in the first half of 2014 and, with a positive outcome, to seeing vosaroxin change the global standard of care in this important area of unmet medical need."
Expect this stock to make a big move way up or down next quarter ((Q2 2014)).
All investments involve risk, but investing in micro-cap companies like Sunesis is especially risky. These stocks are often extremely volatile, may be illiquid, and are subject to manipulation. The Securities and Exchange Commission (SEC) provides a wealth of information about the dangers of investing in micro-cap companies and penny stocks. You can find it here.