(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)
Today, I will examine 2 biopharmaceutical companies with upcoming catalysts. I expect these two companies' stock prices to appreciate significantly in the short term as they draw closer to their respective catalysts. Smaller cap biotechs have been on a tear lately, with 50% to 100% gains occurring at a substantial rate. However, just because a biotech has an upcoming catalyst event, it does not mean the event will have a positive result. So, keep this in mind.
Biota Pharmaceuticals, Inc. (BOTA) is a biopharmaceutical company focused on the discovery and development of anti-infective products to prevent and treat a number of serious and potentially life-threatening infectious diseases. The company has discovered two generations of neuraminidase inhibitors (NIs) that have been commercialized, the first of which is zanamivir, marketed world-wide as Relenza® by GlaxoSmithKline (GSK). The company's second generation NIs are referred to as long-acting neuraminidase inhibitors (LANIs), which allow for a single inhaled treatment, as compared to five-day, twice-daily dosing associated with first generation inhaled or oral neuraminidase inhibitors. The company has a world-wide license from Daiichi Sankyo company, Ltd to develop and commercialize a number of LANIs, including laninamivir octanoate, which is marketed by Daiichi Sankyo as Invavir® in Japan.
So overall, Biota currently has two products on the market, Relenza (Zanamivir) and Inavir (Laninamivir) approved in Japan. They are both neuraminidase inhibitors used for the treatment of the influenza virus, and are currently approved for sale in Japan
The company currently has two Phase II clinical-stage product candidates. Laninamivir octanoate is being developed under an existing contract with the U.S. Office of Biomedical Advanced Research and Development Authority ("BARDA") to provide up to $231 million in financial support to complete the clinical development of Laninamivir octanoate for the treatment of influenza A and B infections in the U.S. market. Secondly, Biota is testing Vapendavir, a potent, oral broad-spectrum capsid inhibitor of human rhinovirus (HRV). In addition, the company has preclinical programs focused on developing treatments for respiratory syncytial virus (RSV) as well as for gram-negative and multi-drug resistant bacterial infections.
Commercial Partner/ Funding
Zanamivir (Relenza®) Approved for treatment and prophylaxis. Partnered with GSK
- Influenza A&B
Laninamivir Octanoate (Inavir®) - Japan- Approved for treatment and prophylaxis. Partnered with Daichi-Sankyo
- Influenza A&B
Laninamivir Octanoate (LANI) - U.S./ROW. BARDA Contract Phase II results by mid year.
- Influenza A&B
Vapendavir (BTA-798) Phase II
- Human rhinovirus (HRV)
RSV fusion inhibitors Preclinical
- Respiratory syncytial virus
Biota is announcing its Phase II results mid year for Laninamivir and failure would be a disaster for Biota. There is no guarantee that results will be positive, but initial trials are promising, and Laninamivir offers the lowest risk of any drug you will find that has not already been approved.
Reduced risk stems from the fact that it has already been approved as safe for sale in Japan. Laninamivir is a derivative of Relenza, a product already approved by the FDA, with an improved pharmacokinetic profile.
Financial Results for the Three Month Period Ended September 30, 2013
The company reported a net loss of $3.9 million for the three month period ended September 30, 2013, as compared to a net loss of $7.2 million in the same period of 2012. The $3.3 million decrease in net loss from 2012 to 2013 was primarily the result of a $10.8 million increase in revenue, offset by an increase in operating expenses of $7.1 million and a $0.4 million decrease in interest income. Basic and diluted net loss per share were $0.14 for the three month period ended September 30, 2013, as compared to a basic and diluted net loss per share of $0.32 in the same period of 2012.
Revenue increased to $12.3 million for the three months ended September 30, 2013 from $1.5 million in the same period of 2012 due to a $10.9 million increase in service revenue related to the advancement of laninamivir octanoate ("LANI") into the Phase II IGLOO clinical trial under the BARDA contract, offset in part by a decrease of $0.1 million in other revenue.
Cost of revenue increased to $10.7 million in the three month period ended September 30, 2013 from $1.5 million in the same period in 2012 due to the advancement of LANI into the Phase 2 IGLOO clinical trial under the BARDA contract. Direct third-party clinical and product development expenses increased by $9.0 million and salaries, benefits and share-based compensation expenses increased by $0.2 million due to more human resources being deployed on the LANI clinical development program in 2013.
Research and development expense decreased to $3.0 million for the three months ended September 30, 2013 from $4.6 million in the same period of 2012.
Biota is an undervalued influenza play. the company anticipates tapping into a $400 million to $750 million market in the United States, according to the company's recent presentation. This is a lucrative source of growth for a company with a tiny market cap of $140 million. Therefore, with the high probability of approval for Laninamivir in the US, I give Biota a conservative price per share target of $10-12 price per share. This target gives the company a market cap of $300 to $360 million.
Venaxis (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 imminent this year. Memorandum of understanding (MOU) has been reached in several European countries, and some are still in negotiations. company announcements on new partnerships at any moment. 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. In September, the DSMB recommended the study continue to completion following an analysis of the first approximately 1,100 patients to complete the study. On January 24th, Venaxis had news announcing that they successfully recruited the patients needed for the study. The study enrolled patients at approximately 27 hospital sites across the United States, and the pivotal data will be based on approximately 2,000 net evaluable patients. From the press release, Top-line data results will be announced mid to the end of March. If successful, a planned FDA 510(k) de novo medical device will be filed before or near the end Q1 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 $50 million with a current price per share of $2.42. 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 $6 to $7 based on successful data results (in Q1/2014) and revenue projections. Canaccord Genuity gives APPY a $7.00 price target.
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.