A market moving biotechnology event is not limited to one type of headline. It can be data, FDA approvals, partnerships, or even data from competing companies among a dozen other stock moving announcements. Essentially, there are countless events in biotechnology that can be called catalysts, and in this two part series I am looking at eight in particular for 2014 that could spark significant stock movement.
Zohydro makes its big debut, or does it?
I'm not sure that there is a more controversial drug in the entire market than Zogenix's (NASDAQ:ZGNX) newly FDA approved pain killer Zohydro. The drug is 100% hydrocodone bitartrate in comparison to the mix of acetaminophen-based hydrocodone products like Vicodin that currently saturate the market. With hydrocodone being one of the most abused drugs in the U.S., some states have already begun to present legislation to ban the drug, such as Ohio, where heroin and Oxycontin abuse has become an epidemic.
Yet, regardless of how the general public feels about Zohydro, the drug does serve a purpose to those in need, and could very well produce staggering annual revenue. In particular, there are two reasons to be bullish: Hydrocodone sales as a whole and the revenue of a much stronger and more deadly Oxycontin. First, Oxycontin, a drug without acetaminophen that is highly abusive, generated sales of $2.8 billion in 2012, or 30% of the pain killer market. It's worth noting that the risks of abuse are very much known, and if it can generate blockbuster sales then Zohydro also has a good chance to succeed.
Second, hydrocodone is the most prescribed drug in the U.S., with nearly 127 million scripts last year. Therefore, if a pure formulation of oxycodone can have such large market success, and hydrocodone is a far larger market than oxycodone, it begs to reason that Zohydro can be successful. In making this statement, I'd also like to add that in a recent conversation with neurologist and pain specialist Dr. Ashraf Nassef in Cincinnati, OH, I was told that lower amounts of acetaminophen is "being pushed" due to the liver damage and adverse effects that can be created from long-term use of acetaminophen. Hence, this might be another reason to believe in Zohdro's eventual success, as many physicians might actually prefer the drug in treating severe pain.
With all things considered, Zogenix is a $400 million company, and with the biotechnology industry currently trading at 9.6 times sales, Zogenix won't need much in sales to support its current valuation. With that said, a successful launch will tell us a lot about the demand for this drug, and could catapult shares many times higher if positive. Hence, the launch of Zohydro is my number two most significant watch in biotechnology over the next year.
Will Zybrestat "remain" Oxigene's diamond in the rough?
Oxigene (OXGN) is a tiny company with a market cap of only $60 million, one whose history is plagued with failure. But, in Zybrestat, the company may have finally found a disease where the drug works, ovarian cancer.
Earlier this year Oxigene announced that in a Phase 2 study its drug Zybrestat in combination with Avastin reduced the risk of tumor growth in patient's with ovarian cancer by 32% versus the control group; shares doubled on this news. The problem is that Oxigene is yet to announce the most significant data from this trial, with that being survival.
So, even if proven to increase survival in this patient population, no one really expects Zybrestat to produce blockbuster sales in treating ovarian cancer alone. Simply put, the space is just too crowded. However, for the company's sub-$60 million market capitalization, a benefit to the life expectancy in patients could mean a significantly higher stock. Therefore, with a progression-free survival benefit already proven, it'll be interesting to see if Oxigene can continue to produce good data in treating these patients. And with this data expected later this year at an unnamed scientific meeting, Oxigene is worth monitoring.
Insmed: How will the FDA react to data?
Last week shares of Insmed (NASDAQ:INSM) fell double digits after the company reported data on a 90 patient Phase 2 trial. The company's lead product Arikayce is an inhaled antibiotic that's being developed to treat patients with severe lung infections. In its 90 patient trial, the company failed to reduce the density of bacteria in a meaningful manner. Yet, in the same trial, a statistically significant number of patients had been cured of the infection following treatment. Based on these findings, Insmed believes that it has a future FDA approved product on its hands.
Obviously, this is a biotech debate at its finest, and honestly, it's a toss up to know how the FDA will react. Depending on the FDA, Arikayce could be the first approved treatment for nontuberculous mycobacterial (NTM) lung infections, but with failing reduce density the FDA's decision is really a toss-up for investors to predict.
Insmed has announced that it will now seek a Breakthrough designation from the FDA, and if awarded, it will tell us a lot on how the FDA views the company's recent data, and perhaps whether or not it will ultimately be approved or not. It is this outcome and decision that investors should watch closely in the coming months. Because with an $800 million market cap, Insmed has a lot to lose.
Will PBC give Intercept a first-to-market advantage in treating NASH?
Intercept Pharmaceuticals (NASDAQ:ICPT) has been this year's hot biotech stock, rallying nearly 400% in 2014 alone. The gains come as a result of Phase 2 data from its drug obeticholic acid (OCA) in the treatment of a disease called nonalcoholic steatohepatitis (NASH), which affects roughly six million people in the U.S. According to Bank of America, Intercept could earn annual sales of more than $4 billion from treating this one disease alone.
However, it's not NASH that has me interested, but rather a potential catalyst that could earn OCA an FDA approval in treating another disease called primary biliary cirrhosis (PBC). With that said, PBC is a rare disease that causes liver damage and failure in women that will not be near as lucrative as the NASH indication. However, with 47% of patients in a Phase 3 trial responding to OCA versus just 10% with placebo, Intercept's chances of an FDA approval in treating this disease are rather high.
Thus, with Intercept planning to submit the drug to the FDA in the near future, and PBC being rare, the big question is whether Intercept gains an accelerated approval? The answer to this question will be big for the company, as it means OCA will be on the market, and soon.
Intercept has only read out initial data on OCA in the treatment of NASH, an indication that is much more important in supporting its now $6.5 billion market capitalization. However, there are no current FDA approved drugs for NASH, and Intercept has presented the best data to-date; although there are many companies that are also developing late-stage NASH products.
Therefore, a first-to-market advantage for Intercept is imperative, a company with $131 million in cash that'll have to launch this drug on a massive scale. So, if it gains an accelerated approval for PBC, and is on the market within the next year or so, OCA becomes the first FDA approved drug with substantial and meaningful data in the treatment of NASH. Hence, its off-label revenue could be huge, which is why "getting" an accelerated review on OCA is very important, and meaningful to monitor over the next few months, as it could drive this stock much higher.
It's important to understand that in identifying these five events, along with the additional five, we are not necessarily predicting "stock gains" per say, but rather a near-term announcement that will create excessive volatility one way or the other. Each of these "events", and what makes each so notable, is that it can also create substantial stock losses; that is if the noted event works against the companies profiled. With that said, some have more risk than others, particularly those with smaller market caps that are more directly attached to one specific product/drug. In the next piece, we will continue to look at an array of events within biotechnology that "can" produce large returns, and this includes my number one company with the most significant stock-moving event(s).
Disclosure: I am long ICPT. 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.
Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.