Written by Kyle Dennis and Scott Matusow.
Today, we bring into focus a company that has fallen off the biotech map a bit in the beginning of 2014, but has a chance to regain investor interest in the near term. Progenics Pharmaceuticals (NASDAQ:PGNX) is a biotechnology company that focuses on developing oncology and therapeutics worldwide.
At this time, the company's most pertinent product is Relistor. Relistor is methynaltrexone bromide, which is subcutaneously injected to treat opioid-induced constipation in patients with chronic pain. Progenics is partnered with Salix Pharmaceuticals (NASDAQ:SLXP) for Relistor. The product is already approved and sold in the United States for the treatment of opioid-induced constipation in patients with advanced illness.
The sNDA seeks approval for the treatment of patients with opiod-induced constipation due to chronic pain. In other words, opiod painkillers prescribed for many conditions may cause constipation, and a treatment is necessary for this side effect.
- Catalyst: Advisory Committee Reschedule Update
Progenics shares have not been high on investors' radars in recent months because the FDA had rescheduled the set Advisory Committee (Adcom) meeting, which was due earlier this year. The FDA gave no guidance on when the meeting would be rescheduled, although many speculated it would be in the near term.
However, during the first-quarter financial results, Progenics announced that the FDA has rescheduled the meeting to June 11 and 12. This gives catalyst traders and investors a set date for which to trade and speculate on. These catalyst events tend to attract traders, which in turn, drive the stock price up under normal market conditions -- especially an event with a specific date.
Salix and Progenics received a Complete Response Letter from the FDA in 2012. However, Salix appealed the FDA's decision, believing that existing safety data from Relistor's already approved indication was not properly considered. Since then, Salix has met with the organization to remedy the situation. In response, the FDA seeks inputs from an Adcom to better understand the situation.
We believe the FDA is "saving face" by asking for an Adcom after its decision to issue the CRL, when the safety data was already sufficient. In this regard, an Adcom can "explain" the situation better to the FDA, and the organization can then approve with "a new and better understanding."
Therefore, we believe that this Adcom will go well and the sNDA will be approved by the FDA. It is always risky to hold through any type of binary event, but for the reasons given, we believe the companies have a better chance of success this time around.
- The Meaning of a Successful Adcom
A successful Adcom and approval of Relistor would be very meaningful for Progenics. The company is set to receive up to $50M upon U.S. marketing approval of an oral formulation of Relistor. Additionally, the company can receive up to $200M of commercialization milestone payments upon achievement of specified U.S. sales targets.
As of today, Progenics has a market cap of about $283M, so this income would immediately provide added value for shareholders. The company has $96.2M in cash as of May 9, so there should not be much additional risk due to capital raises. In addition to the cash on hand, these milestone payments would make Progenics significantly undervalued.
- Risks and Competitive Landscape
There is tremendous risk holding through any data point or FDA decision. We do believe Progenics has a strong chance of receiving a positive recommendation and eventual approval from the FDA, but there is no telling the exact outcome of these events beforehand. If Progenics was to receive a negative vote, the stock would lose a lot of value, potentially drifting under $3/share.
- Additional Value Drivers
Progenics does have proprietary products (products the company owns outright) in its pipeline. One such product is the company's PSMA ADC technology, which has shown some success in clinical trials for prostate cancer.
A Phase II trial [of the PSMA technology] assessed the anti-tumor activity and tolerability of its antibody drug conjugate, PSMA ADC, in patients with metastatic castrate resistant prostate cancer. A total of 83 patients who had progressive disease despite treatment with at least one taxane containing chemotherapy received PSMA ADC. Enrollment of a chemotherapy naïve cohort is ongoing.
PSMA ADC technology is the company's proprietary program, which has a much better chance of longer-term success if Progenics can receive these payments from Salix, if Relistor receives the sNDA approval from the FDA. At that point, the company would be able to invest more into this and other programs.
- Relistor Competition
In terms of competitors for Relistor, Sucampo Pharma (NASDAQ:SCMP) develops and markets Amitiza. Amitiza is the top approved treatment for Opiod-Induced Constipation (OIC) in patients with chronic pain. In July 2013, Amitiza was launched in the U.S. for the treatment of OIC in adults with chronic, non-cancer pain. Since this product was launched before Relistor, Sucampo has a competitive advantage.
Synergy Pharmaceutics (NASDAQ:SGYP) is developing SP-333 for OIC. The drug is currently in Phase II clinical trials. The company is also testing SP-333 for ulcerative colitis, along with Plecanatide for irritable bowel syndrome with constipation and chronic idiopathic constipation. So far, Synergy has been very successful with these indications, and trial results continue to be positive. We are bullish on the long-term prospects for SP-333 and the other drugs in Synergy's pipeline. Although we are bullish on SP-333, it will be a while before it becomes a competitor.
We think Progenics offers a good risk-to-reward opportunity at the current stock price levels for investors and traders alike. After the Biotech sell-off over the last few weeks, we believe the company has become oversold and under-speculated. In the long term, there will be competitors for Relistor, and there is significant risk in the FDA approval process. However, success with Relistor would give the company ample cash from Salix to fund future trials of its propriety products without further dilution to shareholders.
For a small cap biotech, we feel it's important to receive cash flow from a partnered product for use in funding potentially more valuable products, such as the company's PSMA ADC technology. This technology ultimately will decide whether or not the company succeeds in the long term or not.
Disclosure: I am long PGNX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.