Seeking Alpha
Long/short equity, special situations, momentum, event-driven
Profile| Send Message|
( followers)

Summary

  • July 25 will conclude the 25 day, SEC-enforced quiet period on underwriter research on NERV.
  • On July 26th, NERV's underwriters will likely release detailed positive reports, leading to at least a temporary rise in NERV prices.
  • NERV's post-IPO market performance has been inconsistent, bouncing between $5.75 per share and $7.54 per share.
  • Given that each of NERV's product candidates is at an early clinical stage, we feel that the firm has an unclear future; however, this event offers a short-term buying opportunity.

Minerva Neurosciences, Inc. (NASDAQ:NERV) - Buy Recommendation - PT $6.30

Thesis: July 25 will conclude the 25-day, SEC-enforced quiet period on underwriter research on NERV. On July 26th, NERV's underwriters will likely release positive reports, leading to at least a temporary rise in NERV prices. NERV's post-IPO market performance has been inconsistent, bouncing between $5.75 per share and $7.54 per share. Given that each of NERV's product candidates remains early in the clinical trial process, we feel that the firm is a roll of the dice in the long term; however, the quiet period expiration offers a short-term buying opportunity.

July 25 will conclude the 25-day, SEC-enforced quiet period on underwriter research initiated with the June 30 IPO of Minerva Neurosciences, Inc.

The expiration of the quiet period will allow the IPO underwriters to release research reports on the biopharmaceutical firm, which is attempting to develop and commercialize treatments for central nervous system diseases. The release of underwriter analyses will likely lead to at least a temporary rise in NERV prices.

NERV's IPO priced at its expected $6.00 per share and made a small return of 0.8% on its first day. The stock has yet to settle in its pricing, and has bucked between $5.75 per share and $7.54 per share. NERV closed at $6.09 per share on July 16.

(click to enlarge)

(Nasdaq.com)

Underwriters

NERV's IPO underwriters, including Jefferies LLC; Robert W. Baird & Co. Incorporated; and JMP Securities LLC, will attempt to establish an upward trend in the shares' prices by releasing positive reports on NERV beginning on the 30th.

Underwriters, Quiet Period Expirations, and Buying Opportunities: Academic Studies

The Journal of Finance (Vol. LVIII, No. 1; 2003) explains the process through which rising share prices generally emerge days before the expiration of the quiet period, as investors buy up shares in anticipation of positive underwriter analyses.

Lead author Dan Bradley, PhD, CFA, affiliated with the University of South Florida, and his colleagues note that analyst coverage is initiated immediately for 76% of firms at the expiration of the quiet period, typically ratings of "Buy" or "Strong Buy." Firms with coverage initiated experience abnormal positive returns of 4.1% for the two days before and the two days following the date of initiation. Returns have also been found to rise significantly when more than one analyst initiates coverage - to 6.4%.

Dr. Bradley's conclusion is further supported by the work of Carter, Piwowar, and Strader (2001), who report that the mean analyst rating at the end of the quiet period is a "Buy," with higher ratings correlated to higher returns.

Lach and Highfield (2009) note that since the Global Settlement and NASD and NYSE rules, analyst initiations have been less biased towards the positive; however, Highfield, Lach and White (2008) still found that the five-day cumulative adjust returns are statistically significant, at ~2%.

In both cases, early share purchases create the perception of rising demand, leading to rising share prices before the quiet period expiration and generating a short-term buying opportunity.

Bradley et al also state that there is a significant correlation between the number and reputation of IPO underwriters and rising share prices near the conclusion of the quiet period.

Data generated through our past three years of research align with the conclusions of the academic publications.

NERV's Business

NERV is a clinical-stage biopharm company in the process of developing treatments for central nervous system (CNS) diseases with an eye towards future commercialization.

NERV's four lead product candidates include MIN-101 for the treatment of schizophrenia, MIN-301 for the treatment of Parkinson's disease, MIN-117 for the treatment of major depressive disorder, and MIN-202, which NERV is co-developing with Janssen Pharmaceuticals for the treatment of primary and secondary insomnia. Phase IIb trials are planned for MIN-101 and MIN-117 in late 2014; MIN-101 and MIN-117 are the most advanced of the firm's candidates thus far.

(click to enlarge)

(pro.edgar-online.com)

NERV retains global commercial rights for MIN-301 and global commercial rights, with the exception of much of Asia for MIN-101 and MIN-117. NERV retains European Union commercial rights for MIN-202.

NERV has a history of making strategic moves to grow its product portfolio, including its collaboration with Janssen, the acquisition of Mind-NRG SA to gain the rights to MIN-201, and a merger with Sonkei Pharmaceuticals, Inc. to acquire the rights to MIN-101 and MIN-117.

See our IPO preview of NERV for additional details.

Very Strong Competitors

NERV's products, should they receive approval, will compete with products offered by companies to treat similar indications. Many of the firms that have developed or are in the process of developing such projects are far greater in scale than NERV, and have access to greater technical and financial resources than NERV.

Potential competitors include the likes of Johnson & Johnson (NYSE:JNJ), AstraZeneca plc (NYSE:AZN), Bristol-Myers Squibb Co. (NYSE:BMY), GlaxoSmithKline (NYSE:GSK), Pfizer Inc. (NYSE:PFE), Eli Lilly and Company (NYSE:LLY), and Merck & Co. (NYSE:MRK).

Management Highlights

Rogerio Vivaldi Coelho, MD, MBA has served as president and CEO since November 2013.

He previously served as the senior vice president-head of Renal and Endocrinology Business Unit, senior vice president-head of Rare Diseases Business Unit, and senior vice president-head of Genzyme Latin America at Genzyme, a company he founded in 1997.

He holds an MBA from the Federal University of Rio de Janeiro and a medical degree from the University of Rio de Janeiro.

Conclusion: A Great Short-Term Buying Opportunity

Given that each of NERV's product candidates remains early in the clinical trial process, we feel that the firm is a roll of the dice in the long term - though given the relatively untapped markets that its products target, it may turn out to be a goldmine if it does manage to successfully commercialize.

We do appreciate NERV's concerted effort to enhance its product portfolio through strategic acquisitions, and the presence of long-time Genzyme executive Dr. Rogerio Vivaldi Coelho at the helm is also an encouraging sign.

The approaching quiet period expiration represents perhaps a better opportunity than others to get a piece of NERV.

We suggest aggressive investors consider this short-term buying opportunity.

We invite readers wishing to join the discussion on IPO quiet period expirations to click the +FOLLOW button above the title of this article, and those looking for the latest updates to click +Get real-time alerts.

Disclosure: The author is long NERV. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.