The NYSE Arca Biotech Index ($BTK) fell 24.5% during the quarter, most of it at the end of July and at the beginning of August. The biggest movers in the biotech industry were analyzed to determine the best speculative buys.
Buy Raptor Pharmaceutical (RPTP): RPTP develops medicines that improve the life of patients with severe, rare diseases. Its lead product is RP103 (DR Cysteamine) that recently successfully completed its phase 3 pivotal trial for Nephropathic Cystinosis, a rare genetic disorder that may affect as many as 500 in the U.S. and about 2,000 worldwide. The company’s products also target other rare diseases such as Huntington’s, non-alcoholic steatohepatitis (NASH), and aldehyde dehydrogenase (ALDH2) deficiency.
RPTP shares fell 27.1% during the quarter despite reporting in late July that it met the primary endpoints in its phase 3 trial results of DR Cysteamine for Nephropathic Cystinosis (NC), namely non-inferiority to current treatment with Cystagon. The concern was that seven patients in the trial reported serious adverse events requiring visits to the hospital or emergency room. However, six of these incidents were deemed by study investigators to be unrelated to RP103 or Cystagon, and the remaining one adverse event was possibly related to RP103. The company is currently conducting a safety study prior to filing for approval in the first quarter of 2012. RPTP intends to ask for accelerated approval, which would mean that the drug could be in the market by the second half of 2012.
We believe that RP103 has an excellent chance of approval despite the one adverse event. For one, RP103 is to be administered every twelve hours versus every six hours (which requires a middle of the night dose) with Cystagon. While this has obvious benefits in terms of improving patient quality of life, there are also critical side benefits that the lower dosage would lower side effects and also encourage compliance. Assuming that, once approved, the drug would gain 65%-80% of the market of 500 patients in the U.S., and assuming a $250,000-$500,000 per year cost for the drug (which may be achievable given the rare and serious nature of the disease), the drug can generate $80 to $200 million per year in the U.S. alone. Once approved, the company will no doubt either seek a partnership or apply for commercialization in the EU and other international markets, which would raise potential worldwide sales to at least $250 million-- even with a lower penetration rate outside the U.S.
Since drug companies usually sell for three to five times peak sales, the value of the DR Cysteamine franchise alone could be worth over a billion dollars approval. Besides DR Cysteamine, RPTP also has three other phase two trials and several earlier-stage trials. At its current market-cap of just $212 million, the market seems to be giving a very low probability that DR Cysteamine will be approved and be successful commercially. We believe that there is actually a very good chance that DR Cysteamine will be ultimately approved and be at least moderately successful commercially, which makes it a steal at current prices. Subsequent to the successful phase 3 trials, JMP Securities raised its price target on RPTP to $12 from $7, and Oppenheimer initiated RPTP with an $11 target. Overall, seven analysts cover the company, and they give it a mean target of $11-- well above the current $4.51 price; and of the seven, five rate it a strong buy and two rate it at buy.
Buy Aeterna Zentaris Inc. (AEZS): AEZS develops therapeutics in the areas of oncology and endocrinology. Its product portfolio includes Cetrotide currently marketed for in-vitro fertilization, and its lead compound in phase 3 trial is Perfosine for advanced metastatic colorectal cancer and multiple myeloma that it is partnered with Keryx Pharmaceuticals (KERX) in North America. In addition, AEZS has phase 2 and earlier trials in several other indications in oncology and endocrinology.
AEZS shares fell 33.0% during the quarter, despite the company reporting a slew of positive trial results for the various drugs in its pipeline. First, the company reported that its top-line results met the primary endpoint in its phase 3 study of AEZS-130 as an oral diagnostic test for adult growth hormone deficiency. The study results were released on August 30th, and the company is anticipated to soon file its NDA. Second, AEZS’s partner KERX reported on August 31st that its drug KRX-0401 for advanced metastatic colorectal cancer that is licensed by AEZS to KERX successfully passed the interim analysis of the data by the Data Safety Monitoring Board (DSMB) and is recommended to be continued for completion. Third, during the quarter, AEZS presented positive phase 2 efficacy and safety data for AEZS-108 in advanced endometrial cancer. And finally, the company also presented positive interim phase 1 trial data with AEZS-108 in prostate cancer during the quarter. The stock meanwhile has retreated to near nine-month lows, and closed at $1.52 on Friday.
Wall Street analysts are bullish on the stock giving it a mean price target of $3.86, well above the current $1.52 price; and of the eleven analysts that currently cover the company, nine give it a buy / strong buy and two rate it at hold. We believe that AEZS is a good speculative buy at current prices given that it has fallen off steeply in sympathy with the weakness of the group and trades at recent lows, while reporting a string of positive results last quarter.
Buy Amarin Corp. Plc Adr (AMRN): AMRN is a clinical stage Ireland-based global pharmaceutical group, which develops novel drugs for the treatment of cardiovascular diseases using its proprietary advanced oral and trans-dermal drug delivery technologies. It fell 36.2% during the quarter. We recently covered AMRN at the end of last week, suggesting that current prices are attractive for a speculative buy for those with a longer-term horizon. The company may either get bought out by big pharma at a premium, or if it decides to go it alone, then it may trend higher towards a valuation of at least three times estimated peak sales of AMR101 in the $1.25 billion range. Currently, its market-cap is just under one times that projected sales number, making current prices a bargain for the speculative long-term biotech investor.
Buy Ariad Pharmaceuticals Inc. (ARIA): ARIA is engaged in the development of drugs that treat aggressive and advanced-stage cancer by regulating cell signaling with small molecules. It is also developing small-molecule drugs that block signal transduction pathways in cells responsible for osteoporosis, and immune and inflammatory diseases. Its shares fell 22.8% during the quarter. We covered ARIA in early August, suggesting that it was a buy based on the strength of its pipeline. We continue to stand behind that suggestion, but would buy it in stages to take advantage of any further technical weakness as ARIA consolidates between $8 and $10.
Buy Dendreon Corp. (DNDN): DNDN develops targeted therapeutics to treat cancer using active immunotherapies, monoclonal antibodies and small molecules. Among investor circles, it is probably best known as the maker of Provenge® for Prostate Cancer. The stock was down 77.5% during the quarter, trading at 30-month lows, after reporting slower than expected growth in Provenge® on August 3rd. We covered DNDN earlier on August 8th and August 15th, and then again last week, opining that its miss last quarter was a sales and marketing failure that is part of the growing pains of going from a research and development to a commercial stage. We further argued that this mistake was fixable by revamping the company's marketing and re-training its sales force. Subsequently, on September 8th, DNDN reported August gross revenue of approximately $22 million from Provenge® sales, a significant month-to-month increase of over 15% over reported July sales of $19 million. This indicates that in giving DNDN a market valuation of just $1.23 billion, the market is severely under-estimating Provenge® sales to be in the $250-$400 million range-- which seems easily achievable given the recent trend.
Buy Biodelivery Science International (BDSI): BDSI develops new formulations of proven therapeutics for pain, fungal infections and oncology supportive care, using its patented BioErodible MucoAdhesive ((BEMA)) and Bioral cochleate drug delivery technologies. The BEMA technology consists of a small edible polymer film for application to the buccal mucosa (or the inner lining of the cheeks). It currently markets Onsolis® for the management of pain in opioid tolerant adult patients with cancer. Its lead compound under development is BEMA Buprenorphine for the treatment of moderate to severe chronic pain and for the treatment of opioid dependence. Its shares were down 66.3% during the quarter. We recently covered BDSI at the end of last week, recommending it as a speculative buy based on the multi-billion dollar market for BEMA Buprenorphine, the strength of the rest of its pipeline, and the projected near-term revenue from its Onsolis® for pain management treatment.
Buy Siga Technologies Inc. (SIGA): SIGA develops treatments for infectious diseases and biological warfare agents such as small-pox and hemorrhagic fevers. Its shares were down 66.4% during the quarter. We recommended a speculative buy on SIGA at the end of last week, based on the likelihood that the earlier negative judge ruling in its dispute with PharmAthene (PIP) could get reversed, and the strength of its $433 million BARDA contract.
Buy Zalicus Inc. (ZLCS): ZLCS, formerly known as CombinatoRx, develops new drugs built from synergistic combinations of approved drugs and new chemical entities to treat immuno-inflammatory and metabolic diseases. Its shares fell 58.8% during the quarter. We recommended a speculative buy on ZLCS at the end of last week, based on its cash of 44c per share, the expected royalty revenues from Exalgo sales, and the strength of its pipeline and collaborations with big pharma.
Other Big Movers: Other prominent big movers in the biotech industry in the September 2011 quarter include:
- Agenus Inc. (AGEN), a developer of products and technologies to treat cancers, infectious diseases and autoimmune disorders. Its shares fell 38.5% last quarter.
- Geron Corp. (GERN), a developer of telomerase-targeted and stem cell therapies for cancer and chronic degenerative diseases. Its shares fell 47.1% last quarter.
- Peregrine Pharmaceuticals (PPHM), a developer of targeted monoclonal antibodies to treat solid cancers and viral infections. It shares fell 41.4% last quarter.
- Amylin Pharmaceuticals (AMLN), a developer of drugs for the treatment of diabetes, obesity and other diseases. Its shares fell 30.9% last quarter.
- YM Biosciences (YMI), a developer of products for the treatment of cancer and cancer-related conditions. Its shares fell 33.8% last quarter.
- Achillion Pharmaceutical (ACHN), a developer of antiviral and antibacterial treatments against HIV, Hepatitis C and drug resistant bacterial infections. Its shares fell 36.6% last week.
- Human Genome Science (HGSI), a developer of gene-based protein and antibody drugs to treat cancer and immunological infectious diseases. Its shares fell 48.3% last week.
- Cyclacel Pharma Inc. (CYCC), a developer of pharmaceuticals for the management of radiation and chemotherapy effects, and the treatment of various cancers. Its shares fell 67.6% during the quarter.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.