Buy Cardium Therapeutics (CXM): CXM operates via its portfolio companies, Tissue Repair Company and Cardium Biologics, and its in-house MedPodium healthy lifestyle product platform. Its lead product candidates include Excellagen topical gel for wound care management, and Generx DNA-based angiogenic biologic for patients with coronary artery disease. Its shares were up a whopping 231% on Monday on news that it received 510(k) clearance from the FDA to market and sell its new Excellagen professional-use, sterile, syringe-based advanced wound care product for the management of diabetic foot ulcers and other dermal wounds.
The incidence of diabetes is rapidly increasing in the U.S. and worldwide, with an estimated 300 million people estimated to have the disease by 2025. Diabetic foot ulcer (DFU) is one of the most common complications of diabetes, and it is estimated that in the U.S. about 1.3 million people will develop these wounds. Furthermore, it is estimated that more than half of DFUs will become infected, requiring hospitalization, and 1 in 5 will require an amputation.
DFUs represent an $800 million market opportunity in the U.S. for Excellagen. The collagen in Excellagen acts the same as the body’s collagen in healing wounds, and the company posits based on the results from its phase 2b Matrix Study that Excellagen appears to be both safe and well tolerated, and it significantly accelerates wound healing compared to patients receiving standard of care therapy. Furthermore, CXM is looking at ways to extend the Excellagen technology platform to additional wound care and product opportunities. The company estimates the potential market opportunity of Excellagen, beyond DFU, at 92 million patients, significantly higher than the 1.3 million target for the DFU market. However, even after Monday’s huge surge, CXM still trades at only $34 million market-cap; it has $4.4 million in cash and only $0.3 million in debt. We believe that shares are attractive at these levels, but we would wait for a pullback from the extreme surge yesterday to the low-to-mid-30s before buying a small position into this speculative biotech.
Pharmasset Inc. (VRUS) and Vertex Pharmaceuticals (VRTX): VRUS develops pharmaceuticals for the treatment of chronic hepatitis C infection and HIV; and VRTX develops small molecule treatments for hepatitis C, inflammatory and autoimmune disorders, pain and cancer. VRUS shares rose 6.5% yesterday after the company announced further expansion of the ELECTRON trail of its PSI-7977 drug in the treatment of chronic hepatitis C (HCV). While this is an incremental development in the long road to drug approval, it signals VRUS’s confidence in its drug, and even more so represents a threat to established players in the HCV space such as Vertex Pharmaceuticals that just had its HCV drug Incivek approved in May, and Merck (MRK) whose HCV drug Victrelis was approved in the week before Incivek’s approval. The risk to VRTX and MRK is that both of their approved HCV treatments are administered along with the older drugs interferon and ribavarin, which has side effects. In contrast, VRUS’s HCV treatment is being tested without interferon, and hence would be extremely competitive against VRTX and MRK’s HCV drugs if approved. As a result VRTX shares fell 9.0%. We do not believe that the news is actionable for any of the three stocks, beyond the moves they made yesterday.
Sell Insmed Inc. (INSM): INSM is a developer of a proprietary, advanced liposomal technology designed specifically for inhalation lung delivery. Its shares collapsed 30.8% yesterday when it was notified by the FDA that the agency is continuing the clinical hold it previously placed on INSM’s lead product candidate ARIKACE phase 3 clinical trials for the treatment of Cystic Fibrosis (CF) patients with Pseudomonas lung infections. In its response, the FDA indicated that it has insufficient information to assess the risks for ARIKACE in CF patients based on a review of the information provided to date, including the rat inhalation carcinogenicity study results. While the company is still waiting for a response from the FDA on ARIKACE’s other phase 3 clinical trial in patients with non-tuberculous mycobacterial lung disease, it seems likely based on the FDA response that the other phase 3 trial may also suffer the same fate. With no other late-stage compounds in development, we do not see any near-term catalysts that could move the stock out of its slump. However, it should be noted that the company has $92 million in cash and short term investments, and no debt. At yesterday’s closing price of $3.01, it sells at $74 million market-cap, at a discount to its cash. Furthermore, the company has historically burnt through $6-$10 million of cash annually, giving it a fair price somewhere in the $3-4 range.
Other big movers in the biotech space yesterday included:
Allos Therapeutics (ALTH) and AMAG Pharmaceuticals (AMAG): ALTH develops small-molecule drugs that improve the standard of care in various cancer therapies, and AMAG develops nano-particle-based therapeutics to treat anemia and diagnose cancer and cardiovascular disease. ALTH was down 18.3% yesterday to $1.43, after reporting that a second higher bid at $2.20 per share from a rival company was withdrawn, and that it was now working toward completion of the earlier announced merger with AMAG.
Dynavax Technologies (DVAX): DVAX is a developer of drugs to treat and prevent allergies, infectious diseases, and chronic inflammatory diseases using versatile, proprietary approaches that alter immune system responses in highly specific ways. DVAX's clinical development programs are based on immunostimulatory sequences, which are short DNA sequences that enhance the ability of the immune system to fight disease and control chronic inflammation. The stock was up 9.3% yesterday, after reporting positive immunogenicity data from an analysis of hypo-responsive populations in HEPISLAV phase 3 trials for the treatment of hepatitis B. Results from the trial indicated that hard-to-treat patients that do not respond well to the current standard of treatment for hepatitis B, GlaxoSmithKline’s (GSK) Energix B vaccine, responded better to HEPISLAV.
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