It’s positive to see many companies constantly striving to improve and save the lives of individuals. The Food and Drug Administration’s approval decisions for Q1 2012 are already upon us. I would like to introduce the companies that are facing FDA approval decisions in the second quarter of 2012. These companies can experience a lot of volatility during the months leading up to the approval decisions.
Vivus Inc. (VVUS)
Drug #1: Qnexa – Treatment: Obesity – Decision Date: April 17, 2012
Vivus is up to bat again for Qnexa approval as the drug was previously rejected in 2010 due to safety concerns. Qnexa is also in earlier stages of clinical trial for the treatment of sleep apnea and diabetes.
Drug #2: Avanafil – Treatment: Erectile dysfunction -- Decision Date: April 29, 2012
April should be an interesting month for Vivus as it has two drugs with decision dates less than two weeks apart. Vivus has an upward earnings revision for 2012 and is expected to grow earnings annually at 53.5% for the next five years.
I think that the prospects for Vivus are bright. According to the CDC, 33.8% of U.S. adults are obese. This is a large pool of customers for Qnexa. Avanafil should also benefit from some of the 30 million men who have erectile dysfunction in the United States.
Vertex Pharmaceuticals (VRTX)
Drug: Kalydeco – Treatment: Cystic fibrosis – Decision Date: April 18, 2012
Vertex has 2 FDA approved drugs, Incivek for treating hepatitis C and Lexiva for treating HIV infection. It also has drugs in clinical trials for treating hepatitis C, cystic fibrosis, immune-mediated inflammatory disease, and epilepsy. Vertex has preclinical programs in place for treating cancer, multiple sclerosis, pandemic influenza, Huntington’s disease, and tuberculosis.
Although Kalydeco may prove to be an effective drug for cystic fibrosis sufferers, I don't think that the drug will have a dramatic impact on Vertex's sales since only 30,000 children and adults are afflicted with the disease in the United States.
Cell Therapeutics (CTIC)
Drug: pixantrone – Treatment: Non-Hodgkin’s lymphoma – Decision Date: April 24, 2012
The FDA previously rejected pixantrone in 2010 and again in 2011. If at first you don’t succeed, Cell Therapeutics will try again, as it steps up to the plate with an 0-2 count. CTIC has Tosdostat in clinical trial for treating acute myeloid leukemia (AML) and myelodysplasia (MDS). It also has a drug called Opaxio in clinical trials for treating various solid tumors such as breast, lung, ovarian, and prostate. Another drug in its pipeline is Brostallicin for treating soft tissue sarcoma and breast cancer.
Pixantrone is a drug that may be vital to non-Hodgkin's lymphoma (NHL) patients. There are expected to be about 70,130 new cases of NHL in 2012. If approved, pixantrone could kick-off a solid beginning to Cell Therapeutics' future. Its other pipeline drugs have even larger pools of patients as potential customers as 1 in 8 women will be diagnosed with breast cancer over the course of their lifetime and 1 in 6 men will be diagnosed with prostate cancer over the course of their lifetime.
Drug: Xgeva – Treatment: Prevention of bone metastases from prostate cancer– Decision Date: April 26, 2012
Xgeva has already been FDA approved for the prevention of skeletal-related events in patients with bone metastases from solid tumors.
Amgen is already an established biotech company with 10 FDA approved drugs on the market. Although the approval of Xgeva for the prevention of bone metastases from prostate cancer may not have as dramatic an impact on Amgen’s stock as it would on the smaller companies in this article – Amgen is a solid company to invest in. Since it already has a diverse mix of approved drugs, it is better protected from downside risk as compared to the small biotechs.
Amgen’s stock is undervalued as it’s trading at only 2.4 times book value per share. It pays a dividend of 2.2% and is expected to grow earnings annually at 7.86% for the next five years. This combination may match the performance of the market over that time period.
Drug: Uplyso – Treatment: Gaucher’s disease – Decision Date: May 1, 2012
Protalix and Pfizer have teamed up to bring Uplyso to market with an expected market opportunity of $1.25 billion. Uplyso was rejected by the FDA twice for quality control issues. Gaucher’s disease has an incident rate of 1 in 20,000 live births.
Protalix also has drugs undergoing clinical trials in its pipeline to prevent damage from nerve agents; to treat Fabry disease; to treat autoimmune disorders; another drug to treat Gaucher’s disease; and three more undisclosed compounds.
Pfizer, the well-established and largest pharmaceutical company in the world, has about 191 products already on the market. It is currently undervalued as its stock trades at only 1.84 times book value per share. However, it is only expected to grow earnings annually at an anemic 3.28% for the next five years. Therefore, it will probably lag the performance of the market during that time period.
Although an important treatment for Gaucher's disease, Uplyso will not be a blockbuster since only 5,440 people have the disease in the United States. Therefore, Protalix and Pfizer's stock will not have a dramatic increase upon approval of Uplyso.
Talon Therapeutics (OTC:TLON)
Drug: Marquibo – Treatment: Acute lymphoblastic leukemia (ALL) – Decision Date: May 13, 2012
Marquibo is also undergoing clinical trials to treat: non-Hodgkin’s lymphoma and other forms of ALL including pediatric cancers.
Talon is performing clinical trials for: Brakiva to treat small cell lung and ovarian cancers; Alocrest to treat lung and breast cancers; and Menadione topical lotion for rash prevention due to skin toxicity from cancer treatments.
The pool of patients with acute lymphoblastic leukemia is not large. There are only about 4,000 new cases of ALL in the United States each year. I don't think that the approval of Marquibo will make Talon an outstanding stock.
Ironwood Pharmaceuticals (IRWD)
Drug: linaclotide – Treatment: Irritable bowel syndrome – Decision Date: June 8, 2012
Ironwood does not have any other drugs listed its pipeline. However, Ironwood has recently announced that it is collaborating with Bionomics (BNO.AX) to develop and commercialize Bionomics’ antianxiety compound, BNC210. Under the agreement, Ironwood is responsible for worldwide development and commercialization of all products using BNC210.
Irritable bowel syndrome is a disorder that affect a large portion of the population. IBS affects up to 55 million Americans. This could make linaclotide a highly profitable drug for Ironwood, thus making it a stock with exciting potential.
Navidea Biopharmaceuticals (NAVB) (formerly known as Neoprobe)
Diagnostic Tool: Lymphoseek – Indication: Lymph node tracing agent– Decision Date: June 10, 2012
Navidea is the world leader in gamma detection and the only gamma detection company working to optimize radiotracers and gamma detection hardware. Lymphoseek is a radioactive tracing agent being developed for use in gamma detection in an Intraoperative Lymphatic Mapping surgical procedure. It has demonstrated the ability to target lymphatic tissue in patients with breast and melanoma cancers. If approved, Lymphoseek will be the first tracing agent labeled for lymph node detection.
Navidea is also in the process of developing a combined patented hand-held gamma radiation detection probe and cancer specific targeting agents for real-time information to locate tumor deposits and tumor tissue that is not detectable with conventional methods. This system is known as RIGScan CR, or the RIGS system. The RIGS system is designed to assist the surgeon in a more thorough removal of the cancer, providing patients with better outcomes.
If approved, Lymphoseek could prove to be a profitable diagnostic tool for Navidea and an important tool for breast cancer and melanoma patients.
There are a lot of exciting potential developments awaiting approval in the field of biotechnology. However, the stocks of most of these companies can be extremely volatile and risky, as most of their business is riding on the approval of the drugs in question.
Typically, the stocks of the smaller companies will rise in the months leading up to the decision dates, but this doesn’t always happen. Usually, the stocks will jump upon the announcement of an approval with varying percentage increases – sometimes the stocks barely move, occasionally they double, but if the drug is rejected, the stock could tumble. If you do take a chance with one, ensure that you use money that you’re willing to lose.
One strategy you may want to employ is to go long a stock – then sell after a 10% movement in the stock whether this is before or immediately after the approval decision. With this method, you can lock in your gain-- or if the stock dropped, cut your losses. You could also short a stock after an unusual run-up to capture some profit-taking selling pressure.