The Federal Drug Administration (FDA) controls the destiny for most biotechnology companies. Biotechs need the FDA consent to generate product revenue. This article focuses upon near-term FDA catalysts impacting a number of biotechs and their drug pipelines.
The table below highlights the fact many biotechs never make money. They offer hopes and dreams, but lose shareholders money in the process. Nevertheless there is always a diamond in the rough.
Amylin Pharmaceuticals, Inc. (AMLN)
Amylin is a biopharmaceutical company. The company currently focuses upon the discovery, development, and commercialization of drug candidates for the treatment of diabetes, and obesity.
FDA Pending News
On January 28, Amylin will attempt to begin the process in selling BYDUREON within the United States. The company has a pending FDA Prescription Drug User Fee Act (PDUFA) decision for the drug as a proposed treatment for type 2 diabetes. This is a resubission of a New Drug Application (NDA) for BYDUREON.
I believe the New Drug Application for BYDUREON will be approved based upon the January 9, 2012 Amylin Pharmaceuticals Inc at J.P. Morgan Global Healthcare Conference presentation.
I am only trying to earn some option premium with a tight leash on maximum loss. I am long AMLN Feb 2012 10.000 calls (AMLN120218C00010000) and short the AMLN Feb 2012 9.000 call s (AMLN120218C00009000) for a 60 cent credit per contract. My maximum loss is 40 cents per contract.
Threshold Pharmaceuticals, Inc. (THLD)
Threshold Pharmaceuticals is a biotechnology company focused on the discovery and development of drugs targeting the micro environment of solid tumors. The company reported positive Phase 1 Clinical Trials on TH-302 in patients with advanced leukemias conducted at MD Anderson's Cancer Center.
TH-302 Phase 2 pancreatic data in mid- to late-February 2012. The stock has been under pressure due to a January 20th SEC 424(B)(5) share offering filing. I don't see any reason to establish a position at this time as the stock is trading barely above its 50-day moving average of $1.40.
I will wait for the shelf offering to be complete and the Phase 2 data to be presented to shareholders.
Astex Pharmaceuticals, Inc. (ASTX)
Astex Pharmaceuticals is engaged in innovative drug discovery, development and commercialization, of cancer and other life threatening diseases. The company's primary areas of focus are oncology and hematology.
On February 9, Astex is expected to hear from a FDA panel on Dacogen for treatment of elderly acute myelogenous leukemia. The stock has performed strong in recent weeks, closing at $2.22 on January 24. On March 6, the company should hear a FDA decision on Dacogen in an update of elderly Acute Myeloid Leukemia impact. I don't see a viable entry point at this time.
NeurogesX, Inc. (NGSX)
NeurogesX is a biopharmaceutical company, focused on developing and commercializing pain management therapies. The company's lead product is Qutenza (capsaicin) 8% patch, which contains an 8% concentration of synthetic capsaicin.
The company, on February 9, should expect to hear from a FDA panel for review of Qutenza for additional indication of HIV Associated Peripheral Neuropathy.
I'll have to sit this one out until the stock starts perculating or further positive news is dispersed by management or independent trials.
On February 9, the company is expected to receive insights from a FDA panel to review PIXUVRI for treatment of relapsed or refractory Non-Hodgkin's Lymphoma. This is a New Drug Application resubmission.
The stock has traded well in recent weeks, and closed January 24, at $1.40. I may establish a $1.50 calendar call spread if volume is present and the stock continues to act in an upward trajecotry.
Celgene Corporation (CELG): In Lieu of Biotech Startups
Celgene is a global integrated biopharmaceutical company primarily engaged in the discovery, development and commercialization of innovative therapies designed to treat cancer and immune inflammatory related diseases. The key primary commercial stage products include REVLIMID, VIDAZA, THALOMID, and ABRAXANE.
I recommend sticking with a blue-chip biotech. The clear winner, in my view, is Celgene . This will allow investors a position with a fairly low correlation to the overall market. A key biotech that saves lives will trump worries about the European Sovereign Debt crisis.
Analysts' projections for Celgene share appreciation appear in the below table. The calculations are based upon a 21.5% earnings growth rate. A seven-year out chart provides a valuation of $269 per share. This assumes a $12.59 earnings per share calculation.
Due to Celgene's profitability, the company has plenty of cash to hire quality scientists and researchers. The company does not have to rely upon the FDA to make one decision that directly impacts the company's business model.
If one does see promise in a small biotech, my suggestion is to sell options. Selling options, due to the implied volatility of a pending FDA decision, can be profitable versus speculators buying naked calls or protective puts.
Disclosure: I am long AMLN.