Biotech Forum Daily Digest: The Biotech Rally Continues. Amgen Gaining Strength. Spotlight On Aerie Pharmaceuticals

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Includes: ABBV, AERI, AMGN, ATRA, DEPO, GSK, HZNP, MRK, OMER, PETX, SNY, VRX
by: Bret Jensen

Summary

Biotech posted its second strong week in a row and has more than recovered from its losses immediately following the unexpected Brexit outcome on June 23rd.

Amgen moved up three percent in trading Friday as its biosimilar for Humira progressed. Merck expanded its footprint into Animal Health through a transaction in Brazil.

Here is some of the other notable news and analyst ratings across the biotech sector as well as a spotlight feature on Aerie Pharmaceuticals.

"Perseverance is failing 19 times and succeeding the 20th." - Julie Andrews

Biotech had a better than one percent gain on Friday as the overall market posted an almost one and half percent rise on back of much stronger than expected June Jobs Report. For the week, the biotech sector easily outperformed the overall market for the second week in a row as it has put the immediate losses in the aftermath of the unexpected Brexit outcome on June 23rd.

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This is the fifth or sixth time the sector has bounced off bear market lows so far in 2016. Whether this is finally the rally that will allow this beaten down sector to emerge from the longest and deepest bear markets since 2008 will depend on a number of factors which I articulated in a well-received "Biotech: Will The Bounce Last" article here on SeekingAlpha on Saturday.

Note: To get these Biotech Forum Daily Digests as soon as they are published, just click on my profile and hit the big orange "Follow" button and choose the real-time alerts option.

Amgen (NASDAQ:AMGN) gained nearly three percent on the last day of the trading week. In briefing documents released Friday, FDA staffers said that their review of data from rheumatoid arthritis and plaque psoriasis trials of the prospect--dubbed ABP 501--suggested Amgen's biosimilar copy was "highly similar" to Humira, which is one of the best selling drugs in the world with nearly $8.5 billion in just U.S. sales. An Ad Comm panel meets soon to vote on recommending this biosimilar for approval to the FDA. The earliest ABP 501 could be on the market is some time in the first half of 2017, but only if Amgen is willing to engage in all out patent war with AbbVie (NYSE:ABBV) which owns Humira. It will be interesting to see exactly when this biosimilar will hit the market but it does show good progress of Amgen's evolving biosimilar franchise. The company is hoping to launch five biosimilars between 2017 to 2019 that it projects will produce at least $3 billion in revenues overall at the end of the 2019.

GlaxoSmithKline (NYSE:GSK) is the latest to get into the Zika Virus vaccine "hunt". The British drug giant announced late last week that it's pairing with the National Institutes of Health in a project based at its new vaccine research hub in Rockville, MD. French giant Sanofi (NYSE:SNY) recently announced it too was going to pursue a vaccine. More than a dozen other companies and organizations are also racing to create an effective vaccine. Zika virus has been linked to thousands of microcephaly cases in Latin America and shows signs of spreading to the United States. The first death in the United States occurred in Utah last week.

Merck (NYSE:MRK) deepened its commitment and footprint in Animal Health last week. The company announced it is buying a controlling interest in Brazil-based Vallée for $400 million. Vallée has a portfolio of more than 100 products for livestock and companion animals. There have been a few transactions in this space in recent weeks. Investors looking for a good play in this little followed space should take a look at one of the only pure play small caps in this sub-sector of the market called Aratana Therapeutics (NASDAQ:PETX) which I own and provided a deep dive on in late May.

Small cap specialty pharmaceutical concern Depomed (NASDAQ:DEPO) seems to have become a battleground stock. Over the past week, Janney Montgomery and Roth Capital have reiterated their Buy ratings and have price targets in the mid to high $20s on the stock. Meanwhile, UBS and RBC Capital came out last week with Hold ratings. Activist fund manager Starboard Value is currently trying to replace Depomed's board. I have no dog in this fight as a overhang has existed over specialty pharma since Valeant Pharmaceuticals (NYSE:VRX) began its long descent which has seen that one time drug giant lose ~90% of its market value since last summer.

Analysts also have disparate views on Horizon Pharma (NASDAQ:HZNP) which previously was trying to acquire Depomed. Over the past week, Stifel Nicolaus reissued their Buy rating and $42 price target on this speciality pharma play. Today, Morgan Stanley says Hold with a $24 price target.

After only one rating I can find in 2016, analyst commentary on Atara Biotherapeutics (NASDAQ:ATRA) picked up last on this San Francisco based clinical-stage biopharmaceutical company. JMP Securities reiterated its Buy rating and $34 price target on Friday. Jefferies maintained its Buy rating Thursday but with only a $25 price target on ATRA, which is barely above the current trading level of the stock.

This company is almost two years old and not one I cover closely. The company has a fairly deep pipeline and its programs include T-cell product candidates and molecularly-targeted product candidates. Atara might be a good candidate for a "Spotlight" feature in the near future.

Note: New analyst ratings are a great place to start due diligence, but nothing substitutes for deeper individual research in this very volatile sector of the market. Many of the small-cap names highlighted in the "Analyst Insight" will eventually appear in the "Spotlight" section, where we do deeper dives on this type of promising but speculative small-cap concern.

To begin the trading week we take a look at Aerie Pharmaceuticals (NASDAQ:AERI) at the request of a Biotech Forum subscriber that has a small stake in this clinical stage pharmaceutical company based out of the Garden State of New Jersey.

Company Overview:

Aerie Pharmaceuticals focuses on the discovery, development, and commercialization of first-in-class therapies for the treatment of glaucoma and other eye diseases. The company came public in 2013, sports a market capitalization of just over $450 million and a stock price of just under $18 a share. The shares have traded as high as ~$33 and as low as ~$11 a share over the past year.

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Pipeline:

Aerie Pharmaceuticals has two main wholly-owned primary pipeline products. The first is Rhopressa which is a once-daily eye drop, which has completed Phase III registration trials for the reduction of intraocular pressure {IOP} in patients with glaucoma or ocular hypertension. The company announced completion in a key Phase III trial "Rocket 4" in mid-June. 90-day interim top line results are expected in the fourth quarter setting up a potential catalyst.

The second candidate is Roclatan which a once-daily eye drop to reduce IOP that has completed Phase IIb clinical trial in patients with open-angle glaucoma and ocular hypertension. The company completed enrollment for a key Phase III study in early May. A top-line readout should be available sometime this quarter. Positive results obviously could be a potentially positive catalyst for the stock.

Analyst Support & Balance Sheet:

The company has approximately $130 million in cash in the till as well as ~$125 in convertible debt that starts to come due in 2021, so it appears well funded given its late stage pipeline. Glaucoma is an approximate $2 billion to $3 billion market in the United States and over $5 billion worldwide. Most current treatments are generic, which have limitations in their effectiveness. Obviously if Aerie's candidates became the standard of care in this disease area, it would be a significant opportunity.

Analyst support is quite good on Aerie. Since early May, Canaccord Genuity, Brean Capital, Cantor Fitzgerald and JMP Securities have reiterated Buy ratings on Aerie. Their price targets are in a tight range of $44 to $49 a share.

Outlook:

Aerie is not a name I have followed closely in the past. However, it does appear to two potentially viable drug candidates with upcoming catalysts. The company also has enough money on hand to get through pivotal trials and into commercialization which will involve building a sales force from scratch, always a challenging task. For that reason, I think I prefer Omeros Corporation (NASDAQ:OMER) in the same field as it has already rolled out Omidra. I recently provided a granular analysis on this stock here on SeekingAlpha. However, a few shares of Aerie seem worthy of consideration within a well-diversified biotech portfolio in my opinion.

Thank You & Happy Hunting

Bret Jensen

Founder, Biotech Forum

Disclosure: I am/we are long ABBV,AMGN,OMER, PETX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.