Biotech Forum Daily Digest: New Positives For Vascular Biogenics, Spotlight On Achaogen

|
Includes: ABBV, AGN, AKAO, AMGN, ARWR, CARA, CELG, DVAX, EGLT, FOLD, GBT, JNJ, REPH, VBLT
by: Bret Jensen

Summary

The main biotech indices continue to trade in a very narrow range as they digest their post-election gains.

Company specific news continues to move individual names like Amicus Therapeutics, Arrowhead Research and Vascular Biogenics.

All the other notable news, events and analyst ratings across the sector as well as a Spotlight feature on antibacterial concern Achaogen are below.

"Sometimes by losing a battle you find a new way to win the war." - Donald Trump

It has been a quiet trading week so far in Biotech Land and the main biotech indices have been in a very narrow range over the past five trading sessions. It seems the sector is still digesting the huge rally that took place in biotech & pharma spaces right after the unexpected election results, which propelled biotech to its best weekly gain in more than 15 years.

The biotech sector did reverse some early losses yesterday after it was reported that Johnson & Johnson (NYSE:JNJ) has raised its bid for Actelion, the Swiss-based firm that is Europe's biggest biotech concern. We saw some decent strength Tuesday in some larger cap concerns like Amgen (NASDAQ:AMGN), AbbVie (NYSE:ABBV) and Celgene (NASDAQ:CELG). Allergan (NYSE:AGN), the Irish drug giant also had a nice bump yesterday after David Tepper was reportedly touting it at the Robin Hood investment conference. While the indices remain directionless, we are still seeing movement in individual names based on company-specific news.

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

Amicus Therapeutics (NASDAQ:FOLD) fell more than 20% in trading yesterday as hopes for the accelerated approval in the U.S. of migalastat for the treatment of Fabry Disease went to the wayside. The FDA has decided to require to see more data, specifically a 12-month cross-over study in treatment-naive Fabry patients who have amenable mutation and gastrointestinal symptoms.

Interestingly the same drug was approved in Europe in the second quarter of this year. This is one of many curious decisions by the FDA in my opinion in recent months. Pushing back a decision date on ARYMO ER from Egalet (NASDAQ:EGLT) by several months even after its Ad Comm panel recommended approval by an 18 to 1 vote was another decision recently.

And, of course, the long running fiasco around Dynavax Technologies (NASDAQ:DVAX) is also well-documented. A recent article by another contributor illuminated well that head-scratching decision. Hopefully, the FDA is one of many government agencies that get more effective and efficient under the new administration.

Vascular Biogenics (NASDAQ:VBLT) was up nearly 15% in trading yesterday after announcing positive top line results from its exploratory Phase 2 study of VB-111 (ofranergene obadenovec) in patients with advanced, differentiated thyroid cancer. Chardan Capital took the occasion to reiterate its $20 price target on this developmental concern's recent addition to the Holding Pen on the Biotech Forum. Roth Capital also reissued its Buy rating $17 price target after this trial announcement. Even with yesterday's rally, the shares trade under $6 apiece. There was also a Spotlight feature on this Tier 4 biotech stock late in October.

Arrowhead Research (NASDAQ:ARWR) has been under pressure since a mid-stage study assessing ARC-520 in hepatitis B was placed on clinical hold by the FDA due to concerns with toxicology related to the DPCiv (EX1) delivery vehicle used. Today the stock looks like it will plunge in today's trading after announcing other clinical-stage candidates that use EX1 will be dropped from the pipeline. The company is also reducing its workforce by 30%.

Ten years ago, this stock was trading over $70 and it appears it will be trading under $2 by the end of today. Despite a once promising pipeline, it appears the company's efforts will come to naught. It is also a great example of what I call my "Ten-Year Rule" that states a company that has not developed successful approved products within ten years of a public company, most likely will never do so.

Cara Therapeutics (NASDAQ:CARA) continues to garner positive analyst commentary in the month of November, which not coincidentally has seen a big rise in this Biotech Forum holding. Cantor Fitzgerald becomes the fourth analyst firm (H.C. Wainwright, Piper Jaffray, Needham) to reissue a Buy rating. Cantor has a $24 price target on this sub-$10 concern. Its analyst noted "Catalysts coming. We want to take the opportunity to highlight Cara again, so investors have time to do background work before data from three ongoing studies emerge next year."

Global Blood Therapeutics (NASDAQ:GBT) also picks up its second Buy rating of the month as Roth Capital reiterates its positive view and $47 price target. Three weeks ago, Cowen & Co. was even more optimistic with its $83 price target. Global Blood Therapeutics was a recent Spotlight feature here on the Biotech Forum Daily Digest and I own a small piece on this developmental firm with an attractive risk/reward profile.

Earlier this week, Recro Pharma's (NASDAQ:REPH) prospects were buoyed after announcing that a Phase 3 clinical trial assessing the company's IV meloxicam for the treatment of serious acute pain successfully met its primary endpoint. Analysts seem to be climbing aboard the Recro train as both Roth Capital and H.C. Wainwright reiterate Buy ratings following this trial news. I will add this name to the list for a future Spotlight feature.

Note: New analyst ratings are a great place to begin your 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.

Our Spotlight feature today is on a company that just came public in early 2014 and is what I call a "Busted IPO." Now that it's selling for a third of its IPO price, is it worth a bid? Let's find out below.

Company Overview:

Click to enlarge

Achaogen (NASDAQ:AKAO) is a small clinical stage biopharma concern located in the San Francisco area. The company is focusing on developing and commercializing antibacterial compounds to treat multi-drug resistant {MDR} gram-negative infections. The company currently has a market capitalization of just under $150 million and goes for just over $5 a share.

Pipeline:

The company's most advanced compound is plazomicin. There are two Phase III trials currently going on around this compound. One "EPIC" is looking at this drug to treat complicated urinary tract infections. The other "CARE" is focusing on Antibiotic Resistant Enterobacteriaceae {CRE}. Both trials should report top line results before the end of 2016 per the company's last conference call. The FDA has granted fast track designation for the development and regulatory review of plazomicin to treat serious and life-threatening CRE infections.

In addition, plazomicin has received Qualified Infectious Disease Product {QIDP} designation from the FDA. The plazomicin program is funded in part with a contract from the Biomedical Advanced Research and Development Authority, or BARDA, for up to $103.8 million. Achaogen is planning to file an NDA in the second half of 2017 for plazomicin.

The company has other pre-clinical programs but its near and medium-term future will be controlled by the success or failure of plazomicin.

Analyst Commentary & Balance Sheet:

There is little in the way of analyst commentary on this small cap concern, although we did have two analyst firms with different views on Achaogen's prospects in November. Needham reiterated a Hold rating on AKAO early this month. Its analyst noted "Achaogen provided a 3Q16 corporate update yesterday. Enrollment has ended in both cohorts of plazomicin Phase 3 CARE trial in Carbapenem- Resistant Enterobacteriaceae {CRE} infections and in Phase 3 EPIC trial in complicated Urinary Tract Infections. Mgmt accelerated guidance for top-line results and now plans to make an announcement in late 4Q16 (was early 2017). Although we expect positive outcomes, we have concerns around size of commercial opportunity and maintain HOLD." Cowen & Co. weighed in this week in reissuing a Buy rating but not placing a price target on Achaogen.

At the end of the third quarter, Achaogen had $61.1 million in cash and equivalents, as well as $19 million left in committed non-dilutive funding from the contract with the state of Florida and BARDA. Management believes the company is well-funded significantly past the top line readouts of the EPIC and CARE trials.

Outlook:

There are approximately 150,000 CRE infections annually in the U.S. and Europe. According to the company's market research, physicians reported that they intend to prescribe plazomicin in approximately 35% to 40% CRE patients, depending on infection type. This is not my most knowledgeable part of the biopharma/biotech space and the company has little analyst coverage.

That being said, I am going to take a small initial stake in AKAO and put it on my "watch list" for further investment. The company has definable upcoming catalysts and a likely drug approval in the near future. The stock is also in one of my favorite "sweet spots," down substantially from its IPO levels just as inflective milestones are finally approaching. In addition, insiders have sold less than $50,000 worth of stock since the company came public.

Thank You & Happy Hunting

Bret Jensen

Founder, Biotech Forum

Disclosure: I am/we are long ABBV, AGN, AMGN, CELG, DVAX, FOLD, GBT, VBLT.

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.