In this article, I will focus on an upcoming catalyst for Alimera Sciences (ALIM). The best bio-tech traders look for upcoming catalysts they know should significantly move a stock in the short term. I also feel ALIM is a good midterm swing trade based on several factors that I will get into as well in this article. Let's first take a look at what ALIM does and has to offer.
ALIM engages in the research, development, and commercialization of prescription ophthalmic pharmaceuticals. The company focuses on diseases affecting the back of the eye or retina.
Key pipelined treatment: ILUVIEN
ILUVIEN is designed to treat Diabetic Macular Edema (DME) which is currently under review by the FDA as well as with 7 European health authorities. It consists of a tiny cylindrical polyimide tube that contains 190 µg of fluocinolone acetonide, a corticosteroid with a history of treating ocular diseases. ILUVIEN is administered as an intravitreal insert, and it is being studied for its potential to provide a sustained release of a low and steady daily dose of fluocinolone acetonide over an anticipated 24-to-36-month period. ILUVIEN is designed to be inserted into the patient's eye in a retinal specialist's office using an intravitreal injection, a procedure commonly employed by retina specialists.
I feel ILUVIEN is very cutting edge, and can greatly benefit patients suffering from vision impairment associated with Diabetes.
ALIM has received 2 complete response letters (CRL) from the FDA to date on ILUVIEN, and expects to meet with the FDA in Q2 of this year to further discuss ways the company can get this product approved in The United States. The game changer this time should be the fact that ILUVIEN is expected to gain approval in at least 7 countries in Europe. Because of European approval, and because this will be the 3rd attempt to get this treatment approved with the FDA, I strongly believe the 3rd time will be the charm for ALIM, and ILUVIEN will gain approval this time around in the United States. I am a little baffled why the FDA has nixed this treatment 2 times so far. Efficacy data looks good and the implant has shown benefits.
28.7% of Iluvien patients improved their best corrected visual acuity by 15 or more letters from baseline on the early treatment diabetic retinopathy study, compared with 18.9% in the control group, which underwent a placebo type procedure. In one Trial, the numbers were 28.4% vs 18.9% and in another, they were 29% vs 18.9%.
The EU approval catalyst should boost the stock from its current price of $3.66 to north of $4.30 in the short term. One forecast calls for ILUVIEN to bring in $409M by 2016. This forecast would give this treatment a future speculative value of $980m.
This first catalyst is expected to arrive by the end of this quarter according to the company CEO's quote from its earnings summary on March 8th;
Last week, we announced the positive outcome of the Decentralized Procedure for ILUVIEN(R) in Europe, indicating that ILUVIEN is approvable, in the seven European countries in which we filed, for the treatment of chronic diabetic macular edema," said Dan Myers, Alimera's president and chief executive officer. "We now are focused on the national phase of the process, during which labeling in each country's local language is finalized. We expect to receive marketing authorization in each country by the end of the first quarter.
On Feb.28th, the stock rallied after the following PR was issued to the market:
Alimera Sciences announced the positive outcome of the Decentralized Procedure (DCP) for ILUVIEN in Europe. The announcement follows the issuance of the Final Assessment Report from the Reference Member State (RMS), the Medicines and Healthcare products Regulatory Agency of the United Kingdom (MHRA), and the agreement of all the Concerned Member States (CMS) that ILUVIEN is approvable.
The regulatory process will now enter the national phase of the DCP in which the RMS and each CMS grants its national license. The CMS include Austria, France, Germany, Italy, Portugal and Spain. ILUVIEN will be indicated for the treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies.
The stock rallied hard on this news:
|Feb 28, 2012||4.04||4.25||3.66||3.94||5,570,800|
|Feb 27, 2012||1.72||2.45||1.69||2.31||1,344,200|
|Feb 24, 2012||1.66||1.78||1.66||1.71||67,000|
Take note that 2 days prior, the volume was very low and the stock price was $1.71. The next day prior the PR, the stock moved up a huge $0.60 on over 1.3M shares traded. The run up started one day before the PR, then on the day of the PR, the stock was up over $1.60, so in 2 days the stock more than doubled.
For a few days after the 28th of Feb, the stock price was basically flat, but then we see the following:
|Mar 5, 2012||3.80||4.69||3.72||4.37||1,256,600|
|Mar 2, 2012||3.77||3.89||3.67||3.78||292,100|
On Friday March 2nd, the stock was flat on less than average volume. Then Monday came and the stock rallied hard again, this time with no PR issued. This might have been short covering in anticipation of the actual PR to come that will announce the actual 7 EU countries approval of ILUVIEN.
It is also possible the rally occurred because inaccurate information might have leaked that the PR was going to come on March 6th. This would certainly fit into the time frame ALIM's CEO has indicated. With one week left in this quarter, it is likely the PR will come this week. Let's take a look at the price action in the last 4 trading sessions;
|Mar 23, 2012||3.46||3.72||3.40||3.66||275,800|
|Mar 22, 2012||3.30||3.67||3.29||3.49||301,900|
|Mar 21, 2012||3.55||3.55||3.26||3.27||266,900|
|Mar 20, 2012||3.75||3.76||3.52||3.53||63,900|
On March 20th, the volume was again low. The next day it began to pick up, but shorts decided to come in and knock the price down it appears. The next 2 trading sessions, on less than high volume, the stock has moved up again. In my strong opinion, the very beginning of the next run is starting to take place, in anticipation of the PR announcing the 7 country EU approval of ILUVIEN. As I mention prior, I expect this PR to take the stock price north of $4.35 a share. Based on the March 5th price movement, I might be low on my short term target with this pick.
Afterwards, I expect the stock price to base and slowly rise as the company gets closer to resubmitting the NDA for ILUVIEN to The FDA this year. As I mentioned, 7 European countries approving this treatment should be a strong factor in persuading the FDA to approve ILUVIEN this time around. Obviously, these 7 countries do not agree with the FDA, and the FDA is certainly not bound by their decision to approve ILUVIEN.
Here are some examples of how a catalyst in the bio-pharma sector had a substantial effect on stock price movement:
Biosante (BPAX) received approval for its testosterone gel treatment on Feb 15th, 2012. Unlike ILUVIEN, Biosante's T-GEL will not be a significant revenue producing product because Biosante gets a small royalty from Teva Pharma (TEVA) and the market is a crowded one, with at least 4 other Testosterone gel treatments currently on the market.
Regardless of this fact, Biosante's stock price on the news of T-GEL, which was expected to be approved, nearly doubled to an intra-day high of $1.20 before settling back down to $0.97 share, which was still a considerably large single day gain. Biosante has a trading float of over 100 million shares, while ALIM has a trading float under 12 million shares. So any positive catalyst for ALIM should move the stock price upwards much faster, with much less volume. I expect volume to pick up to the upside this upcoming week in anticipation for the announcement of EU approval.
Vivus (VVUS). Vivus received an FDA advisory endorsement in favor of its weight loss drug, Qnexa in late February of this year. Obviously, ALIM's upcoming catalyst is nowhere near the monumental event of the Vivus endorsement since the Vivus stock more than doubled in one day from its prior session close of $10.55, to an intra-day high of $21.44 in its next trading session.
Vivus's catalyst event also had an effect on 2 other stocks, as shares of rival obesity drug makers also jumped on the news. Orexigen Therapeutics (OREX) gained 20% to $3.86, while Arena Pharmaceuticals (ARNA) added 7.2% to $1.94. These two companies, like Vivus, had their respective obesity drugs rejected by the FDA in recent years but are working with the agency to resubmit their applications.
If Vivus actually gains FDA approval for Qnexa, this will have a strong influence on the FDA leaning towards approving both Orexigen's weight loss and drug and Arena's drug as well. As I already mentioned, ALIM gaining EU approval for ILUVIEN should have a greater influence on the FDA as well, which is why I am leaning towards believing ILUVIEN will be approved on its 3rd try.
Obviously, the ALIM situation is different in nature than these 2 weight loss drug makers, but I believe it will still be a factor in favor of ILUVIEN.
|Basic Balance Sheet and Share Statistics:|
|Total Cash (mrq):||33.61M|
|Total Cash Per Share (mrq):||1.07|
|Total Debt (mrq):||5.47M|
|Total Debt/Equity (mrq):||21.90|
|Current Ratio (mrq):||5.14|
|Book Value Per Share (mrq):||0.80|
|% Held by Insiders:||74.39%|
|% Held by Institutions:||25.70%|
The above shows me that ALIM can have future long term success with ILUVIEN European approval. The company has good cash to debt ratio, and insiders hold nearly 75% of the company stock, which tells me they believe in the company's long term chances at success. There has been no insider sells since Nov, 2011.
I have drawn some crude black lines to illustrate what I see in the chart. The stock was trading flat over $8 for a long time period, until the company received its 2nd CRL from the FDA regarding ILUVIEN. At the very end of the chart above, it appears to me a possible reverse head and shoulders might be setting up, indicating a reversal in the current short term down trend. This is occurring in a longer midterm uptrend. The 3rd black line closest to the bottom shows a connection to where the stock has support now, which is basically where the stock trades for currently; $3.66 a share. The upper line is where the stock would break out at $5 a share, and the middle line is the pivot point, about $4.50 a share
The MACD is trending towards a flat line at this time, but I expect that to head back up this week as we approach EU approval catalyst.
The upcoming EU approval catalyst should spike the stock price back to around $4.50, and a mid term trend around $5.25. I have a much more difficult time trying to forecast where the price goes in the longer term at this time.
Based on all the factors I have mentioned in this article, my price targets are as follows:
- Short term pps target: $4.30 - $4.50
- Midterm pps target: $5.25 - $6.00
Long term pps target: FDA approval of ILUVIEN will spike the stock over $10 a share. However, another CRL will drop it under $3, possibly sustaining the $3 to $3.75 level because of EU approval and the future revenue from it, equating to a stronger fundamental factor moving forward. Based on European approval alone, the stock is undervalued at its current price level in my opinion, and should be selling for over $5 a share.
At this time, I cautiously recommend ALIM as a long term buy and hold. As mentioned prior, one forecast calls for ILUVIEN to bring in $409M by 2016. I am not so sure about this estimate, but at a conservative 200 million a year in revenue from ILUVIEN in Europe alone, would make this stock grossly undervalued.
However, I do strongly believe that ALIM is a strong short term and midterm swing trade based on the factors mentioned in this article. I have made a supplemental YouTube video to this article which you can view by clicking on the following YouTube link.
*Data sourced from Yahoo Finance.
Disclaimer: This article is intended for informational and entertainment use only and should not be construed as professional investment advice. Always do you own complete due diligence before buying and selling any stock.
Disclosure: I am long ALIM.