Today's trading session is sure to see some bio-pharma stocks make significant moves. Chelsea Therapeutics (NASDAQ:CHTP) received bad news yesterday from the FDA as its drug Northera, a treatment for neurogenic orthostatic hypotension, was denied approval. The FDA issued a complete response letter (CRL) requesting that Chelsea submit data from an additional positive study to support efficacy demonstrated in its 301 study along with the recommendation that such a study be designed to demonstrate durability of effect over a 2- to 3-month period.
The CRL did not identify any outstanding safety concerns, and I feel the FDA has flubbed on Northera by rejecting it at this time. Does the FDA really need to require another small cap company to spend gobs of money to initiate another study on Northera, when it has been approved and used in Japan rather safely for a few years now? While I certainly understand the FDA's job is to ensure quality and safety first (so they say, I question this as well at times), this rejection is just flat out wrong in my opinion.
Shire Pharma (SHPGY) currently has its drug ProAmatine approved for the same indication that Northera is designed to treat. Shire is a Pharma giant and has plenty of cash on hand to ensure it gets its new drugs approved on their first attempts. I believe the FDA needs to do a better job dealing with smaller pharmas. While I understand smaller pharmas can miss being more thorough because they do not have the money that a company like Shire has, in Chelsea's case, the mostly positive data and the fact Northera is on the market in Japan should have been good enough for the FDA.
A couple of hours prior to the FDA decision, Chelsea stock was halted from trading. After Chelsea stock resumed trading in the after hours market session at 7 P.M. Eastern, it was down $1.20 (31.58%).
I recommend buying on weakness here as Northera will eventually gain approval in my opinion.
Chelsea also has other promising drug candidates, with CH-4051 being its most promising one in my opinion. CH-4051 is an orally available molecule with anti-inflammatory, autoimmune, and anti-tumor properties that inhibit various key enzymes required for cell proliferation. In layman's terms, CH-4051 will be used to treat Rheumatoid Arthritis. I have seen some of the data on this drug and I am impressed of its performance verses Methotraxate, showing less toxicity and strong efficacy. I strongly believe CH-4051 will eventually be approved in about 2 to 3 years from now. This is a golden buying opportunity in my strong opinion for the patient long term small cap bio investor.
I reiterate my longer term speculative price target of $10 a share, which I first mentioned in my prior article on Chelsea.
Horizon Pharma (NASDAQ:HZNP) develops and commercializes medicines for the treatment of arthritis, pain, and inflammatory diseases.
Yesterday after the market close, Horizon Pharma announced it filed a patent infringement lawsuit against Par Pharma (NYSE:PRX) seeking to block a generic version of its arthritis tablet Duexis. In the lawsuit, Horizon alleges Par infringed its patent on the drug when it filed with the FDA to get approval for a copy of Duexis. Horizon Pharma's patent on Duexis expires on July 18, 2026. The drug competes with Bristol Myers Squibb Co's (NYSE:BMY) Orencia.
I feel this lawsuit will be seen as a positive catalyst event, so I expect the stock to have a nice run today.
After researching a bit on Horizon, I found something rather astonishing to me that caught my attention. Earlier this month, insiders purchased a whopping 4,270,213 shares of Horizon stock. In fact, insiders have been buying so much stock of its company, the shares available to trade are dwindling fast. This is very bullish in my opinion, as insiders are showing strong confidence in the company's upcoming PDUFA date for its rheumatoid arthritis drug, which I will mention later on in this article. First, let's take a look at the insider action:
Insider Transactions Reported This Month*
|Mar 2, 2012||WALBERT TIMOTHY P Officer||28,000||Direct||Acquisition (Non Open Market) at $0 per share.||N/A|
|Mar 2, 2012||SHERMAN JEFFREY W Officer||22,000||Direct||Acquisition (Non Open Market) at $0 per share.||N/A|
|Mar 2, 2012||BIRD JEFFREY W Director||680,293||Indirect||Purchase at $3.59 per share.||2,442,251|
|Mar 2, 2012||DE VAERE ROBERT J Officer||22,000||Direct||Acquisition (Non Open Market) at $0 per share.||N/A|
|Mar 2, 2012||ESSEX WOODLANDS HEALTH VENTURES FUND VII LP Beneficial Owner (10% or more)||2,761,477||Direct||Purchase at $3.59 per share.||9,913,702|
|Mar 2, 2012||HIMAWAN JEFFDirector||2,761,477||Indirect||Purchase at $3.59 per share.||9,913,702|
|Mar 2, 2012||ATLAS VENTURE FUND VI LP Beneficial Owner (10% or more)||828,443||Indirect||Purchase at $3.62 per share.||2,998,963|
|Mar 2, 2012||FORMELA JEAN FRANCOIS Director||828,443||Indirect||Purchase at $3.62 per share.||2,998,963|
The first 2 insider transactions appear to be stock options, the rest are straight out buys. I believe this stock will see a strong pop in today's trading session, likely seeing a price north of $4 intra-day.
|Type||Last 3 Mo.||Last 12 Mo.|
|Number of Insider Trades||8||27|
|Number of Buys||8||27|
|Number of Sells|
|Total Shares Traded:||7,932,133||25,387,959|
|Number of Shares Bought:||7,932,133||25,387,959|
|Number of Shares Sold:|
The above is just absurdly bullish insider buying, but they might want to slow down a bit as they are eating up the trading float.
Horizon has 33.70 million shares outstanding according to Yahoo Finance. Doing the math here based on the chart above, it appears there are around 8 million shares in the float
Analysts also seem to be bullish on Horizon, with a mean price target of $13.
Price Target Summary*
|No. of Brokers:||2|
The company recently submitted a NDA for LODOTRA, a proprietary modified delayed-release formulation of prednisone, for the treatment of rheumatoid arthritis in adults, and has been assigned a PDUFA date of July 26, 2012.
I am a little surprised this company has not had more market exposure considering the insane insider buying and consensus analyst opinion.
I recommend Horizon as a strong buy for the short and mid term swing trade. As the company nears its PDUFA date for LODOTRA, the price should be nearing $7 a share as I do not see insiders selling before this point. It appears to me they believe the drug will gain approval based on their heavy insider buying.
- Short term price target: $4.25
- Mid term price target: $7.00
- Long term price target: $13, if LODOTRA is approved, otherwise $4.50
*Data sourced from Yahoo Finance.
** Data sourced from Nasdaq.com
Disclosure: I am long HZNP.