Of all the sectors in the stock market, no sector moves more due to corporate developments than the biotechnology sector. A single drug trial or FDA decision can send stocks soaring, or plunging. Due to this trend, many investors choose to trade biotechnology stocks based on upcoming data releases, or FDA meetings or decisions. With that in mind, we present 5 biotechnology stocks with upcoming catalysts, which include either data releases, or upcoming FDA actions. Before we continue, we should note that the information presented below is meant to provide a starting point for further research. The data and FDA actions we cite can move a company's stock in either direction, and investors should do more research before deciding to buy, or short the stock of a company listed here. This data is meant to highlight which companies have upcoming catalysts that will move the share price. In addition, we will present recent research analyst opinions where available.
Celldex Therapeutics (CLDX)
Celldex is a development stage company with several products in its pipeline, including CDX-011, the company's investigative treatment for breast cancer. Celldex will report interim, topline Phase IIb clinical trial results on May 23. Due to an error in submission, the company was unable to have its data included for presentation at the 2012 annual meeting of the American Society of Clinical Oncology. In April, Cantor Fitzgerald initiated coverage of Celldex with a buy rating and $7 price target, arguing that "the pipeline [is] compelling, and, in our view, the company's valuation does not reflect the depth of the pipeline, which includes multiple clinical candidates in all phases (I-III) of human clinical trials." The Reuters average price target for Celldex is $8, implying upside of 84.33% from current levels, as of this writing. Celldex close at $4.34 on May 15, and has a 52-week trading range of $2.05-$5.66.
Chelsea Therapeutics (CHTP)
Chelsea Therapeutics is set to have a meeting with the FDA regarding Northera, its lead drug candidate in the United States, which targets symptomatic neurogenic orthostatic hypotension. The drug, also known by its scientific name of droxidopa, is already approved in Japan, and is in limbo at the FDA. In February, an FDA advisory panel voted 7-4 (with 1 abstention and 1 non-vote) to recommend approval of Northera. However, the company received a Complete Response Letter rejecting Northera on March 28, citing the agency's view that more efficacy data is needed. At the time of the response, Chelsea had another Northera study in progress. Given Chelsea's view that this study could meet the FDA's data requirements, the company requested a meeting with the FDA, and the request was granted. This meeting is set to be held by May 31, with the company hosting a conference call after the meeting. There has been no announcement regarding the meeting since May 1, when Chelsea announced that such a meeting would take place. While the exact date of the meeting is unclear, it is certain to take place by May 31. Chelsea has stated that it will host a conference call detailing the results of the meeting. The Reuters average price target for Chelsea Therapeutics is $6.80, implying upside of 211.93% from the current price of $2.18 (as of this writing). The 52-week trading range for the stock is $1.91-$6.06
XenoPort is set to receive a decision regarding its supplementary new dug application for Horizant (currently approved for the treatment of restless legs syndrome) in the treatment of post-herpetic neuralgia (PHN) on June 9. Deutsche Bank analysts cut their price target on the stock from $10 to $7 in February, citing concerns over collaboration agreements with GlaxoSmithKline (GSK). The firm also cut Horizant sales estimates for 2012 from $50 million to $15 million. The company has 2 other products in the pipeline, with arbaclofe, for the treatment of spasticity, entering Phase III trials this year. The Reuters average price target for XenoPort stands at $8.08, implying upside of 42% from the current price of $5.69. The stock's 52-week range is $3.46-$8.07.
Onyx Pharmaceuticals (ONXX)
Unlike the 3 companies discussed above, Onyx Pharmaceuticals has posted a full year annual profit, with 2011 EPS of 66 cents per share. However, that is a fleeting figure. EPS for 2012 is estimated to come in at -$2.63, per the Reuters consensus estimate, as the company pivots to new products. One of those potential new products is carfilzomib (Kyprolis) for the treatment of relapsed and refractory multiple myelomas. The drug was developed using Ligand Pharmaceutical's (LGND) Capitsol formulation system An FDA Advisory Committee is set to meet on June 20 to discuss the drug, and a PDUFA date of July 27 has been set. Onyx has been in the M&A spotlight recently, with collaborator Bayer said to be mulling a bid for the company. The price tag for a takeover of Onyx could reach as high as $5 billion, per data compiled by Bloomberg. However, analyst opinion regarding Onyx following its recent quarterly report has been mixed. Goldman Sachs removed the company from its conviction buy list, but raised its price target to $52 from $47. The bank cites low expectations for Onyx going forward as suggesting that the company could surprise to the upside in the weeks and months ahead. Barclays maintained its equalweight rating, but raised its price target from $40 to $44. The firm sees Onyx as having an uphill battle for carfilzomib approval at this point in time, and sees approval in 2012 as unlikely. Merrill Lynch also weighed in, raising its price target from $45 to $47, but keeping its neutral rating. The firm saw the first quarter as being uneventful, and remains cautious on Kyprolis heading into the FDA meeting, although Merrill Lynch sees the drug being approved by 2014. The Reuters average price target for Onyx Pharmaceuticals currently stands at $48.79, implying upside of 12.63% from the current price of $43.32. The stock's $52 week trading range is $27.17-$47.80.
Arena Pharmaceuticals (ARNA)
Arena Pharmaceuticals, having recently gone before an FDA Advisory Committee panel, is set to do so again in June. On May 10, an FDA Advisory Committee panel voted 18-4 to recommend approval of lorcaserin, Arena's experimental obesity drug. The company is racing against Vivus (VVUS) and Orexigen (OREX) to launch the first new obesity treatment since 1999. A PDUFA date of June 27 has been set for lorcaserin, though there is a chance that day may be pushed back several months, as was the case with Vivus and its Qnexa drug. Analysts reactions regarding the Advisory Committee's decision were mixed. Jefferies reiterated its buy rating and $9 price target, arguing that a delay of 3-6 months in approval is immaterial and that Arena will see tax savings by manufacturing lorcaserin in Switzerland. Merrill Lynch, however, maintained its underpeform rating (the firm did raise its price target from $1 to $5). Merrill Lynch is concerned with the potential for slower-than-expected sales, and the possibility that the FDA will request long-term safety trials for lorcaserin, which could prove to be a financial burden to Arena. Needham joins Merrill Lynch in having a cautious stance. Needham maintained its hold rating after the FDA meeting, as it is worried that lorcaserin will not have a durable impact on the obesity market, given what the firm sees as limited efficacy data. Those views are countered by Piper Jaffray, which upgraded Arena from neutral to overweight, boosting its price target from $2.50 to $7. Leerink Swan chose to take the middle road with Arena. Although the firm boosted its valuation range to $9-$11, and upgraded the stock to outperform from market perform, it still sees Qnexa as the obesity drug of choice, given what Leerink Swan sees as superior efficacy data. The Reuters average price target for Arena is currently $5.75, implying downside of 5.12% from the current price of $6.06. It is likely that not all analysts have updated their forecasts and targets after the FDA Advisory Committee meeting. The stock's 52-week range is $1.23-$7.02.
The information that we have presented above is meant to serve as a starting point for further research into these companies. Depending on each investor's individual interpretation of the data they see, these 5 companies may be great buys. Or they may be great shorts. One thing is certain, that they will move one way or another when either clinical data or FDA decisions are announced. That is what makes the biotechnology sector so appealing. There is little macroeconomic influence at work here. For the most part, stocks in this sector move exclusively on fundamentals, not newspaper and trading headlines. And for investors looking to trade in the biotechnology sector, these 5 stocks present investors with the opportunity to do so in the next few weeks and months.
Disclosure: I am long CLDX.
Additional disclosure: We are long shares of CLDX, as well as CLDX $4 June 16 puts. In addition, we are short CLDX August 18 $5 calls.