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In a recent catalyst stock pick article, I wrote about a company named Progenics Pharma (NASDAQ:PGNX) which trades for around $8.10 a share with a $274.61M market cap.

This company is located in Tarrytown, NY and develops products for patients with debilitating conditions and life-threatening diseases in the U.S. and internationally. I will focus on two of the drugs this company offers in completely different stages in the developmental pipeline.

The first drug I want to talk about is already developed and marketed for the treatment of opioid induced constipation (OIC) in patients with advanced illnesses, such as cancer. It is called Relistor and is the only prescription medicine approved in the United States to treat this form of constipation. Relistor subcutaneous injection is now approved in the U.S. and over 50 other countries around the world. In the U.S., Relistor is marketed by their commercial partner Salix Pharma (NASDAQ:SLXP), a leading specialty pharmaceutical company focusing on gastrointestinal diseases. It is sold outside the U.S. by sub-licenses of Salix and Ono Pharmaceutical in Japan.

The interesting thing that Progenics is doing with this drug is they are trying to increase the population that they can treat with it. If approved, this different form of Relistor would now treat patients taking opioids for non-cancer pain who suffer from OIC as a result. This population includes patients taking opioids for conditions such as back pain or joint pain. The Phase three study has a PDUFA date of July 27th, 2012. This could be a very positive move for Progenics, especially considering the cash coming in the door as a result. Let's take a look at what has been/could be triggered through the various stages of this approval and sales/marketing effort.

In 2011, because of this agreement with Salix, Progenics initially received a $60.0 million upfront cash payment and $0.2 million in respect of Salix ex-U.S. sub-licensee revenue.

In addition, the opportunities include:

  • $40.0 million upon U.S. marketing approval for subcutaneous Relistor in non-cancer pain patients.
  • Up to $50.0 million upon U.S. marketing approval of an oral formulation of Relistor.
  • Up to $200.0 million of commercialization milestone payments upon achievement of specified U.S. sales targets.
  • Royalties ranging from 15 to 19 percent of net sales by Salix and its affiliates.

60% of any upfront, milestone, reimbursement or other revenue (net of costs of goods sold, as defined, and territory-specific research and development expense reimbursement) Salix receives from sub-licensees outside the U.S.

I was pretty impressed with the size of these numbers. In my opinion, it seems logical to think they have a very good chance of approval considering this drug is already approved by the FDA for virtually the same indication. At that point, $40 million is on the way. This would be pretty nice to combine with the $56 million this company has stockpiled. Another reason to like Progenics is they have no debt. When you combine a lot of cash with responsible debt management, it can bring great opportunities. Let's move on to one of those opportunities, our second drug that I wanted to focus on today.

Progenics lead developmental drug candidate named PSMA ADC is about to get a lot of exposure. As I've been constantly pointing out lately in many of my recent articles, the American Society of Clinical Oncology (ASCO) meetings will be held in Chicago at the very beginning of June. Progenics mentioned in their first quarter conference call in May that they will be present to speak about a Phase I drug in clinical development. It makes sense that they are pretty excited about it considering they have this opportunity to present at ASCO.

PSMA ADC is a fully human monoclonal antibody-drug conjugate (ADC) directed against prostate specific membrane antigen (PSMA), a protein found at high levels on the surface of prostate cancer cells and also on the new blood vessels of a number of other types of solid tumors. As I wrote, Progenics is conducting a Phase 1 clinical trial of PSMA ADC for the treatment of prostate cancer which they expect to be completed in 2012. According to CEO Mark Baker, PSMA ADC has been tested for its toxicity levels. Next in this Phase, they are looking at what the appropriate dose should be. Once this is completed, they will move on to Phase two of development. The results of what they have seen so far will be presented at ASCO on June 3rd.

PSMA ADC could end up being in direct competition to Dendreon's (NASDAQ:DNDN) Provenge. PSMA ADC could also end up being a competitor to Sanofi's (NYSE:SNY) Zaltrap when and if it gains FDA approval. lately had some issues in its Phase III clinical studies.

The Phase III Venice study involving patients with metastatic, androgen dependent prostate cancer "did not meet the pre-specified criterion of improvement in overall survival." In other words, the study did not meet the pre-specified endpoint requirements for increased patient survival.

Dendreon has had its issues with Provenge over the years as well. Although Provenge gained FDA approval a few years ago, marketing issues, lack of proper communication, and general mismanagement has hampered the drug's sales, which has caused a ton of volatility in the Dendreon stock the last few years.

I feel that PSMA ADC if approved, and Progenics avoids the mismanagement issues of Dendreon, could be poised for a nice market share grab.

I think this company is definitely moving in the right direction. Another thing I found encouraging from the Q1 conference call was when someone asked Mr. Baker about their business development strategy. He mentioned that they have a lot of good opportunities and have had "significant discussion" regarding several of them. Of course, not many know what this means specifically, but hopefully investors will find out the results from these discussions soon.

*Financial Highlights
Fiscal Year
Fiscal Year Ends: Dec 31
Most Recent Quarter (mrq): Mar 31, 2012
Profitability
Profit Margin (NYSE:TTM): 23.89%
Operating Margin : 23.85%
Management Effectiveness
Return on Assets : 15.04%
Return on Equity : 43.69%
Income Statement
Revenue : 84.63M
Revenue Per Share : 2.53
Qtrly Revenue Growth (yoy): -6.80%
Gross Profit : 84.22M
EBITDA 6: 22.18M
Net Income Avl to Common : 20.22M
Diluted EPS : 0.60
Qtrly Earnings Growth (yoy): N/A
Balance Sheet
Total Cash (mrq): 56.10M
Total Cash Per Share (mrq): 1.66
Total Debt (mrq): 0.00
Total Debt/Equity (mrq): N/A
Current Ratio (mrq): 13.46
Book Value Per Share (mrq): 1.81

The numbers above look pretty solid, but for Progenics to see a sustained stock price over $10, the company will need Salix to gain FDA approval for the oral tablet form of RESITOR, which I think is pretty much a given at this point. This approval should afford Progenics the additional revenue to get its earnings per share closer to $0.80. Based on the company's current price to earnings ratio, this would price the stock over $12 a share.

Shares Outstanding: 33.86M
Float: 29.65M
% Held by Insiders: 5.45%
% Held by Institutions: 76.80%

We can see very high institutional ownership in Progenics. Also, the company is pretty much a low floater with a low amount of outstanding shares. With a $274.61M market cap, Progenics seems rather undervalued to me currently, and grossly undervalued when considering future speculation value in my opinion.


(Click to enlarge)

The stock looks to have corrected nicely and is now beginning the run-up slowly towards the PDFUA date in July. I expect to see a stock price somewhere in the neighborhood of $9.50 to $10 a share.

Price Target Summary

Mean Target: 12.67
Median Target: 14.00
High Target: 14.00
Low Target: 10.00
No. of Brokers: 3

The $14 dollar year end price target is too bullish, and the mean target might be a little high. My view here is that the stock will see about $12 a share sometime this year. The company is somewhat unique in the fact that it is currently turning a profit, yet still has a potential blockbuster drug in the making. Time will tell the long term story here with Progenics.

Time will tell the long term story here with Progenics moving forward in the next 2 to 3 years. If PSMA ADC gains FDA approval, then a stock price north of $30 is in line if management executes correctly in my opinion.

*Chart and fundamentals sourced from Yahoo Finance.

Disclaimer: This article is intended for informational and entertainment use only and should not be construed as professional investment advice, but rather my opinions as a writer only. Always do you own complete due diligence before buying and selling any stock.

Source: Progenics Pharma: Several Short-Term Catalysts With Good Long-Term Fundamentals