As we reach the midpoint of the trading week, the battle between which weight loss drugs will get approved first is heating up. Traders are getting into position, leveraging both long and short, placing their bets on success or failure. I have also added 2 new companies to my watch list for this week that should provide traders and investors some decent short term price appreciation. The last company mentioned has an old time biotech investing legend as one of the company's backers which makes it an interesting longer term play in my opinion.
Arena Pharma (ARNA) seems to be a freight train without anyone at the controls, continuing its incredible run in trading Monday to a high of $10.34 a share, before settling back down, closing at $9.70 0.32 (3.41%).
Arena expects an FDA approval decision for the weight-loss drug Lorcaserin any time between now and June 27, 2012.
Lorcaserin is intended for weight management, including weight loss and maintenance of weight loss. According to the Centers for Disease Control and Prevention, more than one-third of US adults were obese in 2009-2010. Studies have shown that a weight loss of 5% to 10% of body weight from baseline can result in meaningful improvements in cardiovascular risk factors (e.g., lipids, blood pressure and blood glucose), quality of life and functional capacity, and a significant reduction in the incidence of type 2 diabetes. There are currently limited pharmaceutical treatment options to help patients lose weight.
I mention Arena a lot in my bio pharma watch articles because the stock is on fire. It is rare to see such an incredible and sustained move in a stock price solely on anticipation of a drug approval. Locaserin, along with Vivus's (NASDAQ:VVUS) rival drug Qnexa, has been shaping up to be quite a battle royale for some time now. Back in 2010, FDA advisory panels recommended against both drugs for approval, citing safety concerns ranging from possible birth defects to possible heart related issues. I tend to favor Arena's Lorcaserin over Vivus's Qnexa because I believe it to be safer, but not as effective as Qnexa. I personally believe that safety is more important than overall effectiveness.
In a prior article of mine, I mentioned that in 1997, after 24 years on the market, Phentermine was recalled after consumers began experiencing heart disease and other pulmonary problems. it was reported that more than 50,000 Phentermine users filed suits against the drug's maker Wyeth, and legal expenses combined with awards may have exceeded $21 billion. The drug has since been reinstated by the FDA. The statement I made above was a misunderstanding on my behalf in part.
In actuality, Fen-Phen was recalled in 1997, not the single drug Phentermine. Fen-Phen is short for the combination of the drugs Fenfluramine and Phentermine. Fen-Phen and heart valve damage was first noticed by physicians in the 1990s as it became increasingly popular to prescribe both Phentermine in combination with the either Fenfluramine or Dexfenfluramine. Fen Phen derives its name from the two active drugs Fenfluramine and Phentermine.
Phentermine was approved by the FDA as a short term, single-drug therapy for obese patients in 1959. Fenfluramine was approved for short-term single-drug use in 1973. Following the removal of Fen-Phen from the market, hundreds of Fen-Phen lawsuits were filed against the manufacturers of Fen Phen including a nationwide class action lawsuit that was settled in January 2002. However, I still believe that Phentermine might be a dangerous drug.
Phentermine is closely related to amphetamines and works as an appetite suppressant. A UN International Narcotics Control Board report published in 2007, (page 26, 86) warned that phentermine is one of the most commonly used and abused prescription drugs in the world.
Qnexa also contains Topiramate, a generic form of the drug Topamax, which the FDA recently warned may cause birth defects. The FDA has said that the drug, if taken during pregnancy, increases the likelihood of the child being born with either a cleft palate or cleft lip by 1.4%. The FDA has even placed the drug into the category "Pregnancy D", which is for drugs that health care providers should consider avoiding when prescribing medication to a pregnant woman or woman of childbearing age. Still, there is no news if the agency will issue a recall.
Combining Topiramate and Phentermine together might very well be even more dangerous than the combo drug Fen-Phen. There exists here a real possibility of this drug being mis-prescribed and abused by patients with even a possible 'black market' forming for this drug, if ever approved. Qnexa has been shown to be more effective and potent than Lorcaserin in my opinion. However, because it is more potent, it is more dangerous. I strongly feel the FDA should reject the advisory panel's recommendation and reject Qnexa. I would like to point out that just because I strongly feel the FDA should reject Qnexa, does not mean the agency actually will. Political pressure has been mounting for some time to get a bonafide prescription weight loss drug to market, and the FDA might bow to this pressure. However, it is my opinion here that the FDA might feel Lorcaserin, while not as effective, is the safer choice for the agency to go with.
I do not believe that there is room for both Lorcaserin and Qnexa to be approved. It's one or the other, and I believe Lorcaserin will be the one approved, while Qnexa will be the one rejected. If my opinion proves to be the correct one, the Vivus stock will take a big hit, so traders/investors should carefully consider all the factors involved and position themselves accordingly. Vivus closed trading Monday at $26.91 0.17 (0.64%).
What to watch for
The FDA decision on Arena's Lorcaserin is expected by June 27th. However, the decision could come at any time between now and the 27th. If the FDA rejects Lorcaserin, which I see as highly unlikely, the Arena stock will tank into the ground, perhaps even falling as low as $2 a share. If this happens, I would expect the Vivus stock to rally substantially, as this would signal the FDA will likely approve Qnexa. On the other hand, if the FDA approves Lorcaserin, which I see as likely, I would expect the Arena stock to move up towards the $12 a share range, but then sell off and settle back down to around the $10 a share range. The reason for my thinking on this is the Arena market cap. While Lorcaserin gaining approval is huge for Arena, a market cap approaching 2.5B is just too high for this drug on speculation alone. Vivus has a market cap of around $2.6B, but also is the better company in terms of financials and pipeline market potential.
Vivus's Avanafil, a PDE5 inhibitor, was approved by the FDA for erectile dysfunction on April 27, 2012. Needless to say, the erectile dysfunction market is not a 'soft' one, raking in billions a year in revenues.
Arena only has one other drug in phase clinical trials, APD811. APD811, an orally available agonist of the prostacyclin receptor, is intended for the treatment of pulmonary arterial hypertension, or PAH. In December 2010, Arena initiated a Phase 1 clinical trial to evaluate the safety, tolerability and pharmacokinetics of single-ascending doses of APD811. Arena's other drug candidates are currently in pre-clinical testing.
My short term target price opinion on Arena: $12 a share on Lorcaserin approval, $2 a share on rejection.
My short term target price opinion on Vivus: $24.75 a share if Lorcaserin gains approval, over $30 a share on Lorcaserin rejection.
In January of this year, Lpath (NASDAQ:LPTN) temporarily suspended dosing patients in its PEDigree and Nexus trials because a third-party vendor was found not in compliance with FDA's current Good Manufacturing Practice (cGMP) requirements during the period that the iSONEP clinical vials were filled.
In recent SEC filings, Lpath has told investors that they expect both trials will be open for enrollment again in Q3 of 2012. The company was to submit the necessary documentation regarding the new drug material to the FDA by June. Prior to the FDA's decision to stop Phase II dosing, buyout rumors surfaced that Lpath`s unique technology platform, the ImmuneY2 system, caught the attention of Pfizer (NYSE:PFE).
The rumor I heard was Pfizer might have had interest in acquiring the company for roughly $500 million dollars, roughly 10x the value of where shares trade today. Personally, I find it hard to believe Pfizer would pay that much for a company that has not yet proven its technology platform. However, a successful result from the resumed phase II clinical testing might bring a more reasonable offer of $200M + in my opinion. Lpath closed Monday's trading session $0.8192 0.1302 (18.90%).
What to watch for
News regarding the trials enrolling again and investor interest could return in anticipation of the results. As well, this news might put Lpath buyout speculation back into play.
My short term price target opinion for Lpath: There are a good deal of warrants exercisable at around $1.20 a share, so expect resistance if the stock approaches that price. Momentum trading here and the least resistance seems to be up to $1.10, therefore it is my opinion based on the factors mentioned, $1.10 a share looks like a good bet to me.
Medgenics (NYSEMKT:MDGN) announced Monday that it raised gross proceeds of approximately $9.5 million (approximately $8.4 million net) through the sale of 1,944,734 units (the "Units"), with each Unit consisting of one share of the Company's Common Stock, $0.0001 par value per share (the "Common Stock"), and a warrant to purchase 0.75 of one share of Common Stock (the "Warrants"). Each Unit was sold for a purchase price of $4.90 to institutional and other accredited investors in a private placement transaction. The Warrants expire in five years, have an initial exercise price of $8.34 per full share and become first exercisable on December 15, 2012.
The warrants here have an exercisable price far over the current price of the stock. This is a good thing as the warrant holders will want to start making their money back by the time December 15th rolls out.
Furthermore the stock floats extremely low:
% Held by Insiders:
% Held by Institutions:
The financing provided for Megenics does not allow any shares to be sold/added to the float from the deal until at least December 15th, and the stock price must hit the exercisable price of $8.34 a share. If the stock hit $10 a share tomorrow, the warrants would not be able to be exercised/sold until or after December 15th of this year.
The current market cap of Medgenics is $66.79M which in my opinion is absurdly undervalued.
As an industry pioneer, he founded seven companies, all of which were subsequently brought public. These include Celgene Corporation (NASDAQ:CELG), Genetic Systems Corporation, Icos Corporation, Nova Pharmaceuticals Corporation and PathoGenesis Corporation. These companies are responsible for major advances in a number of diseases including the diagnosis and/or treatment of cancer, chlamydia, sexual dysfunction, cystic fibrosis and AIDS. Their combined value is in excess of $30 billion.
I had the pleasure of speaking with Mr. Blech the other day on the phone, and he is very excited about his investment with MDGN. Issac is a market winner, and most everything he touches normally turns to gold, so I expect the same with MDGN.
What to watch for
The company is expecting to hear news soon from the FDA concerning its application for orphan drug status for INFRADURE, for the treatment of hepatitis C/D. The company filed for the Orphan designation on April 23rd, 2012 for the treatment of hepatitis D.
This application for Orphan Drug Designation follows Medgenics' recent submission of an Investigational New Drug (IND) application to the FDA for a Phase IIb anemia trial in dialysis patients using EPODURE™, a different implementation of the same Biopump platform that produces erythropoietin (EPO).
Orphan drug designation might be a bigger deal than most people think, as it allows companies to engage in pivotal trials, providing a must faster and cost effective track towards an approval decision date from the FDA. Orphan Drug Designation carries multiple benefits, including the availability of grant money, certain tax credits and seven years of market exclusivity, as well as the possibility of an expedited regulatory process.
INFRADURE is Medgenics' long-acting protein therapy designed to produce a sustained therapeutic dose of interferon-alpha (IFN-α) to treat hepatitis C/D. For investors interested in a more in depth look at Medgenics, download the company's power point presentation.
My short term target price opinion: $7.50, as high as $9.00 or so on news that the FDA has granted orphan status on INFRADURE. Granted, the expectation of hearing this news has been out there for a while, but worth the trade in my opinion because the reward could be a very large one if holding the stock and we hear the FDA has granted Orphan drug designation.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MDGN over the next 72 hours.
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 your own complete due diligence before buying and selling any stock.