Trial results, trial initiations, FDA approval filings, peer-reviewed validation and FDA approvals are all factors that play heavily into the trading patterns of biotech and healthcare companies looking to make a mark in the sector. This is especially true for the relatively small cap, developmental companies that are dependent upon a catalyst event that could propel to the next level, so to say, which would launch them into the mainstream of the investing community and also potentially throw them on the radar as a possible buyout or partnership target of a larger pharmaceutical company.
Given the recent string of high-profile acquisitions and takeover offers, whether they be hostile or not, many still-developmental companies - and some, like Amarin Corp (NASDAQ:AMRN), which are swiftly nearing the commercialization stage - openly declare themselves as "on the block" to accept offers for an outright purchase.
It's a seller's market right now, meaning if you've got a product to sell that could potentially replace some glaring gaps that have opened up in the big pharma pipeline as the result of a slew of patent expirations, then you're holding the leverage to hold out and wait for the best deal. Take some recent examples as evidence; GlaxoSmith (GSK), for instance, made international headlines with an offer to acquire Human Genome Sciences (HGSI). That bid has since gone hostile when Human Genome demanded a better deal. Illumina Inc. (ILMN) also rejected two offers from Roche Holding AG (RHHBY.PK) -- one for $44.50/share and the other for $51/share -- and Amylin Pharmaceuticals (AMLN) turned away Bristol-Myers Squibb Company (BMY) earlier this year on a $3.5 billion, $22/share offer.
Given the boldness with which the potentially acquired company held out in each case, it's understandable why smaller companies with potential blockbusters in their belts would also figure to play a significant role in the merger and acquisition arena in due time.
Prolor Biotech (NYSEMKT:PBTH), with potential catalysts on the not-so-distant horizon, is one such company that may fit into the buyout target profile. Prolor holds world wide rights to the naturally-occurring Carboxyl Terminal Peptide (CTP), which can be attached to already-existing therapeutic proteins in order to slow the process by which the protein is removed from the human body and thereby creating an extended life span for an already-existing treatment. This process significantly reduces the amount of injections or applications a patient would need to endure during the course of treatment.
From this technology, Prolor has developed hGH-CTP, an extended-life treatment that - according to already-accumulated data from early and mid-stage trials - would replace seven once-daily injections with a once-weekly injection of hGH for hormone deficient patients. Such a breakthrough would significantly enhance a patient's quality of life while also potentially reducing material costs involved with treatment.
Prolor, which received a share price boost late last month on the re-presentation of data, also has some catalysts pending that could propel the share price higher, buyout rumor or not. The initiation of a Phase II pediatric trial in Europe earlier this year came as a welcome validation of the technology, give that European regulators need to be essentially overwhelmed by trial data in adults before approving a trial in children. Results from the trial - both interim and/or final - will be on the minds of investors taking positions for the future. If early successes are repeated in this trial, then the pediatric market opens up a whole new ball game for Prolor, who previously had adult hormone deficiency as the targeted patient population for hGH-CTP.
The company has yet another catalyst pending with the initiation of Phase III trial in adults later this year. Success in that trial would likely lead to a nice run-up as Prolor would then look for approvals - if the company is not bought out beforehand.
Although most larger companies generally wait until approval decisions are known before buying-in, Teva's (NYSE:TEVA) Dr. Phillip Frost is already heavily invested in PBTH and could throw an offer on the table with a decision still pending, assuming positive clinical results.
Another company that may be in line to receive an offer before the approval process is complete is Lpath Inc. (NASDAQ:LPTN). Considering the potential catalysts in play and a prime-time partnership with Pfizer (NYSE:PFE), Lpath shares may be undervalued right now.
Lpath has become a recognized leader in the field of developing lipid-based therapies through its proprietary ImmuneY2 platform, which contains the ability to generate therapeutic antibodies that bind to and inhibit bioactive lipids that contribute to the spreading and growth of various diseases and inflammatory/auto-immune disorders. The market potential for this technology in treating a plethora of modern day illnesses and diseases, should it advance past the clinical stages, is huge. Lpath is first applying this technology to treat Wet AMD and cancer, both multi-billion dollar markets, and that could just be the beginning.
Through ImmuneY2, Lpath has developed a pipeline of two lead product candidates, iSONEP and ASONEP, with a third, Lpathomab, in earlier stages of development. Two iSONEP trials were halted earlier this year, for reasons unrelated to the effectiveness or of the treatment, but both should be restarted within months, according to statements made by company officials, which provides a potential share price catalyst to join the perennial buyout talk surrounding Lpath as the result of the Pfizer deal.
Given the unique potential of Lpath's technology, it's possible that a Pfizer deal could materialize well before the final results of late stage trials are known - and significantly before an FDA approval determination is on the table - such is the nature of the game when big pharma is on the prowl.
For buyout and catalyst plays, one could also experiment with the medical device market.
Sunshine Heart (NASDAQ:SSH), for example, saw its share price explode over the past few trading sessions on the potential of its implantable device to treat Class III and ambulatory Class IV heart failure. The company could register its first sales later this year and also has the initiation of a pivotal U.S. trial on the table for later this year as another potential catalyst.
MRI Interventions (OTCQB:MRIC) is another company whose share price has registered some nice recent gains as its MRI-enhancing device, ClearPoint, allows the medical community to conduct less-invasive procedures on the brain. MRIC is also developing its ClearTrace system to augment existing MRI suites to conduct less-invasive procedures of the heart and Siemens AG (SI) is already on board as a partner for its development. Another unique collaboration with Boston Scientific Corporation (NYSE:BSX) identifies this company as a buyout play, once again.
Cytosorbents, Inc (OTCQB:CTSO) is also one not to ignore in the medical device sector, as this company recently announced the official commercial launch of its blood purification CytoSorb device, destined to treat severe sepsis and other indications where high cytokines are present. The device was approved in Europe on results strong enough that European regulators did not even wait for final data to be compiled before rendering their decision. It also helped that CytoSorb targets a market for which there are currently no effective treatments. Additional trials in the U.S. are in the preparatory stages.
The sector is definitely in a buyout mood right now, so keep an eye out for potential targets and play the trading game accordingly. Remember, in this sector price retreats materialize just as quickly as the gains do, so it's often a wise idea to play some trading shares along with holding onto a core position, should one want to stay along for the ride until a story fully plays out. Using the trading shares to bank some profits along the way when the hype picks up, however, can often leave an investor well on "house money" before the key catalysts take shape.
Disclosure: Long SSH, CTSO, PBTH, LPTN.