Risk In The Pharmaceutical Sector Overemphasized In The Past Week

Includes: AMRN, HALO, ONCS
by: Chemistfrog

Recent volatility in the small pharmaceutical sector is leaving investors scrambling to try and decide how to best invest in the recent high-profile companies having key data presented, having regulatory decisions now behind them and having other regulatory decisions ahead. Potentially-promising data and successful regulatory decisions from the week of July 23rd have resulted in stock selloffs when many expected immediate or mid-term increases yielding solid returns on their investment. Another company, whose partner in co-developing their drug received a complete response letter (CRL) on Wednesday, August 1st appears to have had an exacerbated selloff to the amount of a $526 million of its market capitalization. Although not complete accounts of either story, following are three companies for investment consideration. Although not requiring immediate entry, investors should research each as they have all dipped in price and may present good long-term investments if current issues or concerns are promptly addressed.

An afterhours announcement by Halozyme Therapeutics (HALO) on Wednesday sent shareholders fleeing to the tune of a 55% loss in post-market trading. This loss erased $526 million dollars in market capitalization from the growing biotech company. The selloff occurred as a result of Halozyme's announcement that partner, Baxter International, Inc., received a complete response letter from the FDA for its HyQvia Biologics License Application (BLA). HyQvia is a development-phase product that includes plasma-derived Immune Globulin 10% and Halozyme's recombinant human hyaluronidase (rHuPH20) packaged as a kit for subcutaneous use in patients with primary immunodeficiency disease.

Phase 3 data had met primary and secondary endpoints, but the regulatory process has not been friendly for the promising therapy. Baxter met its first rejection by the FDA in April with the regulatory agency requesting additional data pertaining to long-term chronic use of HyQvia. Wednesday's PR was surprising as was its aftermath with the huge selloff ensuing. The CRL is likely not a "hard CRL" as it does not require an additional trial to be run at this point but rather requested "additional preclinical data to support the BLA". Current and future shareholders will be watching the headlines closely as to what exactly will be required of the companies and what timeframe will be involved. The resulting regulatory decisions are significant as they do pertain to a large part of the company's pipeline with major implications. However, current Halozyme shareholders should note that the CRL did state that the questions do not involve Halozyme's only currently-marketed product, HYLENEX® recombinant which is approved to "facilitate subcutaneous fluid administration for achieving hydration; to increase the dispersion and absorption of other injected drugs; and in subcutaneous urography for improving resorption of radiopaque agents." Potential new shareholders should review the company's financials, watch the stock's response to the CRL, review the company s pipeline and research upcoming catalysts for the year as well as the company's many partnerships to ascertain investment quality of the company.

OncoSec's (ONCS) phase 3 data announcement for its OMS ElectroChemotherapy trial using bleomycin for the treatment of head and neck cancer appeared to be positive. The company reported "no statistically significant differences between time to death or local control rate at eight months between the control and experimental groups for HNBE-01 or HNBE-02 or the combination of both studies. Median time to death was statistically indistinguishable between surgery at 209 days versus 231 days for electrochemotherapy (p=0.55). Local tumor control at eight months was achieved in 92% of control group patients versus 90% of electrochemotherapy patients." The Data Monitoring Committee (DCM) had recommended that enrollment of the two-part phase 3 trial be terminated back in May of 2007 due to both safety and efficacy concerns. However, OncoSec reported that after they had completed their own analysis of the data, they had concluded "there were no statistically significant differences between time to death or duration of local control between the control or ElectroChemotherapy experimental arms in either the HNBE-01 or HNBE-02 trials, or the combined groups across studies." The only truly noteworthy issue observed from the trials by the company was via comparisons of pain after treatment by surgery versus by the ElectroChemotherapy treatment with pain reported by 35.4% and 46% of patients, respectively. Although a concern, the difference may not be significant considering the OMS treatment doesn't have the scarring and disfigurement propensity that surgery may have in many patients, depending on the severity of the resections.

Apparently not impressed with the data, the stock surprisingly sold off, closing the day down about 20% with high volume. The company mentioned in the closing remarks that other issues raised by the DCM were being evaluated and OncoSec was confident that they had already or can be addressed. Currently trading with a market cap of $18 million, the company is a high-risk/high-reward investment but does have additional catalysts ahead for 2012 including likely additional news about the completed phase 3 ElectroChemotherapy trial and two phase 2 trials using its ElectroImmunotherapy treatment platform set to report interim data for metastatic melanoma and Merkel cell carcinoma by the end of the year. The company also expects to initiate enrollment initiation for a phase 2 trial for cutaneous T-cell lymphoma, also likely in Q4. Success or failure in any of these trials could be large share price movers, although in obviously-different directions.

Apart from the attention Vivus and Arena Pharmaceuticals garnered for the year for their blockbuster obesity drugs, Amarin Corporation's (AMRN) exciting year was to culminate on Thursday, July 26th with its PDUFA date for its blockbuster-potential AMR101 (Vascepa) for patients with high triglycerides. With earlier concerns over patent issues mostly resolved, the company seemed ready to meet or exceed analysts' expectations at the time for share prices between $19 and $27 upon approval. After all the hype and fanfare, the approval finally came and shareholders expected to sit back and watch their prize reach new heights, only to watch in dismay as the company's share price began its drop. After opening at $15.3, closing day trades on the highly-anticipated company took the share price down to $12.7, down roughly 17% on the day. The problem wasn't what was stated or addressed by the approval but rather what wasn't mentioned. The FDA hadn't yet reached a decision on the drug's New Chemical Entity (NCE) status which would give the drug a certain period of market exclusivity, eliminating any real competition during that time period. Although not denying Vascepa the NCE status, the decision to hold off on the status designation has made shareholders nervous. It is likely a large part of the reason the share price declines and continues to do such by closing Wednesday at $11.53, giving the company a market capitalization of roughly $1.6 billion. Current and potential investors will be watching Amarin very closely in the coming days or weeks as they await the news making a large difference in the next 10 years for Amarin's profitability. Rumors and conjecture will likely keep the company's shares trading with some volatility in the coming days and will serve to drag out the plot for one of 2012's most exciting stories.

Disclosure: I am long HALO.