2 Biotech Stocks Ready To Flourish In The Wake Of Very Significant FDA News

Includes: CELG, NPSP
by: Matt Schilling

On Friday October 12th, two companies within the biotech sector announced significant developments that had sent shares considerably higher during Friday's trading session. The first of these companies announced a development with regard to an FDA approval and the second announced it had received positive comments from the FDA ahead of its October 16th advisory meeting.

Celgene (NASDAQ:CELG), which is headquartered in Summit, New Jersey, is

a biopharmaceutical company [that] discovers, develops, and commercializes various therapies to treat cancer and immune-inflammatory related diseases primarily in the United States and Europe. The company's commercial stage products include REVLIMID, an oral immune-modulatory drug for the treatment of patients with multiple myeloma and myelodysplastic syndromes (MDS); VIDAZA, a pyrimidine nucleoside analog to treat various subtypes MDS and acute myeloid leukemia; and THALOMID for patients with multiple myeloma, and for the prevention and suppression of the cutaneous manifestation of erythema nodosum leprosum recurrence.

(Profile: Yahoo Finance)

Shares of Celgene were up roughly 1% at the close of Friday's trading session due largely in part to the approval of Abraxane. According to the company's press release regarding the FDA approval:

Abraxane is a first-line treatment of locally advanced or metastatic non-small cell lung cancer, in combination with carboplatin, in patients who are not candidates for curative surgery or radiation therapy".

Considering the fact that "lung cancer is the second-most commonly diagnosed cancer in both men and women, and is considered to be the most common cause of cancer death", I think this a very significant breakthrough as there is now an alternative option for those patients who not candidates for either surgery or radiation therapy.

NPS Pharmaceuticals (NASDAQ:NPSP), which is headquartered in Bedminster, New Jersey, is a

clinical-stage Biopharmaceutical Company, focuses on the development of therapeutic products for gastrointestinal and endocrine disorders, and various medical needs. The company's primary clinical programs include two therapeutic peptides to restore or replace biological functions comprising GATTEX, a Phase 3 clinical trial product for short bowel syndrome; and Natpara, a recombinant human parathyroid hormone 1-84, which is in Phase 3 clinical development trials.

(Profile: Yahoo Finance).

The big news out of NPS Pharmaceuticals came when the company announced that it had received positive comments from the FDA with regard to its drug, GATTEX. According to an article featured on Business Wire:

The U.S. Food and Drug Administration (FDA) has posted briefing materials for the October 16, 2012 Gastrointestinal Drugs Advisory Committee meeting to review Gattex® (teduglutide). Gattex is a novel, recombinant analog of human glucagon-like peptide 2 (a protein involved in the rehabilitation of the intestinal lining) being developed for the treatment of adults with short bowel syndrome.

If NPSP can meet all of the endpoints with regard to GATTEX, including the preservation and strengthening of a patient's intestinal lining through the procedures and administration of this drug, potential investors have a great opportunity to get in while the iron is hot. I strongly believe that a successful clinical trial (through each phase) could ultimately result in any number of positive outcomes that include but are not limited to the idea of an acquisition, enhanced quarterly and annual results, and exponential growth if and when such a procedure is approved by the FDA.

Should potential investors consider positions in both Celgene and NPS Pharmaceuticals based on the recent developments at each company? Yes they certainly should. On one hand, the potential at Celgene is pretty obvious considering the fact that Abraxane will open new doors for patients who once thought they were unable to receive traditional methods of treatment for lung cancer patients. On the other hand, the potential at NPS Pharmaceuticals should come in the weeks follow the FDA advisory meeting scheduled for October 16th. With positive comments already being noted by the FDA, there's a very good chance for approval, and when that approval comes, the stock should see a very nice pop in the short-term and the long-term effects will certainly enhance the company's bottom line.

Are there any negative catalysts potential investors should consider before establishing a position in either company? As is the case with any biotech company, potential investors need to keep in mind some of the negative catalysts that go hand-in-hand with both Celgene and NPS.

In the case of Celgene, FDA approval can mean some very good things for the company's bottom line, but if sales expectations fall short or if something is overlooked or a recall ensues, the stock could be in for a serious haircut. In the case of NPS, the one thing potential investors should keep in mind is the fact that GATTEX is still not officially approved and therefore any number of things could go wrong, such as a rejection or a request for more information. Though not intended to deter potential investors, these are variables that must be taken into account before an investment decision is made.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.