Over the last 90 days investors have seen shares of Dendreon (DNDN) plummet almost 36%, and If I were them (which I'm not) I'd be pretty upset. The reason behind the massive sell-off concerns the procedures by which Dendreon analyzed the data regarding its recently approved (and highly controversial) cancer drug, Provenge. According to the company's website "PROVENGE is an autologous cellular immunotherapy indicated for the treatment of asymptomatic or minimally symptomatic metastatic castrate resistant prostate cancer (CRPC)".
What exactly took place to raise this red flag? According to an article recently published by Reuters, "Dendreon said it would analyze whether the therapy affected patients differently depending on whether they were younger than 65 or 65 and over. But when it published the results of the IMPACT trial in July 2010, the cut-point for that age-based analysis was 71 years, not 65." The six-year difference makes me seriously question the ethics by which Dendreon operates as a company and therefore paves the way for investors to consider alternative options. In this article I plan on examining three alternatives all of which have had significant developments in the last week.
Meridian Bioscience (VIVO) - The company had its coverage initiated by Craig Hallum who rated the company a "Buy" at current levels and set a $24.00/share price target. According to Yahoo! Finance, the Cincinnati, Ohio based firm is "a life science company that engages in the development, manufacture, sale, and distribution of diagnostic test kits primarily for gastrointestinal, foodborne, viral, respiratory, and parasitic infectious diseases". If we examine the company's profit (18.40%) and operating margins (28.76%) we'll notice that it clearly trumps some of the bigger biotech names in the sector such as Merck (MRK), which only managed to demonstrate a profit margin of 13.93% and an operating margin of 22.97%.
Mannkind (MNKD) - The company which was initiated as a "Neutral" by Cowen & Co. back in April, recently announced the completion of Patient Recruitment in Two Phase 3 Clinical Studies of AFREZZA. If approved, AFREZZA would be the first inhalable insulin since Exubera, which was Pfizer's (PFE) failed attempt at entrance into the space. According to my Seeking Alpha colleague Rx Stocks, "Two key pieces of information were needed to at least assure that an NDA would be filed for Afrezza. (1) Mannkind needed money to complete the phase 3 trials. Mannkind has registered a proposed offering on August 31, 2012 of up to $500 million in common and preferred stock, warrants, and debt securities. (2) Mannkind also needed to complete enrollment in another Phase III trial. There was difficulty with patient enrollment, but Mannkind announced on October 5, 2012, that "MannKind Completes Patient Recruitment in Two Phase III Clinical Studies of AFREZZA." Since those requirements have been met, I can strongly agree with Rx Stocks that an NDA is well within reach and potential investors should certainly begin to consider a position in the company.
Arena Pharmaceuticals (ARNA) - There are two very important catalysts for the company, both of which I think are probably the most important when it comes to potential investors and the establishment of a position in the stock. The first of these catalysts will occur at the end of this month. On October 25th, the company will be submitting a 120-day compliance response letter to the EU. This letter will answer in-great-depth any of the questions that may have arisen as a result of the drug being approved for at least 120 days. According to an article written by Red Acre Investments, "It is unclear whether or not the company will issue a press release for the submission of the response, or simply disclose this matter in their next quarterly earnings release. The EU approval clock stops when the agency sends the drug sponsor the 120 day list of questions. Once ARNA responds to the list of questions, the clock starts up again, and the EU has 60 days to factor in the response and either come up with a decision, or send out the 180 day list of outstanding issues". The good news here is if ARNA satisfies the EU with its responses we may in fact see an approval much sooner rather than later.
The second of these catalysts comes in the form of earnings, which haven't been all that great over the last four quarters as ARNA has missed estimates by an average of 32.73%. Analysts are expecting ARNA to post a loss of -$0.08/share on $3.49 million dollars in revenue when the company reports earnings for the September quarter on November 5th. According to Red Acre Investments, the numbers shouldn't be considered as much as what potential shareholders and current investors are looking for in terms of the company's pipeline. "the quarterly conference call will provide additional details of the APD811 program, updates relating to the EU approval process, as well as possibly, an update on EU partnership negotiations during the call".
In my opinion, potential investors should avoid DNDN especially in the wake of the company's most recent red flag and consider positions in VIVO, MNKD and ARNA. For those looking to establish a position in VIVO, MNKD or ARNA potential investors should do so with a small to moderate position and add to that position, as both continued drug developments and earnings announcements approach. All three companies have very promising pipelines and I'd not only keep an out for drug related announcements, but I'd also watch for any positive indication from the FDA in the very near future.
Are there any negative catalysts potential investors should consider in the cases of VIVO, MNKD or ARNA? There are a few, and although seemingly hypothetical they could very well happen. In the case of VIVO, any negative news regarding the developments surrounding animal-based solutions pipeline could hinder the short-term growth of the stock. When it comes to MNKD and the EU's reaction to AFREZZA, any prolonged series of question and answer sessions beyond the 180-day mark could initiate a sell-off in the stock. Finally, when it comes to ARNA, my only concerns will occur if the developments regarding APD811 aren't as significant as the street is expecting when the company reports earnings on November 5th.