The healthcare sector has been instrumental in leading the overall markets higher in the second half of 2012. Last week, the sector took a breather as many overbought stocks trended down due to technical and fundamental reasons. For the week of October 28th, investors will be watching closely to determine if the sector's correction will continue, or if last week was a simple "blip" on the longer-term charts. For investors taking long positions in the sector, last week's dip for some closely-watched stocks and outright plummet for others may turn out to be great entry points if the selling has abated and charts start recovering this week and beyond. Let's review some promising small pharma stocks that have dipped over the last couple of weeks and may provide solid long-term entries for those investors willing to brave the risks inherent with each of these. The companies presented should be researched more thoroughly as these are merely summaries of events and situations.
OncoSec Medical (ONCS.OB) announced last Tuesday interim results of its phase 2 trial for using its ImmunoPulse electroporation platform to treat patients with Merkel cell carcinoma (MCC). The overall response rate for the five patient trial was 20% with the procedure being safe and well tolerated. There was no reported systemic or residual toxicity. Of the three patients completing the trial, all three had elevated levels of interleukin-12 (IL-12) in biopsied tissue three weeks after treatment, indicative of the effectiveness of the procedure to induce the interleukin's production by the targeted cancer tissue. This expression is used to cause an immune response by the patients' immune system against the IL-12 expressed cells. The news came on the heels of another big announcement for the company with an October 17th press release announcing the company received authorization to market its OMS electroporation device, in 31 nations of the European Economic Area (EEA) and Switzerland. The permission to CE mark its ImmunoPulse and NeoPulse devices in the fight against cancer is a huge event for the company as it marks its first venture into commercialization, while the platform is still in clinicals in the U.S.
While the market responded favorably to the CE mark authorization, the phase 2 MCC interim data was not well received, possibly due to the small current patient size of the trial and the small indication targeted in MCC. However, the company will be presenting phase 2 interim data for its metastatic melanoma trial utilizing the ImmunoPulse platform as well, on November 17th. The larger targeted indication should draw more attention with a larger market group (more potential revenue). While trading in the upper $0.40's last Monday, the stock has trended down sharply each day since the promising phase 2 data was released and closed Friday at $0.29, down 16% on the day. With the CE mark to its credit and the large indication metastatic melanoma data being presented on November 17th, I anticipate increased buying pressure this week and particularly the following one.
Trading now with a $25 million market capitalization, the company appears to be dramatically undervalued for a company with a marketable product now in its pipeline with another significant catalyst coming soon. Shares are now trading at the lower Bollinger, in "oversold" territory. Investors with high-risk tolerance that are familiar with investments in small capitalization biotechs will find this to be a good entry point. The company is still operating at a loss for the foreseeable future with no indications yet from the company as to how it will proceed with marketing its approved product in Europe. Any clarification on the latter could be a share price mover in the future, with investors keeping in mind that the phase 2 metastatic melanoma will also be a share price mover. Risk management is key, particularly with a development-stage company. Interested investors should perform more than ample research in OncoSec. Upside potential and downside risk should be ascertained, with a wise entry and exit plan in place for short- or long-term positions.
United Therapeutics Corporation (NASDAQ: UTHR) announced last Tuesday that it received a complete response letter (CRL) from the FDA rejecting its treprostinil diethanolamine extended release tablets (oral treprostinil) for the treatment of pulmonary arterial hypertension (PAH). The rejection was a devastating blow for the company, with shares of the $2.8 billion company plunging more than 15% to close out the day. With a 52-week trading range of $38.93-$59.00, shareholders have had a wild ride in UTHR over the last year. With three already-approved products to its credit and a robust pipeline, it appears that shares have found new support for the interim at $45.00. Interested investors should watch Wednesday's trades closely before opening positions. With the company set to announce Q3 financials and a company update this Thursday before markets open, share action could be volatile this week with possible upside as traders and investors anticipate not only earnings, but also follow up statements to last week's CRL.
AEterna Zentaris (AEZS) existing shareholders have had a disappointing year with shares dropping more than 50% the first 9 months of the year. On October 3rd, the company performed a 6:1 reverse split of its common shares in order to remain in compliance with NASDAQ's listing requirements. Although investors were nervous about the action, the action was a "lesser of evils" as delisting to OTCBB is generally seen as an unfavorable move with more volatility, less liquidity and fewer funds being willing or even allowed to carry the common shares as part of their portfolios. However, before shareholders had a chance to determine their long-term holding plans for the company, they were hit with a $16.5 million stock offering at $2.50 per share, a 20% discount to the previous day's close. Shares have been slowly trending down since then but appear to have found support just above $2.00. The downtrend was bad news for existing shareholders, but could represent a good entry point for new ones. On an adjusted post-split basis, the 52-week range for AEZS is $2.00 to $13.00. In August, the company had announced that its Q2 financials were positive, with the company swinging to a profit as revenue and finance income climbed.
Having a diverse pipeline ranging from preclinical candidates to an approved and marketed product, the company has multiple catalysts that should positively move share price going into 2013. Throwing a bit of diversity into the mix, AEterna is developing not only drugs for multiple indications, but also its own product line of diagnostic tests, the latter of which is the company's next likely provider of a significant catalyst. The company is scheduled to submit a new drug application (NDA) "early next year" as indicated in a recent press release for its lead product candidate AEZS-130. The product is a diagnostic test for Adult Growth Hormone Deficiency (AGHD) and has been designated as an Orphan Drug candidate by the FDA. This designation provides tax incentives and marketing exclusivity of up to 7 years with no competition for the targeted indication. These and other incentives are provided by the FDA for companies to target smaller patient indications which would normally be less appealing for pharmaceuticals due to lower profit margins.
With share price appearing to have reached support last week (watch closely to confirm), the current entry price may be favorable with a reverse split and a stock offering now out of the way which should provide income through the end of 2013. Investors are advised to watch share price action this week, and develop a plan before entry to determine entry price and subsequent exit price in the event share prices break through support.
Inovio Pharmaceuticals (INO) is a $94.5 million market cap pharmaceutical focused on a synthetic line of vaccines targeting infectious diseases and cancer. The company's shares have been trading in an upward channel (very bullish) since middle June's $0.39, and closed Friday at $0.70. Friday's close was significant as it closed resting on the stock's exponential moving average (EMA) and $0.70 support level. A close above this value on Wednesday should be construed as a positive with the resistance/support at $0.70 and then $0.74. Inovio's platform itself has shown recent success. However, it's the company's vaccine administration that has given it an extra "kick" in the last week or so as it uses an electroporation device, much like OncoSec's, to administer its vaccines. Success in either of these company's pipelines may help to validate the other's platform in the interim, although markedly different therapies and indications are targeted.
Not just riding on OncoSec's success and attention, however, Inovio had a significant bit of news on October 10th. The company announced impressive results in a phase 1 clinical trial using its VGX-3100 vaccine to trigger an immune response against antigens present in human papillomavirus (HPV)-affected cells that had mutated into precancerous cervical dysplasia. Results of the 18-patient trial indicated 100% of them responded by showing "antigen-specific antibody responses to Inovio's vaccine, while 78% showed T-cell responses in the validated ELISpot assay." The results confirmed that the company's synthetic DNA-based immune therapy generated potent and durable T-cell responses in its patients. The news was significant in that it helped to validate VGX-3100 and also much of the remainder of the company's growing pipeline. Although still in an early stage clinical, the news just adds to the company's potential and helps the stock's bullish chart continue onward.
Still a development phase company, Inovio's value lies in its potential success of its targeted indications, the huge markets of both cancer and infectious diseases. Success in any one of the targeted indications could be huge for the company's share price and help to validate some of its remaining product lines. Likewise, failure at any level could mistakenly turn investors away from the company, a likely poor decision as the company's pipeline is a bit too complicated to make any such assumptions. Interested investors should consider the company's financials, technical analysis of its stock chart (currently very bullish and at a critical level), the company's pipeline and also carefully read through its news releases for the last couple of years. Trading under $1, investors with a higher tolerance of risk than many should consider the risks associated with such an investment as well as the development-phase status of the company.
AcelRx Pharmaceuticals (ACRX) is an emerging $70.4 million market capitalization company that is focusing on treating acute and breakthrough pain. The company's pipeline now consists of four product candidates: ARX-01, ARX-02, ARX-03 and ARX-04. However, much of its work has been on ARX-01, and that product's clinicals represent the likely next three catalysts for the company's shares. ARX-01 is a NanoTab® version of Sufentanil, an opioid analgesic currently marketed for IV and epidural anesthesia. Sufentanil is an effective analgesic, but its currently-approved intravenous administration renders its activity short-lived. Clinical trials so far indicate that the ARX-01 NanoTab® version causes a uniform induction into patients' plasma rather than an initial spike and then waning efficacy often seen in the IV-administered versions.
ARX-01 is highly significant for AcelRx for two major reasons. First, it utilizes the company's proprietary NanoTab® sublingual tablet to administer its active ingredient, Sufentanil. Success in ARX-01 could possibly translate over to potential success in its other three candidates, or could at least translate over to perceived success for its other three candidates, either of which could be positive share price movers. Second, ARX-01 is the company's lead product candidate and its first chance of having a marketable product.
AcelRx makes the list due to a combination of two significant facts. The company's common shares closed down Friday 1.9% to $3.11, just above mid-term resistance levels of $3.09 and $3.00 and under the month's high of $3.29. Although trading with recent volume increases, volume is still low, with only 7 days of trading having volume over 50K shares changing hands since September 1st. The days of low volume and flat trading may be coming to an end, however, as the company is scheduled to present three phase 3 trial topline results in 4Q 2012 and 1Q 2013 for ARX-01. With October winding down, interest should begin growing very soon in the company's lead product candidate as phase 2 data were impressive for three differing indications: patients having major abdominal surgery, patients with elected knee replacement surgery and patients having unilateral knee replacement surgery using the handheld component of ARX-01 in an open-label study. With promising results in each of these three targeted indications, the author sees no reason for failure in the phase 3 counterparts, especially in all three of them.
Adding to the company's likely increasing attention, the new drug application (NDA) in mid-2013 could also be accompanied by additional marketing potential. The company noted an agreement with regulatory officials in Europe that the phase 3 trial designs, if successful, will also allow for a Marketing Authorization Application (MAA) to be submitted in 2013 as well. AcelRx would not only be approved to market its ARX-01 product in the U.S. in 2013 but also in the 20-nation member of the European Economic Area as well if results are promising. The agreement makes for an efficient use of the company's time and money as it is essentially getting a "two-for-one deal" with its phase 3 clinicals.
Each of the companies presented has near-term catalysts due to clinical data, regulatory filings, chart technicals or a combination of those events. Investors interested in these companies should perform substantial research into their financials, pipeline progression, press releases, chart data and targeted market sizes in order to perform their own risk assessments. Upside potential versus downside risk varies among the presented options due to the diversity of the companies presented. The small pharma sector seemed to be in "correction mode" last week with much of my personal portfolio and watch list down for the week. Time will only tell if this correction continues or if it was a simple "cooling down" period after an impressive run for the last few months for much of the sector. Any entries made early in the week should be picked wisely with exit plans in place to minimize possible losses. Wednesday could very well "set the stage" for the week, and I will be watching to enter or increase my positions in any of these exciting pharmaceuticals.
Disclosure: I am long ACRX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I may initiate a long position in INO, ONCS.OB, AEZS and/or UTHR over the next 72 hours.