Biotech Weekend Recap: Earnings Reports And Disappointments

by: Bio Insights

This is a recap of some of the most important (and interesting) moves that happened in the shortened trading week of October 31 - November 2nd 2012. Whether you are already invested in some of the names mentioned below, or whether you are interested in starting a position, my mission is to make sure you don't miss anything important. Keep in mind that due to Hurricane Sandy, U.S. stock exchanges didn't open on October 29th and October 30th.

I start all my weekend recaps with the scoop on Amarin Corporation (NASDAQ: AMRN), which always gets a lot of attention from biotech speculators. In full disclosure, let me also mention that I do own shares of AMRN and I employ options strategies to maximize my returns on my position while limiting risk. If you're interested in a bit more disclosure, my last trade was a sale on November $14.00 Call Options (fully covered, of course) for $.35 apiece on November first. AMRN seems stuck below $14 per share, which probably won't change without news of an acquisition or partnership for its drug Vascepa.

Amarin dropped nearly six percent in the last three trading sessions, as we continue to wait for the FDA's next monthly Orange Book update (which should be at the end of the second week of November, and may finally list Vascepa as an NCE-designated compound.) There wasn't any fresh news on Amarin, but analyst Bart Classen of Summer Street stated that Vascepa's current patents didn't protect the drug from competitors that could submit the same compound under a 505[b](2) patent, which could supposedly allows competitors to bring "generic Vascepa" to the market rapidly. This argument makes little sense, because Amarin's patent #8188146 specifically states that the company holds the right to capsules containing greater than 95% EPA (eicosapentaenoic acid) and no DHA (docosahexaenoic acid). The lack of DHA in Vascepa is key, since DHA has been linked to increases in bad cholesterol. This is why Vascepa is expected to be worth anything next to Lovaza. Read more about Amarin and Vascepa here.

Vivus Inc. (NASDAQ: VVUS) saw a disastrous week, dropping over 18% with virtually no news other than an IMS health statistic quoted in a BioWorld article (referenced here). The statistic estimated Qsymia prescriptions at a lowly 2,000. Since investors are valuing Vivus at $1.44 billion, it's important that Qsymia's sales growth can justify the market cap in a reasonable amount of time. We're going to see Vivus report quarterly earnings on November 6th, which will should provide us with the true prescriptions sales figure for Qsymia. Expect VVUS, as well as Arena (NASDAQ: ARNA) and Orexigen (NASDAQ: OREX) to react to the new data we get.

Speaking of earnings reports, the one that Dendreon (NASDAQ: DNDN) put out last Friday was decent. I mentioned the potential for Dendreon to redeem itself in this article published last Thursday, which pointed out just how bad the financial data was after the FDA approval and launch of PROVENGE in 2010. PROVENGE was selling at a profit margin of only 23% or so in Q2 2012, but in Q3 2012 the margin was boosted to roughly 34%. In reaction, DNDN rocketed up 16.1%, ignoring the slight revenue miss of $78 million in favor of the earnings beat. Dendreon has stated its intentions to further improve the operational efficiency of PROVENGE, so I would expect higher profit margins in the future. The question as to whether or not Dendreon will become a profitable company anytime soon remains, but this last quarterly report was definitely a step in the right direction.

There was more earnings-related fun with ABIOMED Inc. (NASDAQ: ABMD), which came to my attention on November 1st due to a 31% drop despite relatively unexciting news about its revenue and earnings. In the report, note that the company disclosed a very scary investigation started by the U.S. Attorney's Office for the District of Columbia. Apparently the company may have marketed and/or labeled its flagship product Impella 2.5 illegally. The market has lopped off over $200 million in the company's market cap as a result. If these litigation threats don't end up materializing into settlement fees, ABMD is clearly a buyable stock. Still, it's difficult to say what will happen with these legal scenarios.

Vertex Pharmaceuticals (NASDAQ: VRTX) posted fairly weak results for Q3 2012. $336 million in quarterly revenue fell short of the $377 million that was expected, and the reported EPS of $.13/share was way below the $.20/share expected. GAAP EPS was actually $-.27/share. The negative revenue can be attributed to the huge decline in collaborative revenue, which was only $7 million or so compared to $231 million last year, which has adversely affected the company's margin and earnings. Concerns over the company's growth prospects will probably grow, but VRTX bulls are more focused on VX-809's potential in combination with the already-marketed ivacaftor as demonstrated by the recent clinical trial results. I elaborate on the situation in this article.

We also saw a very disappointing outlook for BioCryst's (NASDAQ: BCRX) anti-viral compound BCX5191, which had its IND (investigational new drug) application withdrawn by its parent company due to certain talks with the FDA regarding its safety profile. BCX5191 was a promising preclinical compound for Hepatitis C Virus (HCV) that exhibited more potency than some other treatments of its type (specifically nucleosides), but the FDA noted that toxicity levels seen in preclinical studies were unacceptable for clinical studies. BioCryst intends to explore BCX5191's possibilities at lower dosages, but investors have largely left the compound (and the stock) for dead.

Disclosure: I am long AMRN and employ options strategies to boost returns on the stock (like call option writing). 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.