Weekly Biotech Recap: Anticipation, Divergence

by: Bio Insights

Here is a recap of some of the major events that moved the biotech stocks mentioned below in the trading week of November 26-30th 2012. This should brief you on the most important events that the market had its eye on as they occurred throughout the week. Whether you have any positions in the stocks mentioned in the article, or whether you are just trying to keep up to date, and I hope this helps you!

One of the stocks that has been causing major concern in the sector is Amarin Corporation (AMRN), which still doesn't have an NCE decision and still doesn't have any clearly sign of acquisition potential as we head into 2013. Vascepa, the drug's proprietary EPA pill, is scheduled for launch in Q1 2013. Amarin has dropped to the sub $9/share level, which hasn't been seen since March. Note that the latest update to the FDA's orange book didn't have an NCE decision - very frustrating for the shareholders.

Everyone on the long side of Amarin wants the company to either market Vascepa under a favorable terms in a partnership, or to see the company bought outright by a larger pharmaceutical company. The two big names that have been thrown out there at this point are AstraZeneca (AZN) and Teva Pharmaceuticals (TEVA).

Amarin has hinted that the NCE status of Vascepa is causing some major problems in its acquisition/partnership negotiations, although many of those who are either short Amarin (or just bearish on the stock) suggest that Vascepa has some serious flaws that should reduce the value of the company itself. After discussions with traders, Vascepa competitors (especially Omthera Pharmaceuticals), and others, I came up with three things that we should be looking at carefully as the omega-3 landscape heats up next year.

It's rare for larger pharmaceutical companies like Teva to experience major volatility, but that's what we saw for the $33 billion company. Teva dropped 9% throughout the last three trading sessions.

The selloff started on Wednesday, December 12th in reaction to new plans announced by CEO Jeremy Levin to grow the company organically by moving away from an acquisition-based strategy and moving towards an organic-growth strategy through pipeline developments. This also included some cost-cutting plans, and coincided with an announcement on Thursday that the company would raise $2 billion by incurring debt.

TEVA seems to dislike breaking below $38/share or so (based on the drops made back in November), but this new organic-growth strategy could lead to some short-term pain in the stock if Wall Street provides too much criticism on the move. In this article on the event, Bloomberg quoted an Edwards Jones analyst who serves as a great example to the uncertainty brought about by Teva's new direction:

"The company laid out a promising vision for the long-term but it might have been less clear for some how they're going to boost growth in the next few years"

Judson Clark, Analyst of Edward Jones, Bloomberg

In last-minute anticipation of the FDA decision on their drug ADASUVE, Alexza Pharmaceuticals (ALXA) moved up 11.5% on Friday. I last covered the stock just before some good news came in from Europe that changes the picture a bit. Note that the company is waiting for an FDA decision on its NDA for ADASUVE, due on December 21st under the PDUFA.

It was announced Friday morning that the CHMP (Committee for Medicinal Products for Human Use), a panel for the EMA (European Medicines Agency) held a positive opinion on approval for ADASUVE. While the FDA can disregard the EMA's opinion, this news does improve the chances for ADASUVE's approval, and caused some enthusiastic ALXA buying.

Acura Pharmaceuticals (ACUR) saw an enormous buying spree last Monday and Tuesday after the company announced the market launch of its next-generation cold therapy. It seems that the company was largely neglected ever since its enormous drop in late July, which took the $3 stock ACUR into the sub $2/share area. This was caused by the termination of Acura's partnership program with Pfizer (except Oxecta), which revolved around Acura's AVERSION platform.

Nexafed, which is the next-generation cold medication that Acura just released, is not based on the AVERSION platform. It's based on the IMPEDE platform, which prevents those products from being synthesized into methamphetamine. Clearly, the IMPEDE platform has potential but investors might have trouble valuing AVERSION after Pfizer's rejection.

I last covered Celsion Corporation (CLSN) here, and noted that the impressive bullish speculation that is driving the stock is based on anticipation of phase III data from the HEAT study. The HEAT study will basically determine whether or not the company's flagship product ThermoDox is "the real deal" for liver cancer treatment.

Liver cancer is very difficult, and is growing very quickly when you look at incidence rates. The biotech community notes that Celsion may be the best upcoming play on this unmet demand, and has driven the stock 14% higher this week. CLSN also just hit a new 52-week high of $8.86/share. While I think there is room for more movement to the upside, CLSN has become expensive.

Ariad Pharmaceuticals (ARIA) had a very clear "sell-the-news" reaction to the FDA approval of the company's chronic myelogenous (NYSE:CML) drug iclusig (ponatinib). The catch for the approval is that the drug can only be used for Ph+ patients that are resistant to prior tyrosine kinase inhibitor treatments, but this only cuts out ~5% of the 5,000 new cases of CML in the United States each year. For the most part, everyone was expecting ARIA to get a drug approval (although the timing wasn't as certain, since the original PDUFA action date for ARIA was March 27, 2013.

Ariad's sell the news lopped off over 20% of the stock's price on Friday alone, but the overall long-run gains that shareholders saw this year have been very solid. ARIA is up about 55% YTD, and offers potential in 2013 despite it's expensiveness. The company is looking to make iclusig a first-line treatment to CML.

The penny-stock biotech play, Zalicus Inc. (ZLCS), saw a very nasty drop halfway through Wednesday's trading which dropped shares from the $.70-.75 range to the sub $.60/share range. ZLCS ended the week almost 12% lower as a result of this odd selloff.

ZLCS has had an interesting year though. The stock saw a solid run into the end of August, and touched a 52-week high of $1.62/share after news of the FDA approval of exalgo (a drug that they receive small royalty fees on).

The bullishness was reversed on September 10th after we saw phase IIb results for their drug or Z160, which you can view here. While this rheumatoid arthritis drug did achieve its primary endpoint in the study, the secondary endpoint (meaningful clinical benefit) when it was pitted against the generic prednisone. Z160 is Zalicus' flagship drug, and the fact that it has tainted clinical trial results doesn't bode well for the stock, although the company is continuing its development program.

Disclosure: I am long AMRN. 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. I run a covered-call writing strategy on AMRN