Drug Approvals Are Priced In, Wait For The Buying Opportunity

Includes: ALXA, NPSP
by: Rx Stocks

On, Friday (Dec 21, 2012), two drugs were approved. Adusive was approved, and Alexza (NASDAQ:ALXA) shares dropped significantly (10%) in after hours trading. Gattex was approved, and NPS pharmaceuticals (NASDAQ:NPSP) share price fluctuated briefly, but remained basically unchanged on the day. I was surprised that the price of both companies did not rise on Friday, but at least the Mayan calendar (December 21 , 2012) merely turned over and we can now follow these interesting stocks in the coming months along with the financial cliff (maybe the Mayan calendar was just early by 10 days). It would appear, as of recent, there is more downside risk than upside potential in owning shares of Biotechs with well publicized approval dates and extensive public dialog on the outcome of the FDA advisory panel meetings.

from Yahoo Finance

Chart forAlexza Pharmaceuticals Inc.

If Arena (NASDAQ:ARNA) and Vivus (NASDAQ:VVUS) are an appropriate examples, it may be best to wait and see if the shares of NPS and Alexza trade lower in the coming months. There may be a very good price point in the near future for either. Vivus probably is a very good value, considering it now selling Qsymia and Stendra is approved and awaits marketing.

From Yahoo Finance


Chart forArena Pharmaceuticals, Inc. (<a href=

Roth Capital, according to Bloomberg, predicts a $207 million market by 2016 for Adusive. A Seeking Alpha article, citing PropThink, pegs it at $161 million by 2022. Adusive will compete with Zyprexa (NYSE:BMY) and Geodon (NYSE:PFE), but some psychiatrists suggest the rapid action of Adusive will be a plus and give Adusive the edge. It is difficult to estimate the current sales of antipsychotic drugs for this Emergency Department use for agitation, let alone what market share Adusive will capture. In addition, we now know there is the cost of an after-market study and a REMS program. Using a much more conservative estimate than Roth Capital or PropThink because of tremendous uncertainty about predicted revenue, perhaps Alexza can be on track for $10 million in revenues ($4 million in earnings) in 2013, followed by growth to $20 million ($8 million in earnings) in 2014, then a PE of 15-20 would be clearly conservative justified. About 19 million shares outstanding and a PE of 15, suggest $3.15 per share of Alexza would be a conservative price for 2013 followed by $6.30 in 2014. This model does not account for share dilution and initial marketing/manufacturing costs either. The pipeline, although potentially promising, has other drugs that are only in early development.

If Alexza follows the path of Vivus and drops by up to 60% plus, it may well be possible to accumulate shares under $4.00, maybe even under $3.50 per share. The drug approval risk, at least for the US, is gone and approval in Europe will likely follow.

Disclosure: I am long ARNA, VVUS. 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.

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