1H09 Catalysts for 4 Healthcare Stocks

by: Mike Havrilla

Below are four companies I have not written about recently with expected catalysts in the first half of 2009 in the form of FDA decisions or clinical trial results.

Last fall, Discovery Labs (DSCO) received word from the FDA that its complete response for Surfaxin was accepted, but the six-month Class II review designation means that the decision date is pushed out to mid-April. DSCO presents a model trade on a pending FDA decision at this time since it will likely enjoy a run-up in share price from current levels around $1.20 as the decision date nears. If DSCO experiences the bump in price, simply let the profits ride through the decision or just book all of the gains for a lower risk, lower reward trade on the expected increase in share price volatility heading into mid-April.

Just before year-end, Electro-Optical Sciences (MELA) announced that the algorithms for analysis of the MelaFind pivotal trial were finalized with results expected to be released in several weeks. MelaFind involves a hand-held imaging device that emits light of multiple wavelengths to capture images of suspicious pigmented skin lesions and extract data for the early detection of melanoma, which is the most dangerous type of skin cancer.

Nanosphere (NASDAQ:NSPH) recently filed 510(k) applications with the FDA for two new diagnostic products, including a cystic fibrosis assay and an infectious disease panel for respiratory viruses (influenza + respiratory syncytial virus or RSV). Since the 510(k) process is not as involved or length as a PMA; NSPH could receive word from the FDA by mid-2009.

NSPH trades at a market cap of $117M with a much lower enterprise value of $50M thanks to $75M in net cash on the balance sheet, but the Company is still in the early stages of transitioning from the development stage with just over $1M in trailing 12-month revenue. The Company is also developing additional diagnostic assays to detect cardiovascular disease (cardiac troponin I test) and diagnostics should be the beneficiary of a focus on preventive medicine by the new administration.

Synta Pharma (SNTA) is up over 35% in the past month thanks to a collaboration with Roche (OTCQX:RHHBY) for the development of anti-inflammatory drugs and the anticipation of Phase 3 clinical trial (SYMMETRY) results for elesclomol in the treatment of metastatic melanoma. Synta will receive $25M upfront with the potential to receive $245M in development milestones for the first product, a maximum of $122.5M each for the second + third products, and sales milestone payments up to $170M for each of the three products. Synta is also eligible for sales milestone payments up to $170M for each of the three products.

Further Reading:

FDA Calendar of New Product Decisions

Emerging Diagnostic Index

Emerging Bio-Pharma Index