Investor Watch List: Week of April 15 2013

by: Chemistfrog

For investors with the time, money and fortitude to tackle the world of individual investments in stocks of their own personal choosing, the task can at times seem formidable with a limitless supply of possibilities. For the week ahead, I wish to help narrow down the list for investors with a higher risk tolerance than most, those choosing to invest in development phase pharmaceutical companies and commodities.

Diabetes Investment

Biodel (BIOD) is a development phase pharmaceutical company focusing on the large market indication of diabetes. Last Monday BIOD common shares started the week with a dip below $2.50 per share, the lowest the stock has traded since January 23rd. However, a high-volume day Wednesday pushed shares up, closing the week at $2.91. With no news of note, I believe investor interest is beginning to return in anticipation of a couple of significant upcoming catalysts.

On March 28th, Biodel announced that it had completed enrollment in a 130 patient phase 2 trial evaluating its ultra-rapid-acting prandial (mealtime) insulin candidate BIOD-123 for the treatment of diabetes. The trial is evaluating BIOD-123 versus standard of care Humalog® in Type 1 diabetes patients, such as fast-acting meal-time insulin products for an 18-week period. In an earlier phase 1 trial evaluating two of Biodel's clinical candidates (in order to ascertain which would go onto the phase 2 clinical) BIOD-123 demonstrated that it was 64% faster than Humalog® in mean times to half maximum insulin concentrations (p < 0.001 for BIOD-123). This was even better than the company's previous lead product candidate, Linjeta®, handed a regulatory rejection in 2010 noting "comments related to clinical trials, statistical analysis and chemistry, manufacturing and controls."

In Linjeta®'s pivotal trial, the therapy exhibited an impressive 61% faster response than Humalog®, so it appears that BIOD-123's efficacy could exceed that of Linjeta®. The icing on the cake, however, may be the injection site tolerability, a significant issue in Linjeta®. On a 100 mm visual analog scale [VAS], in which 100 millimeters is defined as the worst possible injection discomfort, local toleration was not significantly different in BIOD-123 versus Humalog®, with VAS values of 3.6 +/- 2.1 millimeters versus 1.8 +/- 1.1 millimeter, respectively. Linjeta®, meanwhile, exhibited a VAS value of 22 +/- 2.8 millimeters.

Although it may be a bit early for a stock run up into the July/August phase 2 data release, the huge diabetes market may catalyze early investor interest. Eli Lilly & Company's (LLY) Humalog® generated worldwide revenue of $2.4 billion in 2012, with the product losing patent protection in May of this year. Although I don't invest based on "buyout potential", Biodel may garner potential suitor interest in the coming months from Lilly and other pharmaceuticals if the BIOD-123 data prove to be impressive. The company's market capitalization at market's close on Friday was just under $41 million, with the stock having a 52-week range of $2.14 to $4.00. Cash burn rate for the quarter ending December 31st, 2012 was $5.9 million dollars per quarter. As of December 31st, 2012 Biodel had cash and equivalents of $34.3 million, enough to last almost 6 quarters at the current quarterly cash burn rate, (likely to accelerate once [IF] the phase 3 trial begins enrollment). At Biodel's Q1 2013 conference call, the CEO noted that he anticipated the company's cash level would carry the company "at least until the second calendar quarter of 2014."

Contrarian Gold View

A contrarian suggestion can often bring ridicule and rejection from many investors, both retail and institutional. With the overall markets experiencing record highs for much of last week, one only has to view social media postings, stock forums and company message boards to realize the exuberance the investment community has for the bullish stock market. An additional indication as to the market's bullish run is the demise of the price of gold, the two historically trends opposite of each other.

On Friday, the price of gold plummeted 5%, closing down $78 per ounce to $1487. That close was the lowest the precious metal has been since its August 2011 peak of $1889. The combination of record closes for the stock markets and dramatic selloff in gold prompted me to take a contrarian view with regard to at least my short term view of the markets. I have always traded with skepticism in any stock or market in which the "pumpers" dramatically outnumber the pessimists, as I note in social media and other investment posting forums.

On Friday, I opened a position in SPDR Gold ETF (GLD) just at the 5-year chart's support level of $143. I believe that strained relations with North Korea and its continued threats of a nuclear attack combined with what I believe to be an overbought market could prompt a rebound from Friday's closing GLD prices. If current support levels fail, I will likely add to my position at the next support region of $134-$137, prices not seen since 2011. This week's overall markets and the price of gold could be indicators of what lies ahead for investors, at least for the short term. With many investors often hedging their stock holdings to the downside with increased holdings associated with gold once stock markets turn bearish, I anticipate either a rebound in gold coming up for a short term gain, or additional downside to technical support levels in the event markets continue upward and gold trends downward.

Additionally weighing on gold's downtrend are the European countries' debt woes, with Cyprus appearing to be the first in line to sell at least part of its gold hoard in an attempt to pay off debt. Although Cyprus' gold hoard is not enough to cause any real concern, it may trigger gold sales by other troubled countries, such as Slovenia, Hungary, Portugal, Spain and Italy possibly not far behind. The added supply of gold to the world's supply would cause even greater downward pressure on a commodity whose value is determined (like most others) by supply and demand.

Depending on how events transpire globally with regard to North Korea's threats or other areas of concern including international markets, I have already formulated my plans for my near term investment in GLD. Should shares continue downward, I will strive to minimize possible losses with a 3% (my personal limit from my second position add) maximum loss below the $134 support, at $131. If shares bounce and begin trending upward, I intend to use trailing stop limits to protect my gains with a "watch and wait" mentality over the longer term. Although certainly not a guaranteed technical analysis, I will also be watching GLD's relative strength index [RSI], at 26 at market's close on Friday in a highly oversold condition. Viewing the below chart, each time over the last two years the GLD ETF has dipped below the 30 RSI, it has sharply rebounded. I will be watching this value as well as supports this week. This is not an investment for everybody, especially those who normally trade upward trends, as this is certainly a contrarian investment. As I have done, I advise interested investors to have exit and entry plans in place before opening a long or short position via shares or options.

Unmet Need of Spinal Cord Injuries

InVivo Therapeutics Holdings Corp (NVIV.OB) shares have been on a tear since January 2nd's closing price of $1.75 to Friday's close of $3.30, up just over 88% YTD. The company is a non-stem cell play on a highly unmet regenerative therapy market, most notably spinal cord injuries [SCI]. InVivo's exciting platform utilizes three different approaches to treating SCIs: (1) a biocompatible polymer scaffolding device to treat acute SCI, (2) a biocompatible hydrogel for local controlled release of methylprednisolone to treat acute SCI, and (3) a biocompatible polymer scaffolding device seeded with autologous hNSCs to treat acute and chronic SCI.

In terms of near term catalysts, I believe investors should research and focus on the company's biocompatible polymer scaffolding device. In April alone, InVivo released two significant press releases updating investors on this exciting portion of the company's product line. The device is intended to prevent secondary damage due to immune response and inflammation after an acute SCI. This secondary damage can result in additional impairment of the damaged spinal nerve tissue, including killing of neural cells and scarring, both not only impeding the healing process but also exacerbating an already critical injury. The polymer scaffolding device is designed to work as a type of "patch", implanted and placed directly onto the damaged spinal cord. This implantation follows stabilization of the spine itself at the injury site by rigid pedicle screws. The scaffolding device is then applied directly to the cord injury and secured with a "Dura Patch" where it serves as a barrier to protect the exposed and injured spinal cord.

On April 4th, InVivo announced that it had received approval for its request filed with the FDA for Humanitarian Use Device[HUD] designation for its biopolymer scaffolding product. The designation is significant in that it is the medical device equivalent of an Orphan Drug designation assigned to treat rare and unmet medical conditions. Attainment of the HUD designation greatly expedites the time from clinical trials to marketing of the device, pending positive findings in clinicals. In the announcement, company CEO Frank Reynolds stated that:

2013 to be a springboard year for our stakeholders as we have multiple 510(k) products targeted for market entry by the end of 2014

This likely indicates an exciting and catalyst-filled year ahead for investors. Not missing a beat, InVivo released a subsequent announcement the following day, stating that the FDA gave the company permission to begin its first clinical trials in humans for its biocompatible polymer scaffolding device for the treatment of acute, traumatic SCI. InVivo plans on beginning enrollment in the clinical in coming months for 5 patients, a trial expected to last 15 months. A more precise timeline on enrollment initiation was hinted at in the announcement in which Mr. Reynolds stated:

Over the next month or so, we plan to finalize the details of our study, and we expect to have all data to the FDA by the end of 2014.

If this statement holds true, trial initiation should begin most likely by September at the latest in order to have the 15-month trial data to the FDA by then.

I have just begun my research into InVivo's promising potential for its targeted highly unmet market. On the surface, the company's $218 million market capitalization at market close on Friday seems to be high for a development stage company with its lead product candidate a few months from even beginning enrollment in its first human clinicals. However, with no available treatment via medical device or drug for SCI, I believe that early signs of success once clinical data starts becoming available could be a huge share price driver in the months ahead.

Although for different indications, I like to use Sarepta Therapeutics (SRPT) as an example of high valuation, despite an early stage of clinical development. Sarepta's shares closed Friday at $40.21, with a market capitalization of $1.28 billion. Its lead drug candidate is eteplirsen, which is being evaluated in a phase 2b clinical for patients with Duchenne muscular dystrophy [DMD], a disease affecting about 3,500 boys (very few girls contract the rare disease) worldwide. Results from the small 10-patient open label study were promising. After 74 weeks of treatment, patients in the eteplirsen cohorts who were able to perform the 6 minute walk test (modified Intent-to-Treat or mITT population; 6 patients) exhibited a statistically significant treatment benefit of 65.2 meters (p<0.004) when compared to the placebo/delayed-treatment cohort (4 patients) with less than a 5% (13.4 meters) decline from baseline in walking ability.

Also of note in the eteplirsen study, the placebo/delayed-treatment group which had received no eteplirsen up to week 36 and had an earlier decline at that point, received the therapy for weeks 36-74. Like the treatment arm, this delayed treatment arm also demonstrated stabilization in walking ability with less than a 10 meter decline over this time frame. As pertaining to InVivo's current market capitalization, investors realize the potential for expedited regulatory approval and the likely premiums the therapies could garner in the event the therapies are approved/marketed. I believe that InVivo's market cap is justified through its targeted unmet area of need in SCI, much like Sarepta's targeted DMD market.

InVivo's common shares closed Friday at $3.30 after reaching its 52-week high of $3.79 earlier in the day. I believe there may be increasing volatility coming until its biocompatible polymer scaffolding device is potentially validated or otherwise in the coming months. With much of the company's market capitalization being a direct result of its promising potential in SCI, the downside could be significant for the company in the event clinicals are not promising. InVivo is not a "one trick pony," as the company still has two other technologies at its disposal via its hydrogel platform and its other biocompatible polymer scaffolding device seeded with autologous human neural stem cells (hNSCs).

However, much value has already been attributed to its upcoming clinicals, with a return to its 2013 lows below two dollars likely if the trial fails. As of December 31st, 2012, InVivo had $12.8 million in cash and equivalents with about $16.1 million in total assets. In 2012, annual expenses totaled $12.8 million, with the number likely increasing in 2013 as the company begins its first human clinicals. Therefore, I would anticipate some type of offering in 2013, unless a lucrative partnership or grant is obtained. I do not have a current position in NVIV, but will likely initiate one this week depending on market conditions and how the stock trades. Like Biodel, this is a development-phase company with no current marketed therapy. Biodel's and InVivo's current market caps are based on a combination of targeted market groups, distance from possible marketing approval and chance of regulatory success. Any decrease in either of these factors, or poor dilutive financing will detract from market capitalizations and therefore share price.

Disclosure: I am long BIOD, GLD. I have no position in NVIV.OB, but I may initiate a long position in the next 72 hours. 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.