In this article, I list 5 biopharmas that have huge upside potential, but are very high risk and have equally as large downside potential. Exposure to these stocks need careful consideration by investors.
Arena Pharmaceuticals (ARNA) is a clinical-stage biopharmaceutical company engaging in discovering, developing and commercializing oral drugs in the therapeutic areas of cardiovascular, central nervous system, inflammatory and metabolic diseases.
As I remarked in my prior article, I expect Arena to gain approval for its weight loss drug, Lorcaserin, in July of this year. Arena originally received a CRL from the FDA in the first attempt at getting Lorcaserin approved. Arena has a partnership deal for this drug with Japan-based Eisai Pharmaceuticals that could be worth more than $400 million.
Failure to gain approval this time around will likely mean a stock price well south of $1. However, approval of Lorcaserin will likely see Arena's current pps of $2.02 triple to $6 or higher. For these reasons, Arena makes my high-risk, high-reward buy list here.
Chelsea Therapeutics (CHTP) is a development-stage pharmaceutical company focusing on the acquisition, development, and commercialization of therapeutic products for the treatment of various human diseases.
On Feb. 13, Chelsea released news that its orphan designated drug, Northera, has raised potential safety issues, as 3 participants involved with the recent late stage clinical study have died. It is not clear at this time whether their deaths were in fact a direct result of interaction with Northera. The longer term studies need to be reviewed more carefully here for a clear picture whether Northera is indeed safe or not.
This might be a very good opportunity to buy Chelsea shares on the cheap, as the stock is currently selling for $3.11. If these deaths are in fact not connected with Northera and the drug gains approval by March 28th, 2012, Chelsea will likely triple from its current price range. However, if these deaths are shown to be connected with the drug, and Northera fails to gain FDA approval, expect the shares to be selling near $1. These key factors land Chelsea on my list here.
BioLineRX (BLRX) operates as a clinical-stage biopharmaceutical development company located in Israel.
I remarked in a prior article that Israelis have a long history of technological advancement, which I do consider a legitimate speculative factor in the potential success of BioLine.
Clinical Pipeline drugs:
- BL-1020 Schizophrenia (Currently in Phase II/III trial)
- BL-1040 AMI (Commencing CE Mark Registration Trial)
- BL-5010 Skin lesions (Phase I/II complete)
- BL-1021 Neuropathic Pain (Currently in Phase I trial)
- BL-7040 Inflammatory Bowel Disease (Phase I complete)
The drug that sticks out to me is BL-1021, indicated for neuropathic pain. In 2009 the neuropathic pain market was estimated to be $2.4 billion in the seven major markets (U.S., Japan, France, Germany, Italy, Spain and the U.K.), and it is projected to grow to $4.1 billion in 2018.
In a December 2011 Phase Ia study result of BL-1021, It was demonstrated that a single administration of BL-1021 in the dose range examined was safe and well tolerated, with no significant changes noted in vital signs, ECG or laboratory safety parameters at any dose when compared either to baseline measurements or to the placebo group. In addition, BL-1021 demonstrated a favorable pharmacokinetic profile and the potential for once daily oral administration. In September 2011, BioLineRx announced positive interim results from the trial.
BL-1021 can certainly receive a fast track orphan drug designation by the FDA eventually. If it does and this drug is approved, the current pps range of $3.73 will likely more than triple. However, failure for this drug to gain approval will likely tank the pps under $2 a share. Please note, BioLine has a very low float, coming in at under 11.8 million shares. Couple this factor with a high beta of 1.55, and BioLine's pps can and will move in either direction very fast and hard. For these reasons, BioLine is a very high-risk, very high-reward speculative buy.
Kerx and Aeterna Zentaris are in a joint venture with the drug Perifosine, (also known as KRX-0401) which is currently in Phase III clinical. Perifosine is being developed for a variety of cancer indications.
Perifosine is an alkylphospholipid (octadecyl-1,1-dimethyl-4-piperidylio phosphate), which is structurally related to miltefosine. It acts as an Akt inhibitor and a PI3K inhibitor.
It has been designated with an orphan drug status in the U.S. for the treatment of multiple myeloma and neuroblastoma, and for multiple myeloma in the EU.
Adam Feuerstein, a biotech journalist, suggests that the phase III trial, the results of which will be out in early 2012, will most likely fail. He bases his point of view on the fact that smaller cap bio-pharmas normally fail at getting FDA drug approvals, which he calls "The Feuerstein-Ratain" rule.
This rule is based on analysis of 59 phase 3 clinical trials of cancer drugs conducted over the past 10 years, looking at both larger cap bio-pharmas verses smaller cap bio-pharmas. The analysis showed that 21 out of 21 phase 3 cancer drug trials for smaller-cap companies failed during this period. However, the recent 2011 Obama administration directive to the FDA might help to see Perifosine approved. If this drug is approved, the pps's of these 2 companies will likely triple. If approval for Perifosine is not gained, then we can expect their current pps's of $3.37 and $1.76 respectively, to tank under $1.
The stocks listed here are very risky investments. Many investors might be better served to swing and day trade these stocks for gains. If you have a large appetite for risk, then you might want to consider these companies for longer term buy and hold, and go for the home-run.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: This article is intended for informational and entertainment use only and should not be construed as professional investment advice. Always do you own complete due diligence before buying and selling any stock.