Biotech Forum Daily Digest:: Opdivo's Setback - Focus Feature On Fibrogen

by: Bret Jensen


The biotech sector drifted down in the holiday shortened week just passed.

Helping the pullback on Friday was a setback for Bristol-Myers Squibb's emerging blockbuster oncology drug Opdivo.

All the other notable news, events and analyst ratings from across the sector as well as a spotlight feature on Fibrogen are below.

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The biotech sector underperformed the overall market Friday during the first day of the incoming Trump Administration. The area was more held back in what was a nice day in stock market as the inaugural commenced. The decline was due more by a setback at a major emerging blockbuster (below) in the oncology space than anything the new president said in his 16 minute speech in a rainy Washington.

I think the near term direction of this area of the market will be determined by upcoming fourth quarter earnings reports and whether we continue to see an uptick in M&A activity across the industry in the weeks ahead.

Bristol Myers-Squibb (NYSE:BMY) was one key reason biotech underperformed the market on Friday. Its key oncology drug Opdivo will not pursue accelerated approval to be used in the treatment of front-line lung cancer. Stock was down some 10% in trading Friday on this news. Competing oncology compound Keytruda seems to have the momentum right now and has been powering Merck's (NYSE:MRK) shares recently. Merck ended the day nicely up once again on latest news from its competitor.

Not surprisingly as I noted in an article just before FDA decision on Thursday after the bell, Synergy Pharmaceuticals (NASDAQ:SGYP) sold off after initial rally in the early morning Friday on the approval of its main drug candidate plecanatide known by its brand name Trulance. This trajectory happens quite often in this space as the stock runs up into approval, rallies a bit after approval and then sells off. Maybe it is typical "buy the rumor, sell the news" behavior or maybe investors get over the relief of approval quickly and then start to think of upcoming commercialization challenges. Whatever it is, it happens more often than not. I was very happy to get 75 cents on the April $8 calls I sold against good portion of my Synergy position right after the open Friday morning. I still like Synergy's long term story as firm would make more than logical buyout target for the likes of Takeda, but stock may need some time to consolidate some recent gains.

Good synopsis of the key events at the big J P Morgan Healthcare in San Francisco earlier this month over at FiercePharma. A couple of interesting tidbits offered up. Pfizer (NYSE:PFE) which has done more than $20 billion in purchases since the Treasury Department derailed its mega-merger with Allergan (NYSE:AGN) last April, will continue to be active. Its focus area will continue to be acquiring companies that bring an instant revenue lift. The pace of purchases could accelerate if any sort of "tax holiday" is enacted in 2017 to allow it and other drug giants to bring home tens of billions of funds "stranded" in overseas operations. Gilead Sciences (NASDAQ:GILD) gave a good overview of its HIV & NASH pipeline, but gave short shrift to what investors really want to hear from the company right now; when it will make a significant acquisition.

Versartis (NASDAQ:VSAR) saw its first analyst action since December 20th when Credit Suisse upgraded this small cap name to a Buy and placed a $20 price target on it. Piper Jaffray came out Friday and reiterated its own Outperform rating with a $22 price target. Piper's analyst called Versartis a "Top Pick" and is optimistic ahead of a Phase III Velocity data on its primary drug candidate somavaratan expected sometime in the third quarter of the year. Somavaratan could be the first-in-class, best-in-class recombinant Human Growth Hormone candidate in clinical development, We recently did an exclusive deep dive on Versartis at the Insider Forum thanks to heavy insider buying in the name. Look for it to also be a spotlight feature on these pages in the near future as well.

Achaogen (NASDAQ:AKAO) should have a nice day of trading today. The stock was initiated at Guggenheim this morning with a Buy rating and $30 price target. The shares were also initiated as an Outperform over at Leerink Swann with a more modest $21 price target just under three weeks ago. The stock has been on a nice roll since it was the Spotlight feature here on the Biotech Forum Daily Digest here late in November.

Halozyme continues to be a battleground stock as Piper Jaffray reissues its Buy rating on this small cap concern this morning. Over the past three weeks Canaccord Genuity has also reiterated its Buy rating while Citigroup has reissued its Hold rating and Jefferies has stated Sell. Lots of varying opinions on this speculative small cap at the moment.

Note: New analyst ratings are a great place to begin your due diligence, but nothing substitutes for deeper individual research in this very volatile sector of the market. Many of the small-cap names highlighted in "Analyst Insight" will eventually appear in the "Spotlight" section, where we do deeper dives on this type of promising but speculative small-cap concerns.

In this week's first Spotlight feature, we are going to look at Fibrogen (NASDAQ:FGEN), a member of the Biotech Forum portfolio that has been on the move of late and saw two Buy reiterations on it by analyst firms in the week just passed.

Company Overview:

Fibrogen is a small San Francisco based biopharma concern that is focused on developing therapeutic agents to treat serious unmet medical needs. The company is using its expertise in connective tissue growth factor {CTGF} and hypoxia-inducible factor to develop these compounds. The company has been around for more than two decades but just came public in late 2014. The stock has a market capitalization of just north of $1.5 billion and a stock price just north of $26.00 a share.


The company has two primary compounds in development currently.


Also known as FG-3019. This compound is being aimed at Pancreatic cancer, Idiopathic Pulmonary Fibrosis {IPF} and Duchenne Muscular Dystrophy {DMD} and is in Phase II development for all three indications. Last week the company updated results from an ongoing clinical study of FG-3019 in combination with standard-of-care chemotherapy in patients with locally advanced pancreatic ductal adenocarcinoma were presented in a poster session during the ASCO 2017 Gastrointestinal Cancers Symposium in San Francisco. Analysts viewed these results positively (see next section). Investors should get results from the trials for IPF sometime this summer.


Also known as FG-4592. This compound is being targeted at CKD (Chronic Kidney Disease) Anemia both in dialysis and non-dialysis patients. Fibrogen currently has four Phase 3 programs and encompassing 15 studies worldwide to support registration requirements in the U.S., Europe, China, and Japan. The company has a key trial in China that should present data sometime in the first quarter of this year. The compound has the potential to be the first-in-class oral treatment for anemia associated with CKD although this is large market with many competitors with different compounds on the market. In the United States recently received FDA's acceptance of a new approved indication for MDS, a serious disorder that impairs the ability of the bone marrow to produce healthy red blood cells and can now start Phase III development.

In Japan, Fibrogen has a long-established collaboration deal with Astellas Pharma (OTCPK:ALPMF) to develop, market and distribute this compound. The company has paid Fibrogen some $400 million in milestone payments to date. In the United States, Fibrogen has partnered with drug giant AstraZeneca (NYSE:AZN) on this compound. Total milestones could reach north of $1.5 billion and some ~$200 million has been paid out since the companies signed this agreement in 2013. If approved, Fibrogen will also receive tiered royalties in the low 20s on sales of any approved drugs. Under these agreements, Fibrogen's partners pay for development and commercialization worldwide with the exception of China, where Fibrogen shares 50% of the costs. This significantly reduces cash drain. The company is on track to file a NDA for ROXADUSTAT sometime in 2018.

Analyst Commentary & Outlook:

Despite a significant market size, Fibrogen gets little notice in the analyst community. It was ignored by analysts throughout 2016 until Leerink Swann reissued its Buy rating and $52.00 price target on the stock in November. This last week, the shares got more analyst attention than in quite some time. Spurred by positive trial data, both Credit Suisse and RBC Capital reiterated Buy ratings, the former with a $44 price target. Credit Suisse's analyst viewed the trial update "favorably". Michael Yee from RBC noted FG-3019 "continues to show strong and promising activity in pancreatic cancer." He further stated that "50% of the patients who finished the study became resection-eligible versus only 9% of patients in the control arm". The current median analyst price target on FGEN is $48.00 a share.

In its third quarter conference call, management stated they should end 2016 with some $335 million in cash on the balance sheet. At its current burn rate and with its partnership agreements, the company appears well-funded into the foreseeable future.


Like every "Tier 4" stock, Fibrogen is a speculative investment that only belongs within a well-diversified biotech portfolio. However, it has many traits I think warrant a small investment. It has multiple "shots on goal", is targeting addressable markets, is well funded, has definable upcoming milestones and a couple of key partnership deals to boot. This is why I have Fibrogen as a SPECULATIVE BUY

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Thank You & Happy Hunting

Bret Jensen

Founder, Biotech Forum

Disclosure: I am/we are long AKAO, AGN, FGEN,GILD, SGYP, VSAR.

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.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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