Biotech Forum Daily Digest - Biotech Fritters Away Some Gains. 3 FDA Calendar Events In July

Summary

• Biotech frittered away a decent portion of a big rally last week as the second quarter came to an end but remains above previous resistance levels.
• Cara Therapeutics suffers a trial setback but analysts maintain their faith.  AVEO Pharmaceuticals complete a huge month.
• All the other notable news, events and analyst ratings from across the sector are below.

“A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.” ― Milton Friedman

Biotech spent a good portion of the last week of the second quarter and first half of the year frittering away a good part of last week’s huge surge in the sector. Some of this might have been related to ‘window dressing’ by fund managers as well as some profit taking after a 10% rally in this long time beaten down part of the market.

However, the major indices remain significantly above previous upward resistance levels that were in place since December of 2015 before being shattered the previous week. As long as that remains the case, it is probable that the most likely direction of the sector is up.

There is a good technical piece on Benzinga outlining how the iShares Nasdaq Biotechnology ETF (IBB) jumped from ~290 to ~323 in four trading days the previous week on large volume. The article speculates that if biotech can hold previous resistance levels and get back up to 323, the next stop could be slightly over 340 on a technical level.

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After a huge run over the past year, Cara Therapeutics (CARA) finally suffered a significant setback. Its lead candidate CR845 flopped against a key endpoint on pain for osteoarthritis in all three dosages within a late stage trial. The stock was down some 40% in trading on Friday as a result of this disappointment.

Positive changes continue to be underway at the FDA under new leadership. Its new head vowed this week to eliminate the backlog of Orphan Drug requests at the agency in the next 90 days. The FDA will also establish a benchmark of responding to new requests within 90 days of receipt. Currently, the agency has ~200 applications pending review. Last year, the FDA received 568 requests, more than double the amount received in 2012. Efficiency coming to government, who would have thunk?

The I.R.S. has opened a probe into the tax-exempt status of a charity funded by pharmaceutical companies. The Chronic Disease Fund was set up as a patient assistance fund to help patients buy expensive drugs for cancer, multiple sclerosis and other diseases but may have strayed into 'impermissible' benefits. An IRS analysis found that 95 percent of the approximate $130 million the charity spent on co-payment support in its public programs in 2011 went to patients taking drugs made by the very companies that had donated the money, according to court papers.

Despite the trial setback on Friday, analysts largely kept their faith in the long term prospects of Cara Therapeutics. Canaccord Genuity, Laidlaw, H.C. Wainwright and Piper Jaffray all reiterated Buy ratings with price targets in the $25 to $30 range after trial results came out. Janney Montgomery was the lone hold out as it downgraded Cara to a Hold rating and $21 price target issued that same day.

Alkermes (ALKS) was also a recipient of positive analyst commentary on Thursday and Friday of last week. Jefferies, Cowen & Co., JP Morgan and Credit Suisse all reissued Buy ratings late in the week with price targets ranging from $63 to $78. The company's late stage anti-psychotic candidate posted positive trial data late last week although there was some concern about weight gain in subjects.

AVEO Pharmaceuticals (AVEO) saw its second analyst rating of 2017 on Friday as FBR Capital reiterated a Buy rating and $3 price target on this under the radar play that has had a huge breakout recently on Friday. The previous week Piper Jaffray reissued their own Buy rating with a very modest $2 price target. Late in June, the European Medicines Agency {EMA}, recommended AVEO's FOTIVDA (tivozanib) for approval as a treatment for patients with advanced renal cell carcinoma.

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.

It is not a particularly busy FDA calendar for July, but there are several PDUFA dates and other milestones that could move some small cap biotech stocks in either direction. Here are three dates I have circled on my calendar in July.

July 19th - DEXTENZA, which is a treatment for ocular inflammation and pain following cataract surgery made by Ocular Therapeutix (OCUL) has its long awaited PDUFA date. The company received a complete response letter {CRL} around manufacturing issues in July 2016 and had to resubmit its NDA a few months after. Some three million people have cataract surgery in the United States. Treatment should cost $400 or so a procedure. Approval should trigger a significant rally in this ~$270 million market cap concern.

July 23rd - Ryanodex from Eagle Pharmaceuticals (EGRX) is up for approval for exertional heat stroke {EHS}. The compound is already approved for malignant hypothermia. EHS is four to five times the potential market as malignant hypothermia. However, Bendeka is still the company's 'bread and butter' and will continue to produce the lion's share of overall revenues. Approval will be a nice win and is expected, but stock market reaction should be muted.

July 28th - The Ad Comm Panel for Dynavax Technologies' (DVAX) hepatitis B vaccine Heplisav-B meets. I recently wrote an article on the long running saga this vaccine has had to get approved. The stock has had a significant run since that time. However, given the U.S. market for the vaccine could be north of $500 million annually - a reaction to the Ad Comm Panel's recommendation will not be 'muted'. The actual PDUFA date for Heplisav-B is August 10th, but I believe whatever decision the Ad Comm Panel reaches will be echoed by the FDA when it meets to formally decide this vaccine's fate two weeks later.

Note: We are running free 14-day trials into the Biotech Forum through midnight EST Tuesday to celebrate the Fourth of July holiday. Read our reviews and join us on Live Chat this week to discuss all things biotech, risk free for two weeks by clicking here.

“Life calls the tune, we dance.” ― John Galsworthy

Thank you & Happy Hunting

Bret Jensen

Founder, Biotech Forum

Analyst’s Disclosure: I am/we are long AVEO, CARA, DVAX, EGRX, OCUL. 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.