Biotech Forum Daily Digest: Why Progenics Could Rally This Summer

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Includes: CRBP, ICPT, PGNX, RPRX, TRIL, VRX
by: Bret Jensen

Summary

The main biotech indices had a good first full trading week of the second half of 2017, rising more than one percent on the week.

Amgen gets mixed news from the FDA. Repros Therapeutics craters after FDA will not release hold on key trial until larger study completed.

All the notable news, events and analyst ratings from across the sector and why sentiment on Progenics Pharmaceuticals might improve this summer are below.

Somewhere in the world there is a defeat for everyone. Some are destroyed by defeat, and some made small and mean by victory. Greatness lives in one who triumphs equally over defeat and victory. —John Steinbeck

The main biotech indices had a solid first full trading week of the second half of 2017. The sector rose a bit more than one percent on the week and continues to be a stronger performer in the market so far this year.

M&A activity continues to be dormant since February, making the rise more impressive. Second quarter earnings reports for the industry are on the horizon and likely will determine if the sector continues to rise. Individual names will continue to be driven my company specific events.

Author's note: To get these Biotech Forum Daily Digests as soon as they are published, just click on my profile, hit the big, orange "Follow" button, and choose the "real-time alerts" option.

Amgen (NASDAQ:AMGN) got some mixed news from the FDA over the past few days. Last week, the agency's Oncologic Drugs Advisory Committee voted 17-0 in favor of recommending its biosimilar to Roche’s Avastin for approval. The FDA should officially green light the Biologic License Application in short order based on this unanimous recommendation. This is an important milestone Amgen's evolving biosimilar pipeline. Several products should be approved over the next few years and the company should see at least $3 billion in sales from this franchise by 2020.

Today, the company acknowledge receipt of a Complete Response Letter from the FDA regarding its Biologics License Application {BLA} seeking approval of EVENITY (romosozumab) for the treatment of postmenopausal women with osteoporosis. The agency wants data from another study integrated into the BLA submission.

Small cap Repros Therapeutics (RPRX) is getting pasted in early trading after the FDA announced that it will maintain its partial clinical hold on the company's Proellex program after reviewing the existing liver function safety data. The company will be required to compile a large pre-approval safety data set in order to support further development. This means a substantial delay as well as additional and significant costs for a larger trial.

Valeant Pharmaceuticals (VRX) continues to shed assets in its efforts to pare down its substantial debt load. The company will now sell its Obagi Medical Products business to Haitong International Zhonghua Finance Acquisition Fund I, L.P. for $190 million in cash. The unit was contributing some $85 million in annual sales.

After seeing no analyst activity in 2017, over the last month Trillium Therapeutics (TRIL) has seen its shares reiterated as a Buy at Ladenburg, Cowen & Co., and H.C. Wainwright. Wainwright was the only analyst firm that put a price target ($7) on the stock. Trillium did do a significant secondary offering in late May, which means one has to take these latest ratings with a grain of salt in my opinion. Trillium looks like a classic 'Tier 4' developmental concern I would avoid because of my 'Ten Year Rule'.

Intercept Pharma (ICPT) has its first analyst activity in a month as a four star ranked (TipRanks) analyst at Oppenheimer reiterates a Buy rating and $200 price target. Last month, five star ranked analysts at Wedbush and Cowen & Co. reissued Buy ratings with price targets of $231 and $225 respectfully.

Corbus Pharmaceuticals (CRBP) whose shares have had a rocky ride of late thanks mainly to challenges to its anabasum program, gets a big 'shout out' from Cantor Fitzgerald which believes the company could be worth up to $24.00 a share within a reiterated Buy rating.

In early May, the FDA refused to grant the compound Breakthrough therapy status for systemic sclerosis. The mid-stage drug candidate does have the same status for cystic fibrosis.

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 has been a crazy and volatile nine months for shareholders in Progenics Pharmaceuticals (PGNX). The stock rocketed up some 120% in the post-election rally after the surprising November decision. However, the stock started to weaken towards the end of the first quarter of this year and gave back the majority of those gains over the next two months. Over the past six weeks, the shares look like they have found a floor at just under $7.00 a share. In today's Spotlight feature we discuss why sentiment might improve on this name over the summer and two possible plays to benefit from that shift.

The stock was hit by flatlining sales of its one approved drug relistor which is marketed and distributed by Valeant. Investors also took a dimmer view of recent trial results from Azedra than they probably should have. Currently, the stock looks significantly oversold and undervalued. I also think investors will become more positive on this name by the time the summer is out.

Valeant Pharmaceuticals significantly expanded its GI sales force earlier this year. This should result in better relistor sales in the quarters ahead, relieving one headwind for the company. While it is true that the second data set for late stage trials for Azedra were not quite as robust as the first set; the results met the SPA criteria set out by the FDA when the compound was granted both fast track and orphan drug designations to treat two rare adrenal gland tumors.

The company should file the NDA (New Drug Application) for Azedra within a month and management will probably also provide greater clarity on trial results at that time as well. I expect the FDA will approve this wholly owned drug under their accelerated approval process in the first quarter of 2018.

Given the rarity of these disorders, it will take a relatively small sales force to penetrate the market as individuals with this affliction are known and treated by a relatively small number of specialists and clinics. At approximately $150,000 a pop, Azedra should eventually do $200 million to $300 million in peak sales. This is very significant for a company with less than a $500 million market capitalization, of which approximately 25% of that is represented by cash on the balance sheet.

Cantor Fitzgerald initiated the shares as an Outperform earlier this week with a $15 a share price target, more than twice the current price of the stock. Their analyst noted his reasons for optimism on the name:

We like PGNX’s pipeline that offers both near term and longer term opportunities, and both in markets where there is little consensus. Azedra is the near term opportunity, with the registration program having been completed, and the main value driver near term, in our view. The diagnostic prostate cancer pipeline, offers a longer term view, and will be launched in a market that is in need of improvement, though lacks consensus at this time. We think both avenues have upside potential.

Needham reiterated its Buy rating and $14 price target on Progenics late in June.

I think Progenics is outright buy here for those that do not already have a stake in this 'Tier 3' biotech stock. Those that have a position and want additional exposure to the shares while hedging some risk, a Buy-Write strategy of picking up the stock around $6.75 a share while selling the Jan 2018 $7 calls for $1.00 to $1.10 apiece would be an option strategy that makes strategic sense here.

For the true speculators out there that believe upcoming earnings as well as the filing of the NDA of Azedra will soon have Progenics trading back above $10, buying the November $8 calls at around 50 cents apiece offers an asymmetrical risk/reward scenario.

Being challenged in life is inevitable; being defeated is optional.
—Roger Crawford.

The Biotech Forum

Thank you and happy hunting.

Disclosure: I am/we are long PGNX.

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 covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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