Oh, Hi March

Summary

• We're ending the 1st quarter of 2018!
• There are some catalysts to come this month.
• We look at CLVS CDTX ONCE.

Greetings! In like a ... bear, out like a bull?

Data me please!

As we wait for the much anticipated (and highly strenuous) data from Marinus (MRNS) we shouldn't forget that Cidara (CDTX) still has data to come out - reportedly by the end of this month (we previously anticipated much earlier). Cidara's price has behaved much more stably than Marinus, and we see this as a good sign - the market for buyers and sellers is relatively even and nobody is playing games with the stock (intentional or not).

CDTX data by YCharts

Image generated from YCharts

While we're definitely not at the high of 3 months ago, we're not dramatically lower. Again, as per our previous article, we strongly believe Cidara to report good data here. That modification on their drug is giving us all the good and none of the bad. The real question, in my mind, is not efficacy or safety, but the marketability - will a small company such as Cidara be able to market this drug? If not, will someone buy them - and who would? In researching SCYX, we know that fungal infections in frequency are not growing exponentially, but the 'super-bugs' are showing up - increasing the need for non-azole drugs in this sector.

Translation: while we're bullish the upcoming readout, we don't have a proper price target because we can't appropriately quantify the marketability of the drug. However, we know that the value is above and beyond a quite small $136 million mcap. Therefore, we are taking a buy-and-wait approach to CDTX. Overall, antibiotics are hurting, we know this with Paratek (PRTK) and Achaogen (AKAO), but we do believe in the very long term, these are decent investments, especially as doctors bring the urgency from the clinic to the FDA. Just be aware that any good data with CDTX will imply dilution, most likely.

What about that lovely Clovis?

I generally don't dig too deep into the larger, more established oncology stocks and for good reason. Here we've seen two companies take on two excellent drugs in the PARPi space with much anticipation and hope that these will become major players in breast and ovarian cancer. However, much to the dismay of the late-comer investors (especially in TSRO), we've learned that much of the price of both stocks has been attributed to (1) buyout potential and (2) over-estimated sales assumptions.

CLVS data by YCharts

TSRO has fallen from a high of $200, while CLVS from $90.

If you are not familiar, both companies are major players in the PARP-inhibitor field, along with AstraZeneca (AZN).

Image from Sonnenblick, Amir & de Azambuja, Evandro & Azim, Hatem & Piccart, Martine. (2014). An update on PARP inhibitors - Moving to the adjuvant setting. Nature reviews. Clinical oncology. 12. 10.1038/nrclinonc.2014.163.

PARP inhibitors (PARPi) are what I would call a breakthrough in Oncology, just as CAR-T and PD-1 are showing to be in immuno-oncology. PARPi's are really accomplishing what chemotherapy has sought to do for the past half century, but they're doing it much more selectively towards specific, mutated, tumor cells and it's fantastic. Much to my delight, they are small molecules as well, so a lot of great chemistry comes with them.

If you'll notice, however, TSRO is still in a down trend, while CLVS seems to quite possibly be bottoming out (if you believe in that kind of thing). But technical analysis isn't very useful to me. Let's look at the data and what's to come. Why invest now and how do we choose between these two smaller players in PARPi field?

I will take some bits and pieces here, and you can get the full info and analysis in this coming week by subscribing to Altum's market place where the deeper depth and data will be teased apart.

In short totality, there are three major problems the market sees with CLVS (and TSRO):

1. Slow uptake of sales in general for both CLVS and TSRO PARPi
2. No buyouts
3. Safety issues with Zejula (TSRO's drug)

To address these, I believe #1 is the result of an over-zealous wall street trying to pump trading in these stocks and thus line their pockets. I think the sales may have been a bit over-anticipated for companies that are not mega-caps and not fully experienced in successfully selling drugs (yet). I do expect sales to catch up, especially with CLVS and AZN.

#2 - in biotech there is a rule to never buy a company with the idea of a buyout being your main reasoning. Just saying. Don't do that. Buy with the idea that this company will go it alone and be successful - if you need a buyout to justify your investment, your strategy needs refinement.

For #3 is where things get interesting and where the value is. TSRO had a chance (possibly) to sell its company during that rocketing price up to $200. I will probably never know what those talks entailed and why TSRO was not sold, but obviously we can see it was a mistake on management's part if they declined near those prices.

The most compelling story to not buy TSRO, but rather buy CLVS is in the safety. We discuss this in our subscriber article coming out this week. Overall, the PARP playing field seems to be, for ovarian cancer at least, a two-player battle of CLVS and AZN. TSRO is just not going to make the cut, Altum says.

What is most important for buying into CLVS here is predicting the readouts for

• Europe's CHMP (like the FDA) which should come this month.
• We also have a PDUFA in April (6th)
• And the very much anticipated prostate cancer coming in early 2H of this year

Altogether, positive announcements from here are capable of bringing CLVS's market back to all-time-highs of around $90. We do not doubt that M&A would be intelligent in this field, but we don't speculate for it here.

The risks with CLVS are a potential raise before profitability but they currently have somewhere in the vicinity of $400 million, so while we have been seeing some pretty large raises of post-approval and near-approval companies, we anticipate the dilution is less likely going to hurt us in the 6 to 12-month timeline if we are to buy stock here.

The real downside is if prostate readout is negative, CHMP has a problem with approval, or the FDA PDUFA is negative. These would be dramatic on the stock and warrant a sharp decline in current PPS.

Spark Therapeutics

This is my favorite graph of 2017-2018

ONCE data by YCharts

And this is my favorite tweet of the past year:

Image from Twitter

What Mr. Plieth is implying is that the 'dumpster fire' of Bluebird Bio (BLUE) of 2015 and Juno Therapeutics (JUNO) of 2016 are probably going to resemble what ONCE looks like in the future.

Both are doing phenomenally well, if you were wondering (JUNO recently acquired). And I agree with this sarcastic sentiment dated back to Dec 2017, and am glad to say I bought on that dip - but sold the majority perhaps too early from $45-55. We'll get into the reason for that dip and why I bought in another article, though.

My long term sentiment on ONCE is a very strong buyout candidate. Being the first true gene therapy to be approved with good results they've landed a milestone which even with all the hype, I still believe is severely underplayed. What I translate from a market cap of $2.35 billion is somewhere along the lines of overvalued if only seen as their lead Luxturna drug, but significantly undervalued for what the company has shown and where they are headed.

I have a starting position in ONCE, with any sub-$60 price being bought more.

Risks with ONCE are unlikely to come from any dilution fears, the company currently has $500 million in cash. Instead, we should be watching for the data from SPK-7001 and SPK-8011 later this year. Potential buying opportunities (again), but could move the stock downwards if data readout is not pleasing. Gene therapy is not easy and eye and blood disorders are the easier to treat. As ONCE's pipeline progresses, realize that these are progressively higher-hanging fruit - more difficult to get positive data.

Future Notes

What we will be looking at in depth, to hopefully pounce on before that $1 billion market cap shows up are some smaller cap names being floated around; OVID, ACHN, and a few others, so stick around - and if you like Altum join our community by subscribing to our market place! 2 weeks free and you can talk to us all you want until you decide.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I am/we are long CDTX, CLVS, ONCE, MRNS. 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.