ASCO With Upgrades: Create Catalysts For Growth

by: Amy Baldwin

On a day when the biotechnology space should have been occupied with big time performers, we watched as initial gains dwindled for unexplained reasons. The annual ASCO meeting is always a creator of optimism and a provider of developments that move stocks. Yet, with renewed fears of a European collapse, investors are seemingly ignoring the positive data and apparently preparing for a several month bear market. With that being said, let's take a look at some of the headlines from ASCO, which include stocks that lost earlier gains on Monday and should be trading higher.

Two of the most talked about companies, both during and after the ASCO, were Bristol-Myers (NYSE:BMY) and Johnson & Johnson (NYSE:JNJ), though for different reasons. The number of small developmental biotechnology companies announcing breakthrough data was minimal at this year's meeting and was dominated by the larger, more resourceful companies which were flexing their muscles.

Bristol-Myers was, without a doubt, the big winner of the ASCO meeting. BMY had two experimental drugs that significantly decreased tumor size in several cancers, including advanced skin, lung, and kidney cancers. The company's anti-PD-1 immunotherapy candidate has been a big topic of discussion. In early testing, it showed substantial clinical activity across previously-treated non-small-cell lung cancer. Immunotherapy was a major provider of strong clinical data at this year's ASCO, further demonstrating that the use of the immune system can be vital to the treatment of cancer. Its initial price performance, with a $0.70 gain, seemed to be appropriate, but experienced significant selling pressure until recovering to close with a 0.99% gain, ending a very volatile trading day for a company with such positive data.

JNJ was one of the only stocks that actually maintained the majority of its gains throughout the day on Monday, closing with a 0.91% gain. The company's very controversial new drug, Zytiga, was able to prove to doubters that it does not need a statistically significant overall survival benefit in order to gain an approval, as a result of other encouraging data.

The drug's progression data was shockingly optimistic as Zytiga slowed the spread of cancer in men with metastatic, castrate-resistant prostate cancer by over 50%, meeting the goals of progression-free survival. The question that will be most important moving forward is whether or not this data is significant enough to earn an FDA approval. Zytiga has already shown that it slows the progression of the disease and that patients live significantly longer. However, in order for the trial to be successful, the drug had to increase progression-free survival and overall survival, which it did, but overall survival was not considered statistically significant. Dendreon (NASDAQ:DNDN) bulls point to Zytiga's failure to meet the required overall survival rate, as an approved Zytiga could drastically affect sales of Provenge. Yet when you look at the data for overall survival (p=0.0097 versus the goal of p=0.0008), it is obvious that the drug shows an advantage in both PFS and overall survival, and is short by only a fraction of being considered "significant". Fortunately, we will know soon enough whether or not the FDA will look at the glass "half full", because the company plans to file for approval in the mCRPC pre-chemo indication in the next few months. Overall, the ASCO was a big win for JNJ and Zytiga, as the drug could become a blockbuster in the space.

In addition to BMY and JNJ, Medivation (NASDAQ:MDVN) and ImmunoGen (NASDAQ:IMGN) presented strong data and had all the characteristics of stocks that would trade higher throughout the day on Monday. IMGN was trading with gains of 10% in premarket and then opened at just under $15. On the other hand, MDVN was trading with gains over 5% in premarket and reached a price of nearly $87 to open on Monday. However, both stocks slid throughout the day, with MDVN closing in the red and IMGN struggling to hold gains.

The large gains for IMGN were a result of encouraging data for its investigational compound, SAR3419, and the results from its Phase III trial, EMILIA . The company answered a lot of questions at the ASCO conference by establishing dosing while preserving antitumor activity. In addition, the company's Phase III trial showed positive results for trastuzumab emtansine compared to other treatment alternatives, indicating that its chances for approval are quite high.

Medivation's Phase III prostate cancer drug, enzalutamide, met secondary end points creating optimism that it could be awarded an approval in the near future. The news resulted in Wedbush Securities reiterating its outperform rating and raising its price target from $86.00 to $100.00 and stated, "We view these results as a positive for MDVN's enzalutamide (MDV3100), as enzalutamide showed better results in Phase II compared to Zytiga's Phase II in pre-chemotherapy patients, and of course appeared to provide a greater benefit in Phase III post-chemotherapy patients." However, this upgrade is small compared to Citigroup's (NYSE:C) buy rating and its $129 price target that was also announced on Monday. The analyst at Citigroup went into much more detail about the process of arriving at such a target by saying, "Our target price of $129 is based on 30x our 2015 non-GAAP EPS estimate of $5.68 and discounted by 15% annually. We use a 30x forward multiple, which appropriately reflects the lucrative opportunity in prostate cancer and potential that Astellas might acquire Medivation to consolidate full global rights to the drug".

Despite the loads of encouraging news from last weekend's ASCO, the stock movement was minimal in terms of holding gains. In fact, one of the only stocks that did move as a result of its clinical update was Galena BioPharma (GALE), a stock that is up nearly 200% YTD due to the possibilities of its Phase III candidate, NeuVax. The company announced results from its 60-month booster vaccine follow-up that showed 94.4% of patients are still alive compared to 74.1% on the control arm: very encouraging data for a small company that is attempting to address a very large unmet need for patients.

GALE's encouraging data was also complimented with two upgrades, one being an initiation of coverage that made MDVN's upgrade look like pennies. Roth Capital Partners reiterated its buy rating and a $5 price target, a gain of nearly 400% from its current price. The firm stated, " We believe that Galena's current valuation does not take into consideration the Phase III status of NeuVax, which is based on compelling and thoughtful earlier stage clinical data. Overall, Galena's advanced clinical pipeline, including two off-the-shelf vaccine products with applicability to multiple tumor types, may represent a significant long term value driver for the company." The second upgrade was from Cantor Fitzgerald, whoinitiated coverage with a buy rating and a $4 price target. The firm went on to say, "The concept of using medication to lower recurrence risk is not new (tamoxifen, aromatase inhibitors), but the targeted patient population - low HER2 expressers - represents a new paradigm in treating patients." Yet despite the encouraging clinical data and two very bullish upgrades, even this stock could not hold its gains during Monday's trading day, falling to a gain of just 5% after opening with gains over 25%.

The price performance of these very different companies, despite encouraging clinical developments, speaks to the level of uncertainty surrounding the market. Under normal circumstances it would make sense that each of these stocks would have held gains throughout the day and possibly traded even higher from its opening price. However, investors seeing the value even at these low prices were quick to take profits. Typically, the ASCO meeting would have provided lasting sparks for each of these companies. Since losses have occurred, I would watch for large gains in the near future. With such encouraging developments, one would have to believe that gains are right around the corner, especially if/when the markets start showing any recovery.

Disclosure: I am long JNJ, GALE.