5 Near-Term, Low-Priced Bio-Catalyst Trades

by: Mike Havrilla

Below are a summary of five bio-pharmaceutical stocks trading around $10/share or less with FDA decisions or late-stage Phase 3 clinical trial catalysts expected over the next few weeks to months.

1. Arena Pharma (NASDAQ:ARNA)

Lorcaserin (a selective serotonin 2C receptor agonist) is the Company's lead product candidate which currently has a pending FDA Decision (NDA Resubmission) and would represent the first marketed drug for Arena if approved.

On 5/10/12, an FDA advisory panel voted 18-4 (one abstention) in favor of approval for long-term use as weight loss drug in obese or overweight patients w/ at least one co-morbid condition. The PDUFA decision goal date is 6/27/12 and the drug is partnered w/ Eisai (OTCPK:ESALY). In addition, a MAA submission was accepted for review in MAR 2012 seeking approval in Europe with a decision expected late 2012-early 2013.

A competing experimental weight loss drug by Vivus (NASDAQ:VVUS) is also awaiting an FDA approval decision for QNEXA (phentermine plus topiramate) (controlled-release, once-daily capsules) with a PDUFA decision goal date of 7/17/12 following a three-month extension for a proposed Risk Evaluation and Mitigation Strategy or REMS that was submitted in April.

Given the strong share price run-up in ARNA since the positive FDA advisory panel vote, I would not consider buying shares now and would only consider holding a long position through the FDA decision if it was funded by trading profits and would not commit new capital to the stock at this point given a market cap in the mid-billion dollar range and an exponential stock price increase of over 4X over the past three months.

2. Sunesis Pharma (NASDAQ:SNSS)

Vosaroxin (formerly voreloxin) (DNA targeted anti-cancer agent) is the Company's lead late-stage experimental cancer drug that is currently being evaluated in a Pivotal Phase 3 (VALOR) Clinical Trial. The Company has no marketed products and the rest of its pipeline is in the early stages of development.

SNSS is conducting an ongoing pivotal Phase 3 trial (ClinicalTrials.gov ID NCT01191801) in combo w/ cytarabine for patients with acute myeloid leukemia with over 300 patients enrolled as of mid-May and a planned interim analysis to be conducted during 3Q12 with three potential outcomes: halt study early for efficacy or futility, continue study through unblinding mid-2013 or increase enrollment by 50% with results expected in early 2014.

I expect shares to make a run back into the low $3s near 52-week high levels going into the planned interim analysis, which is similar to what Celsion (NASDAQ:CLSN) conducted late last year resulting in a significant share price run-up, and the recent pullback in shares of $SNSS to mid-$2s represents a nice entry point that has provided support on previous declines.

3. Ventrus Biosciences (VTUS)

Iferanserin Topical Ointment (VEN 309) is the Company's lead wholly-owned product candidate that is currently being evaluated in a Phase 3 Clinical Trial (ClinicalTrials.gov ID NCT01355874).

VTUS expects to report top-line data from the first of two planned pivotal Phase 3 clinical trials for the treatment of symptomatic hemorrhoids by late June-early July with recurrence data and the start of a second Phase 3 trial expected during 2H12. VTUS owns the global rights to iferanserin as of last November and filed a new concentration range patent (20-year) application in August 2012 with USPTO action expected during 2H12.

I estimate a high probability of success (i.e. 70/30 odds) in the Phase 3 trial based on previously published Phase 2 results that were analyzed as part of the Phase 3 study design in addition to the mode of action of iferanserin to constrict blood vessels locally to counter the bleeding, pain and itching symptoms associated w/ hemorrhoids that is unlikely to be replicated by placebo since this is not a condition that one would expect a high placebo effect.

In addition, in the Phase 2b trial iferanserin treatment resulted in a statistically significant improvement compared to placebo for bleeding starting very quickly (Day1) and for itching (Day 2) that persisted throughout the 14-day treatment period so the current Phase 3 clinical trial has a longer time period to achieve the same beneficial effects (by the end of Day 7).

I would expect shares of VTUS to trade into the low-mid teens with positive results and mid single-digits with negative results for iferanserin, and even if positive the Company must conduct another Phase 3 study before seeking FDA approval and is also planning to conduct another Phase 3 study for its other late-stage product candidate, Diltiazem Topical Cream (VEN 307), which is licensed from European-based SLA Pharma and posted positive results in a Phase 3 study last month for the treatment of anal fissures.

4. Horizon Pharma (NASDAQ:HZNP)

RAYOS (low-dose, delayed release prednisone formulation) has a pending FDA decision and the drug was approved in Europe in early 2009 as LODOTRA and Mundipharma serves as the distribution partner for Europe, Latin America and the Asia-Pacific region. RAYOS has a PDUFA decision goal date of 7/26/12 under a standard 10-month review seeking FDA approval for a novel formulation of an approved steroid drug for the treatment of rheumatoid arthritis (RA).

In February 2012, HZNP announced a modification to its Marketing Authorization Application (MAA) to include a recently approved Valeant Pharmaceuticals (NYSE:VRX) manufacturing site in Quebec that also serves as the primary site for supplying the US market (DUEXIS has already received FDA approval as a novel combination drug comprised of the pain/inflammation drug ibuprofen and stomach drug famotidine) with an expected decision on the updated MAA filing during 2H12.

The Company was able to raise a large amount of capital during 1Q12 through the sale of stock and debt along with strong insider buying in the mid-$3s, resulting in a good chance for a run-up that may already be starting with the stock trading in the low $4s going into the FDA decision expected late next month.

While it remains to be seen whether RAYOS can compete with standard generic formulations of prednisone and other RA treatments, shares of HZNP have the potential to make a run back into the $5s as the stock will likely attract much attention as a low-priced stock with a near-term FDA decision.

Following expected FDA approval, if shares of HZNP spike to around the $6+ level; I believe it would represent an excellent short trade opportunity as most small-cap stocks tend to experience share price run-downs back to pre-approval levels or even lower--especially in the absence of an established marketing partner for the drug and when alternative generic drug alternatives exist.

5. Amarin (NASDAQ:AMRN)

AMR101 (icosapent ethyl) (Prescription Omega-3 Fatty Acid) is the Company's lead product candidate in late-stage development with a pending FDA decision. The Company has no marketed products and AMR101 is the sole focus for AMRN, including an ongoing long-term cardiovascular outcomes study that is outlined below.

AMR101 has a PDUFA decision goal date of 7/26/12 under a standard 10-month review seeking approval for treatment of patients w/ very high triglycerides (i.e. levels of 500 and higher) and the Company is also conducting a pivotal Cardiovascular Outcomes Study (REDUCE-IT) under SPA to support a potential supplemental New Drug Application (SNDA) filing for expanded use of the drug. AMRN expects to enroll approx. 8,000 patients in the outcomes study to support a potential sNDA filing once the trial is substantially underway (year-end 2012 estimate for this to occur).

I expect AMRN to receive FDA approval for AMR101 and the shares have been highly volatile over the past few quarters based mainly on patent related issues. I am also optimistic on the intellectual property prospects for AMRN, which has a goal of achieving patent protection through at least 2030, and expect shares to trade into at least the upper teens or possible lower $20s if FDA approval is achieved along with patent protection. While I do not expect the FDA to reject the drug based on a clean safety profile and excellent Phase 3 results; the potential always exists for a three-month delay to the FDA decision which could push shares lower (i.e. $9-10) on a temporary basis.

The only currently marketed omega-3 prescription drug is GlaxoSmithKline's (NYSE:GSK) LOVAZA which is a billion dollar drug despite FDA approval that is limited to patient's with very high triglycerides; although prescribers are free to use the drug off-label (i.e. in patients with triglycerides lower than 500) despite the risk of raising bad cholesterol levels which is the major advantage of AMR101 that has a neutral effect on bad cholesterol.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.