Summary
- Today, we list four bio pharmaceutical companies with upcoming catalysts. Typically, under normal market conditions, their stocks normally see strong price appreciation.
- Just because a biotech has an upcoming catalyst event, it does not mean the event will have a positive result.
- Hedging stock share trades via the option chain by buying puts is one way we protect against downside should we decide to hold through a catalyst event.
- Also, we take a look at the iShares Nasdaq Biotechnology index technical chart, which is a very important benchmark that tracks the broader based Nasdaq biotech sector.
- Finally, we will go over some macro factors that demonstrate why we believe that U.S. markets will head higher along with biotech for the remainder of the year.
Coming up on June 10th, 2014, Orexigen Therapeutics Inc (NASDAQ:OREX) expects a Food and Drug Administration (FDA) decision concerning its weight loss drug NB32 (Contrave). Contrave was initially rejected by the FDA due to a single issue cardiovascular safety concern and requested the company engage a study to provide data to address the concern. Subsequently, Orexigen met with the FDA in which the organization designated a Special Protocol Assessment (SPA). The original Complete Response Letter from the FDA, along with the SPA, requested that Orexigen engage a cardiovascular (CV) study to show Contrave does not cause an increased risk of major adverse cardiovascular events (MACE). In response to the FDA, the company engaged the "Light study," where 8900 patients are being monitored for potential CV issues.
The Light Study successfully completed the SPA requirements on 8900 patients and has shown Contrave does not increase the risk of MACE. According to Orexigen, its positive interim data has met the SPA conditions. If so, the FDA is bound to approve Contrave come June 10th. With positive interim data in hand, if the final results of the Light Study are positive, there is also a good chance Contrave will be approved in Europe. This is important, as Contrave could be the first and only weight loss drug approved in Europe, since both Arena's (ARNA) Beliviq and Vivus's (VVUS) Qsymia have essentially failed to win approval there. (Arena withdrew its' Europeon application before it would have likely been rejected.) A Europeon approval decision is expected by late August/early September of this year.
As mentioned, if Orexigen has complied with the SPA issued to Contrave, it's virtually certain that come June 10th, Contrave will be approved. If the Light Study's interim analysis meets Europeon regulators standards, it's also a good bet that Contrave gains approval in that region in late August/early September of this year.
Progenics (NASDAQ:PGNX) is expecting a Food and Drug Administration (FDA) Advisory Committee meeting on June 11-12 to decide whether or not to recommend a Supplemental New Drug Application ((sNDA)) for Relistor. The sNDA seeks approval for the treatment of patients with opiod-induced constipation due to chronic pain. In other words, opiod painkillers prescribed for many conditions may cause constipation, and a treatment is necessary for this side effect.
If the sNDA is approved by the FDA, Progenics will receive an upfront payment of $50M, along with up to $200M in milestone payments thereafter. Additionally, Progenics confirmed some positive data for its prostate specific membrane antigen (PSMA) this past Saturday at the 2014 American Society of Clinical Oncology (OTC:ASCO) which should draw additional investor interest. It's also worth noting that the Baker Brothers have increased their stake in Progenics by 6% last quarter.
It's likely the Adcom will issue a positive guidance and vote for the sNDA for Relistor due to several factors. Generally speaking, the safety data for this indication is acceptable in my opinion. Relistor is already approved for another indication and there have been no significant safety issues. Therefore, it's also likely that the Relistor sNDA is approved by the FDA, which generally responds to an Adcom recommendation within 30 days.
BioDelivery Sciences (NASDAQ:BDSI) has a Prescription Drug User Fee Act (PDUFA) date of June 7 for Bunavail. Bunavali is part of the company's proprietary BEMA technology platform. BEMA technology delivers drugs using a bio-erodible film across a mucous membrane. The film adheres to an oral mucosa membrane in about five seconds and takes fifteen to thirty minutes to dissolve. The BEMA platform has been proven to work, since the company already has received approval for its other product, Onsolis.
Bunavil delivers Subxone (buprenorphine/naloxone sublingual film) as a therapy for opioid dependence. Subxone was approved by the FDA in 2002 and has been very successful, generating $1.4B in sales in 2013. The chances for Bunavil approval are very high in my opinion, and the chances for longer term success are also high. BioDelivery's Chief Executive Officer (CEO) Mark A. Sirgo, Pharm.D. has proven that he is a man of his word and cares about shareholders, as I remarked in an article I wrote over 2 years ago, when the company was trading for around $2.50. This is perhaps the most important factor in deciding whether or not to make an investment in a risky smaller cap biotech, management trust. Sirgo has proven himself to be trustworthy, at least from my point of view.
EnteroMedics (NASDAQ:ETRM) has an FDA advisory committee (Adcom) coming up on June 17th for its pacemaker like device called the Maestro Rechargeable System. This system is supposed to block vagal nerve impulses, which the company believes will suppress hunger. However, its Phase III study failed to meet the pre-defined primary endpoint as revealed by the company last year.
The chance for a positive Adcom here is not very good in my opinion. However, on the slim chance this device could garner a positive Adcom vote, EnteroMedics shares would likely sky rocket. The prospect of this is likely to attract a lot of high risk traders willing to take a gamble on the chance of making a huge return in a short amount of time, no matter how unlikely hitting this bet might seem.
In September of 2013, the FDA asked for more information about the device's clinical data, including training programs for users and a study of the device after it is approved. EnteroMedics stated that the FDA's inquiry was a standard one here, so we should not necessarily glean that the FDA is actually planning to approve the device. Nevertheless, there is a chance here for approval, but I believe a small one.
It's worth noting that last week, an options trader purchased 3600 June $2.50 calls for roughly $0.45. This equates to about a $162,000 bet on a positive Adcom result for EnteroMedics, so this should not be ignored. However, I saw a similar bet placed on Xoma (XOMA) right before it had a Phase II data release, yet that data release turned out to prove negative. That particular trader lost about $500,000, so the fact that there has been at least one decent sized bet on Adcom success does always equate that the result will actually be a success.
MannKind Corp. (NASDAQ:MNKD) has a PDUFA date of July 15, 2014 for Afrezza, the company's rapid-acting mealtime insulin inhaler drug/device combination. On April 1, 2014, the Endocrinologic and Metabolic Drugs Advisory Committee convened to discuss and vote on whether to recommend Afrezza to the FDA for approval. Subsequently, the panel voted in favor of recommending Afrezza to the FDA by a vote of 13 to 1. The date of July 15th is actually a three month extension for the PDUFA, which was set originally for early May.
A "clean" FDA approval here is not exactly a "slam dunk" proposition. The fact that the organization extended the PDUFA tells me it wants to carefully review the potential longer term safety issues that could arise from an inhaled form of insulin. The FDA may want a study to be done after approving the drug, which would fall under a Risk Evaluation and Mitigation Strategy (REMS).
There is a lot to consider here with Afrezza moving forward as I mention above. Ultimately, will the FDA require REMS for Afrezza? It's my opinion that this prospect has a very good chance at coming to fruition. Will the company have the needed capital to engage such a study without engaging in a secondary stock offering again? I believe the answer to this is no, as the company has a strong pattern of capital raises on the backs of investors.
From my point of view, there is more uncertainty here than most investors and traders might realize with Mannkind and Afrezza. My prediction therefore is that the FDA will approve Afrezza, but attach REMS to the approval, requiring the company to demonstrate the longer term effects of this particular inhaled form of insulin is safe. Any such study or studies could be costly if new data is required, so the company may indeed continue its' pattern of secondary offerings, and/or additional issuance of convertible notes.
So while the stock price of Mannkind should increase between now and July 15th, it can also at any point during this run decrease when all possible outcomes, good, bad, or somewhere in between are considered -- expect a lot of stock volatility here before July 15th. One very important factor in determining just how well all of these stocks mentioned here will perform is the movement of the iShares Nasdaq Biotechnology (NASDAQ:IBB). Technology is considered a "risk-on" asset class. Over the last few years, we have seen these risk-on classes do very well in the market, primarily because of both the excessive amount of liquidity pumped into the markets via the Federal Reserve's Quantitative Easing (QE) programs, and the very low cost of borrowing money because interest rates are so low. Let's look at the most recent IBB chart:
I mark the areas of support with white lines above. Beginning with the first line on the left, we can see the $236 to $238 level was a strong area of support. When the IBB had some down pressure, it bounced from that level. Immediately before the 2nd line drawn, the index closed at a level indicating a head and shoulders pattern confirmed. At this point, the index was expected to make at least a 10% correction from support levels, which it did, hitting a price of $207.48 as I predicted would happen.
Afterwards, the index needed to cross back over $235, and then close over that range to regain true support, which it did. This was the former support range, so after it was broken it acted as an area of resistance. The 3rd line shows that we now have support, but will this support continue?
The European Central Bank (ECB) meets on June 5th, and most analysts expect that it will cut interest rates and take initial action to ease credit flows. Afterwards, I expect the ECB to eventually engage a Eurobond, likely in Q1 of 2015. A Eurobond would basically be the ECB's form of QE, and would inject a ton of monetary supply (liquidity) into the global system. Because this would weaken the Euro Dollar, I would expect to see an even stronger run to stocks, in order for market participants to get the most "bang for their buck."
This factor, along with the Bank of Japan most likely adding additional stimulus (liquidity) into their system means that risk on tech assets such as biotech should continue to rally. So far this year, we have seen a bit of a pause in the rally which was caused by uncertain Federal Reserve interest rate policies.
I believe due to global central bank coordination, a Eurobond will be introduced first before the Fed raises rates next year. This will allow global markets to remain stable and not tank, as many have speculated.
Just as it was leading up to Japan's version of QE, when the Nikkei increased over 100% in a short time, I feel we will continue to see U.S. markets continue to rally on the speculation of a vastly increased monetary supply that remains easy to borrow. The above factors will be very important in determining just how high the biotech index can go. I believe before the end of this year, the index will see a price of at least $300, and possibly much higher for the factors I have mentioned. Additionally, with increased government subsidization of big pharma via Obama Care and the same increased subsidization for anti-trust exempt healthcare insurance companies, it's a virtual certainty the biotech rally continues.
Disclosure: I am long PGNX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.