EDAP TMS, Back on the Map (EDAP)
EDAP TMS SA (NASDAQ: EDAP) is a French company which makes medical devices for the treatment of urological diseases and the company’s stock is soaring after the company was granted marketing approval of its newly designed, high-end Sonolith I-Sys lithotripsy device by the Japanese Administration. Because this market is still under-served, we wanted to look into the news despite this not being a drug or biotech company.
The Japanese equivalent of the FDA in the US granted marketing approval of EDAP’s Sonolith I-Sys lithotripsy device. What makes this unique is that the lithotripsy market in Japan is supposed to rank as the number one market in the world in total lithotripsy sales volume and in the installed base. The company also noted that Japanese physicians have traditionally been fast adopters of products in this field.
The Sonolith I-Sys is an easy to use high-end system that the company called an effective tool to deliver benefits to both patients and physicians with integrated and robotized features. The company noted that the device successfully obtained marketing clearance by the U.S. FDA in August 2009.
The Changing Landscape of Biotech Valuations (ACOR, CBST, MNKD, INCY, SGEN, ITMN, IPXL, MRX, SVNT, VPHM)
The biotech and biohealth universe is changing in size. In 2008 and 2009, partly due to mergers and partly due to market valuations, there had become a surprisingly small number of biotech stocks which had market capitalization rates of more than $1 billion. At one point there were only about 10 or 11 in our universe of biotech stocks that actually had market caps which were very far north of $1 billion, or at least out of the biotech stocks which followed at BioHealth Investor.
We have recently seen Acorda Therapeutics, Inc. (NASDAQ: ACOR), Cubist Pharmaceuticals Inc. (NASDAQ: CBST), MannKind Corporation (NASDAQ: MNKD), Incyte Corporation (NASDAQ: INCY), Seattle Genetics, Inc. (NASDAQ: SGEN), InterMune, Inc. (NASDAQ: ITMN), Impax Laboratories Inc. (NASDAQ: IPXL), and Medicis Pharmaceutical Corporation (NYSE: MRX) either get into or get back into the $1 billion market cap club. And then we have Savient Pharmaceuticals Inc. (NASDAQ: SVNT) and ViroPharma Incorporated (NASDAQ: VPHM) that have been in the club and are currently just short of it.
Due to waves of big emerging drug news and due to strong performance we now have 16 of the biotech and related stocks (at least of those which we cover as pure biotechs) which have market caps north of $2 billion. More importantly, the biotech news flow and he bull market has suddenly helped many stocks rise or at least get back above the $1 billion mark. Many of these had been there before, but the market has helped many new names get back above the $1 billion market capitalization level. And waves of mergers in the last two and three years sort of thinned out the group.
In these we did not take into consideration revenues, earnings, and not even cash. This has largely been news-driven and momentum-driven. Below is a review of each.
When Biotech Layoffs Come (XNPT)
When conglomerates and consumer products lay off workers and employees, shareholders generally cheer the company for saving money and cutting costs by figuring out productivity measures that milk more output per employee. That leaves more income and ultimately brings more dividends down the road. But biotech firms are far from being thought of in the same light. These are growth stories and investors generally get more excited about expanding operations. So here comes XenoPort, Inc. (NASDAQ: XNPT) announcing on a Friday that HALF of its workers just won the pink-slip lotto ticket from the HR department. Today just officially became National Employee Morale Day at XenoPort.
XenoPort just announced a restructuring plan today that more narrowly focuses its R&D pipeline, and one that “includes an overall reduction in its workforce of approximately 50%.” The company says this will allow it to focus its resources to advance its later-stage product candidates. This comes on the heels of the February 17, 2010 FDA Complete Response Letter which effectively gave the complete response that its Horizant™ treatment for moderate to severe primary restless legs syndrome was a no-go.
XenoPort is collaborating with Astellas Pharma Inc. and GlaxoSmithKline (NYSE: GSK) to develop and commercialize XP13512, which is Horizant. Its product candidates are being studied for the potential treatment of restless legs syndrome, GERD, migraine headaches, neuropathic pain, spasticity and Parkinson’s disease.
The company called this an “unexpected setback” in the approval of Horizant. It also noted that this action is forcing it to review its operating plans.
It will now focus on later-stage development activities and more importantly will eliminate its own discovery research efforts. XenoPort claims a number of product candidates in clinical development as well as several other advanced preclinical compounds.
The company noted specifically that “maximum value will be created for our stockholders over the next several years by reducing our overall spending while focusing on helping our partners gain approval of Horizant in the U.S. and XP13512 in Japan, completing our ongoing Phase 2b trial of arbaclofen placarbil (AP) in gastroesophageal reflux disease (GERD) patients and initiating a Phase 2 clinical trial of XP21279 in patients with Parkinson’s disease.”
The projected estimates of annual cash saving reductions is approximately $15.6 million, most of which is from cuts to compensation and benefit expenses. XenoPort will incur cash expenditures of up to $4.2 million in the first half of this year and it does expect some non-cash charges as part of the action.
Traders and shareholders are also betting on “National Employee Morale Day” at the company being adverse. The stock is now down 2% at $7.72. The 52-week trading range is $6.39 to $25.42. This one effectively dropped from almost $20 to under $10.00 when the FDA determined that the best action for patients with Restless Leg Syndrome was to have less caffeine and to get more exercise.
The company still has close to $150 million in cash and short-term equivalents ($143.7 million per the company’s latest results) and its market cap is now $234 million. The most recent annual report data (on page 29) shows that XenoPort had 219 full-time employees, about 155 of which were involved in R&D.
This is usually one of those instances where the beatings will continue until morale improves.
JON C. OGG
Winning from Boosting Good Cholesterol (RVXCF, RVX, PFE, AZN, MRK)
BioHealthInvestor usually sticks to US companies or at least sticks to ADRs for investors. But sometimes there is a much larger bit of data either north of the border or in Europe. There is a company called Resverlogix Corp. which trades in Canada under the ticker ‘RVX’ and the stock also trades in the US on the Pink Sheets under the ticker ‘RVXCF.’ The stock is soaring today after Bloomberg gave a very positive article highlighting the merits of the company’s RVX-208. This potential drug candidate is targeting atherosclerosis in acute coronary syndrome patients. The target is to raise HDL levels to effectively reverse arterial plaque buildup. The company noted that there are approximately 350 million patients that require treatment for atherosclerosis.
We wanted to take a look at the potential for this drug candidate outside of what the article has to offer. Resverlogix is a clinical stage Canadian company which currently has no real products. The company has been public since late 2004. It has traded well under $5.00 and at ome point briefly rose to north of $20 per share in 2007.
Late in February, the company officially activated the first site for the ASSURE 1 trial and commenced enrollment of patients for dosing of RVX-208. This is the second Resverlogix Phase 2 clinical trial, led by Cleveland Clinic, and it will examine and evaluate this oral small molecule therapy for the treatment of atherosclerosis in patients with acute coronary syndrome.
As per the trial data:
This IVUS study is comprised of 15-20 US sites will dose approximately 120 ACS patients on standard of care therapy and examine lipid effects by RVX-208 compared to placebo control. In half of the patients a change in atherosclerosis will be assessed, i.e. change in plaque volume and plaque composition. The primary objective of this study is to determine the 3 month effect of RVX-208 on change in the plasma levels of ApoA-l in patients with a recent ACS event who require coronary angiography versus placebo. The secondary objectives for this study include assessing the safety and tolerability of the drug through evaluation of adverse events as well as to evaluate the effect of RVX-208 on other lipid parameters.
Here is the catch, and the ultimate factor which makes this a potential Holy Grail… Most cholesterol medications today are used as preventative medicine rather than just for treating those who have already had a stroke or heart attack or those who already have severe blockage. Statins and other lipid lowering agents account for billions and billions of dollars per year in revenues for Big Pharma. If this drug is ultimately approved for preventative measures the sky is the limit.
AstraZeneca (NYSE: AZN) has Crestor; sales of Crestor are forecast to reach $6.5 billion in 2013, up from $4.5 billion in 2009, per Thomson Reuters.
Pfizer Inc. (NYSE: PFE) has Lipitor; Lipitor brought in approximately $11.4 billion in revenue in 2009.
Merck & Co. (NYSE: MRK) has Vytorin; Annual worldwide sales for 2009 were $2.2 billion for ZETIA and $2.1 billion for VYTORIN.
The statin market is also coming under some generic pressure.
There are risks here. Many have tried this HDL raising tactic and targeting plaque. None of the existing drugs have effectively proven to be the ultimate plaque-eater. Pfizer has so far spent billions. This is a hopeful treatment but it is going to be some time before the results of a larger study are known and it will be far longer before the side effects are known.
Stay tuned.
JON C. OGG
Rigel Attacks Rheumatoid Arthritis with AstraZeneca (RIGL, AZN)
Rigel Pharmaceuticals (NASDAQ: RIGL) may be the biotech winner this Tuesday. The company has signed a pact with AstraZeneca (NYSE: AZN) which could ultimately bring in about $1.25 billion if all targets are met. This pact is a licensing agreement for Rigel’s rheumatoid arthritis drug R788 or fostamatinib disodium.
Rigel said last year that its R788 significantly improved rheumatoid arthritis symptoms in patients in a phase II study and Rigel has been seeking a development partner to help finance phase III studies.
AstraZeneca will design a global phase III study for the RA drug and believes that the study will be initiated in the second half of this year. We will double-check the goal dates here because the new drug application target date appears to be 2013 for the FDA and European Medicines Agency.
AstraZeneca is making an upfront payment of $100 million as the first part of the pact. There is also an additional amount which can go up to an additional $345 million if certain milestones are achieved. But the big kicker here for Rigel comes in the form of up to an additional $800 million if specific sales are achieved as well as significant stepped double-digit royalties on global sales.
Rigel had a market cap of about $488 million based on a close of $9.43 on Friday. The company effectively has no sales and its September-2009 balance sheet lists approximately $156 million in cash and short-term investments with effectively no considerable long-term debt.
Rigel closed at $9.43 on Friday and we have shares trading up 6% at $10.00 ahead of the opening bell. Its shares have traded in a range of $4.19 to $14.75 over the last 52-weeks.
JON C. OGG
FEBRUARY 16, 2010
GenVec Shows Again the Risks of Biotech Trophy Hunting (GNVC, ROSG, MRNA, CYCC)
We have covered over and over in recent months about the news flow of biotech and emerging biohealth companies creating an avenue that is causing traders to chase many speculative stocks up exponentially on news. In 2009 we had perhaps a dozen biotech and biohealth related stocks which posted gains of 1,000% or more, and this is where that term of a ‘ten-bagger’ comes from. In recent weeks we have seen shares of GenVec Inc. (NASDAQ: GNVC) rise exponentially.
The 52-week low is $0.33 and this was effectively at $1.05 to $1.20 at the very end of 2009. In recent weeks and recent trading days we have seen news that allowed this to run even above $3.00. Then today came the share price haircut after the company entered into a registered offering of $28 million in agreements with institutional investors for the sale of 14 million shares of its common stock and warrants to purchase 4.2 million shares of common stock. At 1:05 PM EST GenVec shares are down 24% at $1.87 on more than 18 million shares.
We have referred to chain of positive news followed by more positive news, followed by a highly dilutive capital raise on several occasions as “Three-Card Monty.” That does not mean that all biotechs should be avoided nor does it mean that all biotechs raise cash after a big move, but it is the umpteenth reminder of how biotech investors and traders need to be careful what they are getting into when they chase after stocks in a trophy-hunting strategy.
We have recently seen this happen in both Rosetta Genomics, Ltd. (NASDAQ: ROSG) and in MDRNA, Inc. (NASDAQ: MRNA). Cyclacel Pharmaceuticals (NASDAQ: CYCC) took a big hit after it raised cash following its big news that drew in trophy hunting biotech traders.
Here was the full report from the end of 2009 showing how and why so many traders are willing to chase the 10-baggers or 1,000% possibilities. Stocks noted are JAZZ, TRGT, VNDA, DNDN, HGSI, CGEN, BNVI, QCOR, ACHN, PSDV, ATHX, SNSS, AVNR, BIOD, ALXA, and CTIC.
This is just one of the risks involved in chasing a biotech stock that is up big after a news dissemination of after a run up has been seen after waves of good news. Many companies in the biotech sector need capital to operate and some need it for satisfaction of listing requirements. You cannot blame a company for wanting to raise capital after a move up rather than when they are down and out. You just need to keep track of which companies need capital when chasing after the next ten-bagger.
There is also some good news here that occurs for those who may have wanted to get into some of these companies but may have missed their chance. Usually we see large price drops, and that gives investors and traders a chance to buy into these stocks at a discount if they believe that the news flow ahead is substantial and is not just a series of press releases geared toward generating short-term price pops.
JON C. OGG
Pfizer Outlines New Drug R&D Pipeline (PFE, MRK, NVS, GSK)
Pfizer Inc. (NYSE: PFE) is making a pipeline presentation today, and it is meant to address a serious and potentially severe issue affecting all Big Pharma companies from Merck & Co. (NYSE: MRK) after its Schering-Plough deal all the way down to where drug companies become biotech companies: That is the billions and billions of dollars that may disappear from profits as key drug patents expire in the coming years. This is also affecting Roche and companies like Novartis AG (NYSE: NVS) and GlaxoSmithKline plc (NYSE: GSK) on an international basis, which is why you have seen them make their own partnerships and acquisitions where possible.
Pfizer is giving a pipeline update showing its own efforts to address a whole new class of potential blockbuster drugs in the years ahead. Today’s pipeline update from Pfizer is the first real update since the company close the acquisition of Wyeth back in October, 2009.
The new development pipeline has potential drugs from both legacy companies. Pfizer is noting that this includes 133 programs from phase 1 studies through pipeline candidates in the registration process.
Pfizer is also noting that it has identified its six “Invest to Win” areas of research where there exist significant opportunities for innovation and market leadership. The new pipeline demonstrates focused investment in these areas of significant unmet medical need as well as growth in the critical technologies of vaccines and biologics. The six arena are as follows:
- oncology;
- pain;
- inflammation;
- Alzheimer’s disease;
- psychoses;
- and diabetes.
The combined Pfizer-Wyeth pipeline had 600 projects ranging from discovery through registration, and the new portfolio is roughly 500 projects. Pfizer’s goal is to become a top-tier biotherapeutics company by 2015, meaning effectively that it wants to take over some of the dominance currently held in several areas by pure-play biotech companies. Its pipeline now includes a total of 6 vaccines and 27 biologics in development.
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Is Enzon a Real-Real Takeover Target, Again? (ENZN, PFE)
Enzon Pharmaceuticals, Inc. (NASDAQ: ENZN) is not your normal biotech and emerging pharma company. It is a name that has been tossed around in the rumor mill in the past, and that is the case this week. That is part of why the stock is at 52-week highs today. Pfizer Inc. (NYSE: PFE) is the rumored buyer this time around, although other companies have been rumored on and off in the past. While it is an $11+ stock today, this stock used to trade at an exponential share price and it has nearly a 20-year history as a public company now.
What makes this an interesting ‘buyout story’ is that Enzon already has a special meeting on deck on Wednesday, January 27, 2010, as the date of its special shareholder meeting to vote on the proposed sale of its specialty pharmaceutical business to the sigma-tau Group in Italy. That sale is valued at $327 million plus royalty payments. New holders have no say here as the cut-off date for the record-date in order to vote is December 9, 2009.
The new-Enzon will focus on experimental cancer drugs and technology and it currently has a Phase II metastatic breast cancer trial. The company also has Phase I studies for solid tumors and lymphomas. Its balance sheet as of September 30 had over $90 million in long-term investments and listed another $110 million in cash and short-term equivalent investments. It also has $250 million in long-term debt, versus total assets including intangibles of $337.67 million.
Enzon’s market cap today is now north of $500 million in its current market capitalization and its 52-week trading range is $4.70 to $11.37. Again, this one has been a rumor mill stock on and off in the past. It also has a pending deal in the works for its specialty pharma business on the table and up for a shareholder vote.
Anything is possible in today’s world, and the question of whether a development-stage and earlier clinical-stage biotech pipeline should be acquired by a Big Pharma company always comes down to need versus desire.
JON C. OGG
Human Genome Sciences: Sifting the Good from the Bad (HGSI, GSK, NVS)
Human Genome Sciences, Inc. (NASDAQ: HGSI) is down today after presenting data at the JPMorgan Healthcare conference today. Frankly, it was not really bad data. More important than just ‘another down day’ is that this price action would make for the fifth consecutive trading day on the heels of yesterday’s guidance.
Today’s drop is on the heels of yesterday’s ‘lower guidance’ ahead of key data presentations. Some may try to merely say that after a more than 1,000% return last year that today’s selling is now just because it is a leveraged market-play. Yesterday’s guidance was a disappointment, but if the guidance was really so bad then why was it only down less then 4% on the day? The real issue is that as of now, and for the near-term, is that ‘ongoing good news’ is not likely to be received as good news from the investment community.
First, let’s get yesterday’s news out of the way. The lower guidance on Monday morning ahead of the conference may have been somewhat taken out of context based upon headlines after an analyst downgrade from Goldman Sachs last week based upon valuation. The company noted that $163 million in revenue was recognized from the first 20,000 doses delivered to the Strategic National Stockpiles, but that was completed in April 2009. The company noted that approximately $151 million is expected from a second order for 45,000 doses to be delivered over three years. The company’s goal was for 15,000 doses this year, which has led some to believe that it won’t see an added ramp up in product revenues this year. The problem with this notion is that anthrax is deemed a minimal societal threat at this point, so it is an all or none. If there is a giant anthrax scare, then HGSI cleans up. The company noted, “Even with our expected ramp of investment in commercial build-out and pre-launch manufacturing, we expect to end 2010 with between $840 million and $890 million in cash and investments.”
Second, the ‘ongoing’ aspect above refers to its Benlysta drug application with the FDA as the first new treatment for lupus in more than a generation. The company’s summary was “First Drug for Lupus to Succeed in Phase 3 Trials; On Track for Second Quarter 2010 Submission of U.S. and European Marketing Applications; Potential U.S. Approval Fourth Quarter 2010″ and that offers actually very little for any ramped up instant FDA approval. In short, it is ongoing news. Some have been hoping for an approval of the drug in the earlier part of the first half or even the first quarter. Could this be delayed? Anything is possible out of the FDA.
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10-Bagger Watch: Cyclacel Meets Biotech Trophy Hunters (CYCC)
Cyclacel Pharmaceuticals, Inc. (NASDAQ: CYCC) was the latest example of trader, speculators and investors running out to pile into the next low-price small cap biotech stock in the quest for the ten-bagger to catch the next 1,000% run-up. The news was good in that this was the publication of two peer-reviewed journal articles featuring the company’s seliciclib drug candidate.
We wanted to delve into the article summaries, give a brief financial prognosis, see where the company has been in the past, see what the company said, see what else has the company has up its sleeve, and then give a quick trader-take mindset and some other recent data on this.
THE TWO ARTICLE SUMMARIES
An article published in Clinical Cancer Research reports that seliciclib was found to be effective in killing lung cancer cells, through a novel apoptotic mechanism or induction of cancer cell suicide. The article noted that nearly all lung cancer cell lines against which seliciclib was most effective had Ras-activating mutations, which make lung cancer cells highly resistant to approved drugs such as those targeting epidermal growth factor receptors.
The second article was entitled “R-roscovitine (seliciclib) affects CLL cells more strongly than combinations of fludarabine or cladribine with cyclophosphamide: Inhibition of CDK7 sensitizes leukemic cells to caspase-dependent apoptosis”. In ex vivo studies, seliciclib was compared to fludarabine and cladribine given in combination with cyclophosphamide and was the most effective at inducing programmed cell death in malignant B-CLL cells while resulting in significantly less apoptosis induction in “normal” peripheral blood mononuclear cells.
Seliciclib has been administered to approximately 420 patients in Phase 1 and Phase 2 trials and is currently being evaluated in the APPRAISE trial, which is a Phase 2b study as a possible treatment in non-small cell lung cancer patients who failed at least two prior therapies and in a randomized Phase 2 study as a single agent in patients with nasopharyngeal cancer.
A BRIEF FINANCIAL PROGNOSIS
What we want to do is to conduct a very early analysis of the market. At this point, it is impossible to know the exact size of the market because it is not known what the total aim can be. If it was automatically deemed to be a first line of treatment for lung cancer this would be instant blockbuster with well over $1 billion in annual sales. That could still be possible depending upon a myriad of scenarios. But that part is not known.
The stock rose 152% or $1.61 to $2.67 today on many multiples of its normal 1.5 million shares. The 52-week range is $0.26 to $2.74 and the market cap at today’s close is only $65.3 million. The company had over $25 million in liquidity a year ago, but as of the last quarter that was down to just over $14.4 million. About 5 years ago this stock fell from over $25.00 down to under $5.00 and it then traded between $5 and $10 per share from 2006 to 2008. Then it slid and slid some more, and today’s price of $2.74 on an intra-day high was the highest share price since May of 2008.
WHAT THE COMPANY SAYS
The company’s chief scientist noted that this shows a high correlation between Ras mutations and sensitivity to seliciclib. Of 52 cell lines of NSCLC origin tested, 2 of the lines (almost 4%) were relatively insensitive to seliciclib and 21 (about 40%) displayed modest sensitivity. The big data showed that 29 lines (about 56%) showed marked sensitivity. Of the 13 lung cancer cell lines which had the highest sensitivity to seliciclib, 12 (about 92%) had Ras-activating mutations, including K-RAS and N-RAS. However of the 15 lung cancer cell lines which were least sensitive to seliciclib, none had Ras-activating mutations. It also reported that inhibition of CDK2 by seliciclib suppressed lung cancer growth both in vitro and in vivo of lung cancer cells addicted to CDK2/cyclin E; and lung cancer cells underwent apoptosis or cell suicide by induction of a novel mechanism called anaphase catastrophe, as illustrated in the journal’s front cover. Combining seliciclib with microtubule-targeting agents, such as paclitaxel or docetaxel, was found to be an attractive clinical regimen to consider in patients with lung cancer.
WHAT ELSE THE COMPANY HAS
Cyclacel has three orally available Cyclacel drugs in clinical development:
- 1. Sapacitabine is a cell cycle modulating nucleoside analog in Phase 2 studies for the treatment of acute myeloid leukemia in the elderly, myelodysplastic syndromes and lung cancer. The Company plans to submit a Special Protocol Assessment (SPA) request for a pivotal study with sapacitabine during the first quarter of 2010.
- 2. Seliciclib (the big news winner Thursday) is a cyclin dependent kinase inhibitor in Phase 2 studies for the treatment of lung cancer and nasopharyngeal cancer and in a Phase 1 trial in combination with sapacitabine.
- 3. CYC116 is a Aurora kinase and VEGFR2 inhibitor in a Phase 1 trial in patients with solid tumors.
Cyclacel’s ALIGN Pharmaceuticals subsidiary markets Xclair Cream in the U.S. for radiation dermatitis, Numoisyn Liquid and Numoisyn Lozenges for xerostomia.
A TAKE ON THE TRADING ACTIVITY
The market is in bull market mode even if there has been a dud of a time in the large cap biotech stocks. Traders are currently chasing up low-priced small cap stocks on any news, and today’s news-reaction looks to be no different. We would note that the company already gave one peer-reviewed article for Seliciclib on December 30, and this news magically follows the notion that the company received a NASDAQ potential delisting notice for not meeting the minimum $10 million stockholders’ equity requirement. Merriman Curhan Ford initiated coverage with a “BUY” rating in late-October, but that was when the stock was under $1.00 and it appears to have a $2.00 target.
The company also released FDA meeting data in mid-December:
“held a Type A meeting with the U.S. Food and Drug Administration (FDA) to discuss a randomized Phase 3 study design for Cyclacel’s oral sapacitabine capsules in acute myeloid leukemia (AML) and separately in myelodysplastic syndromes (MDS)…. Based on the FDA’s confirmation that the proposed study design would be acceptable for a Special Protocol Assessment (SPA), Cyclacel plans to submit a SPA request during the first quarter of 2010.”
The company’s CEO is presenting at OneMedForum 2010 Finance Conference taking place in San Francisco on Wednesday, January 13, 2010 at 10:00 AM Pacific Time (1:00 PM EST).
In fact, a pop of this magnitude, even if followed by additional near-term gains, is usually followed up with a securities sale or a private placement to raise capital. That is particularly the case when a company is not meeting listing requirements.
This won’t be the last you have heard from Cyclacel, but this is also just another incident of traders chasing gains and chasing gains. Technically this has already gone up 10-times from the absolute lows.
JON C. OGG
JANUARY 8, 2010
