Friday's Small Cap BioPharma Catalyst Trade And Speculation Investment List Print E-mail
By Scott Matusow, Contributor - @scottmatusow   
Friday, 30 November 2012 07:05

icon_SectorWatchAlexza Pharma (NASDAQ: ALXA) - Alexza engages in the research, development, and commercialization of novel proprietary products for the acute treatment of central nervous system conditions worldwide.

Its product candidates are based on a proprietary technology, the Staccato system, which vaporizes an excipient-free drug to form a condensation aerosol that, when inhaled, allows for rapid systemic drug delivery. The company's lead product candidate includes Adasuve (Staccato loxapine) for the acute treatment of agitation in adults with schizophrenia or bipolar disorder.

The first catalyst event for Alexza is a decision on its Marketing Authorization Application (MAA) submitted to the European Medicines Agency (EMA) for Adasuve. This decision is scheduled for the middle of December, 2012.

The second catalyst event for the company is Adasuve 's Prescription Drug User Fee Act (PDUFA) date of 12/21/12, which is the bigger catalyst driver.

In May of this year, Alexza received a Complete Response Letter (CRL) from the FDA regarding its New Drug Application (NDA) for Adasuve inhalation powder -- 5 mg and 10 mg.

In the CRL, the FDA noted, "During a recent inspection of the Mountain View, CA manufacturing facility for this application, our field investigator conveyed deficiencies to the representative of the facility.  Satisfactory resolution of these deficiencies is required before this application may be approved." 

The CRL went on to state that discussions can continue on the proposed Risk Evaluation and Mitigation Strategy (REMS) after the response to the action letter has been submitted. The CRL also contained comments on Alexza's draft product labeling. The company now believes there is a substantial agreement with the FDA on the REMS and product labeling.

Senior Vice President of R&D Jim Cassella said recently:

The issue that the FDA noted was an inspectional issue, so that was the only thing really in the letter. We addressed the issues with the CDRH reviewers who had raised the issue and then we responded to their questions. We resubmitted the NDA, which is basically a labeling resubmission, so there is not a lot of work left to do. We believe that we have addressed the inspectional issues and we have resubmitted an advanced draft of the label and we have probably a little bit of work left to do on some of the REMS documents.

Since there was no clinical or safety issues identified, and no other deficiencies outlined in the CRL, Adasuve has a good chance at approval this go around in my opinion. Manufacturing, labeling, and REMS can be dealt with -- efficacy and serious safety concerns cannot.

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Alexza has a very small float of which over 17% of it is held short. An FDA approval for Adasuve would likely cause a short squeeze. It's a good bet the smarter shorts will be covering their positions as we draw close to both catalyst event dates. Again, if safety and efficacy issues were the main concern here, then I could understand shorts holding their positions. However, this is not the case.

Recently, we saw a 200% jump in ACADIA Pharmaceuticals’ (NASDAQ: ACAD) stock price when its drug Pimavanserin showed positive Phase III clinical results. Pimavanserin is designed for the treatment of Parkinson's disease psychosis. Adasuve is similar to Pimavanserin in that both are designed to treat psychosomatic disorders, and both drugs saw initial failures. Also, Acadia still needs to engage in another clinical study for Pimavanserin, so there still remains considerable uncertainty in Acadia. On a related note, I feel Acadia is overvalued at its current price level and there remains too much downside risk at this time for me to consider it a good long trade/investment.

I would not be surprised to see a double of the company's stock on FDA approval. However, there is considerable risk for traders and investors holding through the PDUFA date. If the FDA rejects Adasuve again, it's likely Alexza as a company will not survive because they will simply run out of cash. At the very least, the company would have to engage in dilutive financing to survive. While I believe this will not occur, it's wise to consider this possibility.

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Alexza was beaten down after its last CRL, but since then it has begun to reverse leading into the December PDUFA date. The stock is wedged between two trend lines and poised to break out as sentiment remains strong. There is a psychological support level at $5.00 and the stock could break out to test the $6.00 level it touched earlier this year or perhaps even higher.

With a market cap of around $80M, I strongly feel Alexza is undervalued at this time.

My price target opinion before the PDFUA date is $6. If approval is confirmed, $12/share is my expectation.

Amicus Therapeutics, Inc. (NASDAQ: FOLD) focuses on the discovery, development, and commercialization of orally-administered, small molecule drugs for the treatment of lysosomal storage disorders and diseases of neurodegeneration. Its drugs are known as pharmacological chaperones, which selectively bind to the target protein, enhance the stability of the protein, help it fold into the three-dimensional shape, as well as allowing proper trafficking of the protein. This increases protein activity, enhances cellular function, and reduces cell stress.

In its Fabry program, the company is investigating the use of AT1001 to bind to destabilized α-galactosidase A enzyme (α-GAL) and thereby restore its intended biological function.

A potentially big catalyst coming up for Amicus is the release of the phase III 011 six month results related to its medication for Fabry disease. This is a disorder caused by the deficiency of an enzyme called α-galactosidase A (α-GAL). Reduced or absent levels of this enzyme's activity leads to the accumulation of a complex lipid in the affected tissues, including the central nervous system, heart, kidneys, and skin. This accumulation is believed to cause the various symptoms of Fabry disease including pain, kidney failure, and increased risk of heart attack and stroke.

There has been historic difficulty in finding successful treatments for rare genetic diseases. If Amicus can show successful phase III data here, it could be quite a breakthrough in the treatment for Fabry's disease.

On 9/6/12, Amicus issued a press release to update the screening profiles related to the 011 study, which is one of two ongoing Phase III studies of migalastat HCl monotherapy being conducted by the company and GlaxoSmithKline (NYSE: GSK). The updated screening profiles included the following:

  • A total of 180 Fabry patients (60 males and 120 females) were screened for Study 011. Prior to screening, sites used genotype information when available to enrich Fabry patients with amenable mutations who were more likely to be interested in participating in the study.
  • Approximately 86% (154/180) of patients screened had missense mutations (compared to a current estimate in the Fabry population of approximately 60%).
  • Approximately 88% (136/154) of those patients, or 76% of patients screened, had alpha-galactosidase A mutations amenable to migalastat HCl monotherapy, and were potentially eligible for enrollment.
  • Approximately 50% (67/136) of those patients, or 37% of all patients screened, enrolled in Study 011 upon meeting all entry criteria, including: 1) naïve to ERT or had not received ERT for at least 6 months prior to study entry; 2) genetic mutations amenable to chaperone monotherapy and; 3) for study purposes, urine globotriaosylceramide (GL-3) levels at least four-times the upper limit of normal at baseline.

The primary endpoint in Study 011 is a change in interstitial capillary GL-3, as measured in a kidney biopsy at six months versus baseline. The six month primary treatment period in Study 011 was completed in the second quarter of 2012 and the six-month follow-up period is expected to complete in December 2012. Amicus and GSK will also un-blind and analyze data from the primary six month treatment at this time. Currently, both companies remain blinded to all results.

Also of significance, on November. 8, 2012, the company announced additional preliminary results from an open-label Phase 2 drug interaction study (Study 013) to evaluate a single oral dose of migalastat HCl (150 mg or 450 mg) co-administered with enzyme replacement therapy (ERT) in males with Fabry disease. In a poster at the American Society of Human Genetics (ASHG) Annual Meeting, Dr. David G. Warnock, University of Alabama-Birmingham, presented results from all 12 patients in the migalastat HCl 150 mg dose group.

Based on the bullish move the stock has been making lately, I think it's possible the release of the expected December data comes before the middle of the month. If the results prove to be positive, I expect the stock to be at least double its current price for a couple of factors:

  • GlaxoSmithKline owns 20% of Amicus. It's a good bet in my opinion that Glaxo will acquire the rest of Amicus if the clinical trial results prove to be positive. Fabry's is a rare disorder, and Amicus's Chaperone technology is cutting edge in my opinion, which if confirmed, would be worth a lot of money. Even if Glaxo does not acquire Amicus, with 20% interest in the company, Glaxo has a significant vested interest in seeing Amicus succeed.
  • Amicus has a small trading float of around 24.42M, with a market cap coming in at $290.76M. As mentioned prior, Acadia Pharma recently saw its stock price move up 200% on positive results from its Phase III drug study. Acadia's drug is nowhere near the worth of Amicus's in my opinion, yet Acadia has a current market cap of $304.05M with a larger trading float of around 40M shares.

In 2001, two Enzyme Replacement Therapies (ERTs) were released which attempt to replace the deficient enzyme by means of infusion. The drugs are expensive, with an annual cost of approximately $200,000 per patient, it's estimated about 10,000 people suffer from Fabry's disease globally. Insurance companies normally cover treatments for rare diseases such as Fabry's, so this is also a big positive for both Glaxo and Amicus. For a big pharma such as Glaxo, it always comes down to making big money - period. Glaxo would not be involved with Amicus and own 20% of the company for any other reason.

Amicus also has other drugs in earlier clinical development, which adds further speculation value to the company in my strong opinion.

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Amicus recently bounced off of a support level at $4.25 with conviction, and since then the stock has gained significantly leading into its crucial Phase III data release. The stock needs to consolidate here at the 61.8% retrace point a bit but is setting up for the next leg higher to the $6.60 range, possibly even before the data is released in December.

My price target opinion for Amicus: Over $10 a share on positive Phase III 011 data, $12 to $14 on potential Glaxo acquisition.

Arena Pharmaceuticals (NASDAQ: ARNA) - Arena engages in discovering, developing, and commercializing oral drugs that target G protein-coupled receptors in the therapeutic areas of cardiovascular, central nervous system, inflammatory, and metabolic diseases.

Since the approval of its weight loss drug Belviq in June, the stock has fallen from a yearly high of $11.39 to $7.21, a fall of 37%. I feel long term investors have excellent value here at its current price level of around $9 a share. The focus on Arena should now be on potential top-line growth from its strong clinical pipeline. Because Arena will likely receive a large amount of cash from Belviq sales, I believe it is a strong speculative bet that management will re-invest this cash into its pipeline. This would gain leverage for the company in any potential deal with a large pharma partner for any of its pipelined drugs which are;

APD811: An orally available agonist of the prostacyclin receptor is intended for the treatment of pulmonary arterial hypertension, or PAH. In December 2010, Arena initiated a Phase 1 clinical trial to evaluate the safety, tolerability and pharmacokinetics of single-ascending doses of APD811. The company believes the results of this early stage clinical trial suggest APD811 has the potential for once-daily, oral dosing.

APD334: A potential oral treatment for a number of conditions related to autoimmune diseases, including multiple sclerosis and rheumatoid arthritis.

APD371: For the potential treatment of pain. The analgesic effects of CB receptor agonists are well established in the scientific literature.

GPR119: A novel pharmaceutical target for discovering orally available small molecule agonists for the treatment of type 2 diabetes.

Temanogrel: An inverse agonist of the serotonin 2A receptor intended for the treatment of arterial thrombosis and other related conditions has completed Phase 1a and Phase 1b clinical trials.

In my opinion, if Arena can get the first weight loss drug approved since 1999, the company can get others approved in time as well.

Also, if the company can manage its money correctly, it can become a large pharma within 3 to 5 years, similar to how Jazz Pharma (JAZZ) has grown in a little over 3 years from $0.52 on April 22nd, 2009, to a current stock price of $53.58 a share.

However, continues to Rate Arena as a sell with a ratings score of D-. One area they are negative on is poor profit margins from the company. I find TheStreet's rating system to be insufficient at best concerning developmental small cap companies. Of course Arena is going to have poor profit margins -- it does not have Belviq out on the market yet. The drug will be available to consumers through a doctor's prescription in early 2013.

Arena also expects to receive $65 million before the end of 2012 from its marketing partner Eisai following the Drug Enforcement Agency (DEA) scheduling for Belviq, which does not include any of the revenue under marketing agreement with Eisai such as product sales of the drug.

Arena is more of a speculative long term investment than just a trade, so I will not engage in any chart analysis for the stock.

My 3 to 5 year price target opinion for Arena (barring a market crash) is $25 to $45 a share.

Disclosure: Long ALXA, FOLD




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