3 Small Cap Biopharmas Primed To Move Much Higher Now Print E-mail
By Scott Matusow @scottmatusow   
Thursday, 28 March 2013 09:25
With the current record market run, small cap biopharmas have kept pace and continue to trend higher, being one of the best sectors for both trading and investing over the past year. With 39 new drugs approved, 2012 showed the most new approvals since 1996.

In this article, I list three companies I believe will exceed this current trend moving forward.

Aveo Pharma (AVEO)

A Food and Drug Administration (FDA) Advisory committee will convene on May 2nd to vote for or against recommending tivozanib for approval. Tivozanib is a low-molecular-weight inhibitor of the VEGF receptor designed for the treatment of metastatic renal cell carcinoma (RCC), which is more widely known as kidney cancer.

In January of this year, the company reported positive Phase III resultsfrom a study of 517 patients with RCC. The study compared tivozanib to sorafenib, which is the current front line treatment for RCC. Sorafenib is marketed by Onyx Pharmaceuticals (ONXX) under the trade name of Nexavar — global Nexavar net sales topped over $1billion in 2011.

Perhaps the most important positive quality of tivozanib is the fact that patients tolerated the drug very well.

Dose reductions of the drugs compared were 11.6% with tivozanib versus 42.8% with sorafenib (P<.001). Discontinuations occurred in 4.2% of the tivozanib group versus 5.4% in comparison to the sorafenib group. Overall, there were fewer drug-related adverse events with tivozanib at 67.6% in comparison to sorafenib at 83.3%.

This is a clear indicator that patients tolerated tivozanib much better than sorafenib. Patient tolerability is perhaps the most important deciding factor for physicians to prescribe a drug other than efficacy. If a patient discontinues use of a drug, any possible benefit from the drug is obviously lost.

I am very confident that the adcomm will recommend Tivozanib for approval, but yet the stock has a healthy amount of short interest in it. Simply stated, the bears have it wrong here with tivozanib and are misunderstanding the lack of impact the overall survival (OS) numbers will have on the FDA’s decision to approve the drug.

First off, the OS for tivozanib was 77% versus 81% for sorfenib, which is statistically about the same. The Phase III head to head study was based on one-way crossover to the experimental therapy after disease progression in the control arm.

According to MedicineNet.com:

Crossover studies are a type of clinical trial in which the study participants receive each treatment in a random order. With this type of study, every patient serves as his or her own control. Crossover studies are often used when researchers feel it would be difficult to recruit participants willing to risk going without a promising new treatment.

A one way cross over study is a trial design that is used in cases where two treatments are administered successively in the same group of trial subjects.

The company believes OS trended against tivozanib because more than 60% of the patients randomized to the Nexavar arm “crossed over” to receive tivozanib or some other therapy upon tumor progression. These Nexavar crossover patients might be surviving at a higher rate because they benefited from receiving treatments with two active kidney cancer drugs.

Furthermore, many “test subjects” were from Central and Eastern Europe, and access to good treatment options for RCC are limited in this part of the world. In North America and Western Europe where better treatment options exist, longer OS was observed.

It’s worth noting that there are nine analysts covering Aveo who have anaverage target price of $11.30. If tivozanib is approved by the FDA, my one year price target opinion is $15, based on its current price of $7.55, representing a market cap of $328.68M. Potentially, tivozanib could rake in yearly average sales of near $1B when considering sorfenib generated over $1B in 2011.

After reviewing Aveo’s website, the company seems to be highly confident that tivozanib will be approved by the FDA, and are taking the necessary prudent steps to ensure the product garners success.

Under career opportunities- clicking “view all open job positions” shows three pages of new positions, a majority of which are “Oncology Sales Specialist” positions and located all across the United States. Aveo is clearly confident tivozanib will be approved, as am I.

In addition, the 10-K SEC filing notes a $4.6 million increase in salaries, benefits, and other hiring costs in 2012 due to an overall increase in personnel in preparation for the potential launch of tivozanib. This was while completing a restructuring in October which included laying off forty-eight people. With the company claiming it still had an “overall increase in personnel,” clearly a new type of employee had to be hired. A good portion of this includes the new sales force the company is still actively recruiting along with other people experienced in new product roll outs.

Aveo also has more drugs in its clinical pipeline, and an approval of tivozanib would give this pipeline more validity, which should equate to higher investor speculation. Considering the near-term large catalyst event of an Acomm combined with the factors I mention, Aveo has the potential to double from its current price in the next year or so.

Acadia (ACAD)

Acadia Pharmaceuticals has been surging higher lately on huge volume relative to what is typical for the company. I wrote about Acadia last week talking about its takeover potential as well as its amazing run from $1.50 to $6.50/share. Incredibly, as of the close of business just four business days later (3/26/13), the shares were trading at $8.23.

Acadia is a developmental biopharma that focuses on the development of drugs for central nervous system disorders. The company has drug candidates for the treatment of Parkinson’s disease, Alzheimer’s, schizophrenia, and glaucoma. These conditions are all connected with large market size and present significant opportunities for big pharma. Acadia appears to be drawing interest from big pharma because of its lead drug pimavanserin, which possesses potential for massive revenue in multiple applications.

The surge in the past week can be mainly attributed to the company announcing positive Phase III-020 results for pimavanserin in patients with Parkinson’s disease psychosis. This was announced at the Emerging Science session of the 65th American Academy of Neurology (AAN) Annual Meeting. The analysis of the full data set from the Phase III -020 study showed robust and consistent efficacy of pimavanserin across a wide array of study measures and confirmed the positive top-line results previously reported.

The significant and consistent results observed across measures in the Phase III -020 study are impressive and potentially very encouraging for Parkinson’s patients who suffer from the psychosis frequently associated with this disease,” said the presenter Dr. Jeffrey Cummings, M.D., Sc.D., Director of Cleveland Clinic Lou Ruvo Center for Brain Health. “Importantly, regardless of whether assessments were performed by independent blinded raters, site investigators, or caregivers, clear benefits were observed and clinical measures were well aligned. The results of this study suggest that a selective, non-dopaminergic-based therapy has the potential to transform the standard of care by providing an effective, safe and well tolerated treatment for patients suffering from this large unmet medical need.

As I referred to in my prior article, Acadia recently received new coverage from Jefferies who initiated the company as a “Buy” with a $13 price target. The firm notes that pimavanserin is a drug for which there is currently no FDA-approved counterpart. Jefferies also commented on Acadia being a highly attractive licensing/acquisition target for big pharma companies. As an added bonus for the company, it has $108 million in cash and short term investments plus no debt as of 12/31/2012. This gives the company extra leverage in any possible partnership or acquisition talks. Also with this cash position, the company is far more de-risked than other developmental biopharmas.

Acadia likely has a lot of gas left in the tank to drive the stock price higher in the short term.

Sarepta (SRPT)

The buzz on Sarepta continues as the stock seems to climb on a daily basis. Sarepta is working on what many consider to be a huge break through with its clinical drug eteplirsen, an antisense PMO-based therapeutic for the treatment of individuals with Duchenne Muscular Dystrophy (DMD). A big reason the stock continues to climb is because epteplirsen is currently being evaluated for accelerated approval. If the FDA decides to grant accelerated approval, DMD patients will finally have a drug that can help them live better lives, and owners of the stock will certainly see better equity

The worst part about DMD is that it only affects children, affecting roughly around 1 in 3,600 boys. Over the years, many of us have watched the Jerry Lewis telethons on television. To see children suffer from various forms of Muscular Dystophy is heart wrenching. Philanthropist investors are also watching and Sarepta is the kind of company that attracts them in droves, which subsequently drives the stock price higher.

Some might argue that accelerated approval would only temporarily drive the stock price much higher, only to see the stock price retrace near to where it started. Regardless, I would like to see an acceptance of the drug now so that children who need eteplirsen can receive it. Because of the current political scope, good efficacy, and positive safety data, eteplirsen should see an accelerated approval.

There is no question in my mind that once the drug gains early approval, the stock will gap up at least 50% from its current levels, and likely will not hold that gap in the short term. The question for those currently holding the stock is whether to wear a trader’s hat and take the profit, or put on an investor’s hat and simply hold the stock for the long term. If you are a philanthropist, you are likely well-off investing in Sarepta to be part of something potentially life-changing. However, if you are a trader, your main concern should be profits – period.

Sarepta is a story stock, and story stocks can either make you a ton of money, or leave you holding a massive bag. Dendreon (DNDN) stock holders unfortunately became familiar with this.

Dendreon saw an epic stock price run on speculation for its prostate cancer vaccine provenge. The stock ran from around $5 to $57 in a short period of time, only to come crashing back down when people realized that “the provenge story” did not measure up to the actual reality of the drug. Insurance companies were not informed of provenge’s pricing, and subsequently, many of them did not support the drug. To this day, Dendreon’s stock price is nowhere near the highs it saw 3 years ago, and company management is still trying to get its act together.

Sarepta’s story is different than Dendreon’s. Eteplirsen is potentially one of the biggest breakthroughs in a generation, and again, DMD affects young children who have a whole life ahead of them. Let’s hope for their sake that eteplirsen gains accelerated approval — it’s good for everyone.

2013 is sure to either meet or exceed 2012′s drug approval rate, and both traders and investors who pick the right companies should enjoy some serious monetary gains.


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