|Why investors are accumulating shares of Sophiris Bio (SPHS) and Transenterix Inc. (TRXC)|
|Friday, 29 June 2018 00:04|
Shares of Transenterix Inc (NYSE: TRXC) and Sophiris Bio (NASDAQ:SPHS) have seen record numbers in trading volume this week, yet despite solid footing, both firms have seen their share prices rocked by unexpected news.
In the case of Transenterix Inc (NYSE: TRXC) , the firm's shares have spiked 50 percent in the last week and 71 percent in the last month but an unexpected analyst downgrade crushed the stock on Thursday morning.
BTIG's Sean Lavin downgraded the stock, implying a possible 40% downside risk from current levels but that didn't seem to spoil the spirits of long term shareholders who believe that the hot start for the small firm's robotic surgery system may threaten to take a chunk of business from global leader, Intuitive Surgical, Inc. (NASDAQ: ISRG). Intuitive Surgical, Inc. designs, manufactures, and markets da Vinci® Surgical Systems and related instruments and accessories, and trades at $483 dollars per share with a market cap of 54.802B. Transenterix shares - even after seeing a huge spike in recent months, trade with a market cap just short of $1B. Shares closed at $4.90 and trended 2% lower after the market close.
Transenterix's better-than-expected commercial launch for the company's robotic surgery platform prompted RBC Capital analyst Glenn Novarro to note toward the end of May that sales should continue to pick up steam going forward, thanks to the rapidly growing demand for robotic surgery platforms across the board.
Transenterix is focused on the commercialization of the Senhance™ Surgical System, which digitizes laparoscopic minimally invasive surgery. The Senhance System allows for robotic precision, haptic feedback, surgeon camera control via eye sensing and improved ergonomics while offering responsible economics and is now available for sale in the U.S., the EU and select other countries. One advantage ver other systems is the fact that the system replicates laparoscopic motion that is familiar to experienced surgeons, and integrates three-dimensional high definition vision technology. The Senhance System also offers responsible economics to hospitals by offering robotic technology with reusable instruments thereby reducing additional costs per surgery when compared to other robotic solutions.
After things settle, the analyst's $15 price target may become a reality, especially if long term investors continue to accumulate shares, leaving less shares in the pool for traders to get spooked as they did today when shares closed nearly 18% lower despite mid-day trading day attempts to reject lower prices and even push back to recent highs. The price action and performance of the Senhance™ Surgical System sales team is encouraging enough to keep this company on your watch list, although shares may consolidate for a couple of sessions at current levels before the next leg up.
New rumors of a partnership or acquisition
Small cap speculators have taken a liking to Sophiris Bio (NASDAQ:SPHS) who are currently developing topsalysin (PRX302) as a treatment for clinically significant localized prostate cancer and as a treatment for the lower urinary tract symptoms of benign prostatic hyperplasia, or BPH, commonly referred to as an enlarged prostate.
On Monday, Sophiris Bio shares plummeted nearly 46% on Monday after the company said that a patient had died in the company's ongoing phase 2b clinical trial for its prostate cancer drug topsalysin, but shares rocketed back for two solid sessions after the firm released more than impressive top-line interim safety and biopsy data of topsalysin's performance from its ongoing open-label, Phase 2b clinical trial.
It turns out that a single administration of topsalysin continues to demonstrate an ability to ablate targeted prostate cancer cells with 10 of 35 patients (29%) in the open label study demonstrating a clinical response. Investors were thrilled to learn that 6 of those patients had a complete ablation with no detectable cancer on targeted biopsy of the treated area.
Sophiris had recently been notified that a patient death occurred on the same day as they received a second administration, but it is not clear whether the death was caused by the drug and it could be four to six weeks before proper toxicology exams (if they have even been ordered in this case) clear the matter.
Dr. Allison J. Hulme Ph.D., the firm's Head of R&D assured investors at a meeting on Wednesday that the drug is only activated by enzymatically active PSA which is found in high concentrations around prostate tumor cells and in the transition zone of the prostate. "In all the work we've done in the animal model and in humans show that the PRX302 is only activated by enzymatically active PSA and the PSA that you have circulating around your body is not ezymatically active." This statement should help mute some fears that the drug had somehow leaked or caused toxicity and death. "As an enzyme it gets deactivated in circulation, so there should be nothing that can activate PRX302 in circulation" said Hulme.
At the same meeting, management was asked specifically if they had any indication whether the patient's death was directly related to the administration of the second dosing, but the firm is not allowed to comment while the death is being investigated. "I don't want to sound uncooperative," said one member of the firm's management team. "It's frustrating for us as well but once we have the results we can share those with you and things will come to light."
Piper Jaffray analysts who cover the stock think there is a good chance this incident may end up not being categorized as drug-related, and thinks it's worth "sticking with it here" as they reiterate their $7 price target.
The key takeaway here for investors is that, purely as precaution, no additional patients will receive a second administration of topsalysin. This means that regardless of autopsy or toxicology reults, the topsalysin program will continue and that's good news for several big pharma who are impressed by the positive clinical data and rumored to be showing an interest in either partnering or buying out the La Jolla, California based firm before it enters a possible Phase 3 trial. The implications and importance of such a development are clear. Phase 3 trials are not only expensive, but far more successful when carried out under the guidance of a big pharma.
In their latest filings, in late March 2018 Sophiris said it had cash, cash equivalents and securities of $22.1 million and working capital of $19.2 million. They expected that would be sufficient to fund operations to the middle of 2019. Unless they find support from big pharma before the start of a Phase 3 trial, will need to raise additional capital in order to pursue further development of topsalysin.
At the same meeting on Wednesday, Sophiris Bio management was asked specifically about a buy-out bid for the progam from Pfizer (NYSE: PFE) which had been rumored to be in the $12 per share range. The firm's management team reportedly shot down that offer last summer. That is something the small cap company will not comment on, More recently, the firm has been reportedly in talks with GlaxoSmithKline plc (NYSE: GSK) but management refused to comment further on the matter.
In April 2010, Sophiris entered into an exclusive license agreement with Kissei Pharmaceuticals Co., Ltd., a Japanese pharmaceutical company, but that covers the development and commercialization of topsalysin in Japan for the treatment of the symptoms of BPH, prostate cancer, prostatitis or other diseases of the prostate.
For their parts, other analysts who cover the stock seemed confident that their previous recommendations remained on target. Jason McCarthy from Maxim Group reiterated a Buy rating on Sophiris Bio, with a price target of $8 after stating "there are takeaways that lead us to reiterate our Buy rating and $8 price target.” In a report released Wednesday, H.C. Wainwright also maintained a Buy rating on the stock.