Amarin gets a new CEO and a PDUFA delay, many happenings at Retrophin, new CEO at Coranado, Bristol Meyers sells diabetes franchise to Astra Zeneca, Iclusig back on the Market for Ariad, Jazz acquires Gentium, pSivida and Alimera report an unexpected turn for Illuvien, oral Redomulin Approved for United Therapeutics. Let's go over the stories we've been watching, commenting upon, and trading over the past week.
Amarin Corp, PL/C (NASDAQ:AMRN)
On Monday Amarin announced that CEO Joseph Zakerzweski (Joe Z) will be stepping down, and that he will be replaced by John Thero who will assume roles of both President and CEO. While the press release stated that Joe Z was "retiring", this is PR-speak for being fired. The board has finally lost confidence in Joe Z's leadership ability and basically asked him to step down. While Joe Z will remain on the AMRN board, at least until his current term runs out, the company is basically hoping to head in a new direction.
The Bigger news for AMRN came on Friday when the company announced that the FDA had informed AMRN that the ANCHOR sNDA decision will be delayed. Here is what we wrote to our beta testers on hearing this news:
Amarin just announced that last night the FDA informed them that the Vascepa ANCHOR sNDA review will NOT be completed by the December 20th PDUFA date because it is still reviewing AMRN' s request to reinstate the ANCHOR SPA.
FDA indicated that it now considers the sNDA review and the review of the SPA rescission as two separate matters as Amarin had been trying to argue ever since the SPA was rescinded.
FDA plans to complete it's review of the ANCHOR SPA rescission by January 15th No new PDUFA date was given.
Expect AMRN shares to trade up sharply on this news. a re-visit to the $2.50 range or higher is not out of the question between now and January 15th.
This news is incrementally positive; however, agreeing to review the SPA rescission is not the same as agreeing to reinstate the SPA. This depends on the FDA changing it's stance on whether or not the non-EPA triglyceride lowering therapies have implications for Vascepa in the ANCHOR indication.
We have no position in AMRN, but may consider entering a speculative position sometime today.
We never ended up entering a speculative trade for AMRN, but shares shot up from $1.59 the previous night, to an intra-day high of $2.19 before closing at $2.00. Over the next two weeks we expect that AMRN will gain much momentum and volatility as short-term traders and longer-term investors alike take up positions ahead of the FDA's anticipated January 15th decision.
Back when FDA rescinded the SPA on October 29th we read that as an indication that FDA wants to issue a CRL. Our call that AMRN would be receiving a CRL on 12/20 was wrong.
AMRN has shown incredible tenacity in pursuing appeals with government agencies after the agencies have issued opinions. There has been more than one occasion where AMRN received "final" rejections of patent applications, and went on to appeal, and have the decision reversed and a patent issued. Indeed, the orange book page for Vascepa is loaded with patents. This was not the case back in July 2012 when Vascepa was approved.
Just 4 weeks ago, when the dispute resolution group of the FDA's Office of New Drugs refused to review AMRN's appeal of the SPA rescission, the company indicated that:
Amarin has not been successful to date in convincing the FDA to accept its appeal for review at a level above the review division within FDA or in convincing the FDA that the appeal of the SPA rescission is a matter sufficiently distinct from the ANCHOR sNDA to warrant separate consideration under the formal FDA appeal process.
Friday's press release indicates that:
The FDA also communicated to Amarin that it now views Amarin's appeal of the ANCHOR SPA agreement rescission and the ANCHOR sNDA as separate administrative decisions worthy of separate consideration. FDA plans to complete its review of Amarin's request to re-instate the ANCHOR SPA agreement and plans to convey its decision to Amarin no later than January 15, 2014.
AMRN management appears to be making some headway in at least having the SPA rescission and the sNDA considered separately. However, as we wrote to our beta testers, agreeing to reconsider the decision is not the same as agreeing to reinstate the SPA. Let's try to come up with a risk-weighted valuation of AMRN.
At $2.00, the upside if FDA does indeed re-instate the SPA is in the $8 range, while the downside if the SPA remains rescinded and the ANCHOR indication receives a CRL is about $1.00. Our view is that the possibility of a CRL still remains about 75% while the possibility of the SPA being reinstated and ANCHOR being approved is around 25%. Given these odds, we can construct a probability weighted valuation for the stock:
(75%)($1) + (25%)($8) = $2.75
Our probability weighted valuation for AMRN is $2.75 based on the 25% chance of success and 75% chance of CRL outlined above. This back-of-the-envelope model is not meant to be exhaustive, but rather to help in deciding whether or not it is even worth spending any more time evaluating a special situation such as AMRN.
Clearly, at it's current price of $2.00, there is some upside for AMRN between now and January 15th. The one caveat is that, should FDA issue a CRL, there will be little incentive to new investors to enter the stock, therefore the stock may remain low for quite some time. Given the shortened holiday weeks, we don't expect AMRN to trade up to $2.75, but our initial call to beta testers of $2.50 is definitely within the realm of possibility.
Note, as always when we use these simple models, we remind investors that the model is a starting point, not a conclusion. We encourage investors to substitute their own numbers for both the probabilities of success and failure, and for the relative prices in these two scenarios. Bears would argue that our probability of success above is too generous, while bulls would argue that our price target on ANCHOR approval is way too low. Our goal is not to argue the bull or the bear case, but rather to make a reasonable assessment to see if a long position is worthwhile. For example, if one assumes a 10% chance of success and accepts the price targets above, the probability weighted valuation would be $1.70. On the other hand, assuming that the 25% success probability is essentially correct, but that the price on success should be $12 and the price on failure should be $0.50, the model would say that fair value is $3.38.
The above analysis suggests that a short-term long position in AMRN may be worthwhile. We would NOT remain long for the actual FDA decision on the SPA rescission, and we expect that most traders will not either. This means that any speculative trade needs to have a well planned and well timed exit. In other words, have a plan in place to book gains, and don't bet the farm on the long-shot bet of full approval.
Retrophin (OTC:RTRX)
Retrophin on Monday announced that it has withdrawn it's offer to acquire Transcept Pharmaceuticals (NASDAQ:TSPT) and has sold all of it's shares of the company. This news came just 3 days before the special meeting of shareholders which was demanded by a group of TSPT's largest shareholders including Retrophin. In the press release, RTRX stated that:
Retrophin is appalled at the lengths Transcept management has gone through to avoid a full and fair auction for Transcept. In the meantime, Transcept's most precious asset, its cash, has dwindled, and we no longer believe a $4.00 per share purchase of Transcept represents a compelling transaction for our shareholders.
We share this view. Instead of opening up good-faith negotiations which would have been in the best interests of TSTP shareholders, management, in a feeble attempt to hold on to their own jobs, tried to do several ill-conceived deals, ending up with their recent discolsure that if a deal to acquire TSPT cannot be reached by the end of Q1 2014, they will liquidate the company. Having lost RTRX's offer, it is difficult to imagine anyone else stepping up to acquire TSPT for more than a pittance. The lesson here for TSPT investors is that whenever management acts to preserve their own jobs ahead of shareholders' interests, run away - run away fast.
Later in the week, RTRX saw a huge up-tick in daily share volume. On Wednesday RTRX introduced a new clinical candidate, RE-034 which is a 24-amino acid long synthetic analog of adrenocorticotropic hormone (ACTH). RE-034 will be developed for infantile spasms (West Syndrome). Recall that back in June, when news broke that Questcor Pharmaceuticals (NASDAQ:QCOR) had acquired the rights to synacthen, one aspect of the synacthen licensing story that was mentioned in passing in news stories was the fact that Retrophin had also tried to license the rights to synacthen from Novartis. RE-34 seems to be plan B in RTRX's attempt to gain a foothold in the very profitable niche that QCOR has carved for itself. Separately from this news, RTRX filed a registration statement with the Securities and Exchange Commission. RTRX is in the process of raising additional capital and plans to uplist to NASDAQ sometime next year. When news of the S-1 became known, volume in RTRX picked up sharply. Adding to the fervor, Roth Capital Partners added RTRX to it's focus list with a lofty price target of $41. By now investors should realize that Roth's focus list is meaningless. Just a few weeks back, Roth added Immunocellular Therapeutics (NYSE:IMUC) to it's focus list just days before the company announced that their phase 2 trial missed it's primary endpoint. Additionally, Roth seems to be the sole or lead book runner in several of RTRX's secondary offerings. Is it any wonder that, 5 months after they helped the firm raise $25 million, Roth is out touting the stock as a potential high flyer? While many investors are excited about RTRX for various reasons, Roth's opinion here seems a bit suspect due to mixed incentives.
We have no position in RTRX or TSPT.
Endo Health Solutions (NASDAQ:ENDP)
ENDO announced on Monday that it is acquiring NuPathe (NASDAQ:PATH) for $2.85 per share. Recall that PATH received FDA approval for their Zecuity anti-migraine transdermal patch earlier this year. The $105 million acquisition price represents a 24% premium to last Friday's closing price of $2.30 for PATH. Migraine treatment is a difficult area due to the large number of generic competitors. While nausea due to migraines is a problem that Zecuity solves, what remains unclear at the present time is whether or not payors will reimburse for Zecuity which is a one-time use transdermal drug delivery device including electronics to drive the iontophoresis process.
Shares of PATH have been trading above the $2.85 price all week due to the contingent value rights attached to the deal. If sales of Zecuity exceed $100 million in any 12 month period, shareholders will be entitled to receive $2.15 per share in one-time payments. If sales in any one year period exceed $300 million, PATH shareholders are entitled to receive another $1 per share. ENDP will be launching Zecuity in the first half of 2014. It remains to be seen whether either of the sales based milestones will be reached, but for investors who believe that the milestones will be reached in a reasonable time frame, being a shareholder of record and tendering shares to ENDP may result in a $2.15 return on a net investment of $0.39 (based on the $2.85 per share tender price and Friday's PATH closing price of $3.24). If Zecuity sales were to exceed $100 million in the first year, this payout would represent a 550% return on investment. More realistically, if the $100 million milestone is reach in year 5, this would still represent a 40% internal rate of return. The big risk, of course, is that Zecuity sales never exceed $100 million in any 12 month period, in which case the investment produces a loss of 39 cents per share.
We have no position in ENDO or PATH.
Coronado Biosciences (NASDAQ:CNDO)
Coronado announced on Friday that the the company's founder, Dr. Lindsay Rosenwald is taking over as Chairman and CEO. CNDO's previous CEO, Harlan Weisman lasted abut 1 year in the top post at the company. During this time, CNDO saw the epic failure of 2 separate trials of their lead therapy, CNDO-201, pig whipworm eggs. Over the course of the year, CNDO raised $89.4 million through sales of stock under an at-the-market facility. In other words, the company sold lots of stock to investors at an average price of about $8.40 per share, building up a $106 million war chest and then had their lead compound miss primary endpoints in two concurrently running trials. CNDO now trades at $2.09. This series of events illustrates why we are not fans of at-the-market (ATM) facilities here at Red Acre.
CNDO has indicated that they plan to design new clinical trials for CNDO-201 based on the post-hoc data analysis of the TRUST-1 and TRUST-2 studies. We wonder whether or not the company ever even considered returning a portion of that cash hoard to shareholders rather than pursuing more trials.
We have no position in CNDO.
Bristol Meyers Squibb (NYSE:BMY)
On Thrusday BMY announced that it is selling it's diabetes business to Astra Zeneca (NYSE:AZN) for $2.7 Billion up-front plus milestones of up to $1.4 Billion plus some one-time payments of up to $225 million and sales based royalties through 2025. Recall that AZN and BMY together acquired Amlyn pharmaceuticals back in June of 2012 for about $7 billion. The deal this week involves pavements of $3.6 billion that are essentially upfront payments ($2.7 billion immediately and another $700 million upon approval of Dapagliflozin which is a low-risk event.) According to ISI-Group's Mark Schoenbaum, the deal's net present value to BMY is approximately $5.5 Billion.
At Red Acre a deal between two of the giants of large cap pharma is not something we would normally cover, but this deal is interesting for two reasons. First, the deal is an end-cap to the story of Amlyin pharmaceuticals which was one of the larger buyout deals of 2012. Second, BMY is in the process of transforming itself into a specialty biopharma company. In other words, BMY is trying to become a large cap biotech company by divesting certain businesses and focusing on newer more promising therapeutic areas. Particularly, this deal is a strong vote of confidence by BMY management in their PD-1/PDL-1 program. Yervoy has made a big splash in the cancer immunotherapy space and this is clearly where management sees the future of the company. We have been covering a number of developments in micro-cap and small-cap biotech companies trying to make headway in cancer immunotherapy. As analysts in this space, it behooves us to pay attention to where the giants in the industry see their future growth.
We have no position in BMY or AZN.
Ariad Pharmaceuticals (NASDAQ:ARIA)
On Friday ARIA announced the resumption of marketing of their cancer chemotherapeutic drug Iclusig. Recall that back in October, ARIA revealed that ongoing clinical trials of Iclusig indicated that the drug had more safety issues than previously anticipated. The stock dropped 40% on this news, and 10 days later the company announced the termination of it's EPIC trial in front-line chronic myeloid leukemia causing another 40% drop in price.
In just two months, the company, in cooperation with FDA has gotten new US prescribing information approved, and initiated a new REMS program involving increased pharmacovigilence. The new label says that Iclusig is indicated for:
- T315I-positive chronic myeloid leukemia (chronic phase, accelerated phase, or blast phase) or T315I-positive Philadelphia chromosome positive (Ph+) acute lymphoblastic leukemia, and
- Chronic phase, accelerated phase, or blast phase chronic myeloid leukemia or Ph+ acute lymphoblastic leukemia for whom no other tyrosine-kinase inhibitor therapy is indicated.
The new label means that Iclusig will have an addressable market that is approximately 1300 patients instead of the roughly 2500 patients that were potentially suitable for the drug under the previous label. The company will begin marketing the drug with approved labeling changes in January.
While ARIA traded up to close on Friday at $6.43, given that the drug will still have a market that is slightly more than 50% of previous estimates, it is not unreasonable to expect that the stock should recover to at least 50% of it's previous price in the $20 range. Thus a $10 target for ARIA by mid Q1 2014 is quite reasonable.
We have no position in ARIA but this will be on our watch list going forward.
Jazz Pharmaceuticals (NASDAQ:JAZZ)
On Thursday, JAZZ announced an agreement to acquire Gentium (NASDAQ:GENT) for $57 per share. While this price on represents about a 2% premium to Gentium's share price, recall that GENT has already seen a stellar rise in share price this year. The stock rose from the $8 level to $14 upon a positive CHMP opinion of their drug defitelio. Ever since, the stock has been on a tear, increasing to the $55 range just before the acquisition by JAZZ.
Here is the 1-year chart for GENT (data from TD-Ameritrade, click to enlarge):
and here is the 5-year chart for JAZZ (data from TD-Ameritrade, click to enlarge):
File both of these under "wish we had bought them back then".
We have no position in JAZZ or GENT.
pSivida (NASDAQ:PSDV) and Alimera Sciences (NASDAQ:ALIM)
On Thursday PSDV and ALIM both jumped more than 50% after announcing that the companies are in labeling discussions with the FDA and that the January 14th advisory committee meeting to help figure out how to show a clinical benefit to Illuvien was no longer necessary. We covered the history of Illuvien's FDA journey back in October. The key news here is that the FDA indicated that new clinical trials would not be required prior to making an approval decision. This is a dramatic turn of events for both of these firms which saw disastrous drops in share price upon receiving the CRL back in October.
Instead of a meeting of the ADCOMM, ALIM will focus on preparing and submitting its response to the CRL in the first quarter of 2014. We expect that CRL response would liekly be a class II response since new data from physician and patient experience in the UK and Germany will be submitted. This means that a likely approval date will be 6 months after the NDA is resubmitted. PSDV and ALIM will once again be in focus sometime in Q3 of 2014.
We have no position in PSDV or ALIM.
United Therapeutics (NASDAQ:UTHR)
Continuing the theme of surprising turns of events at FDA, on Friday, UTHR announced FDA approval of oral trespontinil. Recall that UTHR received two previous CRLs for its oral version of Remodulin. In September of this year, the compnay once-again resubmitted it's NDA without any new data. This time around the FDA approved the drug, albeit with a limited label. The problem for UTHR has been that the clinical trials for oral trespontinil had mixed success. Only one of the 3 phase 3 trials met it's primary efficacy endpoint. There is some disagreement in the biotech analyst community on whether or not oral tresontinil will contribute meaningfully to UTHR's sales; however, as far as we can tell, almost no analyst on the sell side or buy-side had really factored in ANY sales of oral remodulin at all. Even $100 million in sales could translate to a meaningful increase in EPS for UTHR. This means that funds may be playing some catch-up come Monday morning, bidding shares of UTHR up in light of the revised sales and EPS figures.
Another important point for UTHR is that the approval of an oral version of remodulin makes it much harder for Sandoz to successfully asert a paragraph IV challenge to UTHR's patents. Recall that Sandoz and UTHR have been in a closely watched patent dispute involving an abbreviated new drug application filed by Sandoz to market a generic version of the i.v. Remodulin. This approval effectively extends UTHR's market exclusivity (with the new dosage form at least).
UTHR will host a conference call at 9 AM on Monday morning. Pre-market and opening trading for UTHR should definitely be interesting leading upto and just after the conference call.
We have no position in UTHR.
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