Spectrum Acquires Talon, Synergy gets to 50% enrollment, Boeing takes off, FMC wins Vivus proxy fight, Arena scripts update, Mannkind registers shares. Let's go over the sorties we've been watching, commenting on and trading this week.
Spectrum Pharmaceuticals (NASDAQ:SPPI)
Here was our immediate reaction to the SPPI deal:
Quick Take:
SPPI is acquiring TLON for $11.3 million plus contingent value rights for upto $195 million in sales based milestone payments for Marqibo and an approval based milestone for Meniadone topical lotion.
Details:
Back in May we pointed out that SPPI's Ken Keller "misspoke" at an investor conference and specifically mentioned Marqibo by name. We speculated that Spectrum either looked at TLON and passed - or that a deal was in the works since the reference was so specific to a trade name of a drug.
The real winners in this deal are private equity firms Warburg Pincus and Deerfield who own over 90% of TLON. Common shareholders will essentially get nothing from this deal.
As we pointed out last year, in a Seeking Alpha article that generated much spirited discussions, TLON's capital structure is such that retail holders of TLON common stand to lose in any takeover deal. We won't bother spending time going over the details on the TLON side, but it is noteworthy that SPPI is issuing 3 million shares to cancel debt under TLON's credit facility with Deerfield.
With 60 million shares outstanding, SPPI is increasing outstanding shares by 5% - which represents $26.67 million based on SPPi's closing price yesterday. TLON had $25 million in outstanding debt as of their Q1 report which was field in late May. WP and Deerifled just got an extra $1.67 million due to the shares issued.
Ultimately this may help SPPI since it's revenue have been faltering and the ready to launch Marqibo may be accretive to earnings. Premarket reaction is mildly positive so far.
We ended up writing a Seeking Ahlpa article about ths deal becaue it was, in our estimation, a takeunder - which does not happen all that often in the markets. Since we already sent you, our loyal readers 2 emails earlier in the week, we decided to simply publish on Seeking Alpha without sending to our list first - this is, of course, and exception and not the norm for us.
Synergy Pharmaceuticals (NASDAQ:SGYP)
Here was our reaction to SGYP's news this week:
Quick Take:
Synergy Pharmaceuticals' IBS-C trial has reached the half-way point in enrollment, full enrollment expected in Q4 2013, top-line results expected in Q1 2014.
Details:
SGYP's phase IIb trial in patients with irritable bowel syndrome with constipation (IBS-C) has reached enrollment of 180 patients out of a planned 350 total. The trial is enrolling patients meeting the ROME III criteria for IBS-C and the 12-week study is testing four doses of plecanatide vs. placebo across 70 US clinical sites. According to the clinical trials information page, the primary efficacy endpoint is:
Change from baseline in the mean number of Complete Spontaneous Bowel Movement (CSBM) over the 12 week treatment period
Secondary endpoints measure the proportion of patients who are overall responders, reduction in pain and stool frequency. Plecanatide demonstrated excellent results in time to first bowel movement in their phase IIa dose-ranging and safety trial which was completed in 2010.
Back when the trial started in December 2012, we suggested that since the trial is only enrolling 350 patients, the enrollment should take 6 months.
We were wrong on this assumption because apparently, Synergy is screening many more patients than it is actually enrolling. Today's press release indicates that over 600 patients were screened to enroll the 180. This implies that only 1 in 3 patients arriving at trial sites actually meets that strict entry criteria for the trial.
The goal of tight screening in a constipation trial, is to ensure that only patients who truly have IBS-C and not just chronic constipation are enrolled. To the extent that the screening is successful, this should help differentiate the drug and placebo responder rates in the trial. Recall that, in their recently completed phase II/III trial of plecanatide in Chronic constipation, the placebo responder rate was higher than expected, resulting in the durable responder rate being just shy of the desired 10%.
Bottom Line - SGYP appears to be doing everything it can to have at least the highest (9mg) dose arm of the trial meet the durable responder criteria. If successful this would be very bullish for the stock in Q1 2014.
The next piece of news for SGYP will be the outcome of their end of phase 2 meeting with FDA for the chronic constipation indication for plecanatide. We are anticipating some news on this front either this month or next, but we may not hear anything until the company has it's Q2 earnings result.
SGYP recently traded just below $4, and has made a nice recovery to present levels. We expect today's news to be well received. We are long SGYP.
While some folks we spoke with speculated that this "half-way mark" PR might be a diversion ahead of some possible bad news regarding the end of phase 2 meeting, we do not see it that way. As we believed back in December, many others must have been expecting some kind of announcement about full enrollment in Q3. This PR helps set the proper expectations regarding the timing of full enrollment and trial completion. We would much rather see SGYP take longer and screen only the right patients into the trial, than rush enrollments and miss a trial endpoint due to the wrong population. As stated above, we are long SGYP.
Boeing Aircraft (NYSE:BA)
Last week we expressed our view that the market overreacted when reports of a fire on a 787 in London emerged. We told readers that we went long the BA $100/$105 September Bull Call Spread and that we expected Boeing shares to soon recover above $105. Sure enough, on Monday, BA recovered and traded as high as $105.87 and closed the day at $105.66. Throughout the week the investigation into the 787 fire progress rapidly, and focused on the lithium battery for the aircraft's emergency locator transmitter (ELT). The ELT issue is completely unrelated to the earlier 787 battery issue. The temporary fix is to simply remove the ELT until Boeing and Honeywell (the manufacturer of the ELTs) can find a permanent fix.
Shares of Boeing closed the week at $106.96 after having traded as high as $107.98 earlier in the week. The bull call spread which we bought for $2.60 is now trading for $3.30, a 27% gain over our entry price. At one point during the week, the spread traded as high as $3.60. We still believe that shares of Boeing will move upwards rather than downwards between now and September and are looking to close this trade for a 45% to 50% gain.
Vivus Pharmaceuticals (NASDAQ:VVUS)
First Manhattan and VVUS finally reach an eleventh hour settlement in their bitter proxy fight. Early this week we issue a Red Acre Insight about the erratic Vivus Management Moves signaling desperation. At the time we wrote that piece, before news of the settlement, it appeared as if the full FMC slate would prevail. Had that happened, we saw potential for a brief rally above $15 as high as $17.10 (based on the chart). The main trade suggestion of the article was to wait until the proxy battle was over and then to short VVUS regardless of who wins since the script numbers and revenue still do not support VVUS' valuation.
Indeed, once the result of the proxy fight was known, VVUS reached just over $15 to $15.22 and then broke down to close the week at $13.67. Lost amidst the blizzard of white and gold proxy ballots stuffing shareholders' mailboxes, was the fact that, for the second week that Qsymia has been available in retail pharmacies, the script growth trend continues to be positive. VVUS had 7,000 scripts in the week ending 7/12, a 26% increase over the previous week. This level is still not enough to stop the cash hemorrhaging at VVUS, but the trend is in the right direction. We have no position in VVUS
Arena Pharmaceuticals (NASDAQ:ARNA)
Arena Pharmaceuticals saw scripts of 2493 during the week ended 7/12 (IMS data). When numbers for the previous week for ARNA came out, some people adjusted the numbers upward to account for the fact that the July 4th holiday week was a shortened week. By that logic then, the current week's scripts represent a dip in growth. Either way you slice it, either the July 4th week was a dip, or the quick to past week was a dip, can't really have it both way on this point as we tweeted this Friday. All in all, Belviq initial trajectory is better than Qsymia's initial few weeks, but keep in mind that ARNA has the advantage of retail availability, discount programs and free trials from day 1. Another thing to pay attention to is the fact that, according to total pills shipped, 70% of the BELVIQ scripts are for the free trial. Over time it will be critical that the number of full prescriptions of BELVIQ increase in order for the drug to have decent sales. BELVIQ is currently on track for $5m in sales in its first quarter, which is 66% short of the consensus estimates of $15 million.
As we've said several times in the past, wider payor coverage will be the ultimate determinant of the success of Qsymia and Belviq. Announcements of expanded payor coverage by Eisai are likely to be the strongest positive catalysts of ARNA stock in the near future. The other potential catalyst would be results of weight loss for those few patients out there who are already trying BELVIQ in combination with phentermine. The BelPhen combo - if it catches fire the way fenphen did, could lead to a significant change in the launch trajectory for BELVIQ; however, our view is that the drug's pricing would not allow such a breakout in sales until wider payor coverage happens.
We have no position in ARNA.
Mannkind Corporation (NASDAQ:MNKD)
Mannkind filed a registration statement with the SEC on form S-3, registering 12 million shares. This shelf registration was made in connection with the recently completed debt financing transaction with Deerfield, wherein Deerfield has the option to convert up to $40 million of debt into equity. we covered the debt deal back in the beginning of July. This shelf registration is part of the necessary paperwork for MNKD to meet their obligations under the debt transaction. Inexperienced investors often try to read in to these types of filings ahead of a binary event. Don't fall for it, there is absolutely no read through regarding the trial data in this filing or its timing. We still owe our readers our Red Acre Insight on MNKD, we've been holding off until we have a chance to talk to Matt Pfeffer, MNKD's CFO to clarify a few things before sending it out, look for it in the next few days.