Important Near Term Dates for Biotechs

Published on Monday, 05 March 2012 13:59

Vivus (VVUS), a Calfornia-based company, received the best news possible for a small biotech without earnings (that is redundant) – initial FDA approval for a drug. And this isn’t just another drug but rather for obesity! In North America, there are 90,000,000 people who could be classified as obese, depending on your definition. The news was reported in the US on the national stations as a “miracle pill” for the 20 billion USD market. Then add in the ROW (rest of the world)! The share price reacted accordingly and went from 10$ to 20$ AH when the news was released. After three days of very heavy volume, the price sits at 22$, where most analysts expect it to stay for the near future. Vivus first submitted the drug to the FDA a year ago but it was rejected.

The share price dropped 50% to 7$. They have a nice pipeline including drugs for erectile dysfunction (ER)(PIII), diabetes and sleep apnea (both in PII). With good news from these drugs over the last 12 months, the price moved to the 10$ range. The next three months will be stressful with Vivus and its shareholders. Final FDA approval, a highly likely event, could be rejected or require further studies that would take a minimum of 12 months and lots of cash. The ER drug is up for approval as well in late April, and again the market is huge including 40% of men over age 40. Vivus may need to raise money and thus, do a secondary. Even if both drugs are approved, it doesn’t guarantee success. Just look Dendreon, Human Genome, and Vanda.

I would say that IF – and that is a big IF – either is approved, you will see a spike in the share price and then a fall back. Another company being watched closely is Keryx (KERX) as they will release two PIII results in the next six months. The results of a colo-rectal cancer drug will be released within the next two months, probably by the end of March. The second will be out by late summer. The CEO has said that selling the company is a priority and if either of the drugs passes PIII, that will likely take place. If both drugs fail, well.... Intellipharmaceutics International (IPCI) is relatively unknown with a low float. The pipeline has 15 drugs with six awaiting FDA approvals. The market cap is 48 Mil$ with 7.5 M$ in cash and the CEO claims they will make a profit this year. The number of shares is 15.9 mil with 10 mil held by insiders and institutions. All companies this size are high risk but it is very unlikely that all would fail the FDA approval. Should one of the six get approved, I would sell on the spike and buy back a couple of months after the launch. Finally, there is Titan (ttnp). They receive 10% of global sales on Vanda’s only drug on the market, which is distributed by Novartis. Furthermore, they are working on an implant for opiate addiction, which will be submitted for FDA approval later this year. T

he market is waiting for a partnership to be signed as the CEO said they are in discussions with several big pharmas. The MC today is a mere 70 mil$ and a deal for 50 mil$ upfront with royalties and milestones would certainly send the share price north. They too could do a secondary and go for approval on their own. If that happens, down we go. They cant fund approval with the cash from the Vanda drug as they already borrowed against future earnings. Small biotechs are very high risk-high reward and tend to get overbought on good news, such as approval, and oversold on bad news, such as a secondary or in some cases, an FDA rejection. I prefer biotechs with drugs on the market as the downside is much less. It should be an interesting couple of months for these companies.