Are You Missing The Upside Potential Here?
Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There are many biotech stocks that have "popped" on positive drug trial data. But it is clear that many investors are not factoring in the upside potential of these biotech companies that are highly levered in terms of valuation. Below, I will examine three companies that appear to be undervalued in light of clinical trial data. Specifically, I will focus on Acadia Pharmaceuticals (NASDAQ: ACAD), Aeterna Zentaris (NASDAQ: AEZS), and BioMarin (NASDAQ: BMRN).
Acadia is primarily focused on innovative treatments that address unmet medical needs in neurological and related central nervous system disorders and has a pipeline of product candidates led by pimavanserin, which is a potential first-in-class treatment for Parkinson's disease psychosis.
Acadia recently saw its share price spike after the company announced successful top-line results from its crucial phase 3 trial evaluating the efficacy, tolerability and safety of pimavanserin in patients with Parkinson's disease psychosis (PDP). The stock went from $2.25 to $5.50 in one day (November 27) with a high of $6.54, and currently trades around $5.
Acadia is seeking a commercial partner ahead of label expansion trials and a confirmatory phase 3 study for pimavanserin in PDP, and its strong financial position will enable it to negotiate better terms. These short-term catalysts could trigger a further increase in the stock price.
Aeterna Zentaris recently announced that final phase 2 data demonstrated that the combination of perifosine, its oral AKT inhibitor, and sorafenib was well tolerated by heavily pretreated patients with relapsed/refractory lymphomas. Furthermore, promising clinical response activity was observed in patients with classical Hodgkin Lymphoma ("HL"), suggesting that this subgroup could represent the target population for future studies.
Perifosine is an innovative oral anticancer treatment. It has been granted orphan drug and orphan medicinal product designations for multiple myeloma ("MM") by the FDA and the European Medicines Agency ("EMA"), respectively. Perifosine has also received Fast Track designation from the FDA for this same indication. A phase 3 trial in MM is ongoing. Positive results from this trial are expected to be sufficient for registration in the U.S. and Europe.
Another candidate, AEZS-108, targets endometrial cancer. The results for the phase 2 trial were released two years ago, and an encouraging trend was observed in overall survival with limited side-effects. A phase 3 trial is expected to be initiated in the first quarter of 2013.
AEZS-130 targets growth hormone deficiency (AGHD). The company expects to file a New Drug Application (NDA) for AEZS-130 during the first quarter of 2013. The favorable phase 3 results that the NDA is based on were released last year.
On October 17, the company completed a public offering that generated net proceeds of $15.2 million, which were intended to be used for the continued funding of ongoing drug development programs for perifosine in MM, as well as for AEZS-108 and AEZS-130. The mean consensus target for the shares is around $5.54, compared to its most recent price of just over $2, showing a healthy upside which is being ignored.
Aeterna Zentaris has a balanced pipeline with a solid combination of early and late-stage candidates. However, investors are continuing to penalize the company based on its setback with Perifosine in April, and not taking into account that the company has three late stage product candidates with a sizable cash cushion and significant growth catalysts coming early next year. There are plenty of upcoming developments which could trigger a pop in the stock price. The biggest development to watch is the data that will be released from the phase 3 trials of Perifosine for use in treating multiple myeloma in the first quarter of 2013. Investors looking at Aeterna Zentaris should consider buying before this event.
BioMarin shot up 28% after the rare disease drug developer excited investors with the news that its experimental therapy GALNS hit the primary endpoint in a pivotal study for a rare enzyme deficiency, setting up plans to seek regulatory approval in early 2013. GALNS treats an extremely rare genetic condition called Morquio A Syndrome (or MPS IVA), which is found in roughly 1 out of every 200,000 births.
BioMarin's revenue growth in the third quarter was primarily due to two products. Naglazyme, which is used in the treatment of mucopolysaccharidosis VI, increased net product revenue from $55.9 million in the third quarter of 2011 to $62.5 million in third quarter of 2012. Kuvan, used to treat metabolic disease phenylketonuria, experienced a 19.3% increase in net product revenue year-on-year. Both Naglazyme and Kuvan obtained orphan drug status in the U.S. and Europe, and growth from these two drugs should help BioMarin fund its pipeline development moving forward. BioMarin's pipeline presents several great opportunities for the company to move to sustained profitability.
BioMarin's other promising drug is PEG-PAL, which targets treatment of phenylketonuria in patients who don't respond well to Kuvan. PEG-PAL is currently in phase 2, and BioMarin plans to move the drug forward into phase 3. Last but not least is BMN-111. The drug is intended for the treatment of achondroplasia, the most common form of dwarfism. Like PEG-PAL, BMN-111 is in phase 2 now, with BioMarin planning to move into phase 3 with the drug. This is another company that is undervalued by the market and well worth considering.
jordobivona has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend BioMarin Pharmaceutical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!