3 Stellar Drugs Equal 3 Attractive Buying Opportunities

Mohsin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A large number of drugs received FDA approval last year and it seems the number will only rise this year. Large biopharmaceuticals are still plagued by diminishing patent portfolios and are hunting for attractive takeover targets. The three companies discussed below have some amazing drugs that have already proven themselves in clinical trials. Investors should buy these stocks for their pipeline potential and consider them likely acquisition targets.

Sarepta Therapeutics (NASDAQ: SRPT)

Sarepta is a biopharmaceutical company primarily focused on the treatment of Duchenne Muscular Dystrophy (DMD) with its life changing drug Eteplirsen. The company's valuation is currently tied to this drug which is in Phase II clinical trials and is scheduled for an accelerated approval. DMD is a rare disease that affects almost 1 in every 3,600 boys. It seems likely that the drug will receive FDA approval because the prior data has been encouraging. The company also has other compounds in various stages of clinical development, a detailed list can be found here.

The company's stock has appreciated almost 300% in the last 2 years and 40% in the last 3 months alone. It is attracting a lot of Philanthropist investors due to the ability of Eteplirsen to change lives of so many kids. In the last six months institutional investors have increased their Sarepta holdings by approximately 7.6 million shares. There is a lot of positive momentum with the stock and I believe the share price will continue to rise.

The sell side analysts have a pretty unanimous buy rating on the stock with only a single underperform rating. Despite recent price hikes the company's stock is still trading at a 15% discount to the mean sell side target price of $42. If Eteplirsen gets the FDA nod the stock price could climb considerably making this an excellent buying opportunity.

Keryx Biopharmaceuticals (NASDAQ: KERX)

Keryx is a biopharmaceutical company that focuses on acquiring and commercializing treatments for the renal disease. The primary candidate of Keryx is Zerenex, which is currently in Phase III clinical trials for the treatment of hyperphosphatemia. The company will submit an NDA for Zerenex in the second quarter of 2012 and analysts are forecasting a high probability of this approval.

If approved, Zerenex can have a sales potential of almost $375 million based on a 25% penetration of the $1.5 billion phosphate binder market. The company has also applied for a European approval that can further drive up the sales potential. The real challenge for Zerenex will be extending its patent protection to fend of generic competition. The current estimates show that Zerenex will be able to secure patent protection until 2020-2024.

Keryx's share price has appreciated by a massive 300% in the last one year with 150% coming in the last 3 months. The positive market sentiment on the Phase III clinical results of Zerenex are the primary reason behind the rally. Data shows that institutions have been taking profits on Keryx with net institutional holdings depreciating by 8 million i.e. a decrease of 61% in institutional ownership. Despite recent rallies the stock is still pretty cheap and trading at a 40% discount to the mean sell side target price of $12.

Acadia (NASDAQ: ACAD)

Acadia focuses on small molecule drugs for the treatment of unmet CNS and neurological medical needs. Acadia has a number of candidates in various stages of clinical development with Pimavanserin in Phase III clinical trials for Parkinson and Phase II trials for schizophrenia and Alzheimer. Detailed information on the promising Acadia pipeline can be found at this link.

The company's stock has risen a massive 275% on Pimavanserin’s positive investor sentiment. Despite the recent appreciation institutions still believe that Acadia will go even higher and increase their Acadia holdings by an average of 12%, adding approximately 5.7 million shares to their holdings. The company is still below mean analyst sell side target price of $10 and any positive information on Pimavanserin can bring it closer to this target. The company has recently received a buy rating for Jeffries with a target price of $13. The recommendation is based on Pimavanserin stellar trial results and the mammoth potential of the CNS market.

Bottom line

These companies have huge potential winners on their hands and investors have rewarded them with some heavy buying. I believe there is more upside to these stocks because none of them have yet received FDA approval and their share price can move up significantly on approval news. For those investors who are willing and able to take bigger risks in their portfolios, I recommend buying these companies to enjoy approval and acquisition rallies.


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