Our BioPharma Catalyst Watch List

ASTX: Astex Pharmaceuticals logo
ASTX
Astex Pharmaceuticals

Submitted by Scott Matusow as part of our contributors program.

This week we list four biopharmaceutical companies that have upcoming catalysts. We expect these company’s stock prices to appreciate significantly in the short term as they draw closer their respective catalysts. Smaller cap biotechs have been on a tear lately, with 50 to 100% gains occurring at a substantial rate. However, just because a biotech has an upcoming catalyst event, it does not mean the event will have a positive result. At StockMatusow, we occasionally hedge our stock trades via the option chain buying puts to protect against downside, should we choose to hold our stock position through the catalyst event.

Insmed Incorporated (INSM) is a biopharmaceutical company that discovers and develops targeted inhaled therapies for those suffering from orphan lung diseases, such as cystic fibrosis patients with non-tuberculosis mycobacterial (NTM) lung infections. Insmed has been on a strong run this year, as the company reported positive Phase III results for ARIKACE to treat pseudomonas aeruginosa in Cystic Fibrosis patients. ARIKACE is also being tested for other indications and is expected to release Phase II data for ARIKACE to treat NTM lung infections.

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In the Quarter 2 Earnings transcript the company stated:

“We are currently enrolling a 100-patient Phase II clinical study of once-daily ARIKACE to treat NTM lung infections in the U.S. and Canada. We’ve previously reported that this trial is over 80% enrolled. With QIDP status in hand, we’ve already reached out to the FDA to initiate a dialogue regarding the regulatory pathway for registration and approval of ARIKACE to treat NTM. We expect to complete the clinical data review and related dialogue with the FDA by the end of the first quarter of 2014.”

There is no approved treatment (an unmet need) for this indication, so we expect Insmed to significantly appreciate in price as the data release approaches. We expect the stock to move up to about $14 a share before the data release. With positive data here, and based on its current market cap of $424.06M, a double in stock price is well within reach, which also factors in the rest of the company’s pipeline and good financial position.

Astex Pharmaceuticals (ASTX) is a biopharmaceutical company that discovers and develops small molecule therapeutics for oncology and hematology. Astex already has an approved drug on the market named Dacogen. Dacogen is currently approved to treat Myelodyplastic Syndrome (MDS) in the United States and used in the European Union for the treatment of elderly patients with de novo or secondary acute myeloid leukemia (AML) who do not qualify for standard induction therapy.

MDS is a diverse collection of hematological (blood-related) medical conditions that involve ineffective production (or dysplasia) of the myeloid class of blood cells.

Patients with MDS can develop severe anemia and require blood transfusions. In some cases, the disease worsens and the patient develops cytopenias (low blood counts) caused by progressive bone marrow failure.

Dacogen recently lost market exclusivity, but Astex is working on an improved version of Dacogen called SGI-110.

SGI-110 data in MDS and AML patients is expected to be announced at the end of the year. Data presentation will be made at the European Society for Medical Oncology (ESMO) in late September and at the American Society of Hematology conference in December. In an April 10 press release the company stated:

“The company also announced that the ongoing clinical phase 2 expansion study (Part B of Study SGI-110-01) in patients with myelodysplastic syndromes and acute myeloid leukemia (AML) has been expanded to approximately 200 patients by including an additional cohort of relapsed/refractory MDS patients to the ongoing three other cohorts (front-line MDS; front-line elderly AML; and relapsed/refractory AML). The phase 2 expansion trial has already enrolled more than half of the patients needed to complete the study. While data were not mature enough for presentation at the upcoming American Society of Clinical Oncology (ASCO) meeting, more mature data presentations will be submitted to other scientific conferences. The trial is still on track to submit data from the relapsed/refractory AML cohort in the phase 2 expansion study to the American Society of Hematology meeting for presentation in December this year.”

Given that Dacogen is already an approved drug and SGI-110 is a modified version of that drug, we expect there is a strong chance that the company announces positive data. We strongly feel Astex is undervalued now at its current market cap of $494.36M.

Therefore, as the catalyst event approaches, we expect a price of $7 a share. If data is positive, we expect $8-$9 a share, representing a market cap of roughly $790M to $890M.

Onconova Therapeutics (ONTX) is a biopharmaceutical company that focuses on developing small molecule drug candidates to treat cancer. Onconova currently is testing its leading drug Rigosertib for several indications. The indications that Rigosertib would address are worth globally over $1B each. If the company announces positive data for any of these indications, the stock would be incredibly undervalued at the current market cap.

Onconova has three upcoming catalysts that should rally the stock:

1. Onconova expects to present Phase II data for Rigosertib Oral in lower risk MDS in December 2013.

2. Onconova expects to present Phase III survival data for Rigosertib IV in higher risk MDS in the fourth quarter of 2013 or the first quarter of 2014.

3. Onconova expects to present Phase III data for Rigosertib IV in pancreatic cancer in the fourth quarter of 2013 or the first quarter of 2014. Pancreatic cancer is one of the worst, if not the worst and most deadly form of cancer, so any positive treatments for it would be significant.

With the above 3 strong catalysts, we expect that Onconova will have a significant run into the end of the year. Since it is recent IPO, investors have yet to fully study this company’s strong speculation value. With a current market cap of $570.39M, we feel Onconova is undervalued here, considering the company is the only biotech IPO this year that is actually in later Phase III clinical testing.

We think that Onconova could appreciate to around $40 a share, representing roughly an $800M market cap before the data points are all released. If data is positive, we expect close to $80 a share, representing a $1.6B market cap. under normal overall market conditions. While $1.6B market cap might seem high, we encourage investors to study other companies in its segment with similar progress points in pipeline development, and compare their market caps to Onconova.

Biodel (BIOD) is a biopharmaceutical company that focuses on the development and specialization of treatments for diabetes. Biodel’s leading drug candidate is BIOD-123, which is an ultra-rapid acting insulin formulation. Biodel has recently been gaining a lot of attention because it has a market cap of under $100M, while the global diabetes market is worth over $10B.

Biodel is expecting to release results from a Phase II trial in the third quarter of 2013. Biodel CEO Dr. Errol De Souza stated in the second quarter 2013 financial results presentation:

“We are pleased to report progress across the breadth of our portfolio of pipeline product candidates. Enrollment is fully complete in our Phase 2 clinical trial of RHI-based ultra-rapid-acting insulin BIOD-123 and more than half of the subjects have finished the study, as we remain on track to report top line data in the third calendar quarter of 2013.”

Biodel has already produced positive results before for an ultra-rapid acting insulin with its former drug Linjeta. Since the company has decided to create a more advanced formulation (BIOD-123) and has worked with the FDA in designing the trials, we expect that there is a strong chance that the company produces positive results.

Yesterday, Mannkind (MNKD) announced “positive” Phase III results for its drug Afrezza. Mannkind has caused much debate between investors, as some believe the company is worth $20 a share, while others believe it is worth $2 a share. To add to the controversy, the company released a correction to its previous press release, as they made several mistakes in their data announcement. Even with positive Phase III data, we believe the company is over levered and overvalued at its current market cap of about $2.3B, and will likely sell off to around $5 soon, because there are no near-term catalysts approaching. It might be worth that market cap someday, but under current circumstances we do not think Mannkind is worth that speculation value — not even close. We believe that if eventually approved, Afrezza will not have the commercial success that many bulls predict. Time will tell what is in store for Mannkind investors and the market will decide who will be proven right.

We believe Biodel represents a better avenue for a trade for investors. Although it is in earlier clinical trials, Biodel’s market cap is roughly $95M compared to Mannkind’s $2.3B. As a speculation investment, we believe Biodel gives investors significant more upside potential and a better risk to reward ratio.

As we get closer to this data release, we expect Biodel to reach $6 again. If data proves to be positive, we expect the stock to be near $10 a share, which would represent roughly a very reasonable $220M market cap.

Disclosure: Long INSM

Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky — always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.