BST Position Update: August 22, 2013

| August 22, 2013

August 22, 2013

Position Update

. . . . Vical (NASDAQ: VICL) – Sell

Vical announced bad news last week.  The company reported that its melanoma drug candidate, Allovectin, failed its phase 3 trial.

And as a result, the stock dropped significantly on the news.

With no upside catalysts on the horizon, Vical is likely doomed to continue falling or at best trade sideways for many months.  As such, we recommend cutting losses on this trade.

Sell VICL immediately to conserve capital for better opportunities.

. . . . GTx (NASDAQ: GTXI) – Buy up to $2.00

We swung for the fences on GTXI, and unfortunately we struck out this time around.  The company reported earlier this week that Enobosarm, a treatment for muscle-wasting in cancer patients, failed its phase 3 clinical trial.

And the stock has plunged as a result.

The good news is… 

We will come up to the plate again soon with a chance to hit a home run on GTXI. Top-line data from its phase 2b trial of Capesaris is expected by the end of 2013 or in early 2014.

Capesaris is a selective estrogen receptor alpha agonist for the treatment of castration resistant prostate cancer (CRPC).

Earlier phase 2 studies showed the drug rapidly increases sex hormone binding globulin and reduces serum free testosterone.  Free testosterone is thought to be the driving force for prostate cancer cell growth.

The current trial is evaluating the safety and effectiveness of lower doses of Capesaris.

GTx believes Capesaris offers several advantages over androgen deprivation therapy (ADT), the current treatment for CRPC.  You see, ADT lowers estrogen levels which can lead to bone loss, hot flashes, decreased libido, impaired cognitive function, increased body fat, metabolic syndrome, diabetes, and cardiovascular disease.

But according to the Chairman and Professor of Urology at the Medical University of South Carolina and the Capesaris trial’s lead investigator, Thomas Kean MD…

“Capesaris has the potential to achieve medical castration without also causing several well documented problems of androgen deprivation for prostate cancer such as hot flashes, bone loss, and metabolic syndrome.”

If the phase 2b trial is a success and shows significant benefits over ADT, it would indicate Capesaris has potential to dominate the market for CRPC drugs.  And we’re talking big numbers here…

This market is expected to grow to nearly $6 billion a year by 2017.

Given Capesaris’ blockbuster potential, we believe investors will soon turn their attention to the drug’s upcoming trial results.  And as a result, they’ll start pushing the stock higher.

Consequently, we’re maintaining our buy rating on GTXI and adjusting our maximum buy price to $2.00 per share.

If you already own the stock, you may want to add to your position in order to lower your cost basis.

Keep in mind, however, that after the failure of Enobosarm, GTXI is a highly speculative play.  It could very well move lower before the uptrend we’re expecting materializes.  This trade is only for investors with the highest of risk tolerances.

. . . . BioLineRx (NASDAQ: BLRX) – Hold

BLRX surged higher this week.  The stock jumped to a new high of $2.40 to give us a solid 43% gain on the position.  Not too shabby.

What’s going on?

It looks like investors are betting BLRX will secure one or more collaborative partnerships in the near future.  You see, the stock jumped the day after BioLineRx announced the hiring of B.J. Borman, PhD to its Board of Directors.

The company’s press release states that Dr. Borman previously served as Senior Vice President and Worldwide Head of Therapeutic Alliances and Strategic Partnerships at Boehringer Ingelheim Pharmaceuticals.  And before that, she held the position of Vice President, Strategic Alliances, at Pfizer.

BLRX Chairman of the Board, Aharon Schwartz, PhD, said this about the hire…

“She [Dr. Borman] offers BioLineRx tremendously deep insight and an impressive track record in precipitating partnerships and alliances…”

And Dr. Borman had this to say about her new job…

“I believe the Company has a very bright future, given its promising therapeutic pipeline and drug development expertise. I am looking forward to working alongside BioLineRx’s experienced management team as they continue to advance the Company’s pipeline and forge new strategic collaborations within the industry.”

No question about it, the hiring of Dr. Borman indicates BLRX is stepping up efforts to secure partnerships with larger drug companies.

And as we’ve seen in the past, the forging of lucrative partnerships can be a major upside catalyst for a biotech stock.

The hiring of Dr. Borman is clearly a bullish development for BLRX.  As such, we recommend you continue holding the shares for greater gains.

. . . . Synergy Pharmaceuticals (NASDAQ: SGYP) – Buy up to $6.00

SGYP remains in a sideways trading range after its second quarter earnings report.

In the report, management said it expects to complete enrollment for the phase 2b trial of plecanatide for the treatment of irritable bowel syndrome in the fourth quarter of 2013. And it plans on providing top-line data from the trial in the first quarter of 2014.

Investors had been expecting the results by the end of this year.  So, the short delay likely explains why the stock hasn’t yet started trending upward.

But the sideways trading in SGYP may not continue for much longer…

One potential near-term upside catalyst is the expected initiation of a phase 3 trial of plecanatide for the treatment of chronic idiopathic constipation.  Management said enrollment is projected to begin in the fourth quarter of 2013.

You’ll often see a biotech’s shares pop on news that enrollment for a phase 3 trial has begun.

As such, we suggest you take advantage of the quiet trading in SGYP to establish your position if you haven’t already.  A rally going into the phase 2b trial results could begin anytime over the next few months on news that the phase 3 trial has begun.

SGYP is a good buy up to $6.00 per share.

. . . . Merrimack Pharmaceuticals (NASDAQ: MACK) – Buy up to $5.00

When we last checked in on MACK in early July, the stock was moving higher in a solid uptrend.  Then shortly after our update the company dropped a bombshell on investors.

And the stock tanked on the news.

The bombshell was the company’s announcement of concurrent public offerings of common stock and 4.50% convertible senior notes due 2020.  The terms of the common stock offering were 5 million shares priced at $5.00 per share.

This news precipitated MACK’s fall to the $5.00 per share area.

However, the stock has continued falling since the company’s second quarter earnings call earlier this month.  It appears a number of investors have jumped ship due to a misunderstanding about the company’s approach to clinical testing.

During the call, management reiterated that the phase 2 trials of MM-121 in lung and ovarian cancers would likely fail.  Top-line results from these trials are expected by the end of 2013.

But this isn’t new information. 

You’ll recall we discussed this situation back in June (as the stock was rising in a nice uptrend).

However, it appears that by rehashing this news in the wake of the stock offering, management sent a number of investors to the exits.  And the stock proceeded to fall down to current levels around $3.50 a share.

What these investors apparently don’t understand is that MACK is doing more extensive testing in phase 2 in an attempt to lower potential costs and risk in phase 3. 

By that I mean they are testing it in multiple phase 2 trials for a variety of different cancers.  Management is clearly trying to zero in on the cancer subtypes that MM-121 has potential to treat.

By narrowing the drug’s scope in phase 2, Merrimack will lower the potential cost of testing in phase 3.  And it will give MM-121 a greater chance to succeed in those upcoming phase 3 trials.

As a result, we’re expecting positive top-line results from the two phase 2 trials of MM-121 in breast cancer by the end of 2013. 

And we’re not alone in our optimism.

Despite the failed trials, Sanofi has continued its partnership with Merrimack in the development of MM-121.  As the drug giant is potentially on the hook for up to $385 million in future milestone payments, it’s not likely it would continue this partnership if it believed MM-121 had no potential.

Based on this analysis, we’re going to maintain our buy rating on MACK and adjust our maximum buy price to $5.00 per share.

If you already own MACK, you may want to buy more shares in an effort to lower your overall cost basis.  If you don’t own MACK, you have a golden opportunity to pick up shares on the cheap.

. . . . Anacor Pharmaceuticals (NASDAQ: ANAC) – Hold

Anacor has been a major bright spot in the portfolio of late.  The stock has soared to a new high of $11.76 and provided a peak gain of 149% in the process.

Now that’s what we like to see.

This is a perfect example of how riding out the volatility in tiny biotechs can often lead to big profits.  You may recall that at one point, our position in ANAC was down more than 30%.

It looks like investors are driving the stock higher in anticipation of three positive near-term events.

First, the FDA is expected to accept the company’s new drug application for Tavabarole in October.  If that happens, an FDA decision on Tavabarole would likely occur in mid-2014.

Second, a hearing on Anacor’s arbitration with Valeant Pharmaceuticals is scheduled for December.  Anacor is suing Valeant for $215 million on grounds it breached a contract related to the development of Tavabarole.

And third, results from a safety study of AN2728 as a treatment for atopic dermatitis are expected by the end of this year.  Once this study is complete, Anacor plans to begin a phase 3 trial.

As you can see, Anacor has several near-term catalysts on the horizon.  While the stock has risen significantly in recent weeks, these upcoming catalysts may help keep the rally going.

Therefore, we recommend you continue holding ANAC for greater gains.  We’ll be keeping a close eye on it in an effort to capture as much of these gains as possible.

. . . . Agenus (NASDAQ: AGEN) – Buy up to $4.10

AGEN jumped nearly 10% today!

It looks like investors have realized the company has several potential upside catalysts on the horizon.

For example…

Results from a GlaxoSmithKline phase 2 trial of a cancer vaccine, which uses Agenus’ QS-21 Stimulon Adjuvant, for melanoma are expected in the fourth quarter of 2013.

Results from a Glaxo phase 3 trial of its RTS,S vaccine, which also uses QS-21 as an adjuvant, for malaria are expected in the fourth quarter of 2013.

And final results from Agenus’ phase 2 trial of its Prophage vaccine for newly diagnosed brain cancer are expected during the first half of 2014.

With so many potential upside catalysts fast approaching, we’re expecting AGEN to continue moving higher.  So, if you don’t own these shares, you’d better act fast.

The stock is closing in our maximum buy price of $4.10 per share.

Action To Take

  • Sell Vical (NASDAQ: VICL) as soon as possible.
  • Adjust maximum buy price for GTx (NASDAQ: GTXI) to $2.00.
  • Adjust maximum buy price for Merrimack Pharmaceuticals (NASDAQ: MACK) to $5.00.


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