BST Position Update: March 25, 2014

| March 25, 2014

March 25, 2014

Position Update

. . . . Cerus (NASDAQ: CERS) – Buy up to $6.60

CERS is our latest addition to the portfolio.  They’re developing the INTERCEPT Blood System which is designed to inactivate blood-borne pathogens in donated blood components intended for transfusion.

While we have high expectations for CERS, the timing of our trade last week was a bit inopportune.

The entire biotech sector has been moving lower since our trade was released.Investors have been taking money out of the sector after three members of the House Energy and Commerce Committee requested a briefing with Gilead Sciences(NASDAQ: GILD) last Friday.

These Congressmen apparently have concerns about the high price of Gilead’s Hepatitis C drug.  And as a result, the request has some investors worried that Congress may try to reign in prices for new drugs.

In our opinion, investors are using the matter as an excuse to take profits in a sector that has generated huge gains over the past two-plus years.  We fully expect the upward trend in biotech stocks to resume after this correction runs its course.

And we remain confident that CERS will ultimately be a profitable trade.

The FDA is expected to render a decision on INTERCEPT in the second half of 2014.  There is a strong likelihood of approval. And the product has potential to generate billions of dollars in revenue per year.

It’s hard to imagine investors not bidding the share price up as the FDA decision nears.

If you haven’t yet added CERS to your portfolio, you should take advantage of the recent weakness to pick up shares at a nice discount.  The stock is a good buy up to $6.60 per share.

. . . . Threshold Pharmaceuticals (NASDAQ: THLD) – Buy up to $4.80

THLD has been moving lower as part of the sector wide downturn.  But we’re not worried. The stock should mount a rally soon as important late-stage trial results are expected around mid-year 2014.

Plus, if the results are good, the stock could really soar!

And we’re optimistic the phase 3 trial will yield positive results.  Remember, in the phase 2 study, the combination treatment produced a 46% improvement in progression free survival and nearly doubled the overall survival rate.

What’s more, if TH-302 is ultimately approved, it has potential to generate huge revenues for Threshold.  According to the company, the drug’s total addressable market is worth more than $10 billion a year.

With the stock having moved back into our buy range, we’re going to change our rating from Hold to Buy.  Go ahead and grab shares of THLD at $4.80 or less.

. . . . Conatus (NASDAQ: CNAT) – Hold

CNAT has declined significantly over the past couple of weeks in sympathy with Intercept (NASDAQ: ICPT).  You’ll recall that Intercept is developing its own liver disease drug, obeticholic acid (OCA), and that ICPT surged more than 500% over two days in January on positive trial news.

In fact, that same news is what sparked the huge rally in CNAT we’ve enjoyed these past few months.

However, recent news about the potential safety of OCA has led to profit taking in both stocks.  Just over a week ago, Intercept disclosed there were 10 cardiovascular serious adverse events in seven patients participating in the trial.

We think investors are overreacting to the news. While there were more events in the OCA group than in the placebo group, the difference was not statistically significant.  It looks like some investors used the news as an excuse to take profits after the stock’s meteoric rise.

As such, we recommend hanging on to CNAT for greater gains.

Remember, results from the phase 2 trial of emricasan in acute chronic liver failure are expected in the next few months.  And these results could serve as a huge upside catalyst for the stock.

. . . . Venaxis (NASDAQ: APPY) – Hold

Venaxis recently reported great top-line results from the pivotal trial of the APPY1 Test for appendicitis.  The results showed a negative predictive value (NPV) of 97.3%, sensitivity of 96.9%, and specificity of 37.8%.

Both the NPV and sensitivity figures were higher than those achieved in the Pilot Study. Consequently, management believes the results are sufficient for potential FDA clearance.

The company plans to finalize its 510(k) submission and file it with the FDA in the next few weeks.

In the meantime, Venaxis continues to accelerate market development activities in both Europe and the US.  The goal of course is to be well positioned for a successful product launch upon potential FDA clearance of the APPY1 Test.

As you probably know, APPY soared on the positive study results.  It shot up to a high of $3.88 on the news and registered a peak gain of 102%.

Unfortunately, the stock has pulled back over the past couple of weeks as part of the sector-wide decline.  But don’t get discouraged.  Our view is that this is just a temporary setback.

Hang on to your shares of APPY.  We fully expect the stock to resume its uptrend and generate higher profits in the months ahead.

. . . . Rockwell Medical (NASDAQ: RMTI) – Hold

Rockwell announced yesterday that it has submitted its New Drug Application (NDA) for Triferic to the FDA.  The NDA is based primarily on the datasets from the Triferic phase 3 study, but it also includes efficacy and safety data from additional studies.

While the FDA has yet to set a decision date, it will most likely be in the first quarter of 2015.

Management is confident Triferic will ultimately be approved.  As CEO Robert Chioini recently said…

“[T]he [clinical trial] results have demonstrated Triferic is a safe, effective and highly-differentiated iron delivery therapy. We have assembled a comprehensive NDA filing package and today’s submission brings us much closer to the potential US commercial launch…”

While the FDA decision date is many months away, we believe RMTI will continue to trend higher.  The likelihood of approval is very high given Triferic’s strong safety and efficacy data. And the drug has blockbuster sales potential.

Therefore, we suggest you continue holding RMTI for more upside.

. . . . Halozyme Therapeutics (NASDAQ: HALO) – Hold

HALO reported good news this morning.  The company said top-line data from the phase 1/2 trial of HTI-501 in the treatment of cellulite showed the study’s primary endpoint was achieved. 

In other words, a statistically significant improvement in the appearance of cellulite was observed in the areas of patients’ skin that was treated with HTI-501.

As a result, HALO plans to continue development of HTI-501 as a treatment for cellulite.

This could be a huge product for HALO down the road.  The US pharmaceutical cosmetics market is expected to generate $8.5 billion in sales in 2015.

Unfortunately, the good news has failed to snap the stock out of the recent sector-wide downturn.  However, as we’ve said earlier, we think this downturn will be short lived.  And consequently, we expect HALO to resume its upward trend very soon.

Continue holding HALO for bigger gains.

Action To Take

  • Move Threshold Pharmaceuticals (NASDAQ: THLD) from Hold to Buy.


Category: BST Update

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