J&J’s Zytiga, which already competes with Xtandi for particular mCRPC subindications, has already posed a major threat to other non-chemo drugs in the space although Xtandi may be able to steal a significant portion of Zytiga’s pre-chemo mCRPC patient population from Zytiga given positive results for the Phase III PREVAIL study and additional “saturation” into the market. Also threatened is Dendreon’s (NASDAQ: DNDN) Provenge therapy, which has seen significant sales declines since the market launch of Xtandi. In the most recent quarterly earnings call, these declines were indeed attributed to both Xtandi and Zytiga.

Although PREVAIL isn’t scheduled to be completed until September 2014, the company intends to release an interim analysis of the overall survival (OS) data that has been collected thus far. Wall Street analysts and biopharma investors are generally expecting good results with similar efficacy relative to previous clinical trials, which is why there is a consensus that the $3.6 B company has limited upside at this point. Conversely, there is the notion that a company with limited upside also has limited downside.

But if Xtandi is poised to compete with Zytiga in pre-chemo mCRPC patients, why is the acquisition of another drug in mid-stage development so threatening?

Xtandi (enzalutamide or MDV3100) is a second generation androgen receptor antagonist (inhibitor). The Phase II drug that was acquired along with Aragon – ARN 509, works through the same mechanism of action and has demonstrated strong efficacy in early pre-chemo treatment. Xtandi, which has also established its utility at this stage of patient care, will then have to compete with J&J-backed ARN 509.

Comparative efficacy data isn’t available, although Medivation investors are worried that an ARN 509 & Zytiga pre-chemo pairing can “cover all the bases” for oncologists treating mCRPC patients, knocking Xtandi out of that market. Since Medivation’s valuation seems heavily dependent upon the expansion of Xtandi into the pre-chemo patient population, this would at least limit the stock’s upside and possible send it into a downtrend.

The Takeaway

Medivation, which sells a prostate cancer drug called Xtandi, is attempting to expand the drug’s use into use in prostate cancer patients that have not yet received chemotherapy. This translates into more sales, and more revenue. A portion of this should be baked into the valuation of MDVN.

Johnson & Johnson’s acquisition of a similar, competing drug ARN 509 in mid-stage clinical development threatens Xtandi’s expansion and hence damaged the valuation of Medivation stock. The overhang of ARN 509 may keep MDVN suppressed until the release of OS data from PREVAIL.

ATP is a chemical structure that stores energy and transfers it throughout the body. When our bodies have trouble regulating the uptake of glucose into the blood stream, not enough energy is created and distributed to important organs, especially the brain. Since glucose is a necessary chemical in our bodies, problems with the uptake of this chemical can cause major issues.

Diabetes is a disease that causes the body to have problems regulating the uptake of glucose in the bloodstream. The uptake of glucose through the blood stream is controlled by a balance between glucose and a peptide hormone released by the pancreas called insulin. The amount of glucose in the blood stream is important because too much glucose can lead to hyperglycemia, but too little can lead to hypoglycemia. Hyperglycemia can lead to blindness, loss of kidney function, and nerve damage while hypoglycemia can result in dizziness, fainting, confusion, and increased heart rate. Since diabetes has become such a prevalent disease, several biotech companies have created therapies to help patients regulate insulin and glucose in the blood stream.

Biodel (NASDAQ: BIOD) is one such biotech company that is developing specialized therapies for diabetes. Biodel's lead drug candidate BIOD-123 is a therapy for patients with Type 1 and Type 2 diabetes. Although still in clinical trials, BIOD-123 has the potential to be a better therapy than those currently on the market. The drug's faster onset of action and non-invasive routes of delivery improve the efficacy, safety, compliance, and convenience for the patients.

• Pipeline: BIOD-123

The goal of diabetic therapies is to help the body's cells uptake the glucose in the blood stream by providing insulin. There are two different types of diabetics that need a constant need for insulin -- type 1 and Type 2. In Type 1 diabetes, the body attacks the cells in the pancreas that produce insulin, which is usually caused by a genetic condition. In Type 2 diabetes insulin resistance occurs, causing the body to not produce enough or ignore available insulin. Although Type 2 diabetes has some genetic risk factors, it is predominately caused by lifestyle choices. In both cases, patients require a supplementation of insulin in order to regulate their blood glucose levels.

Biodel's BIOD-123 is a proprietary form of injectable recombinant human insulin (RHI) that is injected to help regulate blood glucose level. It is designed to be an ultra-rapid acting formulation when compared to the current "fast acting" mealtime (prandial) insulin that already exists on the market.

(click to enlarge)

Questcor Pharmaceuticals (NASDAQ: QCOR) was one of the most heavily shorted stocks on the NASDAQ according to the most recent data set from May 31^st 2013, with 22.15 M shares short out of a float of 53.6 M share (41%). Investors should note also note that this was after a significant decline in short interest throughout the month of May, as the April 30, 2013 data show 27.15 M shares short QCOR.

QCOR trading has been very erratic in the last two months, although it has clearly favored the bulls – especially after last week’s rally in reaction to the acquisition of a competing product. We will discuss this later in the note.

We think that the recent move towards the upside was justified, due to Questcor’s most recent developments. The bearish scenarios that inspired many short sellers to attack the stock have not (and may not) play out, which provides some potential for stability going into the second half of the year.

In the last three quarters, the bearish thesis was based on the shaky (and “collapsible”) reimbursement situation for very expensive Acthar prescriptions – at $28,000 per vial. Aetna (NYSE: AET) was the first company that started to put these concerns of “warfare” with the insurance companies into overdrive with their infamous reimbursement policy change in September 2012, which removed reimbursement for Acthar prescriptions outside of the infantile spasms indication. This threat was clearly reflected by the massive decline in QCOR stock at that time, although the idea that other insurance companies would follow Aetna’s example became less and less feasible as we saw no additional policy changes that adversely affected Questcor’s business model. Most recently, we saw UnitedHealth confirm a continuation of its coverage on June 1^st too, which helped drive bullish sentiment in recent trading.

Also important was the acquisition of a synthetic corticotropin gel known as Synacthen from Novartis (NYSE: NVS) for $135 M, which triggered last week’s more sustained rally into the mid $40/share range. Questcor shareholders were terrified at the potential introduction of a synthetic version of corticotropin gel due to the low manufacturing costs and the ability for competitors to deeply undercut H.P. Acthar’s $28,000 price. Since this threat has been removed (for now), investors generally expect Questcor to retain its financial strength for quite some time.

The Takeaway

Questcor Pharmaceuticals’ business is primarily focused on their animal-derived corticotropin (or adrenocorticotropin, ACTH) gel product, known as H.P. Acthar Gel. Although attractive to the analysts that were covering the company based on financials, Questcor didn’t receive the kind of mainstream attention from the biotech investor community until Aetna took action against the company’s marketing practices.

QCOR stock has generally recovered from last year’s smackdown, which is why we’ve become less enthusiastic about the upside and more concerned about the potential for the company to disappoint. Third party prescription data shows that Acthar has been doing very well this month (especially last week) – likely as a result of Acthar’s introduction to a number of new indications in recent months, although it’s worth noting that the “weak hand” shorts are likely to have covered at this point.

Also note that Questcor’s valuation has increased dramatically, and is approaching $3 B. Based on the new price per share, the new dividend yield of 2.2% does not draw nearly as much interest. Note that the yield was originally 4% after it was introduced by company management to discourage short selling of QCOR stock and the reassurance of shareholders of the company’s financial strength.

Questcor is still inexpensive based on the financial data that the company is producing, but the “easy money” has been made since the initial drop in September 2012.

As mentioned by company management, there are few concerns about the safety profile of the therapy since the DCVax platform uses a patient’s own cells. This bodes well for the future approval process of the therapy given that it can meet particular thresholds in efficacy.

Worth noting is that Northwest is also enrolling glioblastoma patients into a Phase III trial for the glioblastoma multiforme indication, which is expected to produce top-line data near the end of 2014. Of the two trials mentioned thus far, I believe that the market will pay more attention to this late-stage since it could bring DCVax-L to the market as early as late 2015 or early 2016. Existing treatments for glioblastoma, a very aggressive brain cancer, are currently limited to mainstream drugs like Avastin for patients who have advanced stages of the disease.

Since DCVax offers a radically new mechanism of action to target the tumor cells without introducing toxicity, market penetration could be very significant if the Phase III results show significant overall survival (OS) benefit. Data from Phase I/II development for DCVax-L implies that we may see median 19-20 month extension of late-stage glioblastoma patients’ lifespans – significantly better than glioblastoma therapies on the market today.

It’s because of this potential to do very well in the glioblastoma patient population in a late stage trial that I think the market will be especially excited  about Northwest’s data in late 2014. This would be the data release that could feasibly move shares of NWBO well above their all-time highs.

Mechanism of Action

DCVax is a cell therapy that involves the extraction of a patients’ dendritic cells and the introduction of  antigens (biomarkers) expressed by tumor cells, which results in “education” of the dendritic cells. Essentially, the process that Northwest Bio uses will prepare a patient’s dendritic cells to signal a T-cell response against the tumor cells of each individual patient.

Since the particular mechanism of action of this therapy is very broad and even fundamental (due to its reliance of the immune system), DCVax has the capacity to move into a large number of cancer indications.

DCVax-Direct, the version that has just begun human testing at MD Anderson, is particularly interesting since it is a specialized therapy for inoperable solid tumors. This is one of the particularly challenging oncologic indications, although animal data has suggested that personalized immunotherapy can bypass many of the problems that disrupt the function of protein-targeting molecules and chemotherapies.

Biodel (NASDAQ: BIOD) focuses on the development and commercialization of treatments for diabetes in the United States.

Biodel is expecting to release Phase II clinical data of RHI-based ultra-rapid-acting insulin for BIOD-123 in the third quarter of 2013.  In the second quarter conference call the CEO Dr. Errol De Souza stated:

“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. We remain on track to report top line data in the third calendar quarter of 2013. On the research front, our new concentrated insulin candidate BIOD-531 has demonstrated an ultra-rapid-acting onset and basal duration profile in diabetic swine which could offer medical practitioners a novel therapeutic to improve prandial coverage while maintaining basal coverage in both severely insulin resistant patients and patients who use premixed insulins. We look forward to progressing BIOD-531 into clinical trials.”

In 2010, the Federal Drug Administration (FDA) gave Biodel a complete response letter for Linjecta, which was an injectable, fast acting human insulin for patients with Type I or Type II diabetes. Instead of going forward with that formulation, management decided to study four new formulations: BIOD-105, BIOD-107, BIOD-123, and BIOD-125.  BIOD-123 and BIOD-125 were found to be the statistically better formulations.  With management focused on correcting the problems it had with the Linjecta studies, BIOD-123 should have a more competitive chance at producing positive data.  With a market cap of only about $64 Million, Biodel is under spec-valued.

GTx  (NASDAQ: GTxI) engages in the discovery, development, and commercialization of small molecules for the treatment of cancer, cancer supportive care, and other serious medical conditions.

GTx is expecting to release topline data from the two pivotal clinical trials termed POWER 1 and POWER 2 soon this year. Both of the pivotal trials are placebo-controlled, double-blind, and were fully enrolled by the 4th quarter of 2012. The data from these trials are of the utmost importance for patients with muscle wasting because there is currently no approved treatment.

According to Mitchell S. Steiner, Chief Executive Officer of GTx:

“We are pleased that the DSMB (Data Safety Monitoring Board) has recommended that GTx continue as planned with our clinical studies of enobosarm under the existing protocols. The extensive safety database GTx is compiling from the numerous clinical studies of enobosarm will be a critical component of GTx's application for marketing approval, which we hope to submit following receipt of topline data from our Phase III clinical trials in the 3rd quarter of 2013.”

In both trials, patients with stage III or IV NSCLC were randomized at the time they began first line chemotherapy and were either treated with placebo or 3 mg of enobosarm. The study measured the response rates of enobosarm vs. placebo, on maintaining or improving total lean body mass. To test this, doctors had patients perform a stair climb to assess the individual's power at day 84 of treatment. Additionally, the study used dual x-ray absorptiometry (DXM) to measure the patient's bone mineral density at five months of treatment.

If the data turns out to be good for GTx here, we can easily see a double in stock price from its current level of $6.81, with a market cap of $429.24M.

Sarepta Therapeutics (NASDAQ: SRPT) focuses on the discovery and development of RNA-based therapeutics for the treatment of rare and infectious diseases.

Sarepta should receive a decision from the FDA on whether or not to grant eteplirsen an accelerated approval, which wouldbypass a Phase III trial and go straight to market.

Eteplirsen is an antisense PMO-based therapeutic for the treatment of young boys with Duchenne Muscular Dystrophy (DMD).

The FDA decision is expected some time in the 3rd quarter, possibly early Q3. Some analysts have put a $50 price target on Sarepta, and if early approval is granted here, it's my opinion the stock will surpass the $50 range temporarily, so traders and investors might consider selling what I believe will be a gap to over $60, as it's likely the stock will sell the gap back down to the low $40 range. Remember, should the FDA grant the early approval, a lot of investors and traders will be looking at massive profit, and are likely to take that profit. In turn, I would expect short sellers to take advantage of this and sell the gap as well.

Sarepta is a stock investors and traders should keep on close watch -- I believe the FDA will grant the requested early approval before the end of summer this year.

Antares Pharma (NASDAQ: ATRS) focuses on developing and commercializing self-administered parenteral pharmaceutical products and technologies, and topical gel-based medicines worldwide.

Antares expects a Prescription Drug User Fee Act (PDUFA) approval decision from the FDA on or before October 14, 2013 for OTREXUP (formely known as Vibex MTX). OTREXUP is a rapid subcutaneous (SC) self-administered injection of methotrexate (MTX). MTX is a medicine used to treat and control severe psoriasis or rheumatoid arthritis.

Investors and traders might have Antares and its OTREXUP under-the-radar, so to speak.  Although its current market cap of $517.32M might seem a bit high on the surface, I feel it's actually somewhat low. OTREXUP is pretty much a given to receive FDA approval in October, and could bring upwards over $1B in revenue to the company in lifetime sales. Factoring in this product alone, Antares is roughly about $300M undervalued in my opinion. If we take into consideration its well positioned partnership with Teva Pharma (NASDAQ: TEVA) for some of its other products like TevTropin® 10mg, Vibex™ EPI, and Vibex™ Sumatriptan, Antares could easily see a market cap over $2B in 4 to 5 years.

Antares also has warrants issued that are due to come to expiration this month, so I would expect the remaining warrants to be exercised soon. Last year, Antares saw a similar situation with warrant expiration. At the time, the stock ran up from around $3 to $5.58 in a very short period of time. I also speculate that Antares will be acquired this year by Pfizer (NYSE: PFE), so I expect many warrant holders to hold their shares, rather then sell them.

Disclosure: I am long BIOD, GTxI

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.

In a previous note on Clovis I briefly went over the company’s history and the manner in which they were able to acquire their assets. Specifically, the acquisition of CO-1686 through an interrupted partnership with Avila Therapeutics (due to Celgene’s acquisition) and the licensing deal which gave Clovis control of Pfizer’s old PARP inhibitor Rucaparib (aka PF-01367338). In this note I will delve into the key details of the Phase I data presented for CO-1686 – the more impressive of the two drugs up to this point.

CO-1686 – A Covalent/Irreversible Epidermal Growth Factor Receptor (EGFR) Inhibitor for Non-Small Cell Lung Cancer (NSCLC)

A big problem that other EGFR inhibiting NSCLC drugs like Tarceva (erlotinib) and Erbitux (cetuximab) have is their vulnerability to particular mutations in cancer cells that can bypass their mechanism of action. In particular, a frequently seen mutation known as T790M is known to counteract EGFR inhibition in nearly two out of every three cases. Other, less common mutations like L858R and del19 cause similar disruptions.

What makes CO-1686 unique relative to its peers is the molecule’s ability to inhibit EGFR in patients that have T790M, l858R, del19, and other drug-disabling mutations while avoiding inhibition of non-mutated (or wild type) EGFR. It was hard to believe that a NSCLC drug could be so well designed, although the Phase I data that Clovis presented at ASCO 2013 seemed to reinforce the notion that the drug works as intended.

In the trial 42 total patients were enrolled, 24 entered the dose escalation phase of the study, and 6 reached the highest daily dose of the drug (1800 mg, twice daily). According to biopsies taken from the 42 patients, 74% were positive for the T790M mentioned earlier, implying that the efficacy results would be a good gauge of whether or not CO-1686 worked as well as it should in lung cancer patients with that mutation.

Patients saw none of the typical signs of EGFR inhibition-related toxicity – specifically rash and diarrhea - up to a 1800 mg daily dose of the compound (N=6) as mentioned. There was 1 possible exception in the 900 mg arm that included diarrhea and some other serious side effects, labeled as an instance of dose limiting toxicity (DLT). Total adverse events (grade 3 or higher) were limited to 4 patients – including the DLT patient, and were explained to be unrelated to the administration of CO-1686. Total adverse events were seen in 62% of the population although the most frequent of these were common symptoms like fatigue and nausea.

The notion that the drug is a particularly potent and irreversible inhibitor (by forming covalent bonds with its target receptor) is quite shocking from a bigger perspective, since these types of drugs are generally associated with very undesirable toxicity profiles which are discovered early on in Phase I development.

Perhaps more exciting from the presentation was direct proof (in a non-animal model) that the drug could cause RECIST-measured reduction in tumor size in patients that stopped responding to other EGFR inhibitors, and had biopsies to confirm the presence of the drug-disabling mutations mentioned earlier.

As mentioned by the company numerous times, patients had not reached the maximum tolerated dose (MTD) at this point, which is why the company cannot provide a specific estimate on the optimal dose that it expects to use in the shift to Phase II trials. But overall, the takeaway that we have from the efficacy and safety data up to this point is that CO-1686 is everything it “promised to be” on paper. This is quite relieving to CLVS investors, since it is often that case that a drug’s mechanism of action is disrupted in vivo (or “in the body”).

We also saw solid measurements that established the pharmacokinetic profile of the drug. The dosing of the drug correlated quite well with the blood plasma concentration of the drug, and Clovis mentioned that there were no signs of accumulation of the compound in any of the dosage arms.

Based on these data, we are expecting a rough threefold increase in the bioavailability of CO-1686 as the company switches from a capsule form of the compound to a hydrobromide salt (tablet) formulation. This is expected to amplify the tumor-shrinking effects that we saw in the dose escalation portion of the Phase I trial for each respective dosage arm, which bodes well for Phase II efficacy data - ceteris paribus.

The Takeaway

Clovis has presented some truly amazing data for the prospective NSCLC drug CO-1686 at ASCO 2013, which explains the magnitude of the recent CLVS rally. Despite the notion that the company is still an early-stage developer, the ASCO data and the hope that the company will see an accelerated approval process is likely to support the stock for quite some time.

The projected revenues for hGH-CTP are based on the market penetration assumptions of some other analysts (generally in the 30-40% range), although we feel that these could be even higher due to the significantly improved once-weekly regimen that hGH-CTP would offer relative to standard human growth hormone, which must be injected once per day for patients with stunted growth. We pointed to a somewhat similar improvement made in dosing regimen for VEGF inhibitors in wet AMD treatment that was introduced by Regeneron (NASDAQ: REGN), which was a huge commercial success because of the practicality of reducing total number of patient injections.

This note will focus on two other companies that caught OPKO’s attention in recent history and triggered deals – RXi Pharmaceuticals (OTC: RXII) and Tesaro (NASDAQ: TSRO). Due to the nature in which PROLOR was acquired by OPKO, we believe that Dr. Philip Frost (CEO and Chairman of OPKO) and his team see big potential in the respective pipelines of these two companies, and have positioned themselves accordingly (with the ownership of huge equity stakes) to acquire assets at a later date.

Unmentioned at this time is the importance of late stage clinical development for OPKO’s own CTAP101 and Fermagate programs, although we will delve into these later.

RXi Pharmaceuticals

RXi is a company that focuses on RNA interference (RNAi) technology, which is a very promising area that may see much more interest from the biotech investment community as more efficacy and safety data is gathered in various ongoing clinical trials. In March 2013, OPKO closed the sale of its RNAi portfolio to RXi for $12.5 M and 50 million shares of RXi along with $50 M in milestone payment obligations.

What made this particularly interesting, and should drive M&A speculation into the future, was the additional purchase of 17.2 M shares of RXi as part of a $16.4 M financial for RXi which makes OPKO a near-20% owner of company stock. This better positions the company for a repurchase of the RNAi pipeline later on, which includes a particularly interesting compound from the RXi pipeline called RXI-109.

RXI-109 is an RNAi compound that inhibits the production CTGF (Connective Tissue Growth Factor), a protein that plays a central role in the formation of scar tissue and serves as a very good biomarker for abnormal scarring.  The drug impressed the market after a recent presentation of the first of two planned Phase I studies, which showed that 15 RXI-109 patients had statistically significant reductions in CTGF expression at a RXI-109 injection site (versus a placebo injection site) and experienced no significant side effects or toxicities.

This is not only good news for RXI-109, but good news for the therapeutic viability of RNAi technology – and in this case, the specific platform developed and pooled together by RXi and OPKO Health.

Worth noting is that Dr. Phillip Frost, originally trained as a dermatologist, should have a particularly good read on the commercial viability of an anti-scarring product like RXI-109. The fact that he has linked OPKO’s financial interests with RXi through a near 20% equity stake in the company implies that he is confident that the product will succeed in late-stage clinical development, and ultimately on the dermatology drug market.

RXi is a very young company and is only covered by one firm (Griffin Securities), which issued a“buy” rating in April.

Tesaro

Tesaro is an oncology drug developer that impressed the market with Phase I results presented at ASCO 2013 for a promising phase I compound called Niraparib, and achieved tumor shrinkage in 75% of patients (based on a standardized measure RECIST) with advanced ovarian cancer and 50% across all dosage arms in ovarian cancer patients with BRCA mutations.

OPKO’s history with Tesaro goes back to a deal closed in December 2010 for the NK-1 receptor Rolapitant for the treatment of chemotherapy induced nausea and vomiting (CINV). Similar to the pipeline deal made with RXi Pharmaceuticals, the Tesaro gave OPKO the rights to future milestone payments (up to $121 M) and tiered royalties on future sales for the product, in addition to a 10% total equity stake in TSRO. After the company held a very successful IPO in 2012 and tripled its valuation in just a year, we can infer that OPKO is not only impressed with the results, but may at least consider additional investment into TSRO at some point.

We are expecting Rolapitant Phase III top-line data in the second half of 2013. Wall Street analysts are very bullish on the drug’s prospects, with buy/outperform ratings from all 5 of the firms covering the company.

The Takeaway

Many claim that OPKO is overvalued based on the market prospects of its pipeline compounds, although the company is generating substantial value with business partnerships and equity investments in companies like RXi and Tesaro. RXi in particular has become a favorite of OPKO with the accumulation of 67.2 M shares (19.9% of shares outstanding) up to this point, making a full acquisition of RXi by OPKO very possible.

Disclosure: Long OPK via Short Puts

OPKO Health (NASDAQ: OPK)

http://www.prolor-biotech.com/siteContent/files/18/pipeline.jpg

As you can see, the next-generation human growth hormone product hGH-CTP is the most matured development program, has orphan drug status in the US/EU, and remains vital to the valuation of PROLOR (and now OPKO) due to the sheer size of the therapeutic market and the competitive advantages that are introduced with PROLOR’s technology. The company’s CTP (carboxyl terminal peptide) platform allows for the development of controlled release injections of therapeutic proteins, which offers patients an equivalent dosing in a weekly injection as opposed a daily injection. Human growth hormone, which is injected daily into patients with stunted growth, can now be injected in a far more convenient weekly version.

We saw a similar improvement made with sleeper-hit company Regeneron’s (NASDAQ: REGN) wet AMD drug EYLEA, which offered a more convenient dosing regimen relative to another VEGF inhibitor LUCENTIS which had comparable efficacy and pricing. Since Wall Street did not anticipate the huge implications of EYLEA’s competitive advantage against LUCENTIS, it wouldn’t be surprising if we saw a similar situation play out between hGH-CTP and hGH. As they say, history tends to repeat itself.

It’s hard to determine at this point what kind of market penetration we’d see once hGH-CTP is launched and fully saturated into the hGH market, although the general consensus amongst analysts is that the product should come to represent about one third of the hGH-related revenues - if not more. Based on PROLOR’s estimates, this implies that the product can generate close to $1 B in annual revenues in a few years.

Applying a generous 15% discount rate over what could be three years until introduction to the market, and another 25% devaluation due to the risk of FDA rejection (arriving at $230 M in “current” revenues), we can infer that the hGH-CTP program should be worth something closer to $1 B. Based on this, I find it surprising that OPKO’s overall valuation suffered as a result of the PROLOR acquisition, and that bears are willing to short the company up to 20% of float despite the $2 B market capitalization.

Worth noting about hGH-CTP is that PROLOR announced  the initiation of a pivotal Phase III study for hGH-CTP, which may bring more market attention to the undervaluation of this development program after the publication of top-line results that can establish the relative efficacy of hGH-CTP and standard hGH injections.

On top of this, OPKO’s recent acquisition streak could prove very beneficial to the company’s valuation over the next few years. The strategic buyout of the Brazilian pharmaceutical company Silcon Comércio, for instance, aids in the market penetration of OPKO’s 4Kscore diagnostic test for prostate cancer where significant unmet need still exists.

Another deal worth mentioning was the “pooling” of OPKO’s and early-stage developer  RXi Pharmaceuticals’ (RXII) RNAi pipelines, which resulted in a significant (50 M share) stake in RXi for OPKO. More recently, we also saw a deal made withTesaro (NASDAQ: TSRO) for shared development of rolapitant, under which OPKO can receive $121 M in milestone payments plus full rights to market in Latin America.

Looking at OPKO’s balance sheet, we can also see some notable improvements after the company’s 3% convertible debt auction earlier in the year. As of March 31^st 2013, the company held $182 M in cash, and $238 M in current assets. The biggest liability on the balance sheet at this point is the big pool of convertible notes (valued at $196.4 M), although the interest rate is quite favorable and it must be noted that the debt doesn’t expire until 2033.

The Takeaway

OPKO is a heavily shorted biopharmaceutical holding company that is often misunderstood and underestimated, as was the case for previous companies that had been acquired and controlled by the multibillionaire healthcare investor Dr. Phillip Frost. Recent and promising acquisitions by OPKO have been on very favorable terms, and the company’s financials were drastically improved after the company’s convertible debt auction. Of particular interest on the acquisition front is hGH-CTP from the PROLOR pipeline, which justifies half the $2B valuation of OPKO single-handedly.

Disclosure: Long OPKO via Short Puts

This can explain the sensitivity that BIIB shares had to Cowen’s bearish note on Tecfidera and the delay of the European launch into the second half of 2013.

There has been some skepticism over the drug because of the cheap manufacturing cost of the easily-available NF-κB inhibitor dimethyl fumarate (the active ingredient of Tecfidera) although Biogen was indeed the first to clinically develop the compound for the relapsed MS indication, and can justify a price premium for its branded drug. Now it seems that the patent protection of Tecfidera is causing the drug some serious issues in Europe, which explains why the company would delay its introduction into Europe.

AVONEX® (interferon beta-1a), TYSABRI® (natalizumab), and RITUXAN® (rituximab) are Biogen’s other primary drugs in the MS indication. These three brought in the vast majority of the company’s $1.4 B in quarterly revenues ($736 million, $275 million, and $288 million respectively), which represents what should be the lion’s share of the ~$10-15 B US MS drug market. The three drugs also saw in 13%, 9%, and 7% year-over-year growth respectively.

Despite the strength of Biogen’s existing pipeline, expectations are very high for Tecfidera, and it’s generally agreed that the drug will have to pull more than its own weight in order for the company to meet its 2013 sales growth forecast of 16-18%, particularly since none of the company’s existing drugs are growing sales at that rate. Expect the market to continue to monitor Tecfidera’s performance very closely, and to punish BIIB further in the event that Cowen’s theory on the prescription sales is correct.

CO-1686 was originally designed by a biotech company named Avila Therapeutics, a covalent drug-focused entity that was acquired by Celgene on March 7^th, 2012 in a $925 M deal. The compound was introduced to the Clovis pipeline in a $209 M partnership made in 2010 between Avila and Clovis, and the IND application was accepted not long before the company held its IPO on April 3^rd, 2012.

The molecule is a covalent drug that irreversibly inhibits epidermal growth factor receptor (EGFR), which aids cancer cells in proliferation. Clovis is specifically developing it as a non-small cell lung cancer (NSCLC) treatment, since it can bypass certain obstacles in NSCLC cells that other EGFR inhibitors cannot.

Lung cancers that are caused by EGFR are initially responsive to tyrosine kinase inhibitors that can inhibit their catalytic activity, although mutations in the lung cancer cells (like the T790M resistance mutation) can ultimately shut down the viability of TKI-based mechanisms of action for drugs like gefitinib (Iressa) and erlotinib (Tarceva). Unlike other EGFR inhibitors, CO-1686 is designed to irreversibly inhibit mutated versions of EGFR, including T790M, while ignoring wild-type (normal) EGFR. This is a particularly desirable trait, since a molecule with potent and irreversible EGFR inhibition would be highly toxic to patients.

Because of this particular trait the strong safety data that Clovis reported at ASCO 2013 was particularly exciting to Wall Street. The stock moved up 104% on the Monday following the presentation, and the market capitalization of the company hovered around $2 B for the first time since Clovis’ IPO in late 2011.

Also important to the rally was the strong data that company presented for the drug Rucaparib, which is a potent PARP inhibitor – or a Poly(ADP-ribose) polymerase inhibitor being developed for breast/ovarian cancer indications. This compound was originally one of Pfizer’s oncology drugs and was named “PF-01367338” during its tenure as drug for solid tumors, although the development was handed over to Clovis in a deal announced in 2011 that gave Clovis full responsibility over the development and commercialization of the compound in exchange for an upfront payment and milestone payments of up to $255 M. This is an unusual move for an early stage pharmaceutical company, although Clovis was (and is) better-funded than most companies in the sector.

What was so exciting about the CO-1686 and Rucaparib data was that both drugs demonstrated efficacy in their respective early stage trials without reaching MTD (maximum tolerated dose). The implication is that the efficacy of these drugs may be significantly boosted in Phase II trials, which bodes well for the company’s hopes for expedited approval for its oncology pipeline.

CO-1686 was probably the more exciting of the two candidates after the results it demonstrated in non-small cell lung cancer, although optimal dosing has not been established yet. Although the drug was extremely well tolerated, the safety profile should improve as the company switches from a capsule to a tablet formulation (a move which will triple the plasma concentration of CO-1686 per dose). This may allow the company to significantly increase the already-promising efficacy. From the company’s ASCO-related press release for CO-1686:

• One patient with a del19/T790M+ tumor had progressed on erlotinib immediately before beginning CO-1686 therapy. The patient, enrolled in the 300 mg BID cohort, is currently in cycle 6 of CO-1686 therapy, with a confirmed PR
• One patient with an L858R/T790M+ tumor had received six previous lines of therapy, including two previous TKIs, dacomitinib and erlotinib, and had most recently progressed on a combination of erlotinib and gemcitibine immediately before beginning CO-1686 therapy. This patient has demonstrated tumor shrinkage in brain metastases (present at baseline), as well as lung and liver tumors. The patient, enrolled in the 900mg BID cohort, exhibited a PR in cycle 4 of CO-1686 therapy; treatment is ongoing
• One patient with a del19/T790M+ tumor had received two previous lines of therapy. This patient exhibited a PR in cycle 2 and is currently being dosed in cycle 3 at 900mg BID
• One patient with a del19/T790M+ tumor had received two lines of prior cytotoxic chemotherapy and had also progressed on erlotinib treatment. This patient exhibited a PR in cycle 2 and is currently in cycle 3, receiving 900mg BID
• Two additional T790M+ patients have achieved greater than 20 percent target lesion shrinkage with stable non-target lesions

Rucaparib, which also drew major interest, presented 89% clinical benefit rate in ovarian cancer patients across all the dosage arms, and was well tolerated with objective responses in BRCA-mutant ovarian, breast, and pancreatic cancer patients as a monotherapy. This helps to build the case that this could become a popular breast/ovarian cancer therapy that can be combined with a chemotherapeutic agent in a first-line regimen.

Trius Therapeutics, Inc. (TSRX)

The tedizolid phosphate is a novel antibiotic for the treatment of serious Gram-positive bacterial infections, including those caused by methicillin-resistant staphylococcus aureus.

With studies showing a better safety profile and patient compliance than current drugs on the market, Tedizolid is primed to not only get approved by the FDA, but also potentially grab a majority market share. However, Trius may never get to bring its drugs to market because there is a solid chance big pharmas are interested in acquiring its assets. Recently, investors have speculated that Trius will be bought out because the company just announced a notice of allowance of U.S. patent application related to tedizolid phosphate combination with daptomycin.

Daptomycin is marketed as Cubicin by Cubist Pharmaceuticals (CBST) and should pull in near $1 Billion in 2013. Cubist has turned Cubicin into a blockbuster antibiotic and its continued revenue stream is integral to the company's success. The allowance of this patent makes Trius an even more prime target for a buyout for the several following reasons.

• Reduce Resistant Bacteria 

Adaptation and evolution are two of the most troubling problems when it comes to developing antibiotics. For example, if scientists are able to develop a drug that kills 99% of bacteria, that 1% will survive and become the genetically most prevalent form. How long this takes depends on several factors including how rapidly the bacteria can adapt and replicate. In order to kill stronger or different strains of bacteria, scientists are always creating newer and more powerful drugs.

The prevalence of these mutant strains has become an increasing problem for daptomycin. Although daptomycin has been a successful drug in treating patients in the gram-positive bacteria market, it is slowly losing its effectiveness as the bacteria are becoming more resistant.

Dr. Ralph Corey, Professor of Medicine and Infectious Diseases at Duke University, stated:

MRSA bacteremia is a potentially fatal disease with limited treatment options. As a clinician who treats bacteremia patients, I am concerned by the growing resistance to one of our last effective treatment options, daptomycin, and welcome this news that tedizolid phosphate may prevent daptomycin resistance when used in a combination therapy.

Trius found that when a low dose of tedizolid phosphate is combined with daptomycin, the amount of bacteria resistant to daptomycin is significantly reduced. This is significant because it would increase the efficacy of daptomycin and extends its life as an antibiotic. In the same press release it stated:

As detailed in the patent application, tedizolid phosphate, at concentrations substantially below its current therapeutic dose to treat skin infections, unexpectedly prevents the formation of daptomycin resistant mutants of Staphylococcus aureus. Tedizolid appears to be unique in this mutant prevention activity given that seven other medicines tested, including linezolid, the only other drug of the same class as tedizolid, failed to show the same mutant prevention activity.

The allowance of this patent is of extreme importance to both Trius and Cubist. From a scientific standpoint, Cubist would be interested in the combination of tedizolid and daptomycin, since the combination of the two would solve the problem daptomycin has with resistant bacteria. This would extend the effectiveness of daptomycin and keep that revenue stream steady for Cubist. Also, as previously mentioned, analysts have speculated that tedizolid could reach peak sales of up to $900 Million -- how much more in sales can be realized with the combo tedizolid phosphate/daptomycin that was just issued a patent allowance? With a market cap of $360M, Trius is ridicuously undervalued and under speculated in my strongest opinion.

• Extend Exclusivity 

The allowance of this patent could also provide Cubist with an opportunity to extend the exclusivity period of Cubicin. Until 2018, no companies can create any generic forms of Cubicin and Cubist has been able to bring in large revenues because of that. After 2018, generic drug companies could create a cheaper alternative and grab some market share away from Cubicin. Obviously, it would be in the best interest of Cubist to extend the period of exclusivity for as long as they can do so, notwithstanding the potential for potentially significant additional revenue from tedizolid phosphate combination with daptomycin.

The combination of tedizolid and daptomycin would be a way for Cubist to extend and realize revenue from a patent exclusivity period by an additional five years. With guidance this year of near $1 Billion in revenues for Cubicin, exclusivetly from a more effective combo solution could easily realize $5 to $8 Billion in revenues before any generic potentially comes to market. Long-term Cubist shareholders should encourage and support a buyout or partnership with Trius because it should provide a huge revenue stream for several additional years.

• Broaden Profile

With a buyout, Cubist would gain the rights to tedizolid, along with the newly patented combo drug, plus the other drugs in the Trius pipeline. As stated previously, Trius reported positive Phase III data for tedzolid, meeting all primary endpoints when compared to Pfizer's Zyvox. owever, tedizolid also appeared to have a better safety profile and dosing schedule. Cubist also could complete Trius' scheduled Phase III program for the treatment of pneumonia in the second half of 2013. In the pipeline Trius also has an array of products ranging from preclinical to Phase III trials that would add additional value to Cubist.

Additionally, in the latest 8k from Trius, we read the following:

On May 21, 2013, our 2010 Equity Incentive Plan (the "2010 Plan") was amended to, among other things, increase the aggregate number of shares of common stock authorized for issuance under the 2010 Plan by 5,100,000 shares.

I saw similar activity with Obagi Medical Products before it was acquired recently. When considering the fundamental reasons why Cubist might acquire Trius, it makes sense that management would want "extra shares" to be awarded themselves upon an acquisition. This is an indicator to me that a buy-out may be in short order for the company.

Trius is a small cap biotech with a developing potentially huge story, with a transitional market cap of $360M. According to recent media reports, Cubist reportedly made an unsolicited $1 billion bid for another company in the segment, that was not accepted. With the timing of the patent grant along with Trius upping its authorized share count for the purpose of incentive rewards, its likely in my opinion that the company will be acquired soon by CUBIST for at least double its current price.

At the very least, Cubist could partner with Trius, and any such deal would be a lucrative one for Trius. However, Cubist would be better served buying Trius straight out for the reasons I have mentioned here.

Additionally, there is has been a lot of news about multi-drug-resistant organisms (MDROs), such as MRSA, vancomycin-resistant enterococci (VRE), and Carbapenem-resistant enterobacteriaceae (CRC).

NBC ran a story in February this year which stated that there has been a sharp jump in the number of rare but potentially deadly types of superbug bacterias resistant to nearly all last-resort antibiotics. As mentioned, Congress took action passing The Gain Act, to incentivize companies to develop new treatments to combat this problem, as new strains become more resistant to current treatments on the market.

Considering all these factors, my one year price target opinion for Trius is $20 a share, which would roughly equate to a $1B market cap -- Which is what was reportedly offered by Cubist for another company in the segment. I believe the stock will cross over the $10 mark soon.

Although this was exactly what the bears were looking for, the reaction to the Q1 earnings was clearly bullish. After April 30^th, when QCOR was trading just north of $30 per share, the stock went on to rally to ~$42.40 per share in two weeks. This 41% rally, which was made on fairly strong volume, is largely explainable by a big shift in sentiment from the bear side.

Going into the earnings with short interest data from April 30^th, one can see that about 27.1M shares of QCOR were being sold short. The most recently posted data from May 15^th shows that there was a decline of ~2.3M in the total pool of shares short, moving the figure down to 24.9M. This also represented a decline in shares as a percentage of float from 45.5% to 41.8% based on the most recently acknowledged number of total shares outstanding (~59.6M) which may decline as the company’s share repurchase plan still allows the company to acquire another 6.3M shares.

Although much of the rally was fueled by organic buying, it’s now apparent that the short squeeze that many Questcor longs were looking for has finally started to happen. Depending on the price that these QCOR shorts were covered at, we can say that about $70-90M worth of QCOR was purchased as a result of short covering in the first two weeks of May 2013. The market helped absorb this with significantly increased volume in QCOR common stock, although the effects were still quite dramatic.

Going forward it’s not clear whether the remaining 24.9M shares that are short will be phased out to the benefit of QCOR shareholders, but bears may be willing to wait until Q2 2012 results later this summer which could miss our high expectations. The market  is expecting an EPS of $.98 and revenues of $167.3M on average (significantly higher than Q1 2013 results) as the company expands Acthar’s marketing into a total of 19 separate indications.

Questcor is more likely to stay rangebound until we see Q2 2012 results in about two months, and I don’t expect too much change in short interest as we head towards this catalyst. Many of the newer short sellers seemed to have bet against the stock in late 2012 and early 2013, and should have covered after Q1 earnings. Many of the “old” short positions should still be in the green, although interest and dividend payments from Questcor to its shareholders (now at a yield of 2.87% per year) continue to whittle away at those gains.

QCOR also has strong fundamentals, with particular robust cash flow and inherent undervaluation, and seems especially attractive as a holding below $40 per share. If Q2 results are in line with the company’s own expectations, I also expect the stock to eventually make an attempt at $50 depending on the reaction of bears that are still heavily shorting the stock. Like mentioned earlier, there are 24.9M shares of QCOR still being sold short, which equates to ~$870M worth of potential buying.

One of the biopharmaceutical companies that has been lagging the stellar performance of its peers isExelixis (NADSAQ: EXEL), developer of the compound cabozantinib. Cabo, which was FDA approved last year for the treatment of medullary thyroid cancer (MTC), is now being marketed under the trade name COMETRIQ. In the company’s reported Q1 2013 earnings release on May 7^th, the company was able to present some early results for the drug’s performance on the open market although it’s difficult to accurately interpret a drug’s intrinsic monetary potential with only a few weeks of sales data and estimates on the drug’s penetration into a market.

For Q1 2013 the company reported $1.86 M in product revenues. Given the company’s estimates that they could be treating up to 500-700 MTC patients within the current FDA-approved indication, we can infer that there is a $50 to $70 M market potential here, given that the average MTC patient should generate about $100,000 for Exelixis out of a typical regimen. There is also the opportunity that the drug has in Europe within the partnership that was established with Swedish Orphan Biovitrum (Sobi), which should generate additional revenue from a large external market.

The MTC market could prove to be a very valuable niche market, although I’ve stated before that cabozantinib will truly make or break the valuation of Exelixis in the prostate cancer market, which realistically represents hundreds of millions in revenues compared to tens of millions in the MTC market. Exelixis also intends to try cabozantinib in the tough hepatocellular carcinoma (HCC) and renal cell carcinoma (RCC) indications. Phase III trials for both indications are expected to start in Q3 2012.

The metastatic castration-resistant prostate cancer (mCRPC) indication will be built on the results of the COMET-1 and COMET-2 phase III trials, which are ongoing and should have top line results in 2014. While the company didn’t give any extra details, it seems plausible based on the estimated completion time for the trials that they will present the results at ASCO 2014. If this turns out to be true, investors should know whether or not cabozantinib will meet its primary endpoints in overall survival (OS) and pain reduction (for COMET-1 and COMET-2 respectively) one year from now.

Until then, it’s likely that EXEL will favor its approximate trading range of $4-5 per share, presuming that the broader market doesn’t make any drastic moves. Exelixis has not shown a very high correlation to the broader market or the biotech sector as a whole, presumably because traders are generally waiting for a catalyst that is still quite far away (the COMET-1 and -2 data release).

Exelixis now has a market capitalization $877 M, although I think there is substantial upside to be realized if the company succeeds in late stage trials for mCRPC – perhaps as much as an additional 100% given that cabozantinib continues healthy expansion in the MTC indication.

The company’s financial position is also pretty good, although the substantial R&D budget (which is likely to increase as the company begins enrollment into the Phase III HCC and RCC trials) and money allocated for sales will overwhelm revenues generated from the commercialization of COMETRIQ for most (if not all) of its lifespan. However, the company reported $567 M in cash as of March 31^st of 2013.

The reported burn rate for Q1 2013 was $45 M. While I expect this to increase due to rising interest expenses and the aforementioned spike in R&D that should be the result of large HCC and RCC trials, Exelixis should not be financially stressed until 2015. This provides more than enough time for the company to report the results of COMET-1 and COMET-2 (perhaps the full results even), which should either induce an appreciable rally in the stock or a drop in reaction to data.

Going forward, investors who are interested in the stock will have some extra material to digest during ASCO 2013 where the company will have 1 oral presentation and eight poster presentations. I think the one that may receive the most attention is Abstract 5026, which should include analysis of the shocking bone scan images that were taken during a Phase II trial implying that cabozantinib shrinks these lesions over time, although there will be other data presented as well (including data that could support the commercialization efforts in the MTC indication).

In terms of mechanism of action, cabozantinib is certainly “unique”, although it fulfills a familiar function at the same time. It is an inhibitor of both VEGFR2 (Vascular endothelial growth factor receptor 2) and c-MET, as well as RET. Both of these pathways are used by cancer cells for the sake of proliferation, although the VEGF receptors already see enormous attention from cancer drug developers. Regarding VEGFR2 in particular, we already saw success with GlaxoSmithKline’s pazopanib. What makes cabozantinib interesting is the targeting of the MET protein pathway, which has not been made available until the introduction of COMETRIQ into the market earlier this year. Other compounds have also lacked the success that cabozantinib has seen in previous clinical trials.

So for now, it’s generally agreed that investors are hungriest for information on COMET-1 and -2. Like mentioned earlier, it seems that EXEL will stay rangebound until the big news comes. Wall Street analysts generally don’t have strong opinions on the stock, which makes sense given the company’s situation.

disclosure: long

Amarin Corporation (NASDAQ: AMRN) has been struggling a lot lately as retail channel prescription data for its EPA capsule Vascepa imply that the drug is starting to slow down its momentum in the MARINE indication (hypertriglyceridemia patients with >500 mg/dL). While the company has seen significant progress since the launch of the drug in January, it is still not causing any excitement in an investor base that wanted to see a big pharma buyout of the company ever since the company reported successful Phase III results.

Despite the incredible strength of the broader market and the biotech sector in particular this year, AMRN is down 14% YTD as of the time of writing. Since the company released Q1 2013 financial results (as discussed in a recent note), the company rallied all the way to $8.00/share before continuous selling brought shares back to the $7.00 per share level.

We also have yet to see the FDA make a decision regarding the NCE (New Chemical Entity) status of Vascepa, which will have a profound positive/negative impact on the value of Vascepa as a product and possibly on the chances for Amarin to receive an attractive partnership or buyout offer from a larger pharmaceutical company. CEO Joe Z’s commentary seems to suggest that a partnership is needed prior to the prospective launch of Amarin into the ANCHOR indication due to the sheer number of sales reps that the company would need to market into such a huge primary care indication, although details are scare for the time being.

Additionally, the market seems disinterested in more recent news which would normally generate some buying interest despite the mediocre market performance of Vascepa in its current disease indication. For instance, the market seemed to gloss over the recently released new data from the MARINE/ANCHOR Phase III trials that shows statistically significant reductions in Apolipoprotein C-III (Apo C-III), which is a lipoprotein that serves as a biomarker for poor cardiovascular health. This bodes well for the REDUCE-IT Phase III trial, which will transition Vascepa into a hypertriglyceridemia therapy into a preventative cardiovascular risk therapy that can be combined with standard statin regimens.

But in general, we haven’t seen anything new with Amarin or Vascepa that should change one’s opinion on the stock quite yet. The market seems much more preoccupied with oncology drug developers who will be presenting at ASCO 2013 – the American Society of Clinical Oncology meeting that will be held Chicago between May 31^st and June 4^th, 2013.

This generally explains why AMRN has been more of a trader’s stock than an investor’s stock, making exaggerated movements in reaction to news that has little implications on the long term health of Amarin. Despite the volatility, Amarin seems to favor trading ranges which is why the company may be a good candidate for options trades that favor sideways trading within a predetermined ranged.

As mentioned in other notes, Amarin has a PDUFA goal date of December 20^th 2013 for the sNDA that will significant expand the size and scope of Vascepa’s target indication. If Vascepa sales move in line with analyst expectations (which should ultimately approach ~$80M in sales revenues for FY 2013) we may see continued sideways trading in the stock as the market waits for further developments.

One particular strategy that takes advantage of neutral sentiment is the “Iron Butterfly” strategy, where one writes an at-the-money call and an at-the-money put  while buying an out-of-the-money call and an out-of-the-money put. This could be very profitable, although the trade would likely go sour in the event that the FDA issues a decision on Vascepa’s NCE status in one of its Orange Book updates. The same would also be true if the company announced any kind of partnership or acquisition offer, although a complete lack of any official information on this topic has pushed away would-be M&A speculators.

Amarin, on the whole, seems to have fallen out of favor in the biotech investment community. This may change as we head closer to December 20^th (or after an unexpected announcement), but without a tangible piece of news that can positively affect Vascepa’s sales figures or its financial valuation don’t expect much more than a continuation of what we’ve seen this year.

An enormous amount of hype in the last couple of weeks has sent the diabetes and cancer drug developer MannKind Corporation (NASDAQ: MNKD) soaring, particularly after the company’s first quarter financial results for fiscal year 2013 on May 9th.

After yesterday’s rally, MNKD is up 56% since the most recent earnings release.

The company’s financials did not change much, with the cash burn rate remaining at a $36M in Q1 2013 versus $34M for Q1 2012 and with the company’s cash position dropping to a total of $28M. Stockholder’s deficit moved further into negative territory, now at -$146M. The implication is that the company will need more cash in the near future, so a public offering seems especially likely in the next few months due to the recent rise in MNKD common stock and the company’s need for financing for the second half of 2013 and beyond.

Still, what has ultimately been driving MNKD to fresh 52-week highs has been a big surge in coverage on the stock in the media and on Wall Street, and hype over the upcoming Phase III data releases for the AFFINITY 1 and AFFINITY 2 trials for the company’s insulin inhaler Afrezza. Much of the hype is actually coming from MannKind CEO and creator Alfred Mann himself, who seems to believe that Afrezza will become one of the biggest success stories in the pharmaceutical industry ever.

There’s no question that the diabetes indication is enormous, although a lot of parallels have been drawn between an insulin inhaler introduced to the market in 2006 called Exubera and Afrezza. There are distinct differences between the two devices, although there is still major skepticism over the commercial prospects of Afrezza, even if it does succeed in Phase III trials and reaches the market after FDA approval.

Still, traders and investors who are following MNKD for the time being are very focused on the upcoming top line results of the two nearly completed Phase III trials Affinity 1 and Affinity 2, which should be unveiled at some point in August 2013. The release of the trial data should be a very potent mover of MannKind stock. If the trials are successful, investors will generally assume that Afrezza will see FDA approval after an NDA resubmission and will be a success story once it hits the market.

Based on this, I think investors may put MannKind closer to a $3B valuation (or roughly $10/share) implying that there is something in the ballpark of 60-70% upside after good trial results. If, on the other hand, we see poor outcomes in the upcoming clinical trials we are likely to see a return to the $1-2 per share range based on the notion that Afrezza cannot pass Phase III development. Investors should note that the product was issued a CRL after an NDA submission a few years ago, although the company believes that the adjustment of a few parameters in the current clinical trials will alter the outcome.

The Takeaway

It’s difficult to tell how the stock will trade as we get closer to the expected data releases for Affinity 1 and Affinity 2, although it’s clear that the stock becomes much riskier when bullish sentiment alone drives the stock up 56% in a matter of weeks (as mentioned earlier). The trade regarding the upcoming catalyst (the Phase III data release) has become increasingly lopsided as a result. Investors who believe in the story still have the chance to see substantial returns as we approach a potential approval for Afrezza, although an unexpected bearish outcome in either clinical trials or in Afrezza sales down the road could be particularly devastating after the hype that this stock has seen.

An enormous amount of hype in the last couple of weeks has sent the diabetes and cancer drug developer MannKind Corporation (NASDAQ: MNKD) soaring, particularly after the company’s first quarter financial results for fiscal year 2013 on May 9th.

After yesterday’s rally, MNKD is up 56% since the most recent earnings release.

The company’s financials did not change much, with the cash burn rate remaining at a $36M in Q1 2013 versus $34M for Q1 2012 and with the company’s cash position dropping to a total of $28M. Stockholder’s deficit moved further into negative territory, now at -$146M. The implication is that the company will need more cash in the near future, so a public offering seems especially likely in the next few months due to the recent rise in MNKD common stock and the company’s need for financing for the second half of 2013 and beyond.

Still, what has ultimately been driving MNKD to fresh 52-week highs has been a big surge in coverage on the stock in the media and on Wall Street, and hype over the upcoming Phase III data releases for the AFFINITY 1 and AFFINITY 2 trials for the company’s insulin inhaler Afrezza. Much of the hype is actually coming from MannKind CEO and creator Alfred Mann himself, who seems to believe that Afrezza will become one of the biggest success stories in the pharmaceutical industry ever.

There’s no question that the diabetes indication is enormous, although a lot of parallels have been drawn between an insulin inhaler introduced to the market in 2006 called Exubera and Afrezza. There are distinct differences between the two devices, although there is still major skepticism over the commercial prospects of Afrezza, even if it does succeed in Phase III trials and reaches the market after FDA approval.

Still, traders and investors who are following MNKD for the time being are very focused on the upcoming top line results of the two nearly completed Phase III trials Affinity 1 and Affinity 2, which should be unveiled at some point in August 2013. The release of the trial data should be a very potent mover of MannKind stock. If the trials are successful, investors will generally assume that Afrezza will see FDA approval after an NDA resubmission and will be a success story once it hits the market.

Based on this, I think investors may put MannKind closer to a $3B valuation (or roughly $10/share) implying that there is something in the ballpark of 60-70% upside after good trial results. If, on the other hand, we see poor outcomes in the upcoming clinical trials we are likely to see a return to the $1-2 per share range based on the notion that Afrezza cannot pass Phase III development. Investors should note that the product was issued a CRL after an NDA submission a few years ago, although the company believes that the adjustment of a few parameters in the current clinical trials will alter the outcome.

The Takeaway

It’s difficult to tell how the stock will trade as we get closer to the expected data releases for Affinity 1 and Affinity 2, although it’s clear that the stock becomes much riskier when bullish sentiment alone drives the stock up 56% in a matter of weeks (as mentioned earlier). The trade regarding the upcoming catalyst (the Phase III data release) has become increasingly lopsided as a result. Investors who believe in the story still have the chance to see substantial returns as we approach a potential approval for Afrezza, although an unexpected bearish outcome in either clinical trials or in Afrezza sales down the road could be particularly devastating after the hype that this stock has seen.

Vivus (NASDAQ: VVUS) has been seeing relatively modest growth in QSYMIA (phentermine and topiramate ER) prescriptions since the drug launched in September 2012 under the FDA’s REMS agreement, which restricted the drug’s sales significantly due to the inability for patients to have prescriptions for the drug filled at brick-and-mortar pharmacies. Because of this, and because of an apparent and drastic overstatement of the true size of the prescription obesity drug market, investors have have mixed and overall bearish opinion on VVUS since the FDA approval of QSYMIA. The stock is trading at roughly half of its level post FDA approval.

While the larger trend since FDA approval remains negative, a relief rally that was initially discussed in a Bio-Wire note on April 18^th brought the stock 17% higher since. This move was a reaction to a change in the QSYMIA REMS which could have a profound (and much needed) positive impact on QSYMIA sales in the H2 2013.

The company’s recently released Q1 2013 financial results were not particularly shocking in eithier the bullish or bearish direction. Throughout the first three months of the year, the company reported $4.1 M in sales revenue on the sale of about 59,000 prescriptions. About 21,000 of these prescriptions were written on a promotional program for QSYMIA that is designed to accelerate the drug’s adoption into the mainstream obesity care space. Up to this point, the company has seen particularly strong interest from endocrineologists who have obese patients that may have glandular problems, although the company seems to be looking to target primary care physicians who have a much larger pool of patients.

Vivus bulls generally expect this shift into primary care to provide a much-needed acceleration in QSYMIA prescriptions, which have been relatively stagnant in the last month.

Based on the valuation of Vivus, the company still needs to multiply QSYMIA prescriptions at least tenfold to justify the current price per share. The market capitalization of Vivus, at $1.4 B at the time of writing, requires that the company generate about $70 million in earnings each year to reach a typical P/E multiple of 20. The actual prescription counts that would be needed to reach this goal heavily depend on the pricing of the drug and the continuing existence of the QSYMIA promotional program, but based on the Q1 data and based on current margins and profit value we can approximate that the company will need to sell prescriptions in the millions down the road.   With only 59,000 prescriptions sold in Q1 2012, we can see that the company will have a particularly difficult time if the QSYMIA promotional program continues to represent a substantial portion of the total pool of QSYMIA prescriptions.

In the recent Q1 earnings conference call, Vivus management addressed the issue by discussing QSYMIA’s progress on the reimbursement front. In particular, the company is hopeful about recently instated Tier 3 coverage that limited patients’ copayments for 30-day prescriptions to $50. This, along with an amendment to the QSYMIA REMS which was submitted in October 2012 by the company which will bring the drug to “thousands of brick-and-mortar pharmacies in July 2013” according to the company’s statements, should begin to affect QSYMIA prescriptions dramatically. The problem is that we don’t know if this will be dramatic enough to multiple the drug’s sales enough times to justify the valuation of Vivus in the long run.

While most analysts have positive opinions of the company, Brean Capital’s Jonathan Aschoff and Jefferies’ Thomas Wei have sell/underperform ratings on the stock due to the underwhelming potential that Qsymia has demonstrated up to this point.

The Vivus situation got a lot more interesting with recent events, including a $220 M offering a 4.50% convertible senior notes which started on May 16^th 2013 and concluded just recently. The conversion rate priced these shares at $14.86 per share – much higher than the price of the shares at the time (about $12.50 per share). Then, it was announced this morning that ~2% shareholder Alex Denner (the former head of health-care investments for Carl Icahn and owner of the new fund Sarissa Capital Management) joined the activist slate challenging current Vivus management. The effort is being spearheaded by 10% shareholder First Manhattan. First Manhattan believes that Vivus is doing a terrible job at marketing Qsymia.

While it’s generally agreed that Vivus is doing poorly, this is unlikely to be reflected in the company’s stock price as short sellers worry about a potential bidding war between activist shareholders and Vivus management. The market may take some time to fully digest the implications of the aggressive moves of activist shareholders, but what we do know is that VVUS may see extremely movements that don’t reflect changes in the underlying company’s financials.

Although the jump from Phase I to Phase II development is not a reliable guarantee of eventual success for any therapy, this marks an important milestone for the company and also establishes the initial safety profile for Neuralstem’s NSI-566. The market became particularly enamored with shares of CUR after the company presented the results of the early stage ALS trial.

The trial, which was conducted on 15 patients with ALS, started in early 2010 and concluded only recently. According to PI Eva Feldman in a recent Neuralstem press release, 6 of the patients in the study experienced stability, slow progression, or even improved disease course 700 to 850 after implantation with NSI-566 cells. The remaining 9 saw no noticeable improvements, while 6 patients died of ALS within the first few months after the surgery.

The results imply that the therapy is very effective against the progression of ALS given that NSI-566 is introduced early on, which is very exciting due to the complete lack of any treatment alternatives for ALS patients. Having said this, investors should not make any conclusions about any drug or therapy’s efficacy in any particular disease without the numbers behind the Phase I results – especially with such a tiny patient population. More specifically, we will want to compare the improvements in the 6 patients relative to the others based on the ALSFRS (Amyotrophic Lateral Sclerosis Functional Rating Scale) in any ways possible to determine whether or not this kind of result can be replicated in future clinical trials with enough statistical significance to give NSI-566 an approval for the ALS indication later on.

The upcoming Phase II trial, which is expected to begin before the end of the H1 2013, should be watched closely since it will demonstrate to Neuralstem investors and the rest of the market whether or not the company can replicate the implied efficacy in the Phase I studies with NSI-566. The company’s market capitalization, just short of $100M, is likely to jump significantly if the Phase II trial produces similar results and much more down the line (presumably during Phase III development) due to the sheer size of the untouched multi-billion ALS market.

And, if  Neuralstem can provide a working ALS treatment that can slow or even reverse the course of the disease based on the ALSFRS, it is unlikely that the company would have much trouble achieving extremely high market penetration and pricing power with even a modest budget for SG&A expenses. This would hopefully allow NSI-566 to avoid the kind of problems thatDendreon’s (NASDAQ: DNDN) Provenge therapy had, although manufacturing costs have proven burdensome as well.

Also baked into the $100M valuation is NSI-566’s development into a number of other indications that have significant unmet need, although the market seems fixated on ALS due to the unique affinity that Neuralstem’s product seems to have for this disease. It’s because of this that I generally expect less movement in shares of CUR in reaction to non-ALS related headlines coming out from the company, and exaggerated reactions to third party opinion regarding the program going forward.

Investors are also anticipating a positive CHMP decision on the therapy. Expansion into Europe provides significant growth potential for Juxtapid prescriptions going into the end of 2013 and 2014 (depending on the timing of the company’s launch).

Specifically, Juxtapid was recently approved as a HoFH treatment (Homozygous familiar hypercholesterolemia), and targets the hypercholesterolemia patients that have the most severe cases of the disease due to two mutated genes (one from each parent) that affect the function of their low-density lipoprotein (LDL) receptors. Since there are a very limited number of patients in the United States (and the world) within this indication, Aegerion is only able to justify its valuation given that it can charge enormous amounts of money for its drug, although up to this point the company has had no problems doing so.

The primary competitor to Aegerion is Genzyme and ISIS Pharmaceuticals’ (NASDAQ: ISIS) Kynamro, has a competitive price advantage (it costs roughly $176,000 per patient) although it was not able to match the sheer efficacy of lomitapide in late stage clinical trials. Although we know that both of these drugs can be dangerous given their liver toxicity profiles, additional data from ongoing studies may be better able to judge the relative safety of these drugs.

Analysts are generally fond of Aegerion, and expectations have been adjusted (drastically) in light of Juxtapid’s recent display of pricing power. Two notable price target swings (to the upside) were seen from Janney ($47 to $71 per share) and Deutsche Bank ($52 to $85 per share).

Despite the stock’s momentum, investors should treat this as a very calculated play based on the momentum of a drug that has a known price and a niche market only threatened by Kynamro, which had an inferior efficacy profile. In their Q1 2013 results, the company reported a total of 185 Juxtapid prescriptions written, and 75 patients that were on the therapy at the time. The company reported $1.2 in net product sales for the quarter ended March 31^st, 2013, implying that we should see an enormous spike in revenues and earnings when the company reports Q2 2013 results later this summer.

Particularly interesting with regards to Aegerion’s business model is its ability to keep its costs extremely low while targeting an extremely lucrative drug indication. The company’s SG&A expenses did rise to $13.2M for Q1 2013 relative to $5.1M reported in Q1 2012, although this more so reflected the costs of a market launch for Juxtapid rather than a trend that investors should be worried about. Aegerion can keep its costs relatively low due to the small size of the HoFH market, and should see extremely high profit margins.

The market generally ignored the record financial performance that Questcor reported in Q4 2012 due to the overhang of lawsuits looking into the company’s marketing practices and due to the potential for companies to alter their reimbursement policies for H.P. Acthar (like Aetna did in September 2012) although it seems that there was some confidence in the company’s upward trajectory after Q1 results – most probably due to the extremely good performance that was seen in April 2013.

From the Q1 earnings press release:

"Our first quarter results were below our expectations," said Don M. Bailey, President and CEO of Questcor. "However, vial shipment activity and prescription levels in MS and rheumatology in late March and throughout April appear to indicate that positive sales momentum has returned. In particular, we note that our newest initiative related to the promotion of Acthar for dematomyositis and polymyositis is off to a strong start."

Acthar’s expansion into new indications has driven much of the top-line growth that we’ve seen in the last year, although we expect this to be reflected more strongly in Q2 2013 results which are due on July 30^th 2013. This is because there should be no disruptions in Acthar sales due to any of the three reasons mentioned earlier.

Since the Q1 release, QCOR has moved up about 30% higher, even after a 9.5% pullback in yesterday’s trading. The recent rally seems to be the result of short covering and heavy interest on the long side of QCOR common. This is unsurprising, since Questcor’s financials remain extremely strong.

The company reported net sales of $135.1 M for the three months ended March 31^st 2013, which represents a 41% increase relative to the $96 M for the three months ended March 31^st 2012. Non-GAAP EPS did not scale to the increase of revenue, as Q1 2013 EPS came in at $.76 versus $.61 in Q1 2012.

This was primarily because of substantial increases in the company’s expenses in the same timeframe – including but not limited to a 63% jump in selling & marketing expenses, a 131% jump in general & administrative expenses, and a 91% jump in the R&D budget. Put together, this resulted in a ~$27M jump in the company’s expenses in Q1 2013 versus Q1 2012.

Much of the increased expense is necessary for Questcor to expand the marketing of Acthar into new indications. Investors seemed to factor this in, along with the temporary dip in Acthar net sales and the notion that QCOR was trading close to $42 per share one year ago. It’s unusual to see a company trade significantly lower after posting the kind of top and bottom line growth that Questcor has in the last year – especially given how strong the biotech sector has been in 2013.

Going forward, expect the market to hold high expectations of QCOR for Q2 2013 earnings based on what we heard about the product’s momentum in April. Assuming that distribution channel disruptions don’t occur again, we should also see a closer correlation between reported prescription data and actual Acthar sales which should be revealed at the end of July (or beginning of August) 2013.

Today, we look at 2 companies with significant short term catalysts quickly approaching, and one company that could be acquired before the year is over. Catalyst trades can be very lucrative, with several ways to trade them. For example, one can use the option chain to buy calls, effectively making a bet the stock will hit a certain price range by a given date. This allows traders to limit their losses if the stock does not hit the strike price. However, this also can minimize gains as well. For more risk, traders can choose to simply take a long position in the stock, trade in and out of position, or simply hold to the catalyst event.

When considering a trade on a possible acquisition target, remember that often times, acquisitions are very hard to predict simply on rumors and opinion. However, if a company is acquired and one has a position in the company, the reward often times is a massive one.

Insmed (NASDAQ: INSM) creates inhaled therapies for a number of different lung diseases including chronic lung infections for which there are no approved therapies. What is interesting about the therapy is how it's delivered. Its patented eFlow Electric Nebulizer is a hand-held device that allows the patient to easily inhale from it, so that the antibiotic is delivered directly to the site of infection and into the lungs. The antibiotic agent is a liposomal form of Amikacin called Arikace. Arikace is an antibiotic commonly used by hospitals for severe infections.

Amikacin is an aminoglycoside antibiotic that is most often used to treat hospital acquired infections with multi-drug resistant gram negative bacteria. Insmed is testing Arikace in several trials for the treatment of Pseudomonas and Non-Tuberculosis Mycobacteria (NTM). The company is currently undergoing a Canadian and European Phase III (CLEAR 108) study for CYSTIC FIBROSIS patients Pseudomonas lung infections, initiated in the 2nd quarter of 2012.

In a Phase II extension study recommended by the DSMB for Arikace, 560 mg were administered once daily for 28 day periods, for 6 cycles and was well tolerated. No adverse effects were observed with longer term dosing. Data showed statistically significant reduction from baseline in Pseudomonas Aeruginosa density, including mucoid strains. Inhalation of Arikace also showed statistically significant sustained improvement in lung function. Top-line data is expected to be released mid-2013, so investors should be very aware of the therapy's potential.

Amikacin, Ingredient in Arikace is FDA approved antibiotic for CF. But it wasn't delivered well in lung.Insmed's Liposome technology solves this delivery problem by placing amikacin into a liposome, which allows an extention duration of drug efficacy. Amikacin efficacy suggests that the drug is potentially better than TOBI which brings in annual revenues around $400m.With a market cap near $295M, Insmed appears to be undervalued by at least $100M, if not more.

As of this morning, Lazard Capital has started its coverage of Insmed with a "buy" rating and a 1 year target of $21 a share.

Sarepta Therapeutics (NASDAQ: SRPT)

On Monday April 15th, the FDA asked Sarepta to provide additional information on the drug eteplirsen, to consider early approval. Eteplirsen is an antisense PMO-based therapeutic for the treatment of individuals with Duchenne Muscular Dystrophy (DMD).

I feel early approval is likely here, and sooner rather than later. Because there has been a substantial advocacy push to get the drug to market as soon as possible, the FDA wants as much data as possible, so when and if the organization does grant an early approval, it will not be seen as a politically based decision.

Sarepta expects to provide the data the FDA is asking for by the end of the current quarter. The company should receive a decision from the FDA sometime in the 3rd quarter, possibly early Q3. Some analysts have put a $50 price target on Sarepta, and if early approval is granted here, it's my opinion the stock will surpass the $50 range temporarily, so traders and investors might consider selling what I believe will be a gap to over $60, as it's likely the stock will sell the gap back down to the low $40 range. Remember, should the FDA grant the early approval, a lot of investors and traders will be looking at massive profit, and are likely to take that profit. In turn, I would expect short sellers to take advantage of this and sell the gap as well.

Sarepta is a stock investors and traders should keep on close watch, as there should emerge various trading opportunities, both long and short.

Acadia (NASDAQ: ACAD)

A Roth Capital Partners analyst remarked on Monday of this week that he believes ACAD is on big pharmas radar as an acquisition target.

Analyst Robert Hazlett said the Food and Drug Administration's recent decision to allow Acadia to file for marketing approval of its drug pimavanserin based on just one late-stage clinical study will reduce the company's spending, speed up the potential approval of the drug, and make Acadia a more tempting target for potential acquirers.

The above is interesting, because I have heard the same "back chatter" on ACADIA recently. The company's lead drug, pimavanserin could potentially could be a huge revenue generating blockbuster.

Pimavanserin is designed for patients with Parkinson's disease psychosis (PDP). The drug is a small molecule that can be taken orally as a tablet once-a-day. Pimavanserin selectively blocks the activity of the 5-HT2A receptor, which plays an important role in psychosis.

PDP is a debilitating psychiatric disorder that occurs in up to 40% of patients with Parkinson's disease and is associated with increased caregiver burden, nursing home placement, and increased mortality -- translation; the market potential is in the billions, and big pharma loves drugs with 9 zero potential.

The fact the company announced in April that the FDA has agreed to allow the company to file a New Drug Application (NDA) for pimavanserin means that FDA approval for the drug could come as soon as 2014, which brings the huge potential money tap closer into play.

PDP is a large unmet need market, which would support a much higher valuation from the current levels, and should attract large pharma interest, and again, I am hearing the back chatter on this. However, just because a lot of us are "hearing" these rumors does not mean the company will be acquired soon, if at all. Considering the factors mentioned here, and based on all publicly available information, I would say it's better than 50/50 that ACADIA will be bought out before the end of this year. Regardless, ACADIA could very well end up doubling from its current price level in the next year -- acquisition or not.

Disclosure: I am 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.

Insmed (INSM) is a biopharmaceutical company that discovers and develops targeted inhaled therapies for those suffering from debilitating orphan lung diseases. Insmed focuses on cystic fibrosis patients with pseudomonas lung infections and also those with non-tuberculosis mycobacterial lung infections. Patients with cystic fibrosis develop a sticky mucous that can clog the lungs and encourage pathogens, such as Pseudomonas, to settle and infect the lung. These infections are very difficult to eradicate and there is no cure; however, current treatments focus on reducing inflammation and preserving lung function for as long as possible. Insmed is working on developing a better treatment for these patients with its lead product Arikace.

Arikace uses liposomal amikacin as an inhaled antibiotic, which so far in trials has shown to have better efficacy, safety, and patient compliance than other treatments. Insmed has been granted Orphan Drug Status in both the United States and European Union for Pseudomonas lung infections in cystic fibrosis patients. Recently, Insmed was also granted Orphan Drug Status for Arikace in treating those with non-tuberculous mycobacterial lung infections. In mid 2013, Insmed is reporting top-line clinical results from its Phase III trial for Arikace to treat cystic fibrosis patients with Pseudomonas lung infections. In the fourth quarter 2013 Insmed will also report Phase II results for patients with nontuberculous mycobacteria.

Proprietary Liposomal Technology:

Insmed uses its proprietary liposomal technology to create an antibiotic that is both safer and more effective. They use a layered lipid as a drug delivery system by alternating molecules with hydrophilic heads (water-loving) and hydrophobic tails (water-hating). This creates a lipid bilayer with water in the core and between each layer. Drugs that are water-soluble are placed in the liposome's core and those that are not are placed in the membrane layers. Insmed then manipulates the charges of the antibiotic to ensure effective delivery into the infection. Typically, antibiotics like amikacin are positively charged and immediately bind to the negatively charged compounds produced by the bacteria in the lungs. This is troubling because it limits the penetration of the drug into the deep lung tissue, where treatment would be more effective. By making its Arikace liposomes neutrally charged, the drug is able to penetrate and treat these infections deeper than current approved treatments.

The ability of the drug to be delivered more effectively and closer to the source of the infection should lead to a better efficacy and safety profile. The liposomes contain high concentrations of the drug and are able to deliver localized treatment in the lungs. This should also lead to less toxicity and fewer adverse reactions. Insmed also pairs Arikace with its proprietary eFlow Nebulizer System to deliver concentrated treatment directly to the site of the infection. So far this has led to better patient compliance because patients have to administer less treatments for a shorter amount of time to achieve beneficial results.

• Cystic Fibrosis Patients with Pseudomonas Lung Infections

About 70% of patients with cystic fibrosis develop a chronic lung infection due to Pseudomonas aeruginosa. This infection causes a mucous build up that leads to inflammation and lung deterioration. In fact, patients lose from 1% to 3% of their lung function each year of infection. Since there is no existing cure, life expectancy is very short, with the average patient living 37 years. There is an urgent need for a treatment with better efficacy, safety, and durability.

Currently, Novartis (NVS) markets an inhaled tobramycin, termed TOBI, for psuedomonas lung infections in cystic fibrosis.However, Novartis' TOBI has shown significant disadvantages when compared to Arikace. Novartis's therapy takes up to 3 hours per day and requires two or three sessions of dosing. Arikace is the first ever once daily treatment for this indication and leads to an increased patient compliance. Furthermore, the dosing schedule is 28 days on and 56 days off, which is a significant advantage over current therapies.

In Phase III trials, TOBI also showed that lung function declined to baseline or lower at the end of 24 weeks of treatment. In Insmed's Phase II trials, Arikace showed statistically significant improvement in function throughout the 28-day treatment period; and that improvement was sustained through the off-treatment period. Furthermore, resistance to TOBI by the bacteria has increased by 85% since 1999, so a new treatment is in dire need.

• Patients with Non-Tuberculous Mycobacteria Lung Infections

Insmed's Arikace is being tested for use on patients with non-tubercuous mycobacteria (NTM) lung infections. There are about 50,000 patients in the United States with this condition and there are no approved treatments available. Patients now require about 7.6 courses of antibiotics and 10.2 hospital days per year to help cope with the infection, but each year the infection gets progressively worse. For those patients over 65, 40% are more likely to die. The FDA has given Orphan Drug Status to Arikace for this indication as well because it is an unmet need. While still currently in Phase II trials, Insmed believes Arikace can become the first approved treatment for NTM Lung Infections.

• Non-CF Bronchiectasis Patients with Pseudomonas Lung Infections

The third application for Arikace is for patients with non-cystic fibrosis bronchiectasis patients with Psedomonas lung infections. There are more than 250,000 patients in the United States with this medical condition and there are no approved antibiotics. Insmed has Orphan Drug Status for this indication as well and has seen positive results from its Phase II study:

We have reported favorable results from our Phase 2 study (TR02-107) ARIKACE randomized, placebo-controlled phase 2 clinical study results in which the drug was administered once daily for 28 days demonstrated an improvement in time to pulmonary exacerbations/reduced need for anti-Pseudomonas rescue treatment, a decrease in Pseudomonas Log CFUs and a decrease in frequency of cough with expectoration. The study also revealed that ARIKACE was well tolerated with adverse events consistent with underlying chronic lung disease in bronchiectasis patients. Patients in the 560 mg cohort had a slightly higher frequency of dry cough than those in the 280 mg cohort, but the cough was of short duration, was self-limiting, and did not result in any physician choosing to discontinue a patient from the study.

With more than 250,000 patients in the United States with this condition and no approved treatment, Insmed is set to capture a large market if the company is able to get Arikace approved for this indication.

Near-Term Catalyst:

Insmed is expecting to report Phase III trial results for Arikace to treat cystic fibrosis patients with Pseudomonas lung infections in the middle of 2013. It is stated in the company's recent First Quarter Financial Results Report:

Completed the patient treatment period of the Company's registrational Phase 3 clinical trial of ARIKACE®, the Company's Iiposomal amikacin for inhalation, to treat cystic fibrosis (CF) patients with Pseudomonas lung infections in Europe and Canada and remain on track to report top-line clinical results from the trial in mid-2013.

In 2012, treatments for pseudomonas lung infections in CF generated about $424 million in sales, with Novartis capturing about $317 million from TOBI and Gilead Sciences' Cayston capturing $107 million. If Phase III trials are successful and the drug is ultimately approved, Insmed should be able to capture a large portion of the market share.

Future Catalysts:

Insmed is also expecting to report Phase II results later in 2013. Also stated in the company's recent First Quarter Financial Results Report:

Insmed's U.S. Phase 2 clinical trial in patients with NTM [nontuberculous mycobacteria lung infections] is well underway withclinical results expected in late 2013.

Since this is an indication with no approved treatment and 50,000 patients in the United States, positive results from this trial would be a large milestone for the future of the company.

Strong Management:

(click to enlarge)

In small cap biotech companies it is important to develop a drug that can capture market share; however, it is equally important to have a management team who can execute. Developmental biotech companies most often are not profitable and continually burn through cash until its drug is approved by the FDA and becomes marketable. Thus, having an experienced management team is key when it comes to smartly utilizing funds and achieving milestones in a timely manner.

From the picture above, we can see that Insmed has a proven management, with executives that worked on developing multibillion-dollar companies. Will Lewis, President and CEO of Insmed, was the co-founder and former president of Aegerion Pharmaceuticals (AEGR), which ran from about $14 to $46 in less than a year. Noting some other big names in management: CFO Andy Drechsler worked at Abbott Labs (ABT), EVP Development and CMO Renu Gupta worked at Novartis, VP of Manufacturing Peter Clarke worked at Bayer, and Nicole Schaeffer worked at Amicus Therapeutics (FOLD).

Financial Position:

(click to enlarge)

From Insmed's April Presentation, the company has enough cash to fund operations through 2013. Insmed has $92.9 million in cash and are expecting to burn between $45 and $55 million this year. On September 27 2012, the company raised approximately $26 million in a direct public offering, so shareholders should not expect the company to do another raise any time soon.

Insmed Chart:

(click to enlarge)

To understand where Insmed stock price might go in the coming months, we need to take a look at the above daily two-year chart. From the two drawn horizontal lines, we can see that there is still a huge gap to be filled. From its last run, stock price has flagged down to about the top of the previous peak. This should act as support and a base for the next run higher. On Monday, it bounced off its previous $8.20 peak and created a nice bullish engulfing candle. As we get closer to the catalyst date, I expect that the stock runs to a minimum of $11.00 to fill the gap.

A company with a similar chart is Cornerstone Therapeutics (CRTX). Cornerstone had a gap down on gap down from about $6.20 to $5.10 on a negative Adcomm on September 13, 2012. Months later, this gap was filled and the price is currently at $8.79.

Conclusion:

Insmed has positioned itself to capture market share for several indications with unmet needs. With a near term catalyst and another later on in the year, I expect that Insmed stock price will climb in anticipation of the clinical trial results. Insmed has experienced management and should be able to execute on its plan to make Arikace the leading treatment in its field.

My short-term price target is $11.00 per share. If Phase III results are positive my price target is $15+ per share. Negative results would likely see a stock price back under $5 a share.

Disclosure: I am long INSM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: 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.

In the first quarter of 2012 (or the quarter ended March 31^st, 2013) Amarin reported $2.34 million in product revenues, although the company mentioned $2.9 million of deferred product revenue that will contribute to revenues in Q2 2012 results which are due in August 2013. The company’s total prescriptions have been growing consecutively each month:

February: 3,224

March: 7,260

April: 11,768

The finalized figures from Amarin are in-line with analyst expectations and third party prescription data, and represent a slow but steady grind upwards for Amarin/Vascepa. Additional analyst estimates suggest that Amarin will operate at total losses of $220 M for the fiscal year of 2013, and similar figures in 2014 given that the company will prepare for and execute Vascepa’s launch into the ANCHOR indication in early 2014.

Vascepa is on track to meet analyst expectations of ~$80M in total revenues for 2013, although we may see some surprises with the drug’s overall trajectory after copayments are reduced by Vascepa’s move into Tier 2 coverage. Since it is designed to be a long-term primary care drug that is meant to improve cardiovascular function over more drawn out periods of time, cost-related issues are expected to play a very important role in this drug’s eventual success or failure. Lovaza, which generally costs between $280-520 per month (depending on the insurance), should also have problems justifying its price premium.

The ANCHOR indication, which is a nickname for the hypertriglyceridemia indication for patients with triglyceride levels between 200-500 mg/dL, is far larger than the MARINE indication (500+ mg/dL) which Vascepa current markets into. The sNDA that was submitted for Vascepa in the ANCHOR indication was confirmed with a PDUFA goal date of December 20^th2013.

It’s generally agreed that Amarin would have an extremely difficult time targeting a patient population that is about ten times to size of its current ~4 million target population, which is why there are renewed expectations of a big pharma buyout or partnership with Amarin in the near future. Having said this, many analysts expect Vascepa sales to jump significantly in 2014 due to indication expansion for a drug that should be well-established at that point. This implies that Amarin should be able to reduce SG&A expenses and realize profits in 2015, or even the end of 2014 depending.

The relatively neutral Q1 results may have caused some disinterest amongst the short sellers, who have already made large profits since Q4 2012 when the company initially announced its intentions to market Vascepa in the MARINE indication without a partner.

Despite the potential of Vascepa – particularly after an indication expansion, the expectation is that Amarin’s $202M in cash and cash equivalents will not carry the company quite far enough to realize a profit before a forced financing, even assuming that Vascepa continues to grow with consistency. Although the company was able to raise money last December in a non-dilutive financing, a public offering may hold more appeal for Amarin later on – depending on the situation. Another likely option is an offering of convertible notes.

Without any known catalysts before the PDUFA goal date for the ANCHOR indication (other than the FDA’s NCE designation, which has yet to happen) investors should find a way to gauge Vascepa sales as we wait for Q2 2013 results, which will finalize the impact that Vascepa’s shift to tier 2 coverage will have on TRx.

Sarepta Therapeutics (NASDAQ: SRPT) held a conference call for the Q1 2013 earnings starting at 8:00 AM EDT. The call was focused on eteplirsen - a treatment for Duchenne Muscular Dystrophy that completed and reported Phase IIB results in October 2013.

Sarepta is a company that focuses on RNA therapeutics, and is currently focusing on the use of their platform to develop drugs that induce "exon skipping" that alters the RNA transcription in muscular dystrophy patients and produces functional versions of a protein known as dystrophin.

The most recent milestone made with eteplirsen's development was the end-of-phase II meeting with the FDA held earlier in the year, which resulted in a FDA request for additional documents. More specifically, Sarepta needs to submit a new summary of clinical outcomes, and a document that supports dystrophin data as a DMD biomarker, and links it to the 74-week data that was published recently.

Below is 74-week (Mean/Averaged) data from the recent Phase IIB eteplirsen trial which shows a clear, statistically significant stability in patients' motor function and an implied slowdown of muscular dystrophy progression.

Today Dendreon (NASDAQ: DNDN) shocked the market after reporting an extremely disappointing $67.6 M in PROVENGE (sipuleucel-T) sales for Q1 2013, representing a 17.56% decline relative to $82 M in revenue reported in Q1 2012. The net loss for the quarter did also decline to $72 million relative to a net loss of $103.9 M in Q1 2012, although shareholders were clearly looking for Provenge sales growth to offset the company’s operational losses.

The miss was attributed to loss of business in small accounts, which are favoring the likes of other post-chemo drugs approved for the same prostate cancer indication – specifically Xtandi and Zytiga. While the company has seen growth in large accounts and “increased recognition”, the data is alarming.

Dendreon is continuing its efforts to bring COGS (cost of goods sold) to below 50% of revenues and expects this to happen in Q3 2012, although the bulk of their COGS is from fixed expenses. Because of this, the company is not expected to be earnings-positive until Provenge reaches $100 M in quarterly sales. Unfortunately, with the recent setback and “headwinds” mentioned by the company, this seems more difficult.

As mentioned in yesterday’s preview to DNDN earnings, the company has recently implemented a DTC (direct-to-consumer) advertising campaign via television slots to inform and interest the public in PROVENGE to potentially boost sales. Dendreon management mentioned that this has had a substantial effect on call center volume (with ~82% of calls coming from prostate cancer patients). In addition, they mentioned that website traffic on the patient website for PROVENGE is up 55%.

Unfortunately, CEO John Johnson did not mention enough details on the effects that this has had on actual PROVENGE sales revenues and mentioned that advertisements have stronger effects on consumers after multiple viewings. This leads investors with very little empirical evidence that is relevant to Dendreon’s financial position.

Going forward, Dendreon is looking forward to regulatory action from the European Medicines Agency (EMA) that will allow Provenge to be marketed in Europe, although there are virtually no public details on the company’s search for a manufacturing/distribution partner.

Dendreon’s balance sheet has also seen some substantial deterioration. As of December 31^st 2012, the company had $429.8M of cash and cash equivalents but has seen a decline to $337.3M reflecting their GAAP net loss of $72M for the quarter. The company has also seen expansion of their enormous pool of convertible debt due in 2016 to a new figure of $539.1M. The company has also went from a positive net worth (or stockholder’s equity) of $34.6M to a negative figure of $35.9M. Psychologically, this could be significant going forward as the company’s financial situation sees more scrutiny by potential investors.

DNDN stock was initially halted this morning (5/9/2013) although the stock opened about 12% lower about 22 minutes into the trading session. At the time of writing (10:16 AM EDT) DNDN is down 14.24%, to $4.07/share.

Imprimis Pharmaceuticals, Inc. (NASDAQ: IMMY) has seen its stock rise from about $5.25 per share in February at the time of the NASDAQ listing to around $9 per share and is one of the best performing stocks in the biotech industry this year. 

Despite this impressive move we believe Imprimis is just getting started and is still undervalued with a market cap of only $80 million.  Imprimis’ founders have put the pieces in place for the company to become a large pharmaceutical company in a relatively short period of time.  Imprimis currently has catalysts that will add substantial value this year and for many more years to follow. 

Imprimis was founded in 2011 when Mark L. Baum, CEO and Co-Founder rescued the predecessor company, Transdel Pharmaceuticals, from Chapter 11 bankruptcy.  Within the rescue were two assets, Accudel, a topical drug delivery platform and Impracor, a ketoprofen-based topical drug based on the Accudel delivery technology.    From there Mr. Baum and Robert J. Kammer, Chairman of the Board and Co-Founder restructured the company and added strategic relationships, a strong management team and world class medical development and advisory teams that already have proven valuable to the company. 

FDA 505(b)(2) Pathway

PCCA Relationship/Drug Discovery Platform

In August of 2012 Imprimis formed an exclusive development alliance with Professional Compounding Centers of America (PCCA).  At that time PCCA invested $4 million in Imprimis at $4.80/share and now owns 9.4% of the company.  With over 3,900 member pharmacies, PCCA is the largest supplier to the compounding pharmacy industry in North America.  PCCA supplies chemicals and other mission critical supplies to compounding pharmacies and has a staff of over 30 pharmacists, chemists and Ph.D.’s who develop drug formulations and teach compounders how to make these formulations.  PCCA has compiled a library of more than 10,000 compounded drug formulations.  Through their exclusive relationship, Imprimis has right of first refusal on the commercial development of any of the prescription drug product opportunities from PCCA. 

In addition to compiling the drug formulation library, PCCA has compiled a database of market needs on their formulations through information gathered by its support center which receives over 100,000 calls a year from PCCA members.  Empirical data is collected regarding these formulation efficacy and users of these formulations; this data provides insights regarding the market need for the formulation, as well as patient and prescriber clinical experience with the formulation.  This is an important part of the relationship, as Imprimis will have anecdotal information about the formulation’s efficacy, side effects, and the market need for these drugs from a group of people who actually use the product prior to Imprimis making a decision to pursue commercialization of a formulation target. 

Imprimis has prepared a protocol to evaluate the drug candidates in PCCA’s library to determine which candidates it should bring to market first.  The formulations and data provided by PCCA give Imprimis a unique advantage over traditional pharmaceutical companies and greatly reduces the risk and cost of drug development.  Additionally, since the drug targets use previously approved drugs in the formulations, Imprimis utilizes the 505(b)(2) pathway to achieve faster and lower cost FDA approvals.  The value of this relationship is nearly priceless when it is understood that the formulation library could yield several large market drugs in the next few years.  Imprimis expects to identify the first product development candidates from PCCA’s library in the 3^rd quarter of 2013.

Accudel Drug Delivery Platform

Accudel is a cream that carries drugs through the skin allowing the drug to penetrate to the problem site.  Accudel can accommodate large and small molecule drugs for topical delivery.  The cream quickly absorbs, has a neutral smell and is aesthetically pleasing.  Accudel has shown that it delivers a majority of the drug for release within 4 hours in tests using ketoprofen.  Accudel is a large part of Imprimis’ business plan as a delivery vehicle for current FDA approved drugs and utilizing the PCCA library. 

Impracor

Imprimis’ lead drug candidate is Impracor.  Impracor utilizes the company’s patented Accudel topical cream technology for topical delivery of ketoprofen, a non-steroidal anti-inflammatory drug (NSAID), for sprains strains and joint pain.   Imprimis expects to begin enrolling patients in the Phase III trial in the 3^rd quarter of 2013.  If approved, Impracor would be the first FDA approved topical ketoprofen product and the first topical COX-1 API in the United States.  Impracor could realign the NSAID marketplace in the U.S. from an oral dominated market towards a topical delivery market similar to trends in Europe.  In Europe most of the topical NSAID market is ketoprofen-based, and ketoprofen is the only topical NSAID authorized for the treatment of acute lower back pain in Europe.

Imprimis’ predecessor company conducted a Phase III trial for Impracor, which failed and ultimately lead to the company’s bankruptcy.  Mr. Baum and his team looked closely at the results and determined there were mistakes in the design and management of the trial.   One example was that patients in the trial were not screened for recreational drug use, which can interfere with the results of the trial.  Out of the 361 trial participants, 30 tested positive for recreational drugs negatively skewing the trial results.  In addition there were other protocol violations.  According to Mr. Baum, if those who violated the protocol had been excluded, the trial would have achieved statistical significance.  The in-depth analysis conducted by the new management gave them confidence they have a strong chance of getting Impracor FDA approved with two stringently controlled Phase III clinical trials. 

In 2009 the global NSAID market was over $9 billion according to the Archives of Internal Medicine.  More than 60 million people in the U.S., of which 70% are over the age of 65, are regularly taking NDAID’s.  The market for topical NSAID’s is growing rapidly with only a handful of products available (Voltaren Gel, Pennsaid, Flector Patch, Solaraze).  The FDA approved the first of the topical NSAID products in 2007, so this is a new class of drugs in the U.S.  All of the current topical NSAID products are diclofenac based and all have their own issues.  Voltaren Gel is the most prescribed product of this group with about 75% of the U.S. topical market.  The issue with Voltaren Gel is that it is greasy, has a strong smell and requires the user to apply 4 grams of the Gel to the affected body part 4 times per day.  We believe Voltaren does not provide users with a positive experience.  Impracor is a cream based product that absorbs nicely into the skin, has a neutral smell and an easier dosage regimen.  The article “Topical NSAIDs for Acute Pain in Adults” by Massey, T., Derry, S., Moore, R.A., McQuay, H.J., states; “proportion of participants experiencing successful treatment with topical ketoprofen in seven clinical studies was 73% (251/346, range 57% to 89%), while the proportion of participants experiencing successful treatment with topical diclofenac in three clinical studies was 52% (166/319, range 39% to 92%).”  This suggests ketoprofen may have better effectiveness than diclofenac for treating acute pain. 

NSAID’s are widely used for their analgesic and anti-inflammatory effects making them a necessary choice for pain management.  Oral NSAID’s have well documented adverse effects including liver and kidney injury, as well as, cardiovascular events and potentially severe gastrointestinal problems according to the article “An Evidence-Based Update on Non-steroidal Anti-Inflammatory Drugs” (http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1855338/).  According to the American Journal of Medicine oral NSAID’s are responsible for over 100,000 gastrointestinal bleeding hospitalizations and more than 16,000 deaths per year leading to hospitalization costs of $2 billion a year.   Topical delivery of NSAID’s address the many health related concerns of orally administered NSAID’s. 

Risks 

There are several risks for investors to be aware of in considering an investment in Imprimis.  First, as with all drug development companies, there is inherent risk in drug discovery, the clinical trials and gaining FDA approval.  Although Imprimis has mitigated much of this risk through their relationship with PCCA and the experience of its development team, there is always the possibility one of their chosen targets does not receive FDA approval.  Another risk that could significantly damage the company is if they lose their partnership with PCCA.  We do not foresee this occurring as PCCA has a significant investment and has a strong relationship with Imprimis, including the service of a senior PCCA employee and shareholder on the Imprimis Board of Directors.

Valuation

Since Imprimis is a relatively new company, we do not think it has been fully valued by the market.  When looking at similar companies in Imprimis’ market, Imprimis is not far behind the pace of others.  For example, AcelRX Pharmaceuticals, Inc. (NASDAQ: ACRX) is a company that focuses on acute pain therapies, has a product in phase III, one in Phase II and several products behind them, is valued at a market cap of around $216 million with about $60 million in cash.  If we back out the cash the value of ACRX is about $156 million.  Another company to look at is Pain Therapeutics Inc. (NASDAQ: PTIE) a company that has a lead candidate called REMOXY, which is in Phase III trials.  PTIE has a $400 million alliance with Pfizer, Inc. (NYSE: PFE) to develop and commercialize REMOXY and three other abuse-deterrent opioid painkillers.  REMOXY is in Phase III and they have two other candidates in Phase I.  PTIE has a market cap of nearly $200 million and cash of $54 million according to YAHOO Finance.  If we back out the cash the value of PTIE is about $146 million.  Imprimis has a market cap of about $79 million as of the market close on May 2, 2013 and about $19 million of cash, so the non-cash value of Imprimis is about $60 million.  As Imprimis begins their Phase III clinical trial in the third quarter and identifies their first new drug candidates from the PCCA library, also in the third quarter, Imprimis should see their valuation increase to closer to the comps non-cash values of about $150 million.   This would suggest 150% growth in the stock price over the next 12 months is not out of the question for Imprimis. 

Imprimis has put in place a strong management team, a Phase III large market drug candidate and a platform with a library of 10,000 drug formulations to quickly and cost effectively bring new drugs to market.  Imprimis will not just have 3 or 4 drugs in their pipeline, in a few of years they could have 10 to 15 identified drug candidates.  Imprimis could also out-license several of these candidates for development to further utilize the PCCA library, which could bring in significant upfront licensing fees, which in turn, could be used to fund internally developed formulations.  Imprimis has been built to achieve success quickly and their valuation does not yet tell the full story of this company.  Imprimis has been a big mover this year, but the company is just getting started and there should be plenty of upside for current and new investors. 

Disclosure: None

Pluristem (NASDAQ:PSTI) recently 

Major insurers put the overall cost of rotator cuff operations at $6,700 each, with a lucrative $1,700 in doctor fees, draining our health care system of over $1.3 billion. Although cell therapy is not commonly associated with sports medicine procedures, I think it’s time something new is tried to take down costs of these pricey procedures, something that doesn’t involve dangerous devices or daily pill-popping.

Stem cell treatments are usually associated with serious diseases like cancer and chronic heart conditions, but have recently taken on the glamour of a potential quick-fix in the world of sports, causing celebrity athletes like Jason Kidd of the NY Knicks or NBA All-Star Allan Houston to seek them out in hopes of fast recoveries and better performance. Ethical considerations were bypassed when it became possible to use adult stem cells from fat, bone marrow or, even better, the birth placenta, rather than the embryo of an unborn child. The Catholics breathed easier.

In the past, academic institutions produced only spotty research for using cell therapy in sports and there have been no meaningful clinical trials targeting the human stem cell to treat sports medicine injuries. Dr. Jason Dragoo, top orthopedic surgery professor at the Stanford School of Medicine spoke out last year to Sports Illustrated about the false hopes given to athletes by stem cell charlatans responding to pressure from owners, coaches and team sponsors.

He didn’t have an answer then, but Pluristem may have one now.

Like all of the company’s studies, the one for rotator cuff injuries is small and efficient, just 30 patients with only a six-month follow-up. If successful, I imagine third-party payors will be thrilled to recommend Pluristem’s procedure over the expensive alternative.

Fixing damaged rotator cuffs with cell therapy is a great addition to Pluristem’s growing niche in orthopedic medicine, blending well with ground-breaking clinical trials in hip replacement that I wrote about last August.  The global market for artificial hips runs around $5 billion with no end in sight for growth as the world population ages and puts on weight. Companies that make devices for hip repair continue to prosper but the flip side is the heavy litigation of the industry – watch late-night cable and you can’t miss an ad for plaintiffs wanting to sue DePuy, a Johnson & Johnson (JNJ:NYSE) company, where it was recently reported the number of lawsuits are over 4,000.

As I also observed back in August, Pluristem’s platform technology in just that one indication could open up more opportunities within the huge $2.2 billion sports medicine market. In less than a year, that promise looks to become a reality.

A check with my orthopedic physician contacts revealed that hopes for stem cell therapy in sports medicine was originally pinned on repairing and restoring injured cartilage, particularly because such a treatment would have far-reaching medical promise for arthritis. Then came monoclonal antibodies, like the now widely-used Humira by Abbott Laboratories (NYSE:ABT), and for a time stem cells in orthopedics was forgotten. Pluristem’s new trials in shoulders, along with hips, target two major joints in the human anatomy that take on a lot of strain in active individuals, and should grab much attention as results from the studies are publicized.

All told, a great call for Pluristem. Medically, they are going after high-cost, high growth markets where orthopedic doctors are considered the tinkerers of hands-on surgeons. These practitioners love to experiment and their own hospital departments are usually second only to cardiology in pulling in big numbers. From a global marketing standpoint, the choice of branching out into sports medicine is brilliant. Pluristem has demographics in their favor and with healthcare economics in a never-ending downward spiral, a new and less invasive treatment with PLX-PAD cells offering reduced post-operative downtime will be the way healthcare insurers (and patients) want to go.

Disclosure: None

When Tauriga Sciences, Inc. (OTCQB: TAUG) CEO, Seth Shaw, took the job in August of 2012 his mission was to advance an underperforming company that held licensing rights to a promising immunotherapeutic drug for cancer patients. Little did he know what was coming.

Tauriga was called Immunovative, Inc. at the time, and in just a few short months Mr. Shaw had the company moving in the right direction, and saw the company’s stock price reacting positively to his actions. 

The end of 2012 was very impressive for the Immunovative under Mr. Shaw’s guidance.   Mr. Shaw’s accomplishments for his tenure in 2012 included the following: creating a collaboration agreement with Northwestern University, announcing the agreement at the University, receiving 2 U.S. patent allowances for scientific innovations, moving the company’s Head Quarters to Danbury, CT, upgrading the manufacturing facility, receiving regulatory clearance and announcing the beginning of registration of Immunovative’s Phase II/III clinical trial for metastatic breast cancer, participating in several investor conferences, being featured on the cover of Opportunist Magazine and to end the year receiving a key patent from Japan.  Mr. Shaw felt with his hard work he had positioned the company for success. 

The second week of 2013 brought a unexpected fallout, when the owner of the licensed drug, Immunovative Therapies, Ltd. (ITL), based in Israel, attempted to terminate the license agreement.  ITL had asked for more development money, Mr. Shaw pointed out Immunovative, Inc. was ahead of the agreed upon payment schedule and asked for an accounting of the money spent, prior to sending more money.  The next day ITL sent a letter to Mr. Shaw stating that Immunovative, Inc. was in breach of the licensing agreement, thus ITL had terminated the agreement.  After a legal review of the contract Mr. Shaw knew Immunovative was in full compliance with the licensing agreement.  This was the beginning of a bizarre series of events that included discovering Dr. Michael Har-Noy, CEO of ITL was actually Michael L. Gruenberg.  Gruenberg is a convicted felon, convicted of wire fraud, securities fraud, and interstate transport of checks obtained by fraud in connection with a scheme to inflate the reported instrument sales of a medical devices company named Endotronics, Inc.  Gruenberg was sentenced to 10 years in jail and upon his release he changed his name to Michael Har-Noy in California State Court.  These facts about Gruenberg’s past were never disclosed to Immunovative, Inc. according to the company’s press release dated January 23, 2013.   

Mr. Shaw began legal proceedings against ITL and Har-Noy, but announced a settlement March 1, 2013 after Mr. Shaw realized continuing the litigation would have risked the company’s future as a going concern.

During this turmoil Mr. Shaw turned some of his attention to deciding what would become of Immunovative, Inc.  The easiest path would have been to close the company, but this was a step Mr. Shaw was not willing to take.  When asked about this decision, Mr. Shaw responded, ‘I could not let the company fail because of the trust the investors placed in me.  I owed it to the shareholders, and it is my job, to turn the company into a success and to restore shareholder value.”  Mr. Shaw has been working tirelessly to create a new, success oriented company.  

On March 4, 2013 the company announced it was changing its name to Tauriga Sciences, Inc. and set out on its new business plan.  The new business focus is stated on Tauriga’s website (www.tauriga.com): 

Tauriga Sciences Inc. (“the Company”) is a diversified company that operates in the biotechnology space, which includes medical devices and development of proprietary drug compounds.  The mission of the Company is to acquire a diversified portfolio of medical technologies with the aim of providing financial and human capital resources, to unlock significant value for the shareholders.  The Company’s business model entails the acquisition of licenses, equity stakes, rights on both an exclusive and non-exclusive basis, and entire businesses.  Management is firmly committed to building lasting shareholder value in the short, intermediate, and long terms.

Since the beginning of March Mr. Shaw has added several people to assist him in building Tauriga.  Tauriga added its first 2 Board of Directors in Dr. David L. Wolitzky and former Nevada First Lady, Dawn Gibbons, who is an accomplished businesswoman and philanthropist.  The company also began building their medical advisory board adding Dr. Lawrence A May, a prestigious physician with 35 years of clinical experience in internal medicine.  Also, Stella M. Sung, Ph. D. joined the advisory board, and then Dr. Sung was appointed to the position of Chief Operating Officer.  Dr. Sung has over 20 years of experience in operations and venture capital for early life science companies and received her Ph.D. in Chemistry from Harvard University.  In a short period of time Mr. Shaw has build a team of people to assist him in evaluating and developing companies and products for Tauriga to partner with and invest. 

On April 26, 2013 Tauriga announced it had established 4 Board of Director Oversight Committees and the Corporate Code of Ethics.  In the press release Tauriga's Chief Executive Officer Seth M. Shaw commented, "The Company is working hard to create shareholder value through the acquisition of potentially lucrative assets in the life sciences space.  Additionally, one of the Company's goals in the relatively near-term is to become a NASDAQ listed company.  As such, management has begun to take meaningful steps to gain compliance with respect to corporate governance and oversight requirements.  In doing so, management believes that the profile and effectiveness of the Company will be substantially improved." 

Most important to shareholders, Tauriga has already announced two initial non-binding agreements for licensing, product rights and Joint Ventures that will begin to add value to the company in the near-term and the long-term.  The first of the agreements is with Marvanal Inc., a company with lactose-free dairy products, which are approved for the State of Connecticut Public Food Lunch Program.  Marvanal's food protein based concentration technology focuses on the elimination of fat from dairy products, thereby lowering the caloric content without compromising any nutritional benefits.  With the Memorandum of Understanding (MOU) between Marvanal and Tauriga, Tauriga is seeking to acquire exclusive marketing rights for the State of New York for Marvanal’s lactose-free dairy products.  Tauriga can turn the rights into near-term revenues with the management’s pre-existing relationships with several State of New York entities.  Mr. Shaw commented at the time that, “A number of prospective target markets have already been identified for these products and both management teams will work diligently towards the signing of a definitive agreement and the shared goal of a commercial product launch during the summer of 2013."  If Tauriga can turn this investment into $1-3 million in a year, or more, in annual revenues, the deal will be very beneficial for shareholders as this deal alone could pay for annual operations of Tauriga. 

The second MOU is more indicative of what Tauriga will look like going forward.  Tauriga is seeking relationships with innovative medical device companies with exciting large market product opportunity.  Tauriga, through its MOU, is establishing a Joint Venture Partnership with Massachusetts-based Constellation Diagnostics Inc. to develop and commercialize a novel, imaging-based diagnostic technology for use in predictive and preventative oncology.  Constellation has already begun development collaborating with professors at the Massachusetts Institute of Technology and Harvard University.  Tauriga has the potential of acquiring up to 35% of Constellation based upon two more tranches of investment totaling $2.5 million, including the $100,000 already invested.  The goal of the Joint Venture is to complete a working prototype during 2013 and submit the product for FDA 510-K approval.  

Christian Bailey the President of Constellation explained that the technology will assist Dermatologist, Oncologists and General Practitioners to quickly and accurately map and monitor the freckles and moles of patients.  The map will record the color, size and location of the freckles and moles to create a map similar to the constellations of stars.  The technology will only upload the map, not photos of the patients, to preserve patient privacy.  Doctors and patients can then remap the body’s marking as often as once a month, and Constellation’s software will detect the changes in the size and color of freckles and moles, which can be an indication of the early onset of skin cancer.  Mr. Bailey expects that high risk patients will be able to use this technology in the comfort of their on homes eventually.  Doctors will be able to utilize this data to determine if further steps need to be taken to prevent or treat skin cancer. 

Skin cancer incidences are growing rapidly in the United States.  The Mayo Clinic released a study, in April 2012, tracking the cases of melanoma, the most deadly form of skin cancer, in Olmstead County, Minnesota, from 1970 to 2009.  The result were stunning, melanoma incidence were eight-times higher in women between the ages of 18 to 39, and four-times higher in men in the same age group.  Melanoma incidences are growing at over 3% per year since the early 1990’s, and have the fastest growing cancer incidence rate in the world.  Other types of skin cancer, basal cell carcinoma and squamous cell carcinoma incidences are also growing rapidly.  The CDC says one in every five Americans will encounter skin cancer in their lifetime. Constellation’s products will address a large market need and could be accepted by doctors as a tool to predict and prevent skin cancer in their patients. 

Tauriga's Chief Operating Officer, Dr. Stella M. Sung, commented, "The Company is excited to partner with Constellation Diagnostics Inc. and its collaborators at world class academic institutions to develop a commercially-viable product that utilizes next generation imaging technologies to enable early and thorough detection of skin cancers. Early detection makes an enormous difference in survivability, and this technology would address an important medical need."  This Joint Venture could bring strong value to shareholders within the next few years. 

Tauriga will need to raise money to fulfill their commitments to the agreements they have entered over the course of the next six months.  We are hearing that there will likely be some dilution, but that the money is earmarked to complete the agreements, which are focused on increasing shareholder value.  Word is that the first money in will be invested in Constellation Diagnostics, Inc. to ensure the prototype gets completed as quickly as possible.

There is a saying on Wall Street: “Bet on the Jockey, not on the horse,” meaning invest in management teams.  Mr. Shaw has proven to be a “Jockey” worth watching closely.  Mr. Shaw is now in the process of choosing his stable of horses, so to speak, in choosing Joint Venture Partners to bring shareholders the best value and opportunities he can find.  Mr. Shaw and Tauriga Sciences have survived a disaster not of their making and have quickly revamped the company into a company that can generate considerable value for the company’s shareholders.  Mr. Shaw, Dr. Sung and their board and advisory members are poised to make Tauriga into a valuable long-term success story.

Disclosure: None

Celgene Corporation (NASDAQ: CELG) remains just under its 52-week high of $128.52 per share as the market continues to reflect the company’s financial and developmental success halfway throughout the new year.

In their Q1 2013 earnings, the company reported year over year top-line growth of 15%, fueled by a 15% growth in net product sales up to $1.43 billion. While investors were a bit less enthusiastic about the company’s recent slip in Q1 earnings which came in at $385 M versus $402 M in Q1 2012, this was caused by temporary effects which is why non-GAAP figures show earnings of $592 M in Q1 2013 versus $484 M in Q1 2012.

The company’s big sellers include Revlimid (Lenalidomide), Vidaza (Azacitidine) and Abraxane (Protein-bound paclitaxel) which both experienced double-digit growth in the last year. Revlimid, which grew sales by 16% in the last year, is particularly interesting to investors ahead of a PDUFA date of June 5^th, 2013 for a Revlimid sNDA in the Mantle Cell Lymphoma (MCL) indication. Currently the drug is approved for the myelodyspalstic syndrome (MDS) indication, and has yet to fully saturate the MDS drug market.

Sales for MDS are expected to grow significantly as the drug is brought to the Eurozone after a positive CHMP opinion that was revealed in a press release on April 26^th, which gives Celgene quite a bit of breathing room in terms of top-line growth for the next 1-3 years due to the huge amounts of revenues that can now be derived from EU nations. Analysts, who generally expect the company to have $7.04B in revenues in 2014, may be surprised to the upside depending on the speed of Revlimid uptake in the EU.

This will also be helped if Revlimid receives approval for the MCL indication on June 5^th, which should boost US sales in Q3 and Q4 2013. Celgene has already been a very strong performer this year, but an expansion of Revlimid’s indication into the MCL space may be just enough to put CELG at another 52-week high.

Still, considering the size of Celgene, one must consider that there are other catalysts to look for too.

We will also be seeing the finalized overall survival (OS) data for the phase III trial for ABRAXANE in metastatic melanoma at some point during the second half of 2013. ABRAXANE is Celgene’s prominent second-line breast and first-line non-small cell lung cancer drug and is combined with other agents. It is expected to sell between $600-700 M in FY 2013.

The market will also be moving CELG in reaction to the market performance of recent approved drug POMALYST (pomalidomide), which is only indicated for use in multiple myeloma patients who have received two prior therapies including Revlimid (lenalidomide) and the proteasome inhibitor bortezomib. Although the indication is restrictive, and due to the REMS that the drug was approved on, sales are expected to be slow at the start although some of the drug’s efficacy data has been very impressive.

CELG has moved nearly 55% high since the start of the year on the commercial success of its existing pipeline in already-approved indications, and the company’s progress since the 1990’s has been staggering. Although it will be harder for the company to deliver the kind of returns it has in the past, cancer drugs can expand their lives significantly through indication expansion. This is exactly what we’re seeing with Celgene’s pipeline, which allows the company’ to continue a very predictable growth pattern for the foreseeable future.