After 15 years, unheralded French biotech eyeing big payday on cancer breakthrough; “buy” signal–solid

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Hidden from view just across the French border from Geneva is a little-known (at least here in the US) biotech eyeing long-awaited FDA approval for a nuclear medicine targeting the type of pancreatic cancer that took Steve Jobs away from us.

Buried in the daily avalanche of press releases and news reports was a solitary piece I read this morning from Reuters that caught my attention. It highlighted a company called Advanced Accelerator Applications SA, which I’ll refer to as “AAA,” spun off from Europe’s nuclear research center CERN 15 years ago.

Never heard of it?

The company’s CEO Stefano Buono has said that the new drug, Lutathera, represented a “multi-hundred-million” prospect. “We are nearly there,” he said in an interview during a visit to London, says Reuters. “It’s a very exciting moment.”

Lutathera is atypical in that it exploits the same molecule that is already used to diagnose cancer in order to also deliver therapeutic treatment. The radiopharmaceutical drug operates by bombarding cancer cells with high-energy electrons, just like radiotherapy, but the injection targets gastroenteropancreatic neuroendocrine tumors (NETs) that over-express a certain protein.

Lutathera has shown impressive results in clinical tests against the disease that’s associated with very poor survival, and the one that took the life of the Apple co-founder in 2011.

It’s been an uphill, rocky road, however, to approval mostly due to technical problems with the drug’s FDA application and a longer and more drawn-out approval timetable in Europe. As a result, the estimated launch date of Lutathera has slipped towards the end of 2017.

According to Reuters, Buono expects a decision from the European Medicines Agency after the summer, and re-filing with the FDA before the end of the second quarter.

In a Phase 3 trial, Lutathera lowered the risk of disease progression compared to standard care by 80%. The results were published in January in the New England Journal of Medicine.

Lutathera’s trial results compared favorably with existing NETs treatments such as Novartis’s Afinitor and Pfizer’s Sutent.

More than 1,600 patients already have been treated with Lutathera under a compassionate use program, including some in France where the drug has been granted “temporary authorization of use,” allowing AAA to set an initial price of €64,000 ($68,600) for a course of four injections.

To its credit, the company has been able to fund operations from sales of existing diagnostic products that reached €26.7 million ($29 million) in the third quarter of 2016. But finding sufficient capital backing in Europe with a comprehension of the science hasn’t been easy over the years, which led to AAA’s decision to float here on Nasdaq in 2015. The company is valued at $1.6 billion.

Buono explained, “we went to the US and Nasdaq because there is at least 10 times the money in Europe–and in Europe there isn’t the same effort to get into the science that I see in the US.”

Steve’s Take:

AAA strikes me as a compelling long-term pick.

Steve's Take: @adacap_news strikes me as a compelling long-term pick Click To Tweet

The data on Lutathera look strong and any remaining FDA issues appear solvable. A comparison of Lutathera with Novartis and Pfizer’s drugs, in addition to the scope of the market universe, you suggests a substantial upside.

While the regulatory and pipeline development game is always risky, AAA already has 7 products marketed in the European Union and one in the US. Adding to its credibility, the company also manufactures and distributes two PET Alzheimer’s products for Eli Lilly and General Electric.

The company has been building critical mass not just with marketable products but in 2016 alone, it grew to over 500 employees globally in 13 countries and 21 cGMP (current Good Manufacturing Practices) production facilities, according to Seeking Alpha.

This isn’t suggestive of a “spring-training, then let’s sell-and-run” mentality.

Looking at a snapshot of AAA’s stock returns, the company’s current price (as of March 16) is $36.48.

According to Capital Market Laboratories:

  • Its three-month return is 32.33%.
  • Its six-month return is -1.14%.
  • Its 12 month return is 7%.
  • Its 52-week range is $23.50–$39.66.

The company’s market cap is $1.44 billion, so it appears to be on sound financial footing after its 2015 IPO, with ample cash and minimal leverage.

What do the analysts say?

Zacks Investment Research upgraded shares of AAA from a “hold” rating to a “strong-buy” rating in a report released this morning (March 16, 2017). The firm currently has a $44 price target on the stock.

Based on the 7 analysts following AAA, the company presently has a consensus rating of “buy” and a consensus price target of $43.

Bottom Line:

After hiding out in the beautiful French/Swiss countryside for nearly 15 years, AAA is now rubbing shoulders with the likes of Pfizer, Novartis and Eli Lilly. Not bad company, to say the least.

Toiling all these years in relative obscurity, AAA knows it’s not that long before it dons a major league uniform and starts playing in the bigs. Or gets a sweet buyout bid.

Timing wise, AAA has all the earmarks of a savvy portfolio addition now. Of course, it also comes with the usual risk profile for an “unknown” here in the US.

I think we’ll be far better acquainted with its name and ticker (AAAP-Nasdaq) before we usher in 2018. By then, though, it won’t likely be the “bargain” it is now.

Steve Walker has no position in any stocks mentioned. MedContent Inc. has no position in any stocks mentioned. MondayMorning.com has a disclosure policy.