Stock markets closed Friday prior to collapse of Trumpcare; health sector’s biggest winners & losers as of March 24, 2017

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Republican bickering has led to the biggest rout yet for President Trump’s early administration.

As I expected, the GOP plan to gut the Affordable Care Act collapsed Friday (March 24, 2017) as House leaders pulled the legislation in the face of a mutiny among Republican factions. The decision exposed the civil war within the party, according to The New York Times, and raised big questions about the effect on the Trump administration’s aggressive agenda and next year’s midterm elections.

How did equities wind up the frenetic week? Here are the top winners and losers.

HTG Molecular Diagnostics Inc. (Nasdaq:HTGM) led advancing issues, soaring nearly 400% over the week to $9.65. The Tucson, AZ-based firm said it had been granted CE marking in the European Union for its in vitro diagnostic assay used to measure and analyze gene rearrangements in lung tumor specimens, thereby meeting requirements to be sold in Europe.

The HTG EdgeSeq ALKPlus Assay EU is intended for patients previously diagnosed with non-small cell lung cancer (NSCLC). In Europe, around 391,000 people were diagnosed in a single year, according to the European Society for Medical Oncology, and NSCLC accounts for 85% to 90% of all cases.

HTG had $31.5 million in cash and short-term investments as of Dec. 31, 2016. Plenty of working capital to keep its motor running through an FDA nod to its HTG EdgeSeq PMA submission. I’d wait until after the traditional profit-taking. I’m joining the ranks of analysts who give it an average recommended rating of 1.5 (right between a “strong buy” and a “buy).

Consider it a “buy.”

Steve's Take: Consider @HTGMolecular a buy. Click To Tweet

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Elsewhere, Gemphire Therapeutics Inc. (Nasdaq: GEMP) rocketed $3.25, or 36%, to $12.26. The big upward swing started last Tuesday (March 21, 2017) when the company made a presentation at the American College of Cardiology Meeting of its Phase 2 clinical trial investigating the effect of gemcabene on insulin sensitization. In a nutshell, gemcabene demonstrated a doubling of the glucose disposal rate and 40% LDL-C in non-diabetic obese patients. Great news.

Its next step is to move ahead with its clinical development of gemcabene to include a Phase 2 trial (AZURE-1) in patients with NASH. Nonalcoholic steatohepatitis (NASH) is liver inflammation and damage caused by a buildup of fat in the liver. It is part of a group of conditions called nonalcoholic fatty liver disease. NASH can get worse and cause scarring of the liver, which leads to cirrhosis.

Steve’s Take:

At the moment there’s solid momentum with this company in its clinical efforts to expand the use of gemcabe gemcabine ne to treat NASH. The company’s cash and cash equivalents at December 31, 2016 totaled $24.0 million compared to $3.6 million at December 31, 2015. There was no debt outstanding at December 31, 2016. Cash used in operations in 2016 was $11.0 million compared to $5.4 million in 2015.

Therefore, Gemphire has the wherewithal to continue moving its clinical trials forward based on solid, positive results so far. But it’s early.

Analysts give the company an average 1.5 rating (between a “strong buy” and “buy”) and price target of $19.75. That’s a 61% upside were it to reach that target from Friday’s (March 24, 2017) close.

It’s definitely a speculative play but bright future at this point. For the risk-adverse players I’d hold it until completion of the Phase 2 study with gemcabene then dive in. For the aggressive player, this looks like a “buy” following the typical profit-taking early this week.

Steve's Take: #gemphire definitely a speculative play but bright future at this point. Click To Tweet

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Merger & Acquisition (M&A) chatter sent Flexion Therapeutics Inc. (Nasdaq: FLXN) soaring 35% higher to $27.27, just off a new annual peak of $28.20, on reports the company is close to reaching an agreement with French drugmaker Sanofi SA, which is rumored to be mulling a buyout bid valued at more than $1 billion.

The Burlington, MA-based specialty pharma company is focused on musculoskeletal conditions such as osteoarthritis. The company’s lead product is Zilretta (FX006), which on February 23 enrolled the first patient in a clinical trial to evaluate the safety of repeat administration for osteoarthritis (OA) of the knee.

The company filed with the Food and Drug Administration in December, and if approved, and the acquisition is real, Zilretta would be launched by Genzyme in the fall. Genzyme has marketed Synvisc for OA since 2009.

Zilretta is a sustained-release corticosteroid. Synvisc is a hyaluronon-based injection that supplements the natural fluid in the knee. Analysts have projected, if Zilretta is approved, that it could hit $500 to $600 million in peak sales, and if it is approved for other joint indications, could hit the $1 billion blockbuster mark.

According to FiercePharma, which broke the story, Flexion’s board already voted to accept the non-binding offer, with a price in the mid-$30s.

Steve’s Take:

I can’t see Sanofi failing to close this deal, but such things do happen. Analysts give Flexion an average recommended rating of 1.7, so it’s just north of a solid “buy.” Its price target is $36.14–a potential upside of 33% prior to news of the possible buyout bid. It has $205 million in cash and short-term investments, so no worries about moving forward if something untoward happens with Sanofi.

This looks, smells and acts like a solid “buy.” I wouldn’t wait for the expected profit taking as it’s likely to keep rising to somewhere around $35.

Steve's Take: @Flexioninc looks, smells and acts like a solid 'buy.' Click To Tweet

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Then there’s Cerulean Pharma Inc. (Nasdaq: CERU), down a sickening 78% on the week to $0.72. After multiple trial failures, the Cambridge, MA-based cancer drug developer said it is laying off its employees, selling its lead drugs and merging with San Diego biotech Daré Bioscience. Cerulean announced last recently that it will be absorbed by Daré through a reverse merger, sell its two lead cancer drugs and its technology platform for a total of just $7.5 million, and lay off 11 of its 19 employees.

The remaining eight employees, including CEO Christopher Guiffre, will remain with the company only through the close of the transaction. Essentially, Cerulean will soon go “poof” into thin air, regrettably for shareholders and the terminated staff.

Steve's Take: #Cerulean will soon go 'poof' into thin air. Click To Tweet

Guiffre added that he was focused on completing the deal–which must be approved by Cerulean’s shareholders–and has not yet thought about what he will do in the future.

“I’ve been very, very busy getting three transactions done at once to try to preserve value for my shareholders,” Guiffre said. “It’s been a challenging situation.”

In August, Cerulean’s lead drug, a treatment for patients with liver cancer, failed in a Phase 2 trial, prompting the company to slash its headcount from 55 employees to 23. The deal with Daré–and the additional layoffs–are expected to be completed in the second quarter of 2017.

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And Xenon Phar­ma­ceu­ti­cals Inc. (Nasdaq: XENE) skidded $3.45, or 43%, to $4.65 after reporting an­other set­back. Twenty months after its drug TV-45070 failed a mid-stage os­teoarthri­tis study while in Israel-based Teva’s hands, the Cana­dian biotech re­ports that its lead, wholly owned top­i­cal drug XEN801 bombed in a Phase 2 trial on acne.

Their drug–a top­i­cal stearoyl Co-A de­sat­urase-1, or SCD1 in­hibitor–failed both the pri­mary and sec­ondary end­point in the study, which tracked le­sions over 12 weeks com­pared to a placebo. In­vestors understandably bailed in a rout.

Teva is still pur­su­ing TV-45070 for post-her­petic neu­ral­gia, with a Phase 2b read­out com­ing up. And Roche Holding AG is ex­pected to push its Nav1.7 pain pro­gram into a Phase 2 fairly soon. Xenon also has a pro­pri­etary epilepsy drug XEN901 headed for an investigational new drug application (IND.)

Xenon man­aged to pull off an IPO back in late 2014, as the stock mar­ket boomed for biotech, rais­ing $36 mil­lion at $9 a share –well below the range it had set.

Steve’s Take:

The setback leaves Xenon relying on a preclinical asset targeting rare forms of severe childhood epilepsy and its partnered programs for a near-term restoration of clinical traction.

Xenon expects to file an IND for the in-house asset, XEN901, in the fourth quarter, by when it should have learned how Teva-partnered pain drug TV-45070 has fared in its Phase 2b. TV-45070 failed a Phase 2b trial in osteoarthritis pain in 2015, ramping up the pressure on the upcoming readout in post-herpetic neuralgia.

Xenon expects Genentech, another of its partners, to move one of its pain programs into Phase 2 later this year. The company plans to add ion channel modulators to its pipeline through in-house research and dealmaking.

Xenon had $64.1 million in cash as of the end of last year.

Clinical failures like this one abound but I side with analysts who give this stock an average recommended rating of 1.2–“strong buy”–and  a price target of $16.30. That’s a potential upside of 350%.

For the high-risk/high-reward hungry, this is a “buy,” but definitely not for the feint-hearted.

Steve's Take: For the high risk/reward hungry, @XenonPharma is a 'buy' but not for feint-hearted. Click To Tweet

Happy hunting!

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