Week’s opening stock roundup: Impax, Omeros shine; Foamix down, but not out

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1) Impax Laboratories Inc. (Nasdaq:IPXL) led advancing issues, rocketing $3.40, or 37% over the week, to $12.65. The upward move came after the company reported it has hired Allergan PLC’s former executive chairman Paul Bisaro as its new president and CEO.

The long-time generics chief will step in immediately for interim chief exec J. Kevin Buchi, who took over in December after Fred Wilkinson departed. After working at Barr Labs in various capacities, Bisaro served as president and CEO of Actavis, and executive chairman of Allergan.

Bisaro is taking on a company that’s standing at a crossroads, with shares trading at levels not seen since 2010, generic competition rising and pricing headed lower. Some analysts even think M&A is exactly what Hayward, CA-based Impax may need right now.

Last month, Reuters reported that the company had hired Morgan Stanley to help it conduct a strategic review and weigh options for buying a rival or selling itself.

Steve’s Take:

Bisaro has a long and sterling record in the executive suites of the generic-drug industry. He served in various roles at Barr Labs between 1999 and 2007, finishing his tenure there as president and COO. After Barr Labs, Bisaro served as president and CEO of Actavis, and executive chairman of Allergan.

For certain, adding someone with Bisaro’s experience is a coup for Impax, which has struggled following a drop-off in sales tied to increased competition and weaker pricing on top-selling medicines, including diclofenac sodium gel 3%, metaxaline, fenofibrite, and mixed amphetamine salts ER.

The company’s performance has also been stymied by some $500 million in impairment charges the past two quarters attributable to the acquisition of certain generics from Israel’s Teva Pharma that flopped.

Bisaro has a lot of work to do, as Todd Campbell for Motley Fool correctly points out. Despite cutting its full-year sales and EPS guidance significantly coming out of the third quarter, the company still failed to hit its $840 million or better sales target. Overall, revenue fell 4.2% to $824.4 million.

The good news, however, is that the company still turned a profit in 2016, earning an adjusted $1.16 per share in 2016, and it has a pipeline of generic drugs making their way to market that could help shore up sales.

Impax is a classic turnaround story with high-risk/high-reward profile. Getting in now before Bisaro demonstrates how he plans to right the ship has obvious risks. Alternatives abound but success breeds success. Shares were trading down about 5% at $12.10 Monday (April 3, 2107) morning.

2) Elsewhere, Omeros Corporation (Nasdaq:OMER) raced $3.56, or 31%, to $15.12 after announcing additional positive data from the company’s Phase 2 clinical trial of OMS721 (‘721 for short) for the treatment of serious kidney disorders, which frequently lead to end-stage renal disease and dialysis.

OMS721 is Omeros’s lead human monoclonal antibody targeting mannan-binding lectin-associated serine protease-2 (MASP-2), the effector enzyme of the complement system’s lectin pathway. The clinical trial data include results from additional study patients treated with OMS721 as well as longer-term follow-up on earlier enrolled patients.

The new data corroborate and expand on trial results reported in the fourth quarter of 2016. Based on the uniformly positive data in the fully enrolled cohort of ‘721-treated patients with immunoglobulin A nephropathy (IgAN), West Seattle-based Omeros recently met with the FDA to discuss the Phase 3 development program.

Steve’s Take:

If hunting for a stock with major upside potential this biotech deserves a look. Like many of its small-cap peers, Omeros has new drug candidates with blockbuster potential. What makes this diamond in the rough stand out from the crowd, though, is a growing revenue stream to fund its development.

Omeros launched Omidria a few years ago into a highly specialized ophthalmic niche where it’s steadily been gaining popularity. Last year, Omidria sales surged 212% over the previous year to $41.6 million, and it has plenty of room to run, Corey Renauer points out at Motley Fool.

The pupil-dilating drug assists eye surgeons performing cataract removals and lens replacements. Around 4 million of these procedures are performed in the US each year, which strongly suggests Omidria has only scratched the surface of its peak sales potential.

While its commercial-stage drug is exciting on its own, the revenue it generates will fund development of a very interesting pipeline. The candidate furthest along is ‘721 for the treatment of several rare diseases, including atypical hemolytic uremic syndrome. Currently, the only available treatment for this life-threatening condition is Soliris, a drug that generated $2.8 billion in sales for Alexion Pharmaceuticals last year.

At recent prices, Omeros is a biotech bargain with a market cap of just $618 million. Omidria’s potential alone justifies this price, which is a bit like getting its clinical-stage assets gratis. Shares are trading up about 4% at $15.72 Monday (April 3, 2017) morning.

3) But Foamix Pharmaceuticals Ltd. (Nasdaq: FOMX) plunged $4.15, or 46%, to $4.95 after announcing the topline results of its two Phase 3 clinical trials investigating FMX101 (‘101 for short), Trial 04 and Trial 05, in patients with moderate-to-severe acne.

In the intent-to-treat analysis, ‘101 demonstrated statistical significance compared to vehicle on both co-primary endpoints in Trial 05, but did not demonstrate statistical significance on one of the two co-primary endpoints in Trial 04, specifically, Investigator’s Global Assessment (IGA) success.

Rehovot, Israel-based Foamix is a specialty pharmaceutical company focused on the development and commercialization of proprietary, innovative and differentiated topical drugs for dermatological therapy. Its clinical stage product candidates include ‘101, a novel minocycline foam for the treatment of moderate-to-severe acne, FMX103 for the treatment of rosacea, and FMX102 for the treatment of impetigo.

Steve’s Take:

Foamix reported mixed Phase 3 results of FMX-101 (‘101 for short) in moderate-to-severe acne last week. The candidate hit the first co-primary endpoint (reduction in inflammatory lesions) in both Phase 3 trials but missed on the second co-primary endpoint (proportion of patients with IGA success) in one of the two trials–the IGA score trended in the right direction but did not reach statistical significance. The company did not provide much in terms of additional details or a path forward for ‘101.

‘101’s Phase 3 results are a setback for Foamix but certainly not a “thesis killer,” says O’Neil Trader for Seeking Alpha. They’re reducing their target on Foamix from $16 to $12 per share, which translates into solid upside from the current price. Even if they eliminate ‘101 from their valuation, the price target would be $9. They think $4-$5 per share is a good place for new money and that’s where it sits today.

O’Neil notes that patience will be needed as there are no immediate catalysts for the stock. FMX103’s Phase 3 start in rosacea is scheduled for mid-2017 with a data readout sometime in 2018 and the only near-term catalyst is clarity on ‘101’s regulatory pathway (Foamix could file an NDA with data on hand without the need to conduct a new Phase 3 trial) or something coming out of the collaborative pipeline since no timelines for these candidates are disclosed.

All said and done, the stock reads cheap for the high-risk/high-reward portfolio. Shares were trading down 4 cents at $4.91 Monday (April 3, 2017) morning.

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