Healthcare stocks have rough week as TherapeuticsMD, NantHealth fall flat; but Neurocrine, Tocagen shine

markusspiske / Pixabay

TherapeuticsMD Inc.(NYSE: TXMD) led a large contingent of stocks performing faceplants among the healthcare ranks. The clinical-stage biotech company focused on women’s health, plummeted $2.19, or 28%, to $7.70 in response to the news that it has received a “troublesome” letter from the Food and Drug Administration.

Boca Raton, FL-based TherapeuticsMD informed investors last week that a letter from the FDA related to its pending application of Yuvvexy, or TX-004HR. The drug was submitted in 2016 as a hopeful treatment of vaginal pain during sexual intercourse caused by menopause, according to Motley Fool.

The letter itself was light on details but it did state that the agency has “identified deficiencies” in the company’s application that will prevent it from holding discussing on labeling and post-marketing commitments at this time. Management was quick to point out that this letter does not contain a final go/no-go decision on Yuvvexy.

Steve’s Take:

Calling the FDA’s letter “troublesome” doesn’t quite capture the blow that was delivered to this earnest but now shell-shocked company. Unfortunately, “deficiencies” is all the information investors have to go on at the moment since the letter did not specify which deficiencies were identified or provide an updated timeline.

Predictably, management stated that it intends to work closely with the FDA to resolve these problems as quickly as possible. While the company itself is still not completely clear on the specific deficiencies the FDA mentions in the letter, the market has understandably assumed the worst so shares caved last week then swooned again today (April 17, 2017).

So what’s next?

Although the FDA’s letter does not contain a final go/no-go decision on Yuvvexy, the company was not provided with an updated timeline, so management doesn’t know if the former PDUFA date of May 7, 2017, is still valid or not. With little information to go on, it’s hard to know what investors should do next.

So far, the clinical data on Yuvvexy has looked sound, which is why some market watchers believe that the drug will produce more than $1 billion in peak sales. However, governmental approval and commercial success are never guaranteed, so along with the foggy FDA letter, the risk of a full-fledged flameout is present.

However, Jefferies analyst Matthew Andrews says traders shouldn’t rush to judgment. According to Andrews, the company has indicated that the FDA concerns may not be a big deal. “In our call with the company, TXMD characterized FDA dialog through the ‘004 review cycle as ‘benign’ discussions, possibly suggesting the deficiencies may be minor in nature,” Andrews explained. Andrews said the FDA letter was likely a complete surprise to company management.

Until the company provides an update, Jefferies remains bullish on the stock. The firm has a Buy rating and $18 price target for TherapeuticsMD. Shares closed down Monday (April 17, 2017) another 33% to $5.15.

I’m on Jefferies’ side with this stock. TherapeuticsMD is now down 48% in the past week, due exclusively to the ambiguous FDA language. For the risk-adverse portfolio, waiting for more clarification is warranted. But clarification showing that the application is on track for a green light could happen, and quickly. At $5.15, this stock looks appetizing now.

—–

NantHealth Inc. skidded $1.34, or 26%, to $3.86. For weeks, biotech billionaire Dr. Patrick Soon-Shiong and his diagnostics company have strenuously denied reports that they reaped benefits from a $12 million gift he made to support medical research at the University of Utah.

But emails and documents obtained by STAT make clear that executives at NantHealth and officials at the university viewed the deal through a transactional lens, intended, at least in part, to boost Soon-Shiong’s commercial interests. The deal with Utah–which gave Soon-Shiong’s team access to genetic and health data on hundreds of patients—-“will help us with our product,” Larry Fitzgerald, a NantHealth vice president, wrote in an email.

STAT reported last month that the university sent $10 million of Soon-Shiong’s $12 million gift right back to NantHealth to pay for genetic sequencing of blood, tissue, and tumor samples.

Steve’s Take:

For weeks, biotech billionaire Dr. Patrick Soon-Shiong has been taking to social media to portray himself as a valiant warrior against cancer, unfairly maligned by the press.

He and his diagnostics company, NantHealth, have strenuously denied reports that they reaped benefits from a $12 million gift he made to support medical research at the University of Utah.

Soon-Shiong, a flashy entrepreneur who has vowed to “solve cancer,” denied that the contract had been set up to funnel money to his company or that he had benefited from the arrangement, says STAT.

But those denials are contradicted by more than a dozen documents STAT obtained from critics of the deal, including email chains and internal memos that circulated at the university and at NantHealth as the deal was being planned and executed. They show that the plan to steer business back to Soon-Shiong and give him access to patient data to improve his product was baked into the deal from early on.

Among the findings: A university memorandum from September 2014, days before the donation was made official, stipulates that the genetic analysis to be paid for by Soon-Shiong’s gift would be performed by Soon-Shiong’s team.

Internal emails from NantHealth executives also indicated that they explicitly saw the deal as a means to boost their business.

Though the deal was built around the idea that Soon-Shiong’s lab would do the genetic sequencing, the company was not yet prepared to do that work when the contract was signed.

If there ever was a case of the donor’s hand getting caught in the donee’s cookie jar, this might be it. And Mr. Soon-Shiong’s hand and his company’s stock price have been slapped rather hard. The latter to the tune of a 26% hit last week and another 6% haircut today to $3.64. This is a stock to leave by the roadside until and unless a major PR miracle happens.

—–

But Neurocrine Biosciences Inc. (Nasdaq: NBIX) led a minute cadre of advancing issues, surging $12.51, or 31% over the week, to $53.39. The US Food and Drug Administration approved San Diego, CA-based Neurocrine’s drug to treat tardive dyskinesia, a side effect of antipsychotic medications characterized by uncontrolled movements of the face and body, the company said.

The drug, Ingrezza, is the first treatment to be approved for the irreversible disorder, which occurs in 5% to 8% of patients taking antipsychotic drugs. Ingrezza is the company’s first commercial product. Around 500,000 Americans suffer from tardive dyskinesia, Neurocrine CEO Kevin Gorman said in an interview.

Steve’s Take:

This stock is a puzzler in the sense that despite the regulatory risk for its potentially blockbuster drug Ingrezza having evaporated, shares are still trading just below their 52-week high. Ingrezza could do over $1.3 billion in sales, which compares favorably to the company’s current market capitalization and not taking into account other assets in the pipeline, says Seeking Alpha.

The brokerage expects possible dilution in the near to medium term, providing the company a cash runway into 2019 and a stronger bargaining position in case of buyout. Additional potential value drivers include results from a study in children with Tourette’s, elagolix’s NDA in the 3rd quarter, and top-line efficacy data from a uterine fibroid program in late 2017.

With limited options available for the treatment of TD, the approval of Ingrezza is great news for Neurocrine. Moving ahead, Ingrezza will be available through a select pharmacy network and promotion to healthcare professionals will begin on May 1, 2017.

This smells like a stock possibly fully valued at the moment, with potential competition from Teva Pharma down the road. It might be one to watch though as it gears up its marketing program for potential prescribers.

—–

Finally, Tocagen Inc. (Nasdaq: TOCA) shot up 25% after raising $85 million in its stock market debut Friday (April 14, 2017), and underwriters saw enough demand to increase the number of shares in the IPO. The San Diego-based company, which has been developing a gene-therapy treatment for a deadly type of brain cancer, offered 8.5 million shares at $10. It had planned to offer 7.25 million shares at a range of $10 to $12.

Leerink Partners, Evercore ISI and Stifel acted as lead managers on the deal. Tocagen is focusing on high-grade glioma, the most common form of brain cancer and one that tends to recur in patients even after treatment with chemotherapy drugs. An estimated 160,000 new diagnoses of high-grade glioma are expected this year, Tocagen says in its filings. Approximately 14,000 of those cases will be in the United States.

Steve’s Take:

Tocagen revealed its IPO plans last month, saying it wanted to use the stock offering to finance clinical trials of its treatment for recurrent high-grade glioma. The company is trying to treat the cancer with gene therapy, an experimental approach that aims to use transplanted genes in order to treat disease. So far, the FDA has not approved any gene-therapy treatments.

So far, Tocagen has treated 126 brain cancer patients in three Phase 1 clinical trials. The company had also started the Phase 2 portion of a planned Phase 2/3 trial. According to Tocagen’s prospectus, enrollment of that 187 patient Phase 2 trial was completed in February. Tocagen says in the filing that it plans to use $25 million of the IPO proceeds to finance the rest of the Phase 2 trial through a review of top line results.

This is a hot stock with enormous upside. If the clinical approach to delivering the gene-therapy agents works in these early trials—-and that’s still a big if-—the share price could easily surpass $30 in the near term, with $50 not unthinkable and perhaps an outright buy-out. Shares shot up 25% Friday after the IPO float then gained another 4% to $13 at close Monday (April 17, 2017).

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