Winners outpace losers in wild week for healthcare stocks; my picks and pans.

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Leading the largest pack of winners in quite a while, XOMA Corp. (Nasdaq:XOMA) soared $5.64, or 48% over the week, to $11.10, after the company revealed an agreement to out-license an investigational product to Swiss pharma giant Novartis AG.

Berkley, CA-based XOMA announced it has licensed the global commercial rights to gevokizumab, a novel anti-interleukin (IL)-1 beta allosteric monoclonal antibody, to Novartis, according to ThePharmaLetter. The MAb has the potential to treat patients with a wide variety of inflammatory and other diseases. However, in 2015, gevokizumab failed a Phase 3 clinical trial for Behcet’s disease uveitis, a debilitating ophthalmic inflammatory condition that often leads to vision-threatening complications including blindness.

In a separate agreement, XOMA has granted Novartis a license to its intellectual property covering the use of IL-1 beta targeting antibodies in the treatment of cardiovascular disease.

Under these agreements, XOMA will receive $31 million in upfront payments, including a $5 million equity investment, and is eligible to receive significant pre- and post-commercialization milestone payments plus tiered high-single to mid-double-digit royalties on net sales of gevokizumab. XOMA is also eligible to receive low-single-digit royalties on canakinumab sales in cardiovascular indications rising to mid-single-digit royalties under certain circumstances.

Novartis has agreed to settle XOMA’s 12 million-euro ($14.2 million) debt to privately-held French drugmaker Laboratoires Servier and extend the maturity date on XOMA’s debt to Novartis from September 2020 to September 2022. XOMA and Servier partnered on the development of the product, previously code-named XOMA 052, under a 2011 deal worth a potential $835 million to the US company.

At the time of the Phase 3 failure of gevokizumab, Novartis paid $37 million into another one of XOMA’s programs, which helped buy time for the then troubled company. In 2014, XOMA halted development of gevokizumab in erosive osteoarthritis of the hand, following discouraging results in a Phase II trial.

Steve’s Take:

Up 263% year-to-date, XOMA is poised to close above its 80-week moving average for the first time since July 2015. The company now ranks among today’s best stocks on the Nasdaq, and a short squeeze could help its shares climb even higher. Short interest represents more than 14% of XOMA’s total available float. At the equity’s average daily trading volume, it would take more than a month to buy back the shorted shares.

XOMA is up +65% over the last three months and up +237% over the last six months. The stock has returned -4% over the last year. The risk now is that the stock is overbought, but as of this moment, the price is moving abruptly higher, through resistance, and the bulls are leading the charge.

What do the analysts think?

As of Aug 18, 2017, the consensus forecast among 5 polled analysts covering XOMA advises investors to Hold their position. This has been the consensus forecast since the sentiment of investment analysts deteriorated on Jul 23, 2015. The previous consensus forecast advised that XOMA would Outperform the market.

Recommendations 1yr ago Latest
Buy 1 0
Outperform 0 1
Hold 6 3
Underperform 0 0
Sell 0 0

Share price forecast

1-year price change: -3.98%

The 2 analysts offering 12-month price targets for XOMA have a median target of $12.00, with a high estimate of $15.00 and a low estimate of $9.00. The median estimate represents an 8.11% increase from the last price of $11.10.

I believe the party’s over on this name. It’s got all the earmarks of being overbought. The 8% upside suggested by analysts is not that compelling; I say pass for now.

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Elsewhere, Adamas Pharmaceuticals Inc. (Nasdaq:ADMS) rocketed $5.64, or 39%, to $19.93. The FDA approved the new Adamas med—ADS-5102–to be marketed under the brand name Gocovri, to reduce dyskinesia (involuntary movements) experienced by some Parkinson’s disease patients on levodopa therapy. Adamas noted Thursday that Gocovri is the first and only FDA-approved medicine for this indication, but the claim comes with an asterisk.

Adamas may be the first company to have won FDA approval for a medication to treat dyskinesia in Parkinson’s patients. But that doesn’t mean it’ll be the first company to use that med to treat it.

The med bears the agency’s orphan-drug designation, and the approval follows two Phase 3 studies that showed Gocovri could beat out placebo in reducing dyskinesia–a condition Adamas says affects nearly 90% of Parkinson’s patients receiving levodopa-based therapy.

FiercePharma notes that while the Emeryville, CA-based company plugged its regulatory win as an “important advancement,” industry-watchers were quick to point out that the med is a long-acting version of generic drug amantadine, marketed by Endo Pharmaceuticals as Symmetrel and used off-label to treat dyskinesia.

Adamas may or may not be able to juke away from that charge with its own list price, which isn’t yet set but should fall between $10,000 and $30,000, the company said in a statement.

The company believes that cost “will reflect the benefit people living with Parkinson’s disease that suffer from dyskinesia will receive by getting 3.6 more hours of controlled function in their daily life,” the company said in a statement. It added that, “this means significantly reduced episodes of unpredictable, uncontrolled movement that is disabling and embarrassing.”

Meanwhile, the drugmaker and its detail throng will be preparing for launch; the sales force will be formally sent out next January, the Adamas statement said. It will consist of 59 reps, who will be able to reach about 85% of the doctors responsible for initiating Parkinson’s treatment, Adamas said.

Steve’s Take:

In addition to Gocovri, more good news for Adamas. The FDA also cleared its KEDRAB for passive, transient post-exposure prophylaxis of rabies infection, when given immediately after contact with a rabid or possibly rabid animal. Kamada (KMDA) holds the license for KEDRAB, and Kedrion Biopharma has exclusive rights to commercialize the product in the US. Rabies is a life-threatening condition that impacts approximately 40,000 people in the US each year, representing an annual market opportunity of approximately $100 million.

Not surprisingly, given the news on Adamas, analysts are raising price targets on the name. Cowen boosts its analyst high price target from $45 to $55. JMP Securities moves from $29 to $33.

Bear in mind that this generic drug is sold by on­line phar­ma­cies, often for the flu or Parkin­son’s, for a lit­tle more than $2 per 100 mg cap­sule. Adamas ran two Phase 3 stud­ies for the drug, demon­strat­ing that it trig­gered a 37% re­duc­tion in Uni­fied Dysk­i­ne­sia Rat­ing Scale (UDysRS) total score vs. 12% for placebo at week 12. The re­sults were con­firmed in the sec­ond study, with Go­covri achiev­ing a 46% re­duc­tion in UDysRS vs. 16% for placebo.

What do the analysts think?

As of Aug 18, 2017, the consensus forecast among 7 polled analysts covering Adamas advises that the company will Outperform the market. This has been the consensus forecast since the sentiment of analysts deteriorated on May 05, 2014. The previous consensus forecast advised investors to Buy Adamas.

Recommendations 1yr ago Latest
Buy 1 1
Outperform 8 6
Hold 0 0
Underperform 0 0
Sell 0 0

Share price forecast

1-year share price change: +49.74%

The 6 analysts offering 12-month price targets for Adamas have a median target of $31.00, with a high estimate of $55.00 and a low estimate of $22.00. The median estimate represents a 55.54% increase from the last price of $19.93.

A good article from Seeking Alpha touts ADS-5102’s potential in multiple sclerosis, which is an even bigger market than Parkinson’s. What we might therefore be seeing is just the beginning of a major run in the stock.

Analysts agree there’s a lot of potential upside with this name. I say it’s a Buy, but with the attending pricing uncertainty of Gocovri, not for the risk-averse portfolio.

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